Headlines

Hillary Clinton mocks Trump’s science cred[ability]

Coronavirus live updates: Italy deaths jump by 743 in  a day, global cases top 400,000

Entire India lockdown ...

24 million Chinese cellphone users disappear in three months of epidemic

Andrew Cuomo to Trump administration: ‘You pick the 26k people who are going to die’

House panel says remote voting during coronavirus outbreak creates challenges

Flood of unemployment claims sparks delayed checks ...

Poll: Majority of Americans approve of Trump’s handling of coronovirus

Health care workers might get coronavirus shots this fall, vaccine company CEO says

Trump wants to ‘reopen’ economy by Easter, despite the deadly threat of coronavirus

Virus lingers on surface for 17 days ...

Fed promises unlimited QE, corporate, and muni bond buying

Headlines

These headlines are real ... they have all been discovered on Internet news sites. Guess which ones came from Politico?

Hawaii judge declines to narrow travel ban injunction

OpEd: Feds stealthy QE -- $267 billion of fresh liquidity injected since mid-January

[NKotea] 'If a single bullet is fired, we will nuke the USA'

NSA document: Surveillance on Trump, family ... more ...

Key Democrat officials now warning base not to expect evidence of Trump/Russia collusion

Gallup: Trump approval now 37% ...

Poll: Half of Canadians want illegals deported ...

Immigration judges dispatched to 12 U.S. cities to speed deportations

50 arrested on immigration charges during Detroit cockfighting bust ...

Gorsuch recommended to Justice Dept. that federal judges visit Gitmo

Musk preps first private moon landing ...

Three U.S. soldiers wounded in Afghan 'insider attack'

Currency Wars

The world is a boil with currency devaluations, interest rate cuts and quantitative easings (QEs) by numerous central banks. Because of the recent slump in oil prices, the Canadian central bank has just cut its lending rate … with another commodity exporter, Australia, expected to follow suit shortly … see: CNBC Story. And today Mario Draghi of the European Central Bank is expected to announce the start of another QE program totaling perhaps 500 billion euros … see: Another CNBC Story.

I have in the past commented on what has degenerated into a major pissing contest between the central banks of the more developed nations and what the consequences that might result are … see: Race to the Bottom. It seems to this observer that the world has been lulled into an expectation, led by the now retired Chairman of the U.S. Federal Reserve Bank, Ben Bernanke, that central banks are the panacea for all the world’s economic woes.

Clearly monetary policy, in the long run, cannot solve basic economic malaise … yet the world’s stock markets now seem addicted to the opiate of easy money and very low, even negative, interest rates. This cannot all end well … at some point, possibly sooner than we wish, as Obama’s reverend, Jeremiah Wright, would say, “the chickens will come home to roost.”

What is now an illogical deflationary monetary and commodity spiral, I somehow expect, will flip into run-away inflationary in a nanosecond. Money is, after all, just gussied-up pieces of paper representing a political promise. Be prepared for these promises to be broken …

Yeasty

There is an old Wall Street adage for investors, “Don’t fight the Fed,” meaning the Federal Reserve bank has a lot to do with the direction of the stock market. If the Fed is reducing interest rates and expanding the money supply, then the stock market should go up … and vice versa. Over the last eight months we have seen a perfect example of this working in Japan where its national bank has been engaged in this very process, it’s own version of “quantitative easing” (QE) … see: The Economist Explanation.  It is basically printing yen to a fair-thee-well while holding interest rates at zero (see: Trading Economics.) The result … the Nikkei 225, the primary stock index in Japan has been quite yeasty … going from 14,000 to 17,900 in just the past eight months, a 29% gain (almost 42% on an annualized basis) … see the chart below:

Nikkei 225

And this has occurred during a period of effectively an economic recession in Japan. Also note that the yen has weakened considerably against the U.S. dollar … going from 102 per dollar to now almost 120 per dollar. This obviously helps the Japanese exporters but does nothing for American investors in Japanese stocks as it has cut into their gains in yen after converting these yen back into dollars.

Now comes the rub. The American stock market has been on a roll ever since the U.S. Federal Reserve Bank started its own QE back in 2009 (see: NY Times Article.) This impetus has also helped the U.S. stock market considerably … boosting the American stock market’s Dow Jones Average from below 7000 to 17900 during this same six year period … also quite frothy ... see the chart below:

Dow Jones Average

The issue then becomes, will the U.S. stock market continue on its extended roll even after the Fed stopped the money supply expansion part of its QE program two months ago? The next shoe to drop will be when it increases interest rates ... maybe next summer.

Personally, I’m not one to fight the Fed …

How Many Angels …

can dance on Ben Bernanke’s head?  I just finished watching the Bernanke news conference after the Federal Open-Market Committee (FOMC) meeting yesterday and today … and a vigorous round-robin discussion on CNBC with about eight monetary policy experts.  All the while the stock market sold off over 100 points (at closing, it is now down over 200 points) and the yield on the ten-year note bounced around and then climbed to as much as 2.4%.  This was because Fed Chairman, Bernanke said that, if economic conditions continue to improve in the direction of internal Federal Reserve Bank forecasts, its quantitative easing (QE, or $85 billion monthly purchases of U.S. securities and mortgages) would begin to be scaled back later this year … with the possibility that they would end entirely by mid-2014.

What does this all mean?  Only Big Ben really knows … markets move not just on the absolute direction of interest rates … but on the first, second, and even third derivatives of same.  This is reminiscent of the middle-ages theological discussions about how many dancing angels could fit on the head of a pin … or the Talmudic discussions among Hebrew scholars about the implications of a single scripture word.

One thing investors might be able discern from this calculus … and that is, if Bernanke’s sage words do come true, the Fed will soon be "removing the punch bowl" and our economy should slow down … even from current anemic levels.  This means that the Democrats might have a more difficult time recapturing the House of Representatives in 2014 and maybe even holding onto the Senate … but then, because of the resulting economic bounce, they possibly would have an easier time retaining the presidency in 2016. 

And they say that the Federal Reserve Bank is not political …