Saturday, August 27, 2011

Is Bernanke Hinting QE3? Jacksonhole Speech

The US Federal Reserve Bank Chairman didn't come out and say there will be a QE3 but he didn't say there wouldn't be. There really wasn't much that the speech disclosed that could be deciphered as different so lets dissect the situation since there aren't many clues:

Bernanke said:

"The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus," "We discussed the relative merits and costs of such tools at our August meeting...The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate to promote a stronger economic recovery in a context of price stability."

*In the previous FOMC speech it was disclosed in a bold statement that benchmark rates will not be raised for at least 2 more years. If they are being truthful this would leave one to believe that further monetary easing would be needed to stimulate the economy. The critical question is when. So let's further dissect the facts of the matter of the current economic picture.

*It is being more accepted by the world and the US that the US recovery or should I say the "economic conditions" are not inducive of a sustainable recovery and the term double-dip recession has become a common term. The likely hood of a deeper recession (even fears of a 29' like depression) seems to have set in to some extent. The question is raised that if QE actually helped the situation in the first place or could it have actually made it worse. If it is perceived to have made it worse by deciding parties QE could be abandoned but if it is felt that QE made a dent there will be more probability of more QE. Bernanke holds the reins in the argument but he is not the only deciding factor. He also will not want to go down in history as breaking the US economy with too much stimulus. Opposing parties:

*Inflationary outlook. If inflation stays tame but the economy continues to struggle there is more likelihood there will be more stimulus so in that aspect it is not a question of if but a question of when. Timing the next stimulus will likely be based on the inflationary picture. While gold is skyrocketing and the dollar is very weak I don't think there will be any stimulus as that would cause alot of frowns not to mention make the FED look like a fool. The last thing they want to see is gold making record highs and at the same time announcing more financial stimulus. The heat is further amplified by a recent credit downgrade on the worlds largest economy. It isn't just the debt ceiling that is being questioned but the financial stability of the country. With all eyes on the policy makers there is less likelihood that they will jump into QE3. Surely they want inject more stimulus to jumpstart the economy but while under a microscope it is less likely. Not impossible but less likely if they wish to keep their credibility.

*US equities. Despite what many think, when stocks dive there's more likelyhood of intervention. As long as Stocks are not completely crashing they may stay on the sidelines - conversely if equities where to go through the roof they would likely raise the rates but that is likely out of the picture unless they make some record highs. Jobs, recovery talk, inflation, GDP - forget all that stuff... When stocks are strong all is good because the giant corporations call all the shots. I suspect as long as this last low (circa 10,400) in the DJI holds they will hold off on QE3. It's a guess not a guarantee so don't mark my words but it quite often is the case in the theme of the money world.

*election factor: There is less probability for financial stimulus with an upcoming election combined with the above factors (unless equities tank again) so the next round of stimulus could be passed to the next presidents watch. If Obama wins it will still be the same situation. It's more likely that he would want QE3 on his 2nd term rather than his 1st because he will be under great scrutiny and hence more likely a 1-term president in that case. If a less "pro-Fed" president gets in there in 2012 there will be less likelyhood of stimulus (unless equities tank of couse they will prop the markets somehow because that's who puts them in power). Bernanke's term as Chairman doesn't end until January 31, 2014 so a loose dollar policy is almost guaranteed until then.

*war factor: The war factor is definitely harming the economy. If there is peace in the middle east this would not only improve relations but the economy would stand a greater chance to recover and reduce the growing worldwide skepticism of the US being a war monger. The government could then concentrate it's efforts on the economy rather than middle east wars that never seem to end.

The current situation is escalated with Libya, uncertain with Afghanistan, and an ongoing project with Iraq. There is also potential conflict with Iran so even if one problem fades another problem seems to pop up. So the war factor definitely puts a damper on economic recovery hopes especially since the region has the largest reserves of oil in the world that harm the consumer.

If war escalates there will be more emphasis on wining the war rather than having an economic recovery and a potential for very high oil prices despite the fact the economy is slow.

Israel is another wild card - they sometimes tend to provoke war and the US tends to be the big bodyguard in the background that says little but solves the situation regardless of who was at fault - this is because the US closest allies are always going to be given the benefit of the doubt. The political situation is not only critical of our enemies willingness to make peace in the middle east but is critical by US "allies" (ie Israel) whom seems content with more war on the plate and political friction.

The next president in office will also effect the outcome of the situation. To say the situation is a mess is a massive understatement. The mainstream news likes to make it seem as the US has a handle on it but in reality something big could breakout at anytime and there doesn't look to be any hope of peace with all the friction coming out of the region by both enemies and "allies".

People are catching on to this situation and the next president could very well be less pro-Israel. This might not necessarily be a good situation either as Israel has nukes but maybe Israel would be less willing to engage in war or cause friction if it's big bodyguard (The US military) took a vacation here and there or revoked it's close friendship. Problem is if Israel is attacked it would likely not have a problem using nukes on their hated enemies. This situation has to be solved by Israel's own willingness to engage in peace as much as it does the oppositions willingness to engage in conflict with Israel. Without mutual parties there will be more war, more US military engagement, and less recovery.

(picture depicts Israel surrounded by countries that they have disagreements with)
The "war on terror" by it's very statement has no central enemy. So with a policy that looks for terror the US military will surely find it in many corners of the world - it's not so hard to find a terrorist when it comes down to it and there will always be terrorist in 3rd world countries. But should the US government be engaging in a war on terror when the US economy seems to be a greater factor to the nations strength. I personally think there should be a balance of military might/influence and economic endeavors for the US to have a strong future.

The war on terror could also be seen as a crusade against the middle east (in particularly against the Islam religion and also Muslims although they avoid saying it) by Christian Right fundamentalist that seem intent on attacking opposite religious beliefs. In my opinion the war on terror was declared illegally or more accurately a misuse of executive powers by Bush who is a Christian Fundamentalist.

In Bush's speech of the war on terror he spoke of a very long war against a religion and to me that is a crusade over beliefs not redemption of an attack because you can't say a religion is attacking you per say because it is individuals that did the attack or a country but when they say religions that's an entirely different matter that puts us back in the dark ages or like a cop that profiles black people. He spoke of his Christian beliefs in the speech depicting Christians as good and Islams as bad. So clearly this is a vendetta against the dominant religion of the middle east and not to actually get criminals that did 911 attack but a personal vendetta by the Christian Right which has strong factions in the US government and ties with Israel Zionist that hate many other middle easterners.

I have no problem seeking redemption if it is accurate but clearly the retaliation of 911 was grossly sporadic and unjustified. It took a new president to actually go after those that were supposedly responsible for 911. Bush also used 911 to open up an old wound from desert storm to "finish the job" that his dad started. So understand I support the US, it's freedoms, and defending our society and borders but I don't support religious fundamentalist that are looking for crusades over belief. These vendettas are what is breaking the US economy.


Sunday, August 7, 2011

Gold rockets towards 1700 after US loses AAA rating

Will Gold go to 2000 before the end of 2011? Gold prices are stronger after the S&P downgrade and seem to be supporting higher prices. There is no sign of raising the rates any time soon with Bernanke in charge of the FOMC.

Gold blasted through resistance after the downgrade. The market was closed when S&P downgraded but opened much higher in reaction to the downgrade and market fear.

Market analyst like Peter Schiff, Marc Faber, and Jim Rogers would likely lean towards gold going above 2000 before the end of the year if I read their impression right on the US dollar and fate of the US economy.

Saturday, August 6, 2011

Stock Market trend before the downgrade - S&P downgrades US

Late on Friday the S&P ratings agency downgraded the US from AAA for the first time in history after the debt ceiling rise by the Obama administration. The US narrowly averted a currency default as the tea party put up opposition to the rising of the debt limit. Currently the debt to gdp is 95% and the national debt may go over 100% of all the goods and services produced in the country combined.

Obama had pointed to how many times Reagan raised the limit and of course Bush as he has so often done. When Reagan was in office the debt-to-gdp that Reagan left behind was 53.1%.. At nearly 100% debt-to-gdp (currently it is 95% and counting) the country doesn't produce enough to keep up with it's debt and in my book that is bankruptcy.

Obama was handed a debt-to-gdp of 84.2% by Bush but rather than try to cut that figure Obama has pointed alot of fingers and hasn't handled the debt situation well. Soon the debt-to-gdp ratio will likely go above 100% with the largest debt ceiling rise in history.

Neglected from the argument was any possibility to raise the rates and the US appears to be in a deflation trap much similar to the one that happened in Japan. It was known as the "Japanese asset price bubble" which lasted from from 1986 to 1991 but Japan still has next to zero rates in the aftermath. Japan stabilized after the crash but never really recovered. If our future is similar to Japan but Japan has a head start one can only think what the possibilities of our long term rates in the US and the fate of the US dollar.

After the asset bubble in Japan housing prices steadily eroded in Japan while rates were slashed and the yen became the carry trade currency. But that was until the US market crash. While housing prices crashed in Japan they were going up in the US, UK, and Australia to set up an asset bubble lead by the US. US Housing crash of 2006 to present (although some say housing prices have bottomed). After the US housing crash Bernanke started slashing rates. When artificially low rates didn't work then came bailouts and QE.

One can only wonder how the US will handle so much debt when the trade balance in no way favors the United States.

Monday, August 1, 2011

Obama Administration failing badly on the Economic Front

Or is it their plan?

With the debt-to-GDP ratio at 95%(the highest it's been since WWII era) under Obama administration. Ronald Reagan debt-to-GDP was 32.5% at one point but increased it to 53.1% in his second term but still manageable. The debt-to-GDP is a very important statistic to a stable government and a stable economy. With the debt-to-GDP ratio at 95% the debt ceiling has to be raised by 1 trillion a year to keep from a currency default. Meaning the 1 trillion debt ceiling raise will have to be raised again another 1 trillion within 1 yr to meet the debt obligations. Obama hasn't done anything net productive for the economy and has increased the debt - that is why the debt ceiling has to be raised faster.

Obama acts as if he's done something important by raising the debt ceiling and by his looks he thinks he really accomplished something. While in office Obama has not done anything net productive for the economy while doing everything counter productive to it so we are in a tsunami of debt now vs a sea of debt. The loss of jobs is higher, the debt is higher, the US is an uncompetitive welfare collecting nation, there have been many bailouts of corporations and banks, and there is more war. So rather than trying to cut the countries debt (it's not all his doing) but he has done everything imaginable (but still stay in office) to increase the countries debt.

My prediction is there will be a huge market crash but when that happens I don't know. It will likely be a pump and dump or it could just suddenly happen. After the market crash we will get more QE or a new currency (we may be on QE4 or 5 when this happens but I think we are in pretty bad shape now so it could happen at any time especially if China pulls the plug). If this were a chess match China has the Queen totally surrounded but just keeps moving forward pawns and Obama keeps throwing away key pieces like Bishops and Rooks while China has all it's pieces on the board. Since China is not going to forfeit the uneventful will ultimately happen. Perhaps they will try to juice it more with QE and then when it all fails the new currency will be introduced. Note that QE may be called something else but it will be the equivalent of.

Oh the democracy!

Obama did accomplish one thing and that was have an economy so bad that even many of the illegals have left back to Mexico where the unemployment rate is not as high and the cost of living is lower. Mexico unemployment rate 5.4 percent, US unemployment rate 9.2%. In California (where many illegals seeked opportunity) the unemployment rate is 2nd highest in the nation at 11.8%. Over 40 million Americans (over 14% of the population) are on food stamps to add to the debt to GDP imbalance.

If the US sees temporary relief look for more flare ups in Europe over their debt crisis but the US won't be off the hook. Surely more war fits into the predictable theme. Currently there is an uprising in Israel and the whole middle east looks unstable. Wasn't Rome heavily engaged and had a currency crisis before the collapse? Hmmm. Makes you wonder.