Thursday, August 13, 2009

Here is the entirety of the Federal Reserve Statement for August 12, 2009:

Release Date: August 12, 2009

For immediate release

Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

The idea that the Fed is going to stop QE (quantitative easing) is a marketing ploy.  How much they monetize will be a result of Tax Revenues ("TR").  If TR continues to suck wind, QE or monetizing (whatever you want to call it) will continue.  If long rates spike, QE will continue.  This is not what I want, hope, or wish for, just what I think most likely. It is ALL ABOUT TR.

I also was surprised that the Fed's comments abandoned the Treasury market.  I really thought the Fed would have abandoned the Stock Market after its recent rise to come to the rescue of the Bond Market.  Didn't happen.  Perhaps they see something we don't, or perhaps this is part of some larger strategy.  I think they are playing with fire, because it is the money from the proceeds of bond sales that has backstopped EVERYTHING else.

Here is a slide presentation from A. Gary Shilling that I think is somewhat more detailed in its disclosure.  This is VERY much worth your time.
Everything that the Federal Reserve and the U.S. Treasury have done has simply brought DEMAND FORWARD.  "Cash for Clunkers"?  That program helps 2009 auto sales at the expense of 2010 auto sales.  Same with TARP, SCHWARP, and FART...
97% of the currency market is negative on the US$.  That's what bottom's look like.  The U.S. equity market will sell off (if and) when a US$ rally materializes (IMHO).  This is a not very popular position - especially in the face of such a powerful rally.  Please keep in mind that this rally has had NO volume behind it, and Oil and Interest Rates have risen substantially.  It will be tough to maintain any momentum in the economy if Gasoline prices remain elevated (or heating this winter) or if Mortgage Rates do not come down.
The time to have been a Bull was Dow 6500.


bureaucrat said...

And you may want to mention "Cash for Cluckers" is starting to die out already. The big surge in car buying must have been people rushing to the dealerships to buy a car before the program stopped for lack of $ (they now have more money). The dealers are starting to see much less foot traffic.

dyana said...

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