The FED does not know what’s it is doing.

By , September 25, 2009 5:52 pm
Friday, September 25, 2009


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Preemptive Tightening from THIS Fed?
You Can’t Be Serious.

by Mike Larson Dear Subscriber,

Mike Larson

This week’s Federal Reserve meeting was supposed to be a big deal. Ahead of the two-day gathering, I don’t know how many stories I read suggesting that the Fed might start laying the groundwork for “preemptive” tightening in one form or another. They wouldn’t raise rates. But they would start pulling back on their extreme easy money policies, the argument went.My response: “Are you kidding me?!”THIS Fed?The one with “Helicopter” Ben Bernanke at the helm?No way!

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I thought a much more likely scenario would be: They’ll keep the monetary spigot wide open … they’ll move extremely gradually … and they’ll likely screw things up again, helping encourage new bubbles in other parts of the asset markets.

Bernanke's message on Wednesday: Party on!
Bernanke’s message on Wednesday: Party on!

Sure enough, that’s exactly what happened! The news released on Wednesday:

  • The Fed kept its interest rate target unchanged at 0 percent to 0.25 percent.
  • The Fed said the economy was getting better, but that it didn’t care. It would still maintain “exceptionally low levels of the federal funds rate for an extended period.”
  • And the Fed said it will stick to its plan to buy $1.45 trillion in mortgage backed securities and “agency” debt sold by the likes of Fannie Mae and Freddie Mac. It even extended the program from year-end through the first quarter of 2010.

In other words, the message to the markets from the Fed is clear: Party on!The Fed Consistently Errs On the Side Of
Easy Money — Over and Over and Over
Why am I being so blunt? Why am I so sure we’re going to see the same movie … again? Because of recent history.Starting with Alan Greenspan two decades ago — and continuing under Ben Bernanke — the Fed has become a gigantic enabler of financial risk-taking. The prescription for every downturn in the economy or financial market shock has been the same: Throw money at the problem!Long-Term Capital Management blows up? Cut rates! Y2K bug threatens banks? Flood the system with cheap money! Dot-com bust? Housing bust? Recession? Drive rates into the gutter!The risk of this strategy is abundantly clear … it keeps fueling new bubbles in the wake of the old ones. Even the Organization for Economic Cooperation and Development weighed in on this topic a few days ago, warning that a key risk right now is “the reigniting of rolling asset bubbles through easy monetary policy.”But the Fed shows no sign of changing course. Worse, the Fed has consistently maintained this asinine asymmetric policy toward asset bubbles.

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What do I mean by that? Policymakers openly admitted to a policy of IGNORING bubbles as they inflated. They justified doing so by saying that:

  1. It was too hard to identify bubbles, and
  2. Even if they could identify them, they’d have to raise rates so much to tamp them down that the economy would suffer.

Instead, the Fed claimed the better approach was to wait until the bubbles popped, then try to clean up the mess with cheap money.No I’m not joking. This is what went for serious economic thinking at the Fed.You and I can easily see how that policy has laid waste to the economy and investors twice over — once in tech stocks and then in real estate. But the Fed still doesn’t appear to be making a wholesale shift in its policy toward asset bubbles.The Fed-Fueled Consequences —
And How to Protect Yourself from Them
That brings me to the present …

The Fed fueled the housing bubble by continually chopping interest rates to the bone.
The Fed fueled the housing bubble by continually chopping interest rates to the bone.

Why would anyone seriously think the Fed will preemptively hike rates? Or take steps to pull back its extraordinary financial support BEFORE it creates another bubble? In recent years, the Fed has NEVER proven itself willing to do so.Why do you think we had the biggest housing bubble of all time? Because the Fed kept money too cheap for too long (among other reasons). Then when they did start hiking rates, they did so in predictable, quarter-point steps spread out over a span of more than a year.Why do you think the dollar is falling out of bed right now? Because other central banks in places like Norway and Australia are sending out signals that they might raise rates soon, while our Fed is making no such shift in its policy stance.Why do you think gold has exploded above $1,000 an ounce? Crude oil has more than doubled from its lows? Sugar prices are up 88 percent? Copper is up 105 percent? Lead has soared 125 percent? Some of it is fundamentally driven — tighter supply, stronger demand. But a significant chunk of those moves is pure monetary policy-driven asset inflation.

Now is the time to protect your wealth by investing in contra-dollar assets, like gold.
Now is the time to protect your wealth by investing in contra-dollar assets, like gold.

And you know what? Bernanke doesn’t care! He doesn’t care if that means we pay more at the grocery store or the gas pump. He doesn’t care if it costs more to travel overseas, or if the purchasing power of our currency collapses. He doesn’t give a hoot about the fact that his monetary policy is enabling the biggest debt binge Treasury has ever embarked on.But I hope you care. And I hope you’re taking steps to protect yourself — by investing in contra-dollar assets (including gold) and avoiding long-term bonds. The Fed sure as heck isn’t watching out for your interests, which means that you need to!Until next time,Mike 

 About Money and MarketsFor more information and archived issues, visit http://www.moneyandmarkets.comMoney and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.View our Privacy Policy.Would you like to unsubscribe from our mailing list?To make sure you don’t miss our urgent updates, add Weiss Research to your address book. Just follow these simple steps.

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Now and then//1929, 2009//the coming Depression. Part V

By , September 23, 2009 8:08 pm

Now and then//1929, 2009//the coming Depression. Part VThe greatest wealth building generator in America is “Real Estate” ownership, at the personal level and at the corporate level (industrial and retail space). “Foreclosure rates rose in 47 states in March; in Texas, Florida and Colorado the rate was almost double the national average. A mere 17% of California families can afford or could purchase the same house they live in. Foreclosures in middle-class neighborhoods are on the rise. Should the housing bubble deflate, as many economists and federal officials expect, the foreclosures could lead to a national crises”. The above was written as quotes from and the Washington Post and available on the internet on September 2005. Since 2007, plunging home values and stock prices have wiped out a record $13.9 Trillion of household wealth. If all of this information is available to me and I have been able to acquire these facts from four years back; where in the hell is our Congress, where in the hell is our President, the Secretary of the Treasury and why do we need a FED Chairman. I wrote back in April, May and also in June that things would start looking good and that economists and Federal officials would be talking about a possible end to the bottom; I also stated at that time “be not deceived” that the Real Estate bust would not bottom until major defaults in the commercial real estate sector. Here it is: on 9 September Bloomberg reported that the default rate of office buildings, shopping malls and other commercial properties more than doubled in the second quarter of this year. While Congress, the Administration, the FED and most of our economists deal with fancy explanations, charts, rosy outlooks and projected future growth which is never supported by substance, I deal with reality, the reality of historical data, the real “what got us there” and an uncanny gut feeling for seeing things as they really are. You see, when foreclosures in commercial real estate occur, it’s more than one bad mortgage gone bad; it is the jobs of all the people employed by these retail buildings, shopping malls, professional office space, industrial space and small business owners that support the “big businesses” that occupy these commercial buildings. At one point, and this time around it will be sooner than later, this new round of “unemployed” individuals will have no choice but to also default on their mortgage. Here it is: in the second three months of this year, defaults on home mortgages hit an all time high. One in every 25 properties was in foreclosure-the greatest number ever reported. The two statements above could possibly be called “Bad” and “Worst”; now here is what follows “Worst”: bankruptcy filings among the wealthy exploded 73% from a year earlier, homes listed for sale priced at over one million surged 27.3% over the last year but those that actually sold plunged by 23%. I had wanted to discuss “real unemployment” but I want to look at the methods used by the Bureau of Labor Statistics. Let me simply say at this time that the “real Unemployment rate” at the end of August is NOT 9.7% as reported by the government but actually a minimum of 16.8% and possibly as high as 19.4%. I have to say this; I wrote back on 8 April 2009 that “between October 2009 and March 2010 unemployment would be at 13% National average with some parts of the Nation at 19-25%”, I believe that certain parts of California are in fact at 19% as I write this. Just remembered I was supposed to talk about bank failures in this writing; we will get to that also in part VI and look at some disturbing trends I had not even thought of back in April when I boldly went this route of the coming depression.

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weakening dollar

By , September 17, 2009 5:40 pm

Dear Subscriber,

This morning, we awakened to the news that the U.S. dollar has now fallen to its lowest levels in about a year — in freefall against the euro, the British pound and many other major currencies.

This is precisely the danger I’ve been warning you about.

Just yesterday, I showed you how Washington’s massive debt and entitlement obligations have grown to well over $100 trillion — far more than our nation could ever hope to service — let alone ever repay.

U.S. Dollar in Freefall!We took a look at Bernanke’s secret solution to our massive, record-shattering debt: That only by destroying the value of the U.S. dollar can Washington ever even hope to service our skyrocketing debt — by satisfying its Social Security, Medicare and Medicaid obligations with ever-cheaper dollars.

We saw how this strategy is already being implemented … how it has already begun to crush the dollar’s value on world markets …

And we’ve seen how, by destroying your buying power, it can only drive your cost of living through the roof … push retirees living on fixed incomes into abject poverty … and trigger massive new waves of bankruptcies from coast to coast.

The simple truth is, if Bernanke’s secret debt solution was the ONLY threat to the U.S. dollar, it would be enough to crush the greenback’s value.

But this intentional destruction of the dollar by our leaders is only ONE of FOUR factors that are about to crush the value of your income, savings, investments and retirement in what will go down in the history books as the single greatest confiscation of personal wealth in world history.

Today, we’re going to examine a second crucial reason why I am convinced that the U.S. dollar is doomed:

Foreign investors are abandoning the dollar in droves.

Anyone who buys long-term U.S. treasuries these days is virtually begging to get his head handed to him for three very simple reasons:

FIRST, long-term treasuries are paying bupkis. To many, tying up money for 30, long years in return for a paltry 4.2% yield isn’t an investment decision; it’s an IQ test.

SECOND, foreign investors aren’t blind, deaf or dumb: They know full well that U.S. deficits and debt are exploding. And they’re also keenly aware that Bernanke’s secret debt solution means the yield they earn in those treasuries will be worth much less with each passing year — as the dollar continues to fall in value.

AND THIRD, the sheer size of Washington’s debt has many foreign investors wondering if long-term U.S. treasuries really are a prudent investment in the first place. As our national debt continues to explode, so does the risk that at some point, Washington may have no choice but to default on that debt.

Put simply, foreign investors are disgusted with Washington’s unprecedented spending binge. They’re haunted by Bernanke’s seemingly intentional failure to defend the dollar. They’re sick and tired of footing the bill for our spendthrift ways. And they’re increasingly skeptical of our ability to pay what we owe them.

And now, they’re beginning to recoil in horror; snapping their checkbooks SHUT.

This is serious: Overseas investors fund fully 50% of our borrowing addiction, holding $6.2 trillion in U.S. securities — including almost $4.6 trillion in bonds.

But over the last year, central banks have been actively replacing portions of their dollar reserves with the euro, the Canadian and Australian dollars, and most of all gold. China alone recently announced it has quietly increased its gold reserves by more than 75% over the last seven years!

All this has enormous implications for the value of your money, your buying power and your standard of living: As demand for U.S. treasuries wanes, so does demand for dollars to buy them. And as worldwide demand for dollars declines, so does the value and spending power of every dollar in your pocket.

Worse: As more foreign central banks, overseas fund managers and investors flee the dollar, Washington has no choice but to pump out more and more unbacked paper dollars and dump them into the economy — further eroding your buying power.

It’s a perpetual cycle that can only lead to one thing: Printing presses blazing on overdrive … a collapse of bond prices … a massive surge in interest rates … an explosion of inflation … and the total destruction of our standard of living — at least, for those who aren’t aware or prepared for what is happening.

That’s why I believe it is absolutely essential that we pull out all the stops to help you weather the greenback’s ultimate collapse.

So please be sure to watch your inbox tomorrow and over the next few days for the next installments of this series — and to discover what we’re doing to help you protect your wealth and profit.

In the meantime, I stand ready to help any way I can. Just CLICK THIS LINK to jump over to my personal blog and give me your comments.  Ask anything you like and we’ll do our best to get you the answers you need to shield your wealth.

Best wishes,

Larry Edelson

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Joint session of Congress/Health Care

By , September 10, 2009 6:56 pm

Joint session of Congress/Health CareI watched the President’s 50 minute address to the “Joint Session of Congress” last night. I was not disappointed at the delivery and certainly not at his ability to excite a crown. Though I may be a hard core right wing/faith-based conservative, I am not an evil, revengeful, “my way or the highway” radical; I will be fair and respectful to our President. That does not mean, however, that we should close our eyes and ears and simply accept what this Administration is trying to shove down our throats, and deceitfully done to a level that would make us look stupid by accepting it without dissent. Right off, as has been so often with this President, he was running late. Most “cocky” and “arrogant” individuals do often run late because they normally have little regard for the feelings and time of others, especially any that would dare disagree with them. If I had not read the current bill in the house and had kept up with all of the news coverage on the subject I certainly would have converted to the Democratic Party immediately after the address to Congress; our President sounded good and made all the right promises. However it is not what he said that matters, certainly not as important as what he didn’t say. He did not say that the 1100 page bill in the House would be scraped and a NEW BILL (covering only those promises he made) would be initiated with input from both parties. Here is why that is so important: Every item he touched on and every promise he made is contradicted by the current 1100 page bill in the House. Mr. President, I’ve accepted the fact that you are a Progressive, a Liberal and that you sincerely believe that Government should solve all our problems and take care of our needs, I can live with that (I really have no choice, you’re the Man at the Top), but, good grief, get some advisors that give good, solid facts for your speeches. Contrary to what the radical left is telling you, most of us conservatives and faith-based really are not stupid and lazy. By the way, you called some of us liars for providing “misinformation” on certain areas of the “House Bill”; funny thing here is that some of your “CZARS” have made statements that support our feelings (misinformation).

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Now and then//1929, 2009//the coming Depression. Part IV

By , September 8, 2009 8:36 pm

Now and then//1929, 2009//the coming Depression. Part IVIn part three of this series I said that I wanted to share with you another element in our current economy that our nation has not seen on this scale since the “Great Depression”. That element is “deflation”; DEFLATION: BUYING POWER OF THE DOLLAR INCREASES. As good as that sounds the actual effect it has is chilling. One of the first things that happens with “deflation” is a drop in interest rates to near or zero, since I’m not a theorist maybe the lowering of interest rates created “deflation”, regardless (isn’t that where we are today), with interest rates at zero banks don’t lend money (the banks hold on to their cash) (isn’t that where we are today), when the credit markets freeze and there is no lending, business activity comes to a halt, then overall economic activity comes to a halt and profits drop/fail. When profits fall or come to a halt, businesses lay off people and people without wages don’t shop; unemployment reduces tax revenues to the treasury, no shopping reduces sales taxes to State and Federal treasury. Other businesses which depend on certain (failed) businesses now also fail and the cycle starts all over again. People that lose jobs don’t pay their mortgages and the first fall-off from that is a reduction in property taxes to local and county governments which now also have to lay off city employees and reduce services. Some of those services are police and firefighters. Why am I saying all this, anybody could have picked any “WORD” (I chose deflation) and applied that word to our current economic situation. Let me take you there with some available statistics. Except for the Carter years (which had double digit interest rates and inflation low of 12.52%/high of 14.73%) the last 6 decades managed to maintain inflation rates of between 1.59% and 5.09%; our economy survived  mild to mildly harsh recessions in the 70’s, 80’s and early 90’s. The last 16 years (8 years of Clinton and 8 years of Bush) were almost identical with Clinton having a couple of months at slightly over 5% and one month of over 6%, most of his 8 years were at 2.85% to 4.25% Bush’s 8 years were at 1.59% to 3.85%. Today as I write this we have the biggest drop in inflation rates since the 1950’s. Let’s backtrack to the “Roaring Twenties” before we compare January-August 2009. Inflation at the end of 1920 was at 15.90%, most of 1921 and 1922 had a mixed bag of low inflation and low deflation. 1923 to June 1926 had low inflation rates; that was probably the beginning of the end for the “Roaring Twenties”. Deflation ruled the “day” from July 1926 to May 1929 and the economy managed to bring back low inflation for about three months when the “Depression “began in October 1929. Big Government intervention to soften the depression provided a mixed bag of low inflation/deflation for most of 1930. Deflation devastated the economy for all of 1931-1933 and most of the country did not see the end of the “Depression until 1941. We have not seen any prolonged deflation since the “Great Depression” until now. Here are the deflation rates for January-August of this year: Jan-.03/Feb-.024/Mar-.038/Apr-.074/May-.0128/Jun-.143/Jul-2.20 and Aug-2.10. I’m a fair person, NO, I couldn’t possibly blame this President for the deflation of the last 8 months, but, I sure can blame him for failing to provide the right leadership to prevent the “soon coming” depression from lasting 10 years instead of 4. In part III of this series I stated some reasons why the government will not be able to stop this depression from occurring. I will be keeping an eye on the deflation/inflation rate and the unemployment rate over the next few months. I will probably make this series a six part series and discuss the “real” unemployment rate with you sometimes early next week. Part of that discussion will be bank failures.

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