Post

Market Turmoil Explained

In Uncategorized on June 20, 2013 by Robert Burke

From Wikipedia: The Federal Open Market Committee (FOMC), a committee within the Federal Reserve System, is charged under United States law with overseeing the nation’s open market operations (i.e., the Fed’s buying and selling of United States Treasury securities).[1] It is the Federal Reserve committee that makes key decisions about interest rates and the growth of the United States money supply.[2]

Yesterday the FOMC head, a private banker named Ben Bernanke (the Federal Reserve is a private bank), held a press conference after the committee met.  In that press conference he compared their actions to trying to land the economy on an aircraft carrier.  What he forgot was that some of us know you land on an aircraft carrier by first pointing the boat into the headwinds- which is an apt explanation of his conundrum.  We are dealing with gale-force headwinds dead ahead-globally.

Initial claims for unemployment increased this week by 18,000, which will be revised higher next week as it is 99.9% of the time.  This does smack in the face of a Philly Fed manufacturing report which came in with the best print since April 2011.  What it masks is the explosion of underlying bad news such as large drops in hours worked among other plunging pieces of bad news.

And in the gift that just keeps giving, the benchmark 10 year Treasury rate has moved 12% higher in 2 days and 14% this week making the financing of our government debt much more expensive.  I am also very concerned about mortgage rates which are quickly rising as well.  Reiterating a point made in a previous blog I again ask, “what is your home worth if a 30 year mortgage is 8%?  What if you can’t get a 30 year mortgage at all?  Here is a clearer explanation of what just happened to your homes value.

Our economy is addicted to the heroin of banks known as cheap money.  Bernanke has backed himself into a corner where any discussion of tapering it results in the current market drop.  Any discussion to increase and the $94 a barrel oil means $110 oil.  This results in a sucking of discretionary spending into your gas tank and not the local eatery resulting in an economy falling deeper into depression.  Kind of the opposite of their efforts.

Italy is a good example of the problems ahead.  Currently in Italy 134 businesses close…daily.

I do not mean to foment fear and concern.  This is about empowering people to understand our economy and the tough times ahead.  How tough?  Well, I like how ZeroHedge put it today: Now Assume No Fed.  Only then will you come to appreciate the following: Addictions are nasty and generally end very badly with the addict broke, homeless, and without hope.

The good news is that shortly after hitting their personal low most addicts paradigm shifts and recovery begins.  Until then enjoy the circus and bread provided by our elected officials farm bill failure (mostly written by Monsanto) and Miley Cyrus’s new video.

If you happen to be one of the unemployed there is a bit of good news.  Ben is stepping down at the end of the year so there’s another job opening for the 354K newly unemployed.

Leave a Reply