SP 500 and NDX Futures Daily Charts - Much Ado about The Credibility Trap

The Fed and the equity markets are largely self-referential at this point.

That means that rather than effectively reflecting and addressing the broader reality of the economy, they are focused on themselves.

For the Fed, their strong desire is to raise rates two times fairly soon to get off the Zero bound before we draw closer to the Presidential elections. The Fed is very sensitive to this.

Only the terrible economic results in the first quarter held them off from raising 25 basis points at this meeting. They need to raise within the context of some semblance of economic stability to maintain the illusion of confidence.

As for the US equity market, it is running on hot money, stock buybacks, and 'the Game.' The Game is the Ponzi-like self-referential speculation, with a charade of economic numbers coming out of a spin machine that keeps pushing prices higher into asset bubble territory.

The Fed would like to cover their ass before the market crashes, and before moneyed interests trot out their latest assortment of political candidates.

Like the IMF, their policies have been serial failures, going back to the 1990's at least. They do not wish to be held accountable for this, as noted in the intraday commentary from the other day.

When privileged people repeatedly fail at a task, they quite often turn to harshness and even cruelty towards those whom they were purported to be helping, in a revulsion against their failed obligations.

Since they are incapable of faults, while maintaining their credibility which is founded upon their reputations and personal prestige, the people enduring their many plans themselves must have failed.  And so the people, not the planners, must be made to change, to improve, and often to be chastised for their shortcomings.

And the financial masters will do this, almost piously, in the name of saving a system which in fact has become an extension of themselves, and which finally serves no one well but them.

So no real reform can come, and little progress can be made, because the 'managers' are incapable of even admitting to their repeated failures out of self-preservation. And they will excuse this in the name of preserving 'confidence.'

This is the credibility trap.

That is the long and short of it.

Have a pleasant evening.

 

 

 

FOMC June 2015 Statement

Net-net, the Fed today said that while the first quarter was lousy, the second quarter was less lousy, and showed some sparks of growth if you looked hard enough.

The Fed is just itching to raise rates this year, by at least .25%.  

It has little to do with the economy per se, unless the wheels more obviously start falling off The Recovery™.

Let us not forget that, in the time honoured tradition of all pampered bureaucrats, the Fed would like to engage in some serious CYA (cover your ass) activity now before the next crisis unfolds due to their policy errors, which are continuing and many, and will not be resolved by higher interest rates.

It is a policy thing.  The Fed would like to get off the zero bound, both to end the speculation about when they will do it, and further, to give themselves some cushion to cut rates in case the current asset bubble pops.

I will stick with my long standing forecast that the Fed will raise by 25 basis points at least once this year, and maybe twice, unless the world economy really hits the skids so that even mom and pop at home notice it.  

They will not wish to be raising in a Presidential election year, but need to get off ZIRP for their own policy purposes by pulling the trigger on that at least once.

The strong dollar is stifling The Recovery™ so the raising of rates has to be done carefully.

Then there is the turmoil in Europe and the other asset bubble in Asia.

Release Date: June 17, 2015
For immediate release

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

Wall St Pleads For More Government Subsidies and Handouts In NYT Op-Ed

"It was the incarnation of blind insensate Greed. It was a monster devouring with a thousand mouths, trampling with a thousand hoofs: it was The Great Butcher — it was the spirit of Capitalism made flesh."

Upton Sinclair

"Greed is a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction."

Erich Fromm

Surely you cannot be surprised by this headline.

Greed is incapable of having enough, by its very definition.

It does not need.  But it always wants-- more.

Wall Street On Parade

Wall Street Front Group Pleads for Government Help in New York Times OpEd

By Pam Martens and Russ Martens

June 17, 2015

After the U.S. government pumped the secret, astronomical sum of more than $13 trillion into Wall Street during the years surrounding the 2008 financial crisis to bail it out of its own greedy and reckless gambles, Wall Street is shamelessly asking for more government handouts in the opinion pages of the New York Times. The woman pitching this pathetic poppycock, Kathryn S. Wylde, was actually on the Board of Directors at the New York Fed during the crisis – the very institution that sluiced the secret $13 trillion into Wall Street’s coffers.

If you live outside of New York City, you’ve never heard of the Partnership for New York City. Even if you live inside New York City, unless you’re part of the black tie cocktail circuit, you’ve still never heard of the group. So when the New York Times gave a chunk of its opinion pages on Monday to Wylde as President and CEO of the Partnership for New York City to plead for government help for Wall Street, it really needed to do the ethical thing and fess up that this is a brazen front group for the financial services industry...

One sharp-eyed New Yorker caught this red flag in Wylde’s pitch in the New York Times when she was spinning how vital Wall Street is to the city’s economy. Wylde wrote:

“All told, the [financial services] industry accounts for 62 percent of private-sector wages in the city, and more than one-third of its $700 billion annual economic output. It contributes about $8 billion a year in city taxes — equivalent to the combined budgets of the city’s police, fire and sanitation departments — and one-quarter ($2.5 billion) of personal income taxes.”

A comment was posted by “David H” noting the following interesting math in the above:

“According to Ms. Wylde, the financial industry accounts for 62 percent of private-sector wages in the city, but only one quarter of personal income taxes. This strikes me as an empirical basis for a very different op-ed.”

Kelly Boling of Hudson, New York commented along the same lines:

“Let’s indeed invest in the infrastructure needed to keep New York globally competitive–and pay for it by requiring financial service executives to pay taxes on their incomes and capital gains at rates equal to the effective tax rates paid by New York’s middle class.”

...This shameless propaganda piece, in drag as an OpEd from some civic organization, was titled: “Yes, Wall Street Needs Help.” We certainly agree. But it’s more along the lines of psychiatric help for having the temerity to ask for a handout for its billionaires when the Coalition for the Homeless reports that the number of homeless New Yorkers sleeping in municipal shelters is 72 percent higher than a decade ago and has reached the highest levels since the Great Depression; when there are an estimated 1.3 million children and teens enrolled in public schools across the U.S. who are homeless – an 85 percent increase since the start of the Wall Street recession; and when Wall Street even gets tax perks to ghoulishly and secretly collect billions of dollars each year on the tragic deaths of workers...

Read the entire piece at Wall Street On Parade here.

Do not be surprised if there is another financial crisis, and the Banks come back again with a long list of demands, threatening chaos and despair if they are not swiftly granted all that they desire, either openly or secretively.  Why wouldn't they?

Remember Jesse's Law. 

Since money is power, the greater the concentration of money in a society, the greater will be the concentration of power.   And therefore the less free and broadly productive it will be, and the more inclined that this power will be to narrowly private abuses. 

Unregulated greed will rise to exceed and eventually overwhelm all rational expectations of theoretical market behavior because men are not angels.  And further, there is a determined minority in any society that is given over to irrational behavior and pathological obsessions that delights in abusing reason and rules, even to their own eventual destruction.

Rational expectations, and therefore market and social forces and their models, will fail when undermined by the unbridled greed for money and power.   

History proves this.

 

Gold / SP 500 Ratio and the Short Term Trading Range In Gold

“And next time we hear someone saying something like, 'We are pursuing this strategy because other strategies, when we had considered them, we concluded that, in terms of overall effectiveness, they were not sound strategies, which is why we enacted the one we are now embarked upon, which our enemies would like to see us fail, because they hate freedom,' we will wait to see if the anchorperson cracks up, or chokes back a sob of disgust, and if he or she does not, we'll feel a bit insane, and therefore less confident, and therefore more passive.”

George Saunders, The Braindead Megaphone

“It’s almost been worth this Depression to find out how little our Big Men knew.”

Will Rogers

When privileged people repeatedly fail at a task, they quite often turn to harshness and even cruelty towards those whom they were purported to be helping, in a revulsion against their failed obligations.

Since they are geniuses, incapable of fault while maintaining their credibility which is founded upon their reputations and personal prestige, the people enduring their many plans themselves must have failed.  And so the people must be made to change, to improve,  and often to be chastised for their shortcomings.

And the financial masters will do this, almost piously, in the name of saving a system which in fact has become an extension of themselves, and which finally serves no one well but them.  

So no real reform can come, and little progress can be made, because the 'managers' are incapable of even admitting to their repeated failures out of self-preservation.   And they will excuse this in the name of preserving 'confidence.'

This is the credibility trap.

Gold Daily and Silver Weekly Charts - FOMC Rate Decision Tomorrow - Credibility Trap

"They took up several obviously wrong people, and they ran their heads very hard against wrong ideas, and persisted in trying to fit the circumstances to the ideas, instead of trying to extract ideas from the circumstances."

Charles Dickens, Great Expectations

"Oh what a tangled web we weave

When first we practice to deceive."

Sir Walter Scott, Marmion

“Reality denied comes back to haunt.”

Philip K. Dick

As you know from the economic calendar there will be the Fed's June Rate Decision tomorrow afternoon.

I doubt very much whether the Fed will actually do anything.

They *might* say something that will bring the 'will they or won't the raise' in September talk back to the forefront. But that is very premature until we see some signs of stabilization in Europe and Asia, and anything resembling a sustainable rebound in the States.

I never ceased to be amazed how little elite economists and the pampered Princes of Wall Street and the Beltway understand the working people of the country, in terms of what they do and how they think.

There should be little doubt that they consider the average person to be an apathetic, hapless fool, and they act accordingly.

And like the last two financial crises, there is not much doubt that they will be surprised once again.

Have a pleasant evening.

 

 

 

SP 500 and NDX Futures Daily Charts - Thermopylae

Stocks bounced a bit today, for largely technical reasons, ahead of the FOMC rate decision tomorrow.

The risks in equities remain pronounced and, in my own estimation, mispriced.

 

The risks of a craven demagogue or a pliant fool in the service of Big Money becoming the next President of the United States have gone exponential.

Have a pleasant evening.