Jesse's Café Américain

Gold Daily and Silver Weekly Charts - Currency Wars and Credibility Traps

The Fed not only blinked today. They were twitching like someone afflicted with Tourette's syndrome.

The reasons are pretty clear.

The Fed had to take out the word patient today, or lose all credibility, and risk scaring the markets back into reality.

As I pointed out earlier today, in the assessment of an agency in the Treasury, the markets are at a two sigma level of potential volatility, ie like 'quicksilver.'

And of course, as is apparent to anyone who actually reads anything with a critical eye, the real economy is wallowing all over the place.

Finally, the recent moves by most of the rest of the world's central Banks have been to fully engage in the currency war by cheapening their currencies. The Fed would have looked like flaming idiots if they had raised rates today, given all the weak economic factors, the exceptionally low interest rates because of inbound capital flows from abroad in search of yield and safety, and the subsequent undue strength of the dollar that was already stifling exports and manufacturing.

So the Fed did the only thing it could do. It took out patient, and gave plenty of signals that they would not be raising rates anytime soon.

They also took metrics like the unemployment figure off the table. They have bought into Stanley Fischer's proposal that the Fed must resume the cloak of 'mystery' in its policy actions in order to be able to more effectively manipulate markets to achieve its policy ends.

I will say that I think this mystery is going to extend mostly to the public. I believe that they will be keeping the biggest insiders very informed through a variety of side and back channels. The better to eat you with, my dear. Pity the small players and investors in these markets.

Gold and silver took off like a scalded cat as the dollar dumped. The only surprise I had was that we did not test resistance around 1185. But who can predict the movements in these paper markets?

Nevertheless, the Fed has just tipped its cap, and bent its knee, and acknowledged that they too are in the currency war. Like so many other things they have screwed up they cannot fully admit it. They are caught, like most of the world's bankers and financiers, in a credibility trap.

Gold and silver will ultimately prove to be the last resort in a global game of 'beggar thy neighbor,' no matter how much fog and mystery the money masters care to distribute to better mask their intentions.

So as I have done for so long, I get right, sit tight, and hunker down while the great currency game plays itself out on the global stage.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - More Policy Mystery, But the Yellen Put Intact

The Fed took out the word 'patient' as almost everyone had expected.

You can see the intraday commentary on this here and here.

With an agency of the Treasury itself saying that they see a heightened risk of a 'quicksilver market' in equities, you can bet that the Fed is going to be treading lightly on their raising of interest rates to satisfy their policy needs.

Their conundrum is how to control the asset bubble which they have caused without crashing the markets, again.

What is most significant is that, especially in light of the Yellen post statement press conference, the Fed is moving back to the pre-crisis guessing game, where they will have much more flexibility to respond to changing circumstances without tying their policy changes to external measures.

This is an acknowledgement that the economy has grown much weaker, and that the Fed finds themselves at a bit of a loss in trying to determine just exactly where we are, and where they need to be.

And with that nod to 'exports' in their statement, they are certainly signaling that they are aware of what Japan and the ECB are doing with regard to their currencies.

Have a pleasant evening.

FOMC: Losing Patience, the Sweet Mystery of Central Planning

"The Federal Reserve’s vice chairman, Stanley Fischer, said that it was time for the central bank to bring a little more mystery to its relationship with financial markets, suggesting on Friday that the postcrisis era of detailed guidance was drawing to a close."

NY Times, Stanley Fischer Suggests Fed Will Give Less Guidance, 27 February 2015

“It seems to me that you unnecessarily constrain yourself. There’s no good reason that I can see for us to telegraph every action that we have to take.”

Stanley Fischer, Vice Chairman FOMC

A back story to this is that the new Fed Vice Chairman Stanley Fischer does not believe that the Fed needs to be so overt in 'tipping their hand' to the market.

He feels it is more useful to the Fed to keep the market 'guessing' what they will do next and when. And he has apparently persuaded the Committee on this.

This is coming out even more clearly in Chairman Yellen's press conference.

Expect more uncertainty, and less 'forward guidance.'

Press Release

Release Date: March 18, 2015

For immediate release

Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. A range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; declines in energy prices have boosted household purchasing power. Business fixed investment is advancing, while the recovery in the housing sector remains slow and export growth has weakened. Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices. 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 energy price declines and other factors 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. Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting. 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. This change in the forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range.

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.

NAV Premiums of Certain Precious Metal Trusts and Funds

Sprott Silver has raised its cash level by selling 100,000 ounces of silver from the Trust.

They have essentially converted a small portion of their silver assets to cash in order to manage their ongoing expenses.

This is less interesting method than a secondary offering, but the appropriate response given the somewhat dampened enthusiasm in sentiment that is a portion of the bear market in metals.

The Fed's Next Doofenshmirtz Moment - 'Quicksilver Markets'

THE MISSION

“The FOMC is firmly committed to fulfilling its statutory mandate from the Congress of promoting maximum employment, stable prices, and moderate long-term interest rates. The Committee seeks to explain its monetary policy decisions to the public as clearly as possible.

Such clarity facilitates well-informed decision making by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society."

THE REALITY

I do not think that this blog entry really isn't being a naysayer, just negatively commenting on those facing a difficult task.

Or even really unfair.

After all, the Fed has been blowing up the US economy, and taking the world to the brink of economic and political disaster, about every eight years since 2000. And less regularly going back 1987 at least.

And they have been getting plenty of help from the government and the media.

They all put the banking system and the financial elite first, and the devil take the hindmost.

When the powerful are single-mindedly determined to have their way, even if it is horribly wrong, it is difficult and often dangerous to be right, or to even admit to knowing the difference.

Their policy errors will be a new chapter in the backward predicting textbooks of the dismal science. And I would probably enjoy this if I were reading about it in the more distant future.