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  Jim Kingsland

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  General News, Jim Kingsland Market Commentary

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  /1/12

  What Shall the Fed Do?

  The mainstream financial press is telling us the Fed can do
  little and that the paper money masters are boxed in. I’d like to believe that
  the Fed has come to the point of having to lift a white flag, but even if I see
  the Fed as effectively dead in the long term and that it can only extend and
  pretend, I am still wary of Bernanke and the sort of smoke and mirrors that
  they may try to deploy to trick most that they have it all under control. The
  central banks are skilled in can kicking. While I see Europe in an advanced
  mode of can-kicking, even Draghi was able to jawbone and give the markets a
  dose of hopium last week on how he will do everything possible to save the
  Euro.

  One Ponzi idea that’s making the rounds is that the Fed
  could loan short term securities to banks who would use said securities as
  collateral to borrow money from the Fed to then make loans. While CNBC notes
  that bank lending has been rising at a clip of 5%, I would note that the rise
  has not been able to jump start the economy.

  The market is in a Johnny Mathis Denise Hathaway ‘too little,
  too late’ state of sentiment. The press is telling us there won’t be much from
  the Fed today. That might mean that the gains of last week in stocks and even
  in gold might be erased quickly. The Fed press mouthpiece, Hilsenrath of the
  Wall Street Journal was telegraphing a low expectation message late yesterday.
  Is the Fed managing expectations in order to surprise, or is the Fed really
  saying through Hilsenrath that while it is dovish there is not much it is willing
  to do? We’ll find out in a matter of hours. All I can say is that there are no
  clear messages until accompanied by action these days. Reading tea leaves is
  difficult.

  With stock futures rising, it looks like the bulls will have
  at least a better morning. But what matters today is how the market behaves
  post Fed and how it finishes the day AND how it reacts to potential moves by
  the ECB tomorrow. I see a temper tantrum and a lowering of bids for stocks if
  the market decides it’s disappointed. Draghi and his save the euro at all costs
  talk of last week makes him seem like the odd man out considering the cold
  shoulder he continues to receive from Germany to all out bond buying by the
  central bank. This could be a central bank debacle of all time if his words
  amount to nothing, which is not out of the realm of possibility.

  Some days the economic data is conflicting states side. ADP
  payroll numbers printed at a better than expected 163k versus expectations of
  120k. Bad timing for fans of QE when these stronger numbers appear. However, a
  deeper look in the ADP numbers show that better paying manufacturing jobs rose
  by just 6,000. The message of the ADP numbers this year and the government’s
  numbers coming Friday is that apparent improvement in the job market is based
  on improvement in hiring for lower quality service sector jobs. Please absorb
  that concept. Even the Fed academics are likely not fooled by this reality in
  the labor market. Aggregate jobs creation has seen increases this year, but we’re
  not talking about dream jobs. To the new hires of 2012, my instructions are
  simple: DO NOT put mustard on my Big Mac! Thanks. Hahahaha, though this is not
  a laughing matter and I really shun junk food.

  To Repeat with respect to QE:

  Part of the motivation for the rally attempt today centers
  largely on Fed-head Ben Bernanke. Late yesterday the stock market bounced off
  the lows on talk that Bernanke is getting closer to intervening in with some
  type of stimulus. Think about that for a moment. The market is getting warm and
  fuzzy over the thought that the Bernank is going to ease yet again. It’s not
  just a proposition of Fed funds to near zero. It’s really a game of getting
  money to flow from risk free assets to risk assets. The efficacy of the
  stimulus is what counts. Sure, it will work to boost stocks, commodities,
  bonds, etc at least for a time, but we are now in a time of lower yielding risk
  assets. Bernanke & Co. has to realize this situation is akin to firing
  blanks.

  In other words, the already much lower yields accomplished
  in previous iterations of QE, in everything from muni bonds to non agency
  mortgages, corporate bonds, etc., will give QE3 less bang for the buck.

  While mortgage rates are at record lows, the spread between
  a 30 year fixed rate and a 30 year mortgage backed security is actually now double
  the historic average – meaning that borrowers are receiving proportionally less
  of a benefit despite QE.

  Bernanke needs to figure out quickly the best time to deploy
  more QE to get the most bang for the buck. Sort of like being on a desert
  island with only one can of tuna fish left in the survival pack. Good
  luck, Ben. I am pleased to be one of the average simpletons as opposed to
  filling the Fed head’s shoes.

  I see gold as being the best tell on the outcome of the Fed
  meeting. Gold up, Bernanke is putting the hammer down on QE. Gold down.
  Bernanke chooses to fiddle.

  Survival Preparations

  Let’s get depressed! ZeroHedge | On a long enough timeline
  the survival rate for everyone drops to zero http://www.zerohedge.com/news/guest-post-most-often-forgotten-survival-preparations

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