I'm Confused...

What is the Fed doing?

The markets got hammered all of the past 2 weeks and on Monday. Today and yesterday the markets went gang busters on the way up!

Several factors are at play to explain the sharp upswings that we are experiencing. One being the mini-correction on the price of oil that may or may not continue. I know that one of my colleagues that is looking for a correction all the way back to $70/barrel before bouncing back. He may get help in that prediction from OPEC which is starting to discuss increasing production. Increased production equals lower prices. I feel that a correction is due, but the days of cheap oil are over. If not now, the next bounce from the price of oil WILL get the price up and over $100/barrel.

Another factor are the sovereign funds (surplus funds of a country used for investment) and foreign corporate investors are actively looking to purchase assets here in the U.S. Just look at Royal Bank of Canada's buy out of Commerce Bank and the recently 4.9% stake that the government of Abu Dhabi has purchased in Citigroup.

But the big reason is the Fed. Fed Vice Chairman (B-squareds right hand man) Donald Kohn was speaking in front of the Council on Foreign Relations that the recent financial volatility has reversed the improvement seen by the markets in recent weeks and could eventually squeeze credit for individuals and businesses and that "the tight financial conditions of the banks may merit offsetting policy from the central bank."

In English what he just said was that the down swing of the market in recent weeks offset the improvements that the markets made from the February drop AND that the tighter policies that the banks are putting on loans may require that the Fed lower rates.

Basically, the Fed is more interested in propping up the financial markets (particularly the stock market) and preventing a recession than in keeping the consumer from racking up higher debt loads and from rising inflation.

This is nutso thinking!!!!!!!!!

Now, while it is each individual's personal responsibility to stay out of bad debt, it is absolutely ludicrous to purposely inflate the price of goods in order to prevent recession.

Why? You might ask.

Because by triggering inflation through the printing of money (which essentially is what the Fed is doing by lowering rates) the Fed may cause a short-term spike in the prices of financial assets such as stocks, in the long run it will cause an even greater recession than if it would have just let the recession happen!!!!

Besides, isn't the loosening of the reigns of the printing presses and of credit what got this country in the condition it is in right now!?!?!?!

You know the whole "credit crunch" "mortgage mess" thingy!

Laissez faire (let the economy run its course) is a thing of the past both literally and rhetorically...Oh, those were the days.

The micromanaging of the Fed is going to make things worse not better. And even though it is now Ben Bernanke at the reigns...it will be Alan Greenspan's lasting legacy.

Notes from the Underground:
Dow - 13,212.47 +254.03
Gold - 802.50 -11.50
Silver - 14.40 -0.16
Oil - 92.04 -2.38

To Your Investing Success,

Patrick

Yoda is at it Again!

Alan Greenspan was on Fox Business Network recently pitching his book and looking back at his career as the Federal Reserve Chairman, defending his actions and blaming the current situation on everyone and anyone but him.

Then he closed the interview with the following:

Fox: “So why do we need a central bank?”

Greenspan: “Well, the question is a very interesting one. We have, at this particular stage, a fiat money, which is essentially money printed by a government, and it's usually the central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or currency board or something of that nature, because unless you do that, all of history suggests that inflation will take hold with very deleterious effects on economic activity...There are numbers of us, myself included, who strongly believe that we did very well in the 1870-1914 period with an international gold standard.”

Fox: “We did well without the Federal Reserve. People forget that.”

But he also says in the interview that the housing and credit crunch, the upswing in commodities, and inflationary pressures were NOT a result of his lowering rates down to 1%, jerking them back up, and jerking them down again and cranking printing presses at the Fed, but rather a delayed reaction to the Fall of the Berlin Wall and the Soviet System. !@#$!@#!$%$ What? If anything, this should have brought commodity prices DOWN since the former Soviet countries hold some of the most lucrative mineral and energy mines and fields, in addition to being the #2 producer of many agricultural products, including wheat! He says that the decrease in rates was merely a coincidence.

Let's see, US government coming out of recession, new consumers and goods coming to market, need to stoke the fires of economic growth? Don't all of those signs usually lead to a decrease in rates? Oh, and he is not the cause for the printing presses running either. There was no mechanism for him to stop. !@$@@$@#! He WAS the mechanism by being the Chairman of the Federal Reserve, the MOST POWERFUL CENTRAL BANK IN THE WORLD!!!!

Oh, and by the way, the Dow is was back up over 13,000 this morning after dropping 218 points yesterday. At its high, the Dow was up 120 points. It has since given back almost all of its gains.

Notes from the Underground:

Dow - 12,959.75 +1.31
Gold - 792.90 +16.10
Silver - 14.136 EVEN
Oil - 97.18 +2.54

Patrick