Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20
How Soon Will We See Stock Market SPX 4000? - 8th Oct 20
Stock Market Spy ETF Testing March Price Peak – What Do the Charts Say? - 8th Oct 20
5 Consequences of US Debt at $50 Trillion - 8th Oct 20
Long Term Cycles Suggest Stock Price Reversion Pending & Gold Price About To Explode High - 8th Oct 20
AMD Zen 3 Ryzen 5000 Launch - Performance, Prices Skews, Cinebench r20 Scores, 5800x, 5900x, 5950x - 8th Oct 20
Gold vs. Silver – Absolutely No Comparison - 8th Oct 20
Gold: Why You Should Be Wary of the "Consensus" - 8th Oct 20
UK Covid-19 Hospital Admissions and Deaths Since Testing Positive in 28 days Analysis - 7th Oct 20
Amazon Prime Day 2020 Sales Top Tips of How To Get Big Savings! - 7th Oct 20
Want To Win Big In Forex Trading? Leverage Is Your Friend - 7th Oct 20
Why I am Voting for Donald J. Hitler - 6th Oct 20
Markets Chop & Grind: Gold, Stocks & Commodities - 6th Oct 20
Silver Price Great Buy Spot Ahead of Second Big Upleg - 6th Oct 20
Forget RTX 3080 Get Zen 3 Ryzen 5900x / 5950x - GPU vs CPU - PC Bottlenecking - 6th Oct 20
How to Get Budgies / Parakeets to Eat Vegetables for the First Time - 6th Oct 20
How to Pick a Reputable Double Glazing Window Company - 6th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Economist Lays Out the Next Step to Wonderland for the Fed

Interest-Rates / US Interest Rates Aug 22, 2019 - 03:17 PM GMT

By: Gary_Tanashian

Interest-Rates

Mr. Steven Ricchiuto, he of a Masters in Economics from Columbia, has laid out the proper plan for the Federal Reserve in this oh so noisy environment in which an unassuming and fairly quiet man is trying to tune out a personal bully on Twitter, tune out the stock market’s daily whipsaw and do what he perceives to be the right thing.

Today, the academic named above throws in with Trump and politely harangues Chairman Powell thusly in an open letter. You can read it by hitting the graphic…

https://www.marketwatch.com/story/the....

Stagflation this, Volcker that, deflation the other thing… blah blah blah. But then he gets to the interesting parts, the money parts. Of the post-Volcker era he states…


To rein in excess money supply growth, the Fed trimmed bank reserves — high-powered money — which resulted in dramatically higher short-term rates. This shift in policy served to dampen inflationary expectations, and thus inflation, while increasing central bank credibility. The dollar strengthened and elected officials became strong supporters of an independent Fed as a result.

Indeed, in microcosm these periodic drives to the lower rungs of the Continuum are all about Fed credibility. Credibility rebuilt after events like last year’s break of the monthly EMA 100 limiter (red dashed line) on the 30 year Treasury yield.

In H2 2018 while the supposed bond experts were uniformly aligned in a BOND BEAR MARKET!!! posture and market participants were wondering why Jerome Powell was being so stern amid the stock market wipe out NFTRH noted that the Fed was not going to self-immolate in a blaze of inflationary expectations (featuring out of control long-term yields). Credibility would need to be rebuilt and here indeed it has been, and then some.

It should also be apparent from the unintended curve flattening that followed the Fed’s December rate hike, and the equity market selloff that followed the July rate cut, that the status quo is not working. Essentially, policy makers have lost control of the narrative.

We reiterate our call for the Fed to shift policy from targeting interest rates to targeting inflation of 2% or above. This should lead to a rapid decline in short-term rates and a curve steepening which should calm market concerns over the risk of a recession or a persistent deflationary environment.

In other words something must be done about these charts, which are going the wrong way.

Inflation expectations have been tanking right along with the 30 year yield above.

And the Yield Curve resumed its flattener after the FOMC was widely seen to be too tight (which, when taking macro signals and factors at face value, they are).

With the obsession about conjuring inflation that now occupies most global central bankers (with the exception of one rather important one) and market participants a flat yield curve means that inflation is not taking hold; as a yield curve steepener can be driven by inflation or deflation. It’s just a matter of opposite forms of a lack of confidence in the economy and/or the policy that props it.

The Fed’s new intermediate target should be its balance sheet, which we believe should be expanded and restructured to achieve a 2% inflation target. Initially the balance sheet target should be set at the $4.5 trillion peak reached back in 2015. To support this shift and lift in inflation expectations, we also suggest a reverse “Operation Twist” and the elimination of paying interest on excess reserves. With the fed-funds rate completely decoupled from policy and allowed to find the level the market dictates, the tools put in place to control the funds rate with a large balance sheet are no longer necessary.

These radical changes are necessary in our view, if this economy is to avoid the deflation trap that appears to have already caught Japan and Europe in its viselike grip.

Yours truly,

Steven Ricchiuto

U.S. economist, Mizuho Securities USA LLC

It is interesting that Ben Bernanke launched full frontal Goldilocks when he set the Operation Twist macro manipulation upon the world. But now she is hungry again and there is no more porridge, hot, cold or just right. There is no more meat either. She’s biting into bone. Goldilocks is not the play anymore because the yield curve flattener is so long in the tooth. The only play is the other play, the inflationary play, which would probably be seen as benign and even beneficial in its early stages.

In 2011 the inflationary play was not so benign. At that time Bond expert (he ain’t no King) Bill Gross famously shorted the long bond in an unwitting bet that our Continuum above would break out above the limiter. It didn’t, the Continuum continued and all we are doing now is simply extrapolating the process 8 years later. If the macro is to stay on the course it’s been on for decades (and termination is always possible) then the next play will be as our academic noted above implores; inflationary.

Let’s put aside that a flat or inverted yield curve is not something to worry about. At worst, inversion is probably around a year early in forecasting recession. Enough with the media muck-raking already about the dreaded yield curve inversion (98% of the people the media are blaring this concerning news to have no clue about what the hell a yield curve even is).

A curve flattener is a Goldilocks condition when viewed as a stand-alone. Today, with tanking inflation expectations it is a concern because after all what does the country – like most other developed economies run on? Bueller? Anyone? Yes, debt… and more of it!

To quote my late friend Jonathan Auerbach “It’s inflation all the way, baby!”

Stop hand wringing, tune down the noise and realize that the next inflation (or at least inflation attempt) will come. But it’s not going to come in real time with the president haranguing the Fed chief on Twitter and MBA economists writing open letters.

The next inflation will come or the coming steepening of the yield curve will be deflationary and then that’s all she wrote (and ate).

Also see this companion piece posted shortly after… Enter, the Vampire

Subscribe to NFTRH Premium (monthly at USD $33.50 or a 14% discounted yearly at USD $345.00) for an in-depth weekly market report, interim market updates and NFTRH+ chart and trade setup ideas, all archived/posted at the site and delivered to your inbox.

You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar and get even more by joining our free eLetter. Or follow via Twitter ;@BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2019 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules