Federal Reserve

How the Fed manipulates markets, and why it will end.

"I do not think this dropping of the perceived supporting Fed floorboard (imagine a gallows floor being removed) is much talked about among financial commentators, asset managers and certainly not investors.  It’s still the belief that there is the Fed put, forever, witness the market action of the past day.  Despite this continued belief-structure, MSA argues now, that the Fed put is actually kaput!
I suspect by end of Q1 2015 the equity market in U.S. will have rapidly begun to price that prior dominant factor back-out of the market to some large extent."

His faith in Republicans to limit the Fed seems unfounded.

More on Stockman's theory the energy bubble is popping. Includes great analysis of the last housing bubble popping.

"The tsunami of mortgage credit exceeded anything previously imaginable by even the most egregious “easy money” populists. But here’s the preposterous part. The monetary politburo watched this tidal wave rising and did not become alarmed in the slightest. Indeed, Greenspan and Bernanke thought MEW was a wonderful tool to goose household spending and thereby justify its spurious belief that a handful of central bankers could deftly guide the $14 trillion US economy to the nirvana of permanent full employment prosperity."

We know how that worked out. I bet he's going to say the fracking bubble is bigger.

"Substitute the term “E&P expense” in the shale patch for “housing” investment and employment in the sand states, and you have tomorrow’s graphs—–that is, the plunging chart points which are latent even now in the crude oil price bust.  But the full story of the housing bust also reminds that the long caravans of pick-up trucks which will soon be streaming out of the Bakken in North Dakota will represent only the first round impact."

He hasn't said it's worse yet.

"Between 2000 and 2014, China’s credit outstanding soared from $1 trillion to $25 trillion. Consequently, its credit swollen GDP expanded from $1 trillion to $9 trillion in a comparative heartbeat; and its crude oil consumption soared from 2 million barrels per day to 8 million. In short, the Fed exported bubble finance to the entire world, but most especially China and the EM. The upshot was an extended era of booming but phony global growth, and a consequent artificially high oil prices at $115 per barrel."

I should have predicted the China link.

"Like in the case of the housing bubble, the energy boom was an accident waiting to happen— testimony to another even grander experiment by the madmen running the world’s central banks.  It is now exploding right on schedule. The plunging graphs subsequent to the housing bust are now being re-gifted to the energy patch and all the bloated, unstable chains of finance and real economic activity which flow from it."

Housing didn't drop as fast as gas.

"But there is something else even more significant. The global oil price collapse now unfolding is not putting a single dime into the pockets of American households—-the CNBC talking heads to the contrary notwithstanding.  What is happening is the vast flood of mispriced debt and capital, which flowed into the energy sector owning to the Fed’s lunatic ZIRP and QE policies, is now rapidly deflating."

I hate to disagree with Stockman, but I'm a lot better off paying less for gas. I think most every household in America can say the same. The difference between this and the housing bubble is households aren't assuming additional debt like they did during the housing bubble. At least, not yet. Prices have fallen too fast.

John Williams predicts economic weakness, which is already showing in Q4 numbers after Obama's phony boost of Q3 numbers by pushing military spending from Q4 into Q3, will prompt the Fed to print more money, sparking a dollar sell-off.