Thomas Hoenig said Friday that interest rates near zero were “a dangerous gamble” in a period of moderate growth. Meanwhile, the Hindenburg Omen creator pulled entirely out of the stock market. Do these people know something we don’t?
Finally – a Federal Reserve board member with some integrity and courage to tell the truth. The Federal Reserve created the economic crisis in the first place with artificially low interest rates that fueled the home buying orgy and subsequent bubble, not to mention all the reckless mal-investment and repackaging of bad debt by Wall Street. Low interest rates create inflation and fuel speculative buying. Low interest rates also discourage people to save money, as low rates mean little return on investment as well as having inflation erode existing savings.
We should agree with Hoenig that the Fed should raise rates to encourage saving and discourage excessive leverage. This guy should have Bernanke’s job but the banks would lobby against him more than that so-called financial reform bill. Too bad all the Fed governors haven’t figured this one out – too long with “Greenspanomics” which screwed the Fed’s feet into the ground with a zero interest rate policy that left the US economy and its banking system burnt out and in many ways on life support. There is no room to stimulate an economy already at a zero Fed Rate and a lot of worry about an economy that cannot function without zero interest rates. Higher rates will also keep people from excessive risk taking chasing yield with many not just losing returns but their capital. Anyways the Fed can’t lower rates any further without charging savers for their money and paying people to borrow (please don’t tell Bernanke as he might actually try this). And any more stimulus spending will put governments as far underwater as a Las Vegas mortgage.The economy is going to either go through a slow long term recovery or it will stagnate at least for the next few years – there no drivers like dotcom bubble, subprime lending bubble, an emerging markets led commodity bubble, an S&L bubble, etc. – that will start up another frenetic wave of speculation around the world and leave people with an illusion of what is a normal healthy functioning economy. It might not be a bad thing in the long run if we close the casinos that operate under bank charters and investors take a prudent longer term view of the world instead of these temporary bouts of insanity they have had over the past couple of decades.
Hindenburg Stock Crash Coming
To enter the debate, pensioners’ problems are dwarfed by the massive debt future generations have been saddled with. Basically it is going to be impossible for at least the next couple of generations to effectively save for their retirement because they will be the most highly taxed generation demographic in a long time . Why does anyone think that things are going to get better anytime soon? The US alone has 11 trillion in government debt, not counting private debt that may still have to be written off if markets go south again. Their economy is actually slowing down at this time, so it’s not looking good. And then there’s Europe, also on the verge of financial disaster. It’s going to get ugly folks, our pensions will be the least of our worries
We can suspect that one of the major issues discussed at the G8/G20 conference was the trade off of debt between nations.
The only way out of this affair is a re-evaluation of debt and new methods and terms of settlement. We have to shift away from the way business was conducted before we became Global. The economies of the nations of the world are more interdependent today than in the past and will become more so as we we progress to a more complete globalization. In the meantime, we will have to take the current as it swerves.
Fact is healthy economies in the world have 5-7% for savers and higher to borrow, see China, Brazil and India. This round of inflation will come as money leaves USDs for other currencies. Lets face facts, Washington DC is flat broke and creating a money problem. A huge one too. At some point the US will devalue sharply and inflation will bite fast and hard. Government actually wants this even though it hurts the people to have a weak dollar. But debt debt deniers think they can just devalue the dollar to devalue the debt value. People who lend money to governments at these rates are fools and will end up road kill.
This 0.25% interest rate policy is the only thing that is keeping the US banks a float. They just leveraged up buy and unwind sell each quarter the 2 year US treasury. It helps the banks build back some of their balance sheet the past couple of years. The question is whether this is enough to prepare for the second wave of loses on their mortgages loans as morre homes are foreclosed on and as they try to selldown their existing foreclosed property inventory. There are a lot that the US governments and other governments around the world are not revealing to the general public. Look at the share prices of the US regional banks and how little they moved up relative to the overall stock market and it is clear that the well informed money are still selling banks. They know that troubles to the US financial system are still ahead.
The Hindenburg Omen — Omen-ous or Not? by Elliott Wave
On Aug. 12, volatile market action coincided with a technical signal called the Hindenburg Omen, whereby a relatively high number of new highs and lows in individual stocks occur at the same time.
This indicator instantly gained an enormous amount of media attention. So we sat down with Steve Hochberg, EWI’s chief market analyst and close colleague of Robert Prechter, to ask him about the now-infamous Hindenburg Omen.
EWI: Steve, recently a market indicator called the Hindenburg Omen has been in the news, what is going on?
Steve Hochberg: Discussion of this indicator certainly has been everywhere. Someone emailed us and said they even saw it mentioned on the front page of the Drudge Report! Look, headline-grabbing names grab headlines. Essentially it measures the fractured nature of market action. Over the years, we’ve discussed numerous times in our publications how a fractured market is oftentimes an unhealthy market. The multiple non-confirmations registered at the recent August 9 stock high, which we talked about in the Short Term Update, are another manifestation of this bearish behavior. The message is consistent with how we view the Elliott wave structure.
EWI: Why are people interested in this particular indicator?
SH: That’s a good question, and it speaks to a broader issue, viz., the “re-emergence” of technical analysis into the mainstream consciousness of market participants. In Prechter’s Perspective, Robert Prechter discusses the timing of the popularity of technical analysis, of which Elliott waves, or pattern recognition, is the highest form:
“In long term bull markets, no one really needs market timing because the market is always going up. This was true during the 1950s and 1960s, a period of market strength. And it has been mostly true since 1982. From 1966 to 1982, though, the market was very cyclic, so investors couldn’t sleep like babies with a buy-and-hold blanket like they do today.”
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The S&P 500 has a negative return over at least the past 12 years, so investors are naturally questioning the “broadly diversified, buy and hold” stance advocated by 90%+ of investment advisors. EWI subscribers are way ahead of the mass of investors because as the bear market progresses, the media should show increased focus on technical analysis, including patterns such as head-and-shoulders as well as trendlines, moving averages and, yes, even Elliott waves, just as they did during the last great bear market from 1966 to 1982. It will be an exciting time for those with even a cursory knowledge of the technicals.
EWI: So, what are you seeing now?
SH: Obviously we cannot give away our analysis, but the wave structure is clear, the myriad indicators we keep offer compelling confirmation and the market is accommodating our forecast. If readers have any interest in what this means for not only the stock market, but also all other markets, please give us a read to see if our work might be useful in helping to formulate your investment portfolio. We think it will be a worthwhile endeavor.
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