"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Monday, April 4, 2011

This time it's Lockhart

Last week I posted my views on the "Dueling Fed Governors" which can be found here.
http://traderdannorcini.blogspot.com/2011/04/federal-reserve-confusion-i-dont-think.html

In that post I explained my rationale for what the apparent conflict between the various Federal Reserve Governors is designed to do, namely, keep the speculative community off balance and unable to lean too hard on either the Dollar or the long bond.

You will recall that we were first treated to the "hawks" sounding the warning that QE was going to be coming to an end June 30 with one going as far as saying that the last $100 billion out of the proposed $600 billion in Treasury purchases would not be needed.

That talk was enough to RESCUE the DOLLAR from crashing through the 75 level on the chart. In my view that was exactly what it was supposed to do.

Then they had to deal with the fallout to the long bond market which careened lower on the talk. So what do they do? Why send out a dovish member of the FOMC naturally. He sounds the warning that the US economic recovery is too fragile to rule out any end to QE at this stage thus forcing the long bond market to rise and rescuing it.

To add further impetus to his thoughts another dove comes out today and sounds the same message as New York Fed Governor Dudley last week.

Today we are treated to Atlanta Fed Governor Lockhart.

Here is the full story:
http://www.bloomberg.com/news/2011-04-04/dollar-falls-versus-yen-on-speculation-fed-will-keep-borrowing-costs-low.html

His comments were enough to push the long bond higher.

I think it is important for the readers to understand that nothing these guys do or say is without signficance and without coordination. I repeat here for the sake of emphasis: THE ENTIRE PURPOSE OF THE FED GOVERNORS AT THIS POINT IS TO KEEP THE SPECULATIVE COMMUNITY OFF BALANCE AND UNCERTAIN OF POLICY CHANGES IN ORDER TO PREVENT THEM FROM THROWING THEIR FULL FIREPOWER AT EITHER THE US DOLLAR AND SINKING IT TO A CRISIS LEVEL OR THE LONG BOND MARKET AND PRECIPITATING A SHARP RISE IN LONG TERM INTEREST RATES.'

As much as I despise Central Bankers, they are not stupid. They know full well (or they learn very quickly) that the speculator is the segment of the market that they need to tame if they are going to have any sort of control over the markets. Witness the greenlight they gave to this community by announcing both QE and QE2. It was designed to encourage buying across both stock and commodity prices to stave off deflation and encourage inflation.

Now that the specs have done their masters' bidding, these same masters must keep their leash restrained lest they run wild and confound their purposes. Keep these things in mind when you see this apparent confusion being sown by the various Fed governors.

Personally I find it extremely repulsive that we have reached the point in our nation's economic history when the markets sit around and listen to the sayings of mere mortals as if they are some sort of demi-gods in order to decide when and where to commit investment capital. There is something horribly wrong with this. One can only wish that our citizens will at some point rise up and demand an end to this entity called the Federal Reserve.

14 comments:

  1. Trader Dan,

    Wanted to thank you for everything (your gold and silver charts especially, which I utilize on a daily basis for my trading). Your blog and KWN interviews are invaluable.

    I also wanted to draw your attn to a Jim Rickards comment from early February which relates to your last few Fed blog posts and won't surprise you in the slightest:
    ------------------------------------------------
    HRN: Won’t rising prices make most Americans poorer?

    Jim Rickards: The Fed doesn’t care about that. The Fed doesn’t care about people. They don’t care about workers. They don’t care about wages. They say they do, but the Fed only cares about banks.

    HRN: Bernanke has been in the media, saying that inflation will stimulate the U.S. economy and help create jobs without causing prices to go up.

    Jim Rickards: It’s propaganda. I had a discussion with former Fed governor, no reason to mention the name, who is a very well known economist, and what he said was that behind closed doors the Federal Open Market Committee spends about 10% of their time on policy and 90% of their time on communication. They very quickly arrive at what they’re going to do and then spend the vast majority of their time thinking about messaging and wordsmithing. Well, there’s a name for that. It’s called propaganda.

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  2. Brilliant!

    I think the only logical solution is to withdraw wealth from the whole game. Gold and Silver, land, supplies, community. If you don't need the fed, they are powerless over you!

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  3. Blame it on the 24/7 news cycle that gives these pawns airtime!

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  4. I used to shake my head at Pravda back in the day knowing the anchors were only mouthing words prepared by the govt leaders. It is astounding that we now have the same thing in the good ole USofA.

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  5. Dan - Hear! Hear! I share your disgust.

    It is all simply more lies from the deceivers in our "evil system of things".

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  6. Sorry, can you please explain why talks of ending QE makes long bonds market go lower?

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  7. hey joey,

    QE has effectively put a floor under bond prices, since QE *requires* the federal reserve to *purchase* bonds all along the yield curve. if they end QE, that price floor will crumble as the biggest buyer of treasury debt exits the markets. just talk of the biggest buyer exiting sends the traders into a panic to sell and exit *before* the biggest buyer leaves.

    (i'm pretty sure i got this right - any others have any additional input?)

    look at it this way: bill gross has left the bond market, china is probably in the process of leaving...there's no one *left* to buy this stuff. when everyone is selling and no one is buying, the price will fall (and since we're talking about bonds, yields will rise...*fast*).

    this is a horrendous situation. people on fixed income (like retirees) are getting clobbered on any recent fixed income purchases because yields are so low, and any longer-dated instruments are going to get clobbered when the bond market sells off. even if they hold to maturity, the real rates they'll earn at maturity are likely negative considering the current inflation rate. these people are getting it coming *and* going. it's awful. and it's really awful because most of the people i know who are in this situation played by the rules, saved all their lives, and invested conservatively. they're getting clobbered by the dollar's demise.

    the other big question is: what happens to the stock market if they attempt to end QE? rising interest rates will clobber any carry traders who did a short dollar / long "everything" style trade. you do *not* want to be in front of that when it starts to unwind.

    what do others think about that? personally, i'm long about 50 deltas on the S&P, but just a small amount of capital. i've been too scared to buy in size because of the fact that the market is a slave to the fed talking heads.

    the federal reserve should be dismantled for this level of incompetence.

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  8. We've entered the Twilight Zone of financial ethics and irresponsibility.

    When faced with stark reality they changed the accounting rules and regulations and tried to move as much as possible off of balance sheets and then radically revalued their own assets.
    Not too mention that printing press thing they got going for themselves.
    They lost all sense of reasoning and ethics due to greed and desperation.

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  9. Thanks for the explanation beeba, makes a lot of sense!

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  10. I just keep wondering for how long will the FED/JPM/market manipulators be able to control the market. So far , they seem to be in control.
    Maybe the next 'correction' in the precious metals,due any time between now and May(?) will be interesting to see ...how far down the Elite market engineers can plunge the prices before buyers show what kind of power we have.
    I think China has a big voice in this whole process now. and maybe India too.

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  11. By now, the hedgies' high frequency trading algorithms are programmed to respond to sound bites from these con-artists.

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  12. Dan,
    Could you, please, tell me what you think will happen when (IF) the FED decides to raise interest rates? I am not interested by the heavy price the housing market will pay but by the market reaction on the USD. Right now the market reacts based on propaganda -I mean NO action, just words- how is it going to react when -and it will- the FED finally is forced to raise the rates.
    Thank you for your reply.

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  13. 1440 surpassed. 1500s, here we come.

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  14. When you see such obvious manipulation in stocks following the poor ISM #, how can you not like gold? It was like a bell went off over at the Fed/Treasury POMO station.

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