WELCOME TO RICHARD FISHER’S “DARKEST MOMENTS”
I wish I could say that I am surprised that Ben Bernanke’s policies are failing, but quite frankly nothing this Fed does ceases to amaze me any longer. His latest folly of QE2 is having profound effects already and it hasn’t even started yet! Unfortunately, it is having its impacts in all the wrong places. The other day, Richard Fisher remarked:
“In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places.”
Welcome to your darkest moments Mr. Fisher. The one thing we can positively confirm about QE2 is that it has not created one single job. But what has it done? It has caused commodities and input prices to skyrocket in recent months. Reference these 10 week moves that have resulted in the Fed already causing “mini bubbles” in various markets:
- Cotton +48%
- Sugar +48%
- Soybeans +20%
- Rice +27%
- Coffee +18%
- Oats +22%
- Copper +17%
Of course, these are all inputs costs for the corporations that have desperately cut costs to try to maintain their margins. With very weak end demand the likelihood that these costs will be passed along to the consumer is extremely low. What does this mean? It means the Fed is unintentionally hurting corporate margins. And that means the Fed is unintentionally hurting the likelihood of a recovery in the labor market.
excellent point TPC, and one I hadn’t thought of really….and on par with another sleeper that occurred to me today…..the effect on demographics and working age population in future if we continue to go down the austerity road, or simply just deal with the economic malaise with ineffective policy. Along with massive skills atrophy, families can be expected to get smaller in future, not bigger….no one can afford ‘em!
Unintentional you say? I think the working and middle classes are getting whipped into line and fleeced. We’ll come out of this with even greater income and wealth disparity, more privatization of social services and infrastructure at all levels, and a severely weakened social safety net.
Love John Hussman’s latest perspective on QE:
“Quantitative easing promises to have little effect except to provoke commodity hoarding, a decline in bond yields to levels that reflect nothing but risk premiums for maturity risk, and an expansion in stock valuations to levels that have rarely been sustained for long (the current Shiller P/E of 22 for the S&P 500 has typically been followed by 5-10 year total returns below 5% annually). The Fed is not helping the economy – it is encouraging a bubble in risky assets, and an increasingly unstable one at that. The Fed has now placed itself in the position where small changes in its announced policy could have disastrous effects on a whole range of financial markets. This is not sound economic thinking but misguided tinkering with the stability of the economy.”
http://www.hussmanfunds.com/wmc/wmc101025.htm
Probably the best de-bunking of QE I’ve ever seen from a purely hard, economic data point perspective…excellent indeed.
So…which stocks/companies will be most impacted by this situation? Which will be impacted with higher costs, lower margins, and have the least ability to pass that onto the buyers of their goods or services?
Cotton limit up overnight. Copper up another 2.5%. Wow. It really is shades of 2008 all over again. We’ve got real underlying deflationary trends and the Fed is creating inflation in all the wrong places….
I think I’ve said it here before QE2 would be nutihng but stagflation.
Agreed. Lower standard of living for average Americans, higher input costs. At least, that’s my take.
the social and political pressure the supposed independant FED operates under insures the wrong things will be done….. as the rest of the government will be just as inept.
nice to sit here monday morning quaterbacking without the phone calls they get from people who put them in their positions of power….think they operate in a vacuum at your peril.
if we had chosen the swedish model we might be really looking up instead of putting off the inevitable.
i continue to invest realizing this inevitability….and it is working well.
My view is that Republicans win enough seats to ensure NOTHING gets done in the next two years….by default, Ben Bernanke becomes (if he already isn’t) the most powerful man in the world. Only independent entity that can do anything at all in this political environment.
Invest accordingly, though it sounds like you already have =)
It is unstoppable until it isn’t.
As Chuck Prince said, gotta dance until the music stops.
So monetary policy isn’t working because of speculators. I HAVE A CRAZY IDEA. Let’s get rid of the 90% of Wall Street who, rather than simply accomplish nothing productive for society, actually hurts society every day. You know what they say about an ocean 8 feet deep in finance industry types….
I love the smell of wall street warfare in the morning….smells like…a battle worth having.
Jon, keep on dreaming. You need to first stop delivering the goodies to the poorest 50%, before you can think of a change. Until then they will be too busy playing with their iPhones and Wiis.
We are going to see “Wall Street warfare” in the ensuing suits arising from foreclosuregate. It’s going to be a battle among the wealthy.
Jon,
Start by going a few posts below this one and read this http://pragcap.com/dollar-doldrums. Now come back and tell us that commodities are up because of speculators.
What QE does is increase the global pool of hot money. Commodities are now considered an asset class. Connect the dots.
“Ben Bernanke’s policies are failing”
That depends on what you think his goals are. I suspect they are not what you think they are.
His goals are obvious. He has a price stability and full employment mandate. At 10% unemployment I’d say he’s failing with flying colors.