is that the Fed will reverse course in its decision to taper bond buying, and the economy will right itself in another 36 months at the cost of about 18% inflation by that date. Reason: the Fed bond buying program didn't create any high paying jobs, those McJobs at $25K a year don't affect GDP, and the bond buying program has only been a dam to keep us from returning to 2009 levels--or in reality, about half way there S and P 1175. (666+1709/2-1175ish)
It's inflate or crash, and the silver folks are betting on the Fed balking, which will not be what is in the notes from last month, imho, leading to another market selloff this week. Get close to 5% off the high, and those automated trading programs will kick into high gear, and the market rout of the next five years begins afresh.
And more bets on silver and gold if it weakens. The wall of worry for silver longs is simple--only if Yellen shows a Bernankie level of understanding, and he never calls the market turns well, given his experience with the real estate rout as the best example of the worst in don't worry be happy. Summers is insane, and this is a position where insanity doesn't work well. Sanity may not work well either, but all that noise from Summers would not help. I like my economists sober and quiet.
The other risk general stock market risk we've seen is losers make stock mavens sell winners--witness the Nov 2008 and March 2009 debacles.
When you're down 20%, best of the worst is still drowning in losses.
This isn't a wall of worry, it's a fiscal cliff, and it's one month away. An if not Sept, there's Oct, Nov, Dec and so forth. Sometimes the "transparency" works, and sometimes it just magnifies the worst part of what is of issue. Yelling "it's gonna hurt" with a hypo poised to correct the economy is not helping.
Summers pushed for the overturn of Glas Steigal, the beginning of the real estate bubble, the core of why we are in a mess today. I would rather see H.i.t.l.e.r. in charge of B'Nai Brith, that's how little sense it makes to make one of the architects of the current disaster the Fed in charge for the next disaster.
The purpose of Fed Bond buying was not to create jobs. It was to shore up the bank balance sheets. Period.
Near 0 I rates did 2 things for them.The 1/4% spread allowed them to generate nice cap. inflows and most importantly, take down those CDS's on the balance sheet.
The experiment was to see if the by product of this would also inspire lending and shore up the equity markets.
The question is, what happens if I rates go up too fast? Then,do the banks have enough reserves if the combo of high I rates and a doubleish dip hit too quickly?
I rates pop, their balance sheets sour quickly.
The "talk"of taper was also an experiment. To see the market reaction.
So 100 basis points was the reaction, just on talk.
Yellin is no longer the front runner. We need someone who can extricate us from this mess, and she is not the person.
Problem is,no person has a solution. We're stuck as long as real (organic not stimulus)growth is just a dream.
Summers will be chosen because he is viewed as the person who could convince politicians that we'reon the wrong path and it's Congress who must pass tax reform and not cut spending......at the same time.
Could take another scare to get it done. But she could never pull it off. He might.
There is no machination of any sort of monetary policy that can possibly "extricate us from this mess" save shuttering the Federal Reserve Bank and allowing the market to once again function in an unfettered fashion. To believe anything else is to think that "Alice in Wonderland" belongs in non-fiction.
The truth of the matter is that we are on the cusp of fiat failure the world around and only those fiefdoms that have marshalled inventories of gold, silver and rare earth minerals, say the Shang-hai Cooperation Organization members for example, will be able to ride through the coming whirlwind and survive. Already they have the place, the power and the wherewithal to begin the dominoes toppling. All that remains is the determination to push the very first one.
America, already devolved into a police state, will become a very treacherous place to be and extraordinary measures may well be required simply to continue to draw breath.
Sharky, I don't think so. I think the public expects the Fed to support full employment, and the original mission of the Fed, which I agree with you, is the only mission--and that was to prop up the banks, hence, foreclosed paper and securities are still off the books of most banks, and they're only about 2/3rds the way back from the dead.
As long as the PERCEPTION the Fed is walking away will put a hamstring on markets ability to increase hiring, scy fy at its best, that PERCEPTION that the banker on the Monopoly Board can do more than just supply money to buy properties, business must throw the dice, we're in for a big letdown about another 100 basis points from now, because, the Fed has been propping up the market to current levels.
Pull that fiction, out of the equation, housing sours, prices fall so that payments on 5.75% mortgages are attainable by the 78% working real, not McJobs, the overhang comes flooding out of early speculators that drive the market place sellsellsell, the boomers start to downsize four years later than they thought, and market winners get sold off to make up for the losers, and it's crash city.
JMHO. We got about a month to find out. And a month in anticipation, at the rate of 3% off the top till we reach critical mass Sept 30th at 5% off the top, and all those program trades kick in.