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Gradma Yellen wants you to buy stocks July 12, 2014

Posted by hslu in Economics, Global Affair, jobs.
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Yellen said during her press conference that May 2014 inflation rate of 2.1% as represented by CPI was nothing but “noisy.”

Well, so be it even though she had previously suggested that the Fed’s inflation target is 2%.

Well, we know that she is caught between an inflation bubble and the rock hard landing of the asset prices all over the world. Think about it: She can’t talk about inflation because she still has three runs of QE reduction in the amount of $35 billion to do. If she admitted that May inflation data is not a “noise,” she will have to abandon Fed’s QE program right away and talk about raising the Fed’s Fund rate sooner than the mid-2105 time frame expected by the market.

The result will be a 20+% correction in asset prices which will be a more serious disaster than the one happened on May 24, 2013 caused by Bernanke’s interest rate comment.

Since 2% inflation to Grandma Yellen is nothing but noise and since she still needs your risk-on investments in stocks and fixed assets to generate the proverbial trickle down effects, she continued and suggested that the stock market was not expensive based on Fed’s model.

Hmmm…, what model? Was it a Fed’s secret model developed by Ivy League PhDs or former Nobel-prize winners? She didn’t elaborate and nobody asked for clarification. I can tell you it was just P/E ratio of the stock market as compared to its historical values or treasury yields. Nothing fancy at all.

Since Grandma Yellen will take her time to remove QE from the market and since she has committed to ease the market into a gentle landing by her forward guidance, she’ll be forced by inflation surprises at the time when she is least prepared.

Just be prepared for the Black Swan because the market will not be able to take a 350,000+ job report or a few excellent first time unemployment data in the next four to six months.

Syria civil war. Israel and Palestine conflict. Ukraine crisis. ISIS’s declaration of a new Islam state. These events are disturbing but they will have minimum effects on asset prices.

To the financial world, inflation is a more dangerous beast. Yellen has ignored it for now. She has to be careful going forward because after her unimpressive performance at her last press conference the market is unease at her ability already.

You might call now “風雨中的寧靜”因爲”大風大浪”就要來了.

Up, Up and Away! March 21, 2014

Posted by hslu in Economics, Global Affair, Gold, stocks.
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Something is happening at a breakneck speed since 2003 and, yes, you’ve guessed it: the rich get richer, and that’s exactly what Bernanke wanted with his now infamous QEs: trickle down economy.

For trickle down mechanism to work, two things have to happen: First, the rich has to get richer and, secondly, the rich has to spend their riches.

Worldwide 2014 there are:

  • 1,682 billionaires:up 82% since 2003;
  • 37,104 $100-millionaires:up 62% since 2003;
  • 167,000 $30-millionaires:up 59% since 2003.

There is no doubt that the first part of the trickle down puzzle is in place but the riches haven’t spent their money as much as it is needed to move the US economy to break free speed.

That’s why QE3 is still in progress now.

In the mean time, wages for the middle-income population have mostly been stagnant and many of them haven’t benefited by the rising stock and real estate markets because they don’t own that much stock to begin with. The values of their homes have barely moved back to the pre- great recession levels.  Few of them own any gold.

US median Household Income Dec 2007 - June 2013

The US economy has been limping along at 2% for the last 5 years.

Can we call this progress?

Yes, it is for the riches and it is the natural progression of capitalism. It is wealth distribution from the middle class to the top. That’s what is supposed to happen when capitalism is the rules of the game of the society. This has been the rules laid by the United States for other nations to follow for many decades in the past.

Way back in my JH days, I learned in my 公民 classes that, according to 国父孫中山; Dr. Sun Yat-sen, that one of the ill effects of capitalism is inequality of personal wealth between the haves and have-nots. Sure enough, inequality is at its utmost extreme in the United States because the single most important objective of capitalism is the accumulation of profits. With unlimited hot money provided by Bernanke, the riches on Wall Street and other places in the world, sure had a good friend in the most important position in the world.

I kept wondering that when will the inflation time bomb explode?

Emerging Markets – Capital Flights may Continue February 14, 2014

Posted by hslu in Economics, Euro, Global Affair.
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It is estimated that as much as $4 trillion has entered the emerging markets since QE began in 2008. The so-called “hot money” has gone into real estates, currency (carry trade,) stock market and local projects in these countries and has seen their investment handsomely rewarded.

Ever since the hint of tapering in Mid May by Bernanke and the fact that tapering has actually begun, these “hot money” has been stepping over each other to get out of these countries. The results are disappointing stock market returns for many of these countries in 2013. Their currencies also suffered significant loss especially those with current account deficit, trade deficit and minimum foreign currency reserves. Hot money also left high inflation behind, e.g., India, because excessive demands over the years.

Government Bonds and income instruments from these countries also suffered because hot money has left these markets due to currency risks. It is unfortunate for these countries but they have little recourse unless they adopt some kind of capital control to keep funds stay inside their borders. About the only thing they could do to intervene in the currency market and to raise short term interest rates. But these type of actions is futile and damage to their economy was done in the process.

Unfortunately, very few of these countries have taken the advantage of the explosive economic growth over the past five years to embark on necessary structural and government reforms. As hot money left the country, these countries have few resources to deal with the aftermath. India and Indonesia are prime examples.

Blame Bernanke on inequality in US January 28, 2014

Posted by hslu in Economics, Health Insurance, jobs, Obama, Obamacare, Politics, stocks, Taiwan.
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Bernanke’s QEs did little to stimulate the US economy. He added $3.2 trillion to Fed’s balance sheet which grew the US economy ~2.2% per annum since 2009; a little better than inflation. U6 dropped from ~17% to ~14%. Millions of people got out of the labor market. They moved from the unemployment line to the food stamp line.

So what happen to that $3.2 trillion? Some returned to the Fed and earned 0.25% risk free for the dealer banks. The rest of that hot money pumped up stock markets all over the world and housing markets in many cities in the US.

US stock market went up 175% since the 2009 low. It was up about 30% in 2013 alone.

Housing prices in Las Vegas, Phoenix, SF, San Jose, Miami, etc., have gone up by double digits for a few years in a row.

Let me ask you this:

Who benefited from the $3.2 trillion?

The rich guys. They owns most of the stocks.

Gates made $6 billion in 2013 alone and he was worth $67 billion in 2013. Buffett made $7.5 billion in 2013 and was worth $53.5 billion in 2013. Others such as hedge fund managers and Wall Street investment bankers also made millions of dollars since 2009.

Who got rich from the Booming housing markets?

The rich guys. Again.

Millions of former home owners are renters in 2013 and will remain so in 2014. The homes they used to own went back to banks. Banks sold these foreclosed homes to individual investors and hedge funds who borrowed from banks at ultra low interest rates thanks to Bernanke’s QEs.

This outcome doesn’t come from the left field. It was by design.

Bernanke engineered the largest wealth transfer in America’s history: he robbed from the poor and the middle class and handed them over to the rich; people who own most of the stocks and big  houses.

In other words, the gap between the rich and everyone elso got bigger thanks to Bernanke. And he is washing his hands and leave the mess, or 爛攤子, to the next chairman.

This is inequality that everyone from the US to Europe to Taiwan is talking about.

Bernanke wanted A trickle down economy. It didn’t happen. The poor got poorer and the rich got richer.

Everybody knows that the mostbdirect and efficient way to narrow the inequality gap is to engineer a crush of DJIA and bring down the runaway housing market.

That’s govrrnment’s job and Obama is good at it.

He started Obamacare. Health insurance companies will lose money because they canceled millions of policies because they didn’t meet Obamacare’s requirements. In return, they got the old and the sick instead. Unsurance companies are in trouble.

He raised salaries of millions of contract workers to the federal government. Companies which hired these people will make less. Companies who don’t work for the federal government will feel the wage pressure and wages will perk up in time. Companies will make kess.

He’ll probably use his pen to sign an executive order or some kind of  regulation (his words, not mine) to raise the minimum wage. Democrat controlled governments will follow Obama and some (DC) have done it already. Businesses all over the US will see their margin squeezed. Some will hire less. Few will close. Economy will suffer and stock market will come down because earnings will suffer.

What follows next will be the housing market because one who doesn’t have a job will not buy any house.

That’s wealth transfer in reverse direction.

Well, there we go again.

What government gives you, government will take it away. The rich can move their money to foreign countries, look for loopholes or change their investment to avoid IRS’s knife. They have wealth managers who do nothing but that.

The middle class is stuck. They will always be the loyal servants to the 47% until they become one of the 47%.

Bond Market: 1 Bernanke: 0 August 17, 2013

Posted by hslu in Economics, Global Affair.
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Bernanke lost the first run. He was out-gunned by the Bond traders. In the end, Bernanke will lose the war too.

Haruhiko Kuroda (黒田 東彦) will follow Bernanke’s steps into sunset but Kuroda, along with Shinzō Abe (安倍 晋三,) will be even worse off because of Japan’s national debt currently running at ~215% of Japan’s GDP.

US Interest rates and Yield Curve

US Interest rates and Yield Curve

Bond vs Equity 1962- 1983 July 14, 2013

Posted by hslu in Economics, Global Affair.
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Bond vs Equity 1962- 1983

This is a busy slide. Read it carefully and you’ll get my point.

Bond has made a bottom more than a year ago. The secular bear market for Bond is in all because of Bernanke. Just keep this in mind: normal interest rate for 10-year T-Note can go to 5% without Bernanke’s QE.

Equity may benefit from the “Great Rotation” though.

We will see.

Currency War: US dollar vs Renminbi April 13, 2013

Posted by hslu in China, Cold War, Economics, Global Affair.
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Step by step, Chinese’s currency is chipping away green back’s dominance on the world’s stage. The latest player coming on board is France, according to a Reuters article. It appears that France likes to set up a direct currency swap line with China and what’s left to decide is the terms of the deal in terms of the size of the swap and its duration.

http://mobile.reuters.com/article/businessNews/idUSBRE93C01S20130413?irpc=932

The reason is simple to understand: the US dollar is losing its value thanks to Bernanke. France is simply looking after its own interest because there is BIG money to be made in direct trades with China and on being a hub of Europe’s Renminbi trading center. If France does not act fast, it will lose the fight to London forever.

France’s brand new president will visit China and an announcement is expected soon.

America is making new friends with Vietnam and Phillipines and swears to help Japan in a war. It has made major shift of its military might to the Asian theater since a couple of years ago under Clinton. The sole intent is to block the advancement of China.

China knows that and China is avoiding direct conflict with America because its military is nit even one tenth of the size of that of the US.

Instead of fighting the US with guns, nuclear missiles and air carriers, China is fighting US on the economic front. The fight will be long and hard, but China is very patient.

Besides, China doesn’t have $16.5 trillion debt. It doesn’t have 9 air carriers or billion dollar fighter jets (that’s a billion dollar each) to support either. Oh yeah, did I mention Obamacare? That will definitely be a deeper hole for Americans to dig themselves out with.

Hmmm……. 鹿死誰手還待下回分解!

I for one is waiting patiently too.

Should China Label the U.S.a Currency Manipulator? Yes, of course. November 30, 2012

Posted by hslu in China, Economics, Euro, Global Affair, Obama, Politics.
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Obama administration has just decided not to label China a Currency Manipulator.

For good reasons.

Actually, the real question should be “Should China label the U.S.a currency manipulator? ” The answer is, of course, “yes!”

Just ask Bernanke! He’ll tell you that’s exactly what he intended to do and we have WSJ to prove this: “Bernanke wanted developing economies to let their currencies appreciate.”

http://online.wsj.com/article/SB10000872396390443749204578055600111447318.html

All that fiat money printed by Bernanke for QE3, $40 billion every month until who know when, is searching for higher yields and a lot of that has gone to the purchases of currencies of foreign countries.

America is not only manipulate the US dollar, it even wants to manipulate other weaker countries’ currencies.

It really give “currency Manipulator” a new meaning.

 

Whether Bernanke succeed or not is not the question answer

 

 

Bernanke is at it again, but July 13, 2011

Posted by hslu in Economics, Energy, Global Affair, Gold, jobs, Oil, Politics, stocks.
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Will QE2.5 and QE3 generate jobs?

The answer is “NO.”

It will pop up stock market which Bernanke is intended to do. The rational behind that is people will feel richer and will spend more, hence, stimulate the sagging economy.

But the next run of printing will inevitably increase the commodity prices which will negate any wealth effect bought on by higher stock prices.

Here is the $64 million question:

Will you go out buy a car or a house if your stock portfolio is up by 15% but you food and transportation cost is up by $250 a month?

No way. Not when your neighbors are out of work since March and your wife’s job is on the line.

That’s why QE2 didn’t work and that’s why QE2.5 and QE3 will not work either.

But inflation will be worse all over the world and we will all suffer because of Bernanke’s reckless action.

A $116 billion hole for Portugal May 4, 2011

Posted by hslu in China, Economics, Global Affair, Politics.
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In the midst of euphoria of Osama’s death “possibly” in the hand of  US navy seals, a story about Portugal $116 billion bailout didn’t get any attention on the main street media.

Countries like Portugal, Greece, Ireland and Italy, they owed so much money that they have no way of paying it back. And the solution to the problem: lend them more money.

Yes, they get more money from many sources with the knowledge that they may never be able to pay the original debt back , let alone the new lending they just got.

They had to borrow money from other EU countries simply because they can’t print Euro themselves.

Well, The United States isn’t doing any better but the United States has something these other countries didn’t have: America has four or five mints with printing presses operating at full speed: every day, every evening and every night.

You know that you know what will hit the fan when US dollar loses its reserve currency status.

Well, that won’t happen for a while but IMF is doing something in the background and one of these days it will happen.

In the mean time, let the good time roll and enjoy.

The hole which America is digging for itself is bigger than all the other holes combine.

The structural change in US economy and the prolonged depressing state of the housing market will make the situation even worse.

Do not believe Bernanke and his public statement because he has let the cat out of the bag and has stubbornly ignored the increasingly worsening inflation problem in the US and all over the world.He has consistently denied that inflation is happening until his first public news conference.

He was trying to set up America people for his mistakes, i.e., the extremely loose monetary policy.

The inflation cycle has just begun and it will not end easily. Bernanke has more than $2 trillion on his balance sheet and more than $2 trillion-dollar in the economy. He is waiting for a chance to sell what he has on his book but it will increase interest rate and hurt the economy that is still trying to find its footing.  When he finally starts to sell them, look for interest rate to pick up which will need more of our tax money to pay for the interests on the national debt.

In the mean time, China, India, Singapore, Australia, South Korea, Vietnam, Thailand, EU, England, Switzerland, and Brazil have raised their key interest rates in order to fight inflation caused by the loose monetary policy of the US Fed, i.e., Bernanke.

Even Nigeria, a country which relies oil export for almost 90% of its GDP, has raised its interest rate because of economic forces beyond its border..

It is no secret that Bill Gross, the $1.2 trillion PIMCO Bond fund had dumped all his US treasury holdings because he is very negative on US dollar. He went one step further and has shorted US treasuries because he sees the US dollar will be less valuable in the near future.

When Bill Gross stops buying US treasuries in the tune of a couple of hundred of billions, investors will demand higher interest rates.

Buckle up, Americans, the road of inflation will be very bumpy. We are going downhill fast!

And the view isn’t going to be pretty at all.

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