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The Fed is day dreaming again July 17, 2017

Posted by hslu in Economics, stocks, Stocks.
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Source: Deutsche Bank, Torsten Slok 

The Feds have been consistently optimistic about their ability to predict the arrival of inflation, hence the need to raise interest rate. This chart from Deutsche Bank’s Torsten Slok says it all. The mid points discussed in the chart refer to Fed’s famous dots which are Federal Reserve governors’ predictions of where interest rates will be in the future.

Btw, the Feds haven’t been able to predict the arrival of recessions in the past either. Ditto on asset bubbles and financial crisis.

If they were students in a school, they will get an F based on their records.

After all, the Feds governors are mere mortals. Fed’s recent rate hikes to fight the threat of inflation are probably nothing more than figments of Feds governors’ imaginations.

In engineering language, the governors pick a number from thin air before a board meeting, apply a fudge factor, consider historical trends, add their own intuitive judgement, pass it around for comments, make the necessary modification and call it their official predictions.

The bigger questions are:

  • Why are they so wrong in their predictions in the past,
  • Didn’t they learn from their past mistakes and apply one more adjustment, say a cross the board reduction of 40% to their guesstimates?
  • Does anyone in the financial world listen to them and use their numbers to make investments accordingly?
  • Should individual investors just ignore them all together?

Should these governors be replaced since they fail their tasks so many times?

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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