When Will The Federal Reserve Begin Printing Money?

Not being an insider, I don’t know. However, here are some of the estimates: 1.When the S&P500 gets down to 1150 (currently at 1290) where it was last December. 2.When the 10 year Treasury yield gets down to 1.5% (where it was the last time they intervened.) 3.When we get a series of really bad numbers on the economy (like the Philadelphia Fed report last week.) 4.When Chairman Bernanke “sees” prices decline (i.e., Consumer Price Index) as he fears deflation. 5.When Chairman Bernanks needs to keep the dollar from rising too high (which hurts exports and the recovery) and because he needs to support the Euro to prevent a disaster. 6.When Chairman Bernanke needs to help the European Central Bank flood the financial system with liquidity if/when Greece votes to exit the Euro and austerity.

Are We Headed For A Recession Or Another Money Bounce?

May 16, 2012 As I have been saying for some time now, the U.S. economy is headed toward “another” recession within the next few months, maybe June or July. The only thing that will temporarily stop and reverse this trend is another huge stimulus package or more money printing by the Federal Reserve. Printing and spending more money will not solve our economic problems, it will only make matters worse in the long-term because the money will be gone and the debt will be even higher (Thanks Grandpa!) BUT, it will produce some hopium to lift the economic numbers and the market. This seems to be the politicians’ only solution to the problem. But, even this is getting more difficult to accomplish. In the first three months of this year, over $300 billion was “printed and pumped into the economy” yet GDP only increased a little over $150 billion. There are a lot of reasons for the view described above including: 1.Money Supply. With QE’s done and the “Twist” program about to end, the pace of money coming into the economy has been slowing down for a couple of months. The pace of money injection is as important as the amount and has about six month lag time. 2.Credit. The yield curve (the price of credit over time) is being artificially held down by the Federal Reserve forcing savers and investors to take on more risk to get any yield. However, for the past few weeks, the credit markets have been telling us that an economic slowdown is coming. For, example, the yield on the 10 year Treasury is down to 1.75% and on the other side of the coin, the price of high yield instruments have been selling off (pricing in recession risk.) 3.Economic Indicators. The forty some economic indicators that come out each month have been showing many negatives, regardless of the “Headline Spin” being used to make it sound like things are improving. For example, for the past month, the weekly “Unemployment Claims” have carried headlines stating that the numbers of claims are down from the previous week. Yet, each week, they report that the claims the prior week were adjusted upward resulting in the current week’s claims being less. Net result is claims were up for the month but they were reported down each week. Shouldn’t random adjustment go in each direction? 4.There are also a lot of headwinds to be resolved like the deficit ceiling (estimate we will have to raise it again in October), 2013 budget (September), the “Doc Fix” for Medicare (December), the “Bush Tax Cuts” (December), and lots more. Did I mention it’s an election year? Back to paragraph one. This economy is headed for another recession and the only way politicians know how to change that trajectory is by printing more money. Therefore, I expect to see some form of QE3 or Stimulus soon; maybe at the June Fed meeting.

A Marginal Improvement in Employment? Maybe.

May 7, 20012 April’s Non-Farm Employment Report showed an increase of 115,000 jobs plus an additional 59,000 jobs in revisions for February and March. Unemployment rate dropped to 8.1% (due to reductions in labor force participation.) This is a marginal improvement because it exceeds the estimated number of new people entering the labor force each month. Also, long-term this number is very important; but this data point is a lagging indicator not a leading indicator. The two leading indicators in this report: (1) wages, which were unchanged (negative if inflation included) and (2) hours worked which was unchanged as well at 34.5 hours per week. The net result was a very weak report. This means both political parties will shout that something has to be done. The Keynesian-Left wants the government to borrow even more money for another round of stimulus to “fill the gap” in consumer spending; and then reduce spending sometime in the future. The Keynesian-Right wants the government to borrow even more money to reduce taxes and stimulate supply; and then reduce spending sometime in the future. Do you think the economists or the politicians really know what supply and demand means or how it works? If they did, they would attack the cause rather than the symptom. There are a couple of real concerns however in this jobs report. One is that the model used to seasonally adjust this data has not been adjusted for the warm winter whether. The seasonally adjusted model has now added about 4.9 million jobs (jobs the government expects will materialize in the future) which will be re-adjusted (removed) from the actual numbers later in the year. Hopefully that will happen. The other concern is that we are loosing full-time jobs (-812,000 in April) and replacing them with part-time jobs (+508,000 in April). What kinds of jobs are being created? This trend has been going on for some time now. This may also be a reason that wages are not moving higher. With 90,000 people entering the workforce each month, and an election only months away, this slow jobs growth problem will become very important. Can you say QE3?