While Fed's Fisher explains how Fed policy has benefitted the rich, President Obama (and Joe Biden) are in front of the teleprompter to explain how great it all is for the rest of Americans... cue class warfare...
Following yesterday's significant volume and major short-squeeze ('most shorted' ramped 4% off the lows), today saw neither with volumes light and equity performance prety much balance across the board. Most of the strength occurred overnight with stocks dumping off the open, ramped on Europe's close, modestly sold on Yellen's speech, then ramped into the close. The Dow and Trannies made it all the way back up to unchanged from the March FOMC statement/press conference. Every status quo hugging asset-getherer heard what they wanted from Yellen - except that Treasuries sold off at the short-end and flattened dramatically to near 5-year lows (not exactly the dovish hype headlines are made of). Copper jumped and oil dumped with gold and silver treading water on the day. VIX was monkey-hammered lower and stocks tracked it. Bottom line, while stock bulls hear dovishness, bond traders are calling Yellen's bluff.
Who do you believe?
The only chart that matters...
Dow back into the green from the March FOMC...
and Trannies leading the way on the week
High beta growth hype stocks are back in the green on the week with TWTR just fucking awesome dude...(before you breeze by - look at the scale of performance shifts in th elast 3 days... that's a 24% swing)
VIX has roundtripped from last week's highs and stocks are trading tock for tick with it...
Treasuries changed course notably on Yellen's speech...
Talking heads prefer to believe that stocks strength was on the back of "dovish" talk from Yellen but the following chart shows the market's reaction... not exactly buying her talk...
5s30s dropped below 180bps to the lowest since oct 2009
"most shorted" stocks are up 4% off yesterday's lows (double the market's performance) as it seems the big push into shorts was just too much for the market to bear and the snap back was just as vicious. Notably today's flatness saw little to no focus on short-squezes...
Bonus Chart: A reminder of the "costs" imposed on Russia (relative to the US)...
In a curious departure from convention, the Goldman-backed, HFT-evading pseudo dark pool IEX, made famous in Michael Lewis' blockbuster "Flash Boys" has decided to post daily volume stats of its operations. And whether it is due to the advertising by the iconic bookwriter, or because increasingly more brokers are switching over to IEX, it appears that new trading venue is gaining traction: according to its own reporting, on April 15, IEX recorded its highest volume day yet, recording nearly 38 million single-counted trades.
Granted the data is only available for April, but what is clear is that unlike most other trading venues which are having significant problems with boosting their volumes, for IEX, at least early on, this is not an issue.
Of course, the overall orderflow still are tiny in context, but the early trend is visible, and as more traders migrate to IEX it is almost assured that the exchange will become an increasingly more popular venue for the likes of the Schwabs of the world who suddenly, after five years, figured out that HFT is nothing but a cancer and is demanding a non-frontrunnable venue.
The other statistics reported by IEX are as follows:
Today’s AM fix was USD 1,299, EUR 938.58 & GBP 773.03 per ounce.
Yesterday’s AM fix was USD 1,311.50, EUR 950.43 & GBP 784.06 per ounce.
Gold dropped $23.80 or 1.79% yesterday, closing at $1,302.90/oz. Silver lost $0.37 or 1.85% yesterday to $19.62/oz.
Gold in U.S. Dollars - April 15 to April 16, 2014 - (Thomson Reuters)
Gold was pinned at $1,300 an ounce, well off Monday's high at $1,330.90. The sharp sudden price fall yesterday in early afternoon trade in London (see chart) was attributed to more peculiar computer-driven concentrated selling of huge tranches of gold futures contracts on the COMEX, which then saw heavy stop-loss orders placed by momentum traders.
Data from Nanex shows that gold futures contracts with a notional value of nearly $500 million dollars were sold in minutes. This, not surprisingly, hammered gold futures down over $12 and led to the futures exchange having to halt gold trading for 10 seconds. This sudden price fall resulted in gold falling below its 200-day moving average (DMA) and to selling by momentum traders piling in and shorting gold.
Gold quickly recovered from the concentrated selling with buyers stepping up to take on the liquidators. Demand appears to be ticking up and holdings in the SPDR gold fund rose by 0.6 tons to reach 806.82 following a three-week downtrend in holdings. Assets rose by 1.8 tons on Monday to 806.22 tons, the first inflow the fund has seen since March 24th.
Gold’s losses were kept in check by fears of further escalation of tension in Ukraine. Our warning yesterday of conflict and a civil war in Ukraine was echoed by Putin and Medvedev overnight.
Gold in Euros - Jan, 2009 to April 16, 2014 - (Thomson Reuters)
Ukrainian forces began a military crackdown against what are being called pro-Russian separatists in the eastern regions of the country. The so-called ”anti-terrorist” operation is the new government’s response to people, some armed, taking control of administrative and police buildings in the East.
The local parliaments of the Donetsk and Lugansk regions elected the creation of independent, sovereign states, and called for referendums on ceding from Ukraine, much like the events in the Crimea.
Ukrainian troops retook state buildings from ethnic Russians in the eastern Donetsk region yesterday. White House spokesman Jay Carney said while the U.S. is considering military assistance to Ukraine, lethal aid isn’t an option at this time.
Thursday will see 4 way talks in Geneva, hosting senior representatives from Ukraine, Russia, the EU and U.S. It is hard to see how progress will be made given that economic sanctions remain and look set to intensify.
Yesterday, these not inconsequential geopolitical risks and robust physical demand internationally could not overcome the speculative selling and possible high frequency trading (HFT) manipulation on the COMEX.
Bail-Ins Approved By EU Parliament Yesterday - Deposits Over €100,000 Vulnerable
Yesterday the EU Parliament adopted three key texts outlining common rules on how to restructure and resolve failing banks.
The laws make up what has become more commonly known as Europe's banking union and include the creation of a Single Resolution Mechanism and a €55 billion Single Resolution Fund for banks in difficulty. The law was approved by the parliament with 570 votes in favour and 88 against.
Importantly and little commented on is the fact that they also include the Bank Restructuring and Resolution Directive, which seeks to shift the burden of bank failure from taxpayers to creditors - both bond holders and depositors.
Another key piece of legislation approved yesterday was the Directive on Deposit Guarantee Schemes, which says that bank deposits up to €100,000 will remain protected from any loss that a bank may incur. This means that deposits over €100,000 are now vulnerable to bail-ins and deposit confiscation.
Now shareholders and creditors including depositors over the €100,000 level will be the first to face losses from a bank failure and there remains a real risk of that in the EU.
European banks have been recapitalised but should the sovereign debt crisis return or a new global systemic crisis happen, à la Lehman Brothers, individual banks may again face capital shortages - see here.
“Bail in will be the main way to solve the problems," said Swedish MEP Gunnar Hökmark. “Bank resolution will be funded by creditors via bail ins and will also by resolution funds which will be funded by banks for banks."
“Bail-in” enshrined in the two laws, means that the bank’s owners - the shareholders, and creditors - the bondholders and depositors, will be first in line to absorb losses banks will incur, before outside sources of finance may be called upon.
The two EU laws on bank resolution will also require banks to finance reserve funds to cover further losses, but only after bail-ins have been used.
Bail-In Regimes are coming in the EU, the UK, the U.S. and internationally …
Bail-In Short Guide: Protecting your Savings In The Coming Bail-In Era
Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications
Now the vacuum tubes are really in trouble. Bloomberg reports that the NY AG Schneiderman is making good on his threat to go after (it remains to be seen if this is more than a publicity stunt, and actual enforcement actions follow) several New York HFT firms. Bloomberg reports:
- NY AG SAID SEEKING INFO ON SPECIAL ARRANGEMENTS WITH DARK POOLS
- NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING JUMP TRADING
- NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING CHOPPER
- NY AG SAID TO SEND SUBPOENAS TO FIRMS INCLUDING TOWER RESEARCH
Surely Goldman was in no way aware of this coming crack down wave on HFT traders when it washed its hands of the entire industry, and effectively gave up on the trading space in its current format.
We doubt this will go anywhere - after all go after HFTs and the rigged market gets it - but the idea of a vacuum tube doing a perp walk is strangely appealing.
"Pro-Russian Separatists" Attack Ukraine Soldiers With Guns, Molotov Cocktails, Local TV Station Reports
Having been on the receiving end of Ukraine special forces for the past 48 hours, it appears the "pro-Russian separatists" have decided to fight back.
- PRO-RUSSIAN SEPARATISTS ATTACK UKRAINE SOLDIERS: HROMADSKE
- PRO-RUSSIAN SEPARATISTS ATTACK UKRAINE MILITARY BASE: HROMADSKE
- SEPARATISTS USE GUNS, MOLOTOV COCKTAILS IN MARIUPOL: HROMADSKE
- SEPARATISTS ATTACK SOLDIERS IN E. UKRAINE'S MARIUPOL: HROMADSKE
Considering the source is a local Ukraine TV station, one should take the news reported by Bloomberg, with a big grain of ketamine, however also considering the 3:30pm ramp appears to be late today (or was front run repeatdly earlier on in the day), this may just be the "bullish" catalyst the "market" needs to close at the day, if not all time, highs.
More as we see it.
While the law has been something the US government and General Motors have been willing to 'bend' or break in the past (absolute priority 'shifts' in bankruptcy), we suspect this latest move by Mary Barra's new GM will do more PR damage. Simply put, as many suspected given Barra's testimony and comments in the past, Reuters reports that General Motors Co will ask a bankruptcy court to block any litigation of the alleged deaths associated with the ignition switch problem since they are related to the automaker's pre-2009 bankruptcy. Of course, as we noted here, the Feds are probing the company over whether they knowingly committed bankruptcy fraud.
General Motors Co said it would ask a U.S. bankruptcy court to bar plaintiffs from proceeding with lawsuits against the automaker for claims related to any actions before it filed for bankruptcy in 2009.
The plaintiffs have alleged that they bought or leased vehicles that contained an ignition switch defect. The defect has been linked to the deaths of at least 13 people and resulted in the recall of 2.6 million GM vehicles.
GM said it would shortly file a motion in the Bankruptcy Court for the Southern District of New York to enforce an injunction contained in its sale order, which the company said bars plaintiffs from suing the reorganized company for any claims related to the predecessor company.
Federal authorities are investigating whether General Motors hid an ignition switch defect when it filed for bankruptcy in 2009, The New York Times reported on Saturday.
The Justice Department's investigation of the automaker includes a probe of whether GM committed bankruptcy fraud by not disclosing the ignition problem, a person briefed on the inquiry told the Times on Friday, the paper said.
Authorities are also investigating whether GM understated the defect to federal safety regulators, the Times said.
The investigation is being run by FBI agents and federal prosecutors who worked on the fraud case against Toyota that ended in a $1.2 billion settlement last week, the paper said.
We wait with baited breath for outcome of this decision and how GM will spin this - and if the US government will bend the law once more... this time in favor of the families of the dead.
As the EU seeks a closer association with Moldova, the 97% pro-Russian state of Transnistria (that we first warned was next here) is accelerating its move towards independence. As Bloomberg reports, despite condemnation by Moldova's government of the "direct defiance", the Transnistria Assembly has approved an appeal to Russia to recognize the region's independencee. Neighboring Romania is "worried" and there are growing 'actions' by the so-called "Supreme Soviet" in the region's capital.
Who is next?
As Bloomberg reports,
Moldova’s breakaway pro-Russian region of Transnistria has appealed to Russian President Vladimir Putin to recognize its independence after Russia’s annexation of Crimea.
The appeal by the Parliament of Transnistria, city and district council members and community associations “express the aspirations of the people of Transnistria” and is based on the results of referendums held in 1991, 1995 and 2006, the parliament of the unrecognized state said on its website.
The Transnistrian parliament’s appeal is a “direct defiance” of Moldova’s territorial integrity and efforts to settle the territorial dispute, the country’s government said in a statement on its website.
Russia has maintained troops in Transnistria since the 1992 military conflict with Moldova as part of a peace-keeping force that includes Moldovans, Transnistrian militants and Ukrainian military observers.
However, it seems the Transnistrian and Moldovan government is busy with other matters... Nina Shtanski (minister for foreign affairs) and Deputy Chairman of the Central Transnistria Olga Radulov made news after agreeing to model clothes in a local charity auction - "I do not believe that the main task of the members of the government - to show clothes," - said the prime minister.
In summary, a nation bordering Russia is being chased by the European Union for closer association... a region in that nation is extremely populated by a pro-Russian citizenry and they are seeking independence and closer association with Russia... 'activists' are taking action in the region's capital... the government is deloring the "direct defiance" - how dare people have free will? And a neighboring nation is worried of the consequences...
Ring any bells?
We noted last year:
American democracy – once a glorious thing – has devolved into an oligarchy, according to two leading IMF officials, the former Vice President of the Dallas Federal Reserve, the head of the Federal Reserve Bank of Kansas City, Moody’s chief economist and many others.
But don’t take their word for it …
A new quantitative study by Princeton’s Martin Gilens and Northwestern’s Benjamin Page finds that America is not a democracy … but is an oligarchy.
Here’s a quick visual overview from the study:
In other words, when the fatcats want something, it will probably happen. But when the little guys want something … not so much.
Highlights from the study:
A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. This paper reports on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues.
Economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence. Our results provide substantial support for theories of Economic Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.
Very few studies have offered quantitative evidence concerning the impact of interest groups based on a number of different public policies.
Prior to the availability of the data set that we analyze here, no one we are aware of has succeeded at assessing interest group influence over a comprehensive set of issues, while taking into account the impact of either the public at large or economic elites – let alone analyzing all three types of potential influences simultaneously.
The chief predictions of pure theories of Majoritarian Electoral Democracy can be decisively rejected. Not only do ordinary citizens not have uniquely substantial power over policy decisions; they have little or no independent influence on policy at all.
By contrast, economic elites are estimated to have a quite substantial, highly significant, independent impact on policy.
These results suggest that reality is best captured by mixed theories in which both individual economic elites and organized interest groups (including corporations, largely owned and controlled by wealthy elites) play a substantial part in affecting public policy, but the general public has little or no independent influence.
When a majority – even a very large majority – of the public favors change, it is not likely to get what it wants. In our 1,779 policy cases, narrow pro-change majorities of the public got the policy changes they wanted only about 30% of the time. More strikingly, even overwhelmingly large pro-change majorities, with 80% of the public favoring a policy change, got that change only about 43% of the time.
Our findings probably understate the political influence of elites.
What do our findings say about democracy in America? They certainly constitute troubling news for advocates of “populistic” democracy, who want governments to respond primarily or exclusively to the policy preferences of their citizens. In the United States, our findings indicate, the majority does not rule — at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose. Moreover, because of the strong status quo bias built into the U.S. political system, even when fairly large majorities of Americans favor policy change, they generally do not get it.
If policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.
And not only do we not have democracy, but we also no longer have a free market economy. Instead, we have fascism, communist style socialism, kleptocracy, banana republic style corruption, or – yes – “oligarchy“.
Despite Janet Yellen's meet-and-greet with the unemployed and criminal classes, the absence of Ben Bernanke has seemingly empowered several Fed heads to be just a little too frank and honest about their views. The uncomfortable truthsayer this time is none other than Dallas Fed's Fisher:
- *FISHER SAYS FED POLICIES HAVE MADE THE RICH 'MUCH RICHER' (but...)
- *FISHER: UNCLEAR IF FED POLICIES WILL BENEFIT THE MIDDLE-CLASS
We wonder how President Obama, that crusader for fairness, equality and all time Russell 2000 highs, will feel about that? In the meantime, just like the Herp, QE is the gift that keeps on giving.. and giving... and giving... to the 0.001%.
All of this, of course, coincides awkwardly with Bernanke's heartfelt "admission" that "my natural inclinations, even if it weren’t for the legal mandate, would be to try to help the average person." As long as helped to boost the wealth of the non-average billionaire., all is forgiven. "The result was there are still many people after the crisis who still feel that it was unfair that some companies got helped and small banks and small business and average families didn’t get direct help,” Bernanke said. “It’s a hard perception to break." The truth, as again revealed by Fisher, will not help with breaking that perception.
Remember, it's for Main Street...
Just keep repeating to yourself - The government is here to help and Yellen is for the little guy...
While overall the beige book was an absolute snoozer, almost as boring as Yellen's earlier appearance at the economic club of New York, and its core message were quite bullish, namely that:
- EIGHT OF 12 FED DISTRICTS SAY GROWTH `MODEST OR MODERATE'
- FED SAYS ECONOMIC GROWTH `INCREASED IN MOST REGIONS' OF U.S.
- FED SAYS LABOR MARKET CONDITIONS `MIXED BUT GENERALLY POSITIVE'
... confirming that the Beige Book contributors did not get the "ignore the dots" memo, the only "exciting" thing that everyone was looking for: what the Fed thought about the weather. Because with 103 instances of the word "weather" in the report (granted less than the 119 in February), it sure thought a lot.
- Consumer spending increased in most Districts, as weather conditions improved and foot traffic returned.
- Manufacturing improved in most Districts. Several Districts reported that the impact of winter weather was less severe than earlier this year.
- Demand for food production declined in the Boston, Richmond, and Dallas Districts; however the drop was primarily weather related.
- New York and Dallas reported especially strong increases. New York, Philadelphia, Cleveland, and Richmond cited the inclement weather as a factor reducing home sales and therefore mortgage borrowing.
- Agricultural reports were mixed, as weather disruptions delayed crop plantings and shipments of commodities.
- Retail sales in New York rebounded strongly from weather-depressed levels, while cold weather continued to hold down consumer spending in Cleveland.
- Sales of cars and light trucks picked up in recent weeks as the weather improved and consumer traffic returned to dealerships.
- Some contacts suggested that cold weather had decreased travel.
- The Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, and Dallas Districts noted that lingering winter weather hampered business activity, but the impact was less severe than earlier this year.
- The Chicago District indicated that steel production recovered from a weather-related slowdown and capacity utilization returned to its expected levels.
The embarrassment continues in the full book (link). Luckily, there was only one case of "pig virus"
Full April beige book word cloud:
Submitted by David Stockman via Contra Corner blog,
What would we do without the Wall Street Journal? Do people actually pay for this lame-brained noise?
In fact, we are now entering the fifth season of head-fakes about “escape velocity” acceleration in as many years. Yet the Wall Street stock peddlers and their financial media echo boxes are so fixated on the latest “delta”—that is, ultra short-term “high frequency” data releases—that time and again they serve up noise, not meaningful economic signal. The former is perhaps good for a pre-open futures ramp by the algos upon the 8:30 AM headline release, but nearly useless as to the real direction of America’s struggling economy.
The WSJ headline writer quoted above might have at least noted the context in which the 1.1% seasonally mal-adjusted bounce for March was reported yesterday. It seems that even giving allowance to what the Fed believes to be the ”insufficient” level of consumer inflation in recent months that the February starting point for yesterday’s report was down nearly 1% from its level last September. So when the winter storms are all said and done and the inflation adjusted retail number for March is published, it will be back to about $183 billion on the graph below—a level obtained around Columbus Day last fall. It’s a good thing summer’s coming!
The larger point here is that the Kool-Aid drinkers keep torturing the high frequency data because they are desperate for any sign that the Fed’s $3.5 trillion of QE has favorably impacted the Main Street economy. And that’s important not because it might mean some sorely needed income and job gains for middle America, but because its utterly necessary to validate the Fed’s financial bubble. Without ”escape velocity” thru and sustainably above 3-3.5% GDP growth, there is no chance of a corporate earnings re-acceleration or the 20-30% gain in S&P 500 profits that are baked into the current forward PEs ($130 per share vs. reported LTM of $100).
Yet is it really not that hard to strain the noise out of the numbers. The starting point is to recognize that the Keynesian economists’ almost maniacal focus on monthly releases and quarterly GDP numbers has always been a giant mistake— and not only because they are so consistently and significantly revised after the fact owing to plugs, guesses and imputations in the early releases. The real problem is structural because quarterly GDP numbers are based on 90-day rates of ”expenditure”. The latter contains huge oscillations in the economy’s inventory stocking and destocking function, and therefore can drastically mis-convey the underlying trends.
During the past 18 quarters for example, real inventory change has ranged from -$207 billion to +$127 billion, with points up and down the range during the interim. So a far more sensible use of even the flawed GDP data is to look at the year-over-year numbers for real final sales. That captures the trend and thereby filters out the four fake GDP accelerations that Wall Street has been gumming about since the end of the recession.
Here are the numbers. During the year ending in Q4 2010—the first year of “recovery”—real final sales expanded at a 2.0% rate. The next year there was no acceleration. Real final sales in the year ended in Q4 2011 was 1.8%—then it slightly bounced to 2.5% in 2012. And then, despite the initially reported big GDP acceleration in the second half of 2013, no such thing actually happened.
In fact, the four quarter gain in real final sales as of the most recent reporting on Q4 2013 was just 1.9%; and given the weak spending data already in for Q1 2014, its virtually certain to weaken even further during this quarter. In short, based on any reasonable and adult assessment of the numbers for the last 51 months, there has been no acceleration whatsoever. The economy is bumping along the bottom at 2% and that’s it.
Moreover, the problem with the 2% trend who’s name cannot be spoken is that it invalidates the entire bubble recovery scenario in which the inhabitants of the Eccles Building and their Wall Street overlords are completely invested. What has actually happened since the fall-winter 2008 crisis is that there was a drastic and unavoidable one-time liquidation of excess business inventories and phony jobs that had built-up during the Greenspan housing and credit bubble years, but that was nearly over by June 2009. This is documented in detail in Chapter 28 of my book, The Great Deformation (see pp 583-588, “The False Depression Call That Petrified Washington”).
Since then, the natural regenerative forces of our $17 trillion capitalist economy have been slowly inching output, income and employment forward at the aforementioned 2% rate— if you believe the official inflation data, and well less than that in reality. But the Fed’s massive money printing spree has nothing to do with it because the credit expansion channel of monetary policy transmission is broken and done.
As I have repeatedly mentioned, once “peak” business and household leverage ratio where reached in 2007-2008, the Fed’s massive liquidity injections operated almost exclusively through the Wall Street speculation channel. And that is exactly what has lead to forlorn quest for “escape velocity”.
The trailing 12 months reported EPS for the S&P 500 in Q4 2011 was about $90 per share, and today it is about $100. But while earnings have grown only 5%/year on a mechanical basis, and hardly at all after giving allowance to the massive, cheap-debt fueled stock buybacks in the interim, the broad market has bubbled upwards by more than 40%. In other words, its now extended out on the same peaks—about 19X trailing profits—that were obtained before the crashes of 2000-01 and 2008-09.
Nevertheless, the Wall Street talking heads can’t help themselves with the constant ridiculous refrain that the consumer is back, and its soon off the races:
The linchpin of economic growth, the consumer, is back,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi.
Oh, really. Real wage and salary income is only 2% above its level 73 months ago when the economy last peaked. And after a salutary rebound in the savings rate during the Great Recession, the household savings rate has been drawn down to its unsustainable bubble lows. But pettifoggers like Rupkey just keep pouring the Kool-Aid.
So the Fed sponsored Wall Street bubble inflates to its final asymptote. When the inevitable bust occurs, it will trigger a sharp retrenchment in business inventories, investment and consumer spending, but the usual suspects will say its time to restart the Keynesian Clock. That being the one that is now permanently broken but never acknowledged by our rulers in the Wall Street-Washington corridor— who long ago threw sound money and the laws of economics to the winds in a desperate attempt to hang on to ill-gotten power and wealth.
In any event, in today’s post by Jeffrey Snider, it is evident that we just had winter; that the three month retail spending average including the ballyhooed March bounce was the second weakest of this century, and that the fifth annual spring time leap into “escape velocity” is nowhere in sight.
Enlightened Self Interest and Financial Industry Hypocrisy
Chapter Two of Three
We Eat What We Sow
An Old Fashioned Rant By
Chapter One may be found here.
I've written before about unspoken and unacknowledged collective understandings, where the herd cognitively gathers in agreement as if compelled by a special attractor, but without clear and acknowledged leadership. The dynamics of crowd psychology are not well known to the average Jane and Joe, yet it does have an effect even when the crowd is widely disbursed. Some might call this the collective unconscious, others simply the collective will or the herd mentality.
As infuriating as this concept is to some people because it points a finger squarely back at ourselves, the Federal Reserve is powerless without us agreeing to buy in and dance to the music, however reluctant some of us may be. Ultimately it is our own personal decision to pursue our perceived best interest that imbues the system with its controlling power. Combine this with a deliberately rigged game that relentlessly drives us in that direction and you have a pliable herd composed of many independent entities practicing so called enlightened self interest.
In other words, while the Fed and others might be a central authority, ultimately everyone must decide on their own if they wish to go along. This requires the practice of collective or group unenlightened self interest where nearly the entire population decides it is best for each and every one to go along to get along. Denial helps because we individually declare our actions enlightened self interest to help the bitter medicine go down, no doubt greatly helped along by state propaganda of the glory and solidarity of “We the People”.
We don’t need to agree with the insanity, just don’t fight the general movement towards the black abyss. These manipulation techniques are the ultimate in divide and conquer practices while also allowing all of us to believe we are exercising free will to pursue our own best interest while still acting for the greater good of the group. This isn't about morality since ultimately the majority determines what is right or wrong, moral or immoral. This is about survival of the group to benefit each individual and vice versa. And when it goes horribly wrong, as it is now, it is all consuming.
This is the control system at its most basic level and insidious nature. It places us all in a situation where we must make our own decision to dance as long as the music is playing, because the alternative, especially at this point, is personal isolation and collective collapse. The worse it becomes, the more likely it will be that we decide to stay within the herd because of its perceived safety, thus producing nature’s perfectly insane positive feedback loop.
So how do we live with ourselves once we decide to dance, even if we are faking it or extremely reluctant? What large or small adjustments do we make to our thinking to cover up the fact that we are enabling the very system we describe as evil?
We all cope with our own subterfuge in various ways and our methods vary endlessly as the situation dictates. But the process itself never changes. First we deny, then we deny we ever denied, and then we forget we were ever in denial. Man is an extremely efficient organic computing machine, so this is just kid’s stuff we learn right out of the crib.
The Great State of Denial
More and more these days I am reading articles from respected industry insiders who explain there is serious rot and corruption within the system. While many are still desperately clinging to the idea that it can be reformed from within, a steadily increasing minority of professionals are beginning to declare that a constructive destruction must take place not only to rebuild, but to cut off the stinking head of the rotting fish.
Since both enlightened and unenlightened self interest would appear to preclude a disorganized dismantling and rebuilding (after all, there must be something in it for me and utter collapse serves very few of the masses) let’s move beyond this and look at what is going on under the psychological hood.
Usually in the same article declaring the inevitable destruction of the financial and social systems, these very same people will also proclaim that there is much money to be made within the system before, during and after its destruction. And often they will evoke the concept of Enlightened Self Interest as justification, or simply as an ‘a priori’ explanation for why they will continue to trade within, and profit from, the very same system they denounce.
From what I can discern about many of these authors, they are usually consummate professionals and operate using the highest legal and ethical standards that society has declared desirable, but in general rarely practices. So while mom always warned me not to assume anything, for the sake of the argument I will assume they would not be promoting the destruction of the financial system they have spent most of their adult lives working within unless they felt it was well beyond redemption and must be killed, or allowed to die, in order for you and I, and more to the point, for them to survive.
I suspect they followed a long and agonizing path before coming to this demoralizing conclusion. I whole heartedly agree with them on this specific point and I am sick to my core that there is no other way out of the insanity that people will willingly pursue to change the system we are wed too.
One doesn’t advocate destroying something you have believed in, trained to be a part of, and have earned a living from without great soul searching. Anyone who declares the system must fall should be applauded for his or her guts and self examination. It was probably one of the most difficult conclusions they ever came to and an extremely conflicting decision to go public with. I know it was for me.
What got me really thinking are comments similar to this one by some of the very same people who are advocating the fall. “As long as the music plays and money is to be made, I’m going to attend the dance.” Which in one form or another is pretty common not only among those ‘in the business’, but also among non financial professionals who trade or just invest either for a living….or just to make an extra buck.
And for that matter, in a general sense by average Jane and Joe, who use this concept to explain why they go along to get along. In essence it’s like having your cake and eating it to. I may want the system to collapse (or at least stop torturing me) but I am still going to make money betting on the Titanic as it makes its way down. Or at least continue to work that ‘career’ job, buy that bigger house, take on more student debt or buy those neat boy and girl toys on credit with no money down.
The profit making need/opportunity is a pretty common declaration by those within the financial industry, and in my opinion this is said to justify our continued participation in the very system we denounce. Unfortunately I hear very little about the need to protect their clients by putting them in alternative investments less correlated to the coming fall.
What is rarely spoken of is that oftentimes those alternative investments are not very profitable to the industry professional. Cash, precious metals, investments in local business etc don’t pay the broker’s bills because they can’t be managed, thus the brokerage houses can’t demand an ongoing management fee. Let me stress again that up until very recently I was a part of the system and thus I am throwing stones at my own glass house.
This is the reason why you will find no articles from me in the archives discussing trading strategy. It was one of my ways of dealing with my own hypocrisy. Another was promoting those alternative investments, though admittedly that rarely works out well for the client when the herd is off feeding in another pasture. It takes a strong constitution to be a contrarian cow.
Again, I am speaking only of myself and the industry in general here. But it does sound like ‘We the Financial People’ might be harboring a glaring cognitive dissonance combined with serious denial. And this extends straight back to the general population as well.
Tens, hundreds of thousands of financial salesmen, advisors, traders, analysis, floor specialists and executives who have ever bothered to examine what it is they are doing and who they are doing it with have said something similar to the fictitious comment below.
“But of course I trade stocks and bonds. Enlightened self interest is what it’s called. I have to eat, don’t I?”
Who could argue with that ethical position when stated by a high caliber individual? Well, I can….at least for the purpose of this article. And while I’ll try to argue both sides I am consistently critical not only of the financial industry, but also of many ordinary people (meaning non financial) who proclaim their own version of Enlightened Self Interest to explain their “go along to get along” policy. So I have an admitted bias here which I have no intention of hiding.
Enlightened Self Interest
Let’s start with some definitions because I’ve found that arguments (even when between me, myself and I) are less likely to lead to blood when common terms and definitions are established in advance. First let’s try “Enlightened Self Interest”, the definition of which was pretty uniform between Wikipedia and three different dictionaries. So here’s the Wiki on it.
Enlightened self-interest is a philosophy in ethics which states that persons who act to further the interests of others (or the interests of the group or groups to which they belong), ultimately serve their own self-interest.
It has often been simply expressed by the belief that an individual, group, or even a commercial entity will "do well by doing good". Enlightened self-interest might be considered to be unrealistically idealistic and altruistic by detractors and practically idealistic and utilitarian by proponents.
And let’s quickly look at ethics as defined by Wiki.
Ethics, also known as moral philosophy is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice, etc.
And one more time, only this time it’s the other side of the highway. Sometimes it helps to understand a phrase or concept if you look at its alter ego or mirror image. Let’s look at the definition of “Unenlightened Self Interest” from the same source.
In contrast to enlightened self-interest is simple greed or the concept of "unenlightened self-interest", in which it is argued that when most or all persons act according to their own myopic selfishness, that the group suffers loss as a result of conflict, decreased efficiency because of lack of cooperation, and the increased expense each individual pays for the protection of their own interests. If a typical individual in such a group is selected at random, it is not likely that this person will profit from such a group ethic.
Some individuals might profit, in a material sense, from a philosophy of greed, but it is believed by proponents of enlightened self-interest that these individuals constitute a small minority and that the large majority of persons can expect to experience a net personal loss from a philosophy of simple unenlightened selfishness. Unenlightened self-interest can result in the tragedy of the commons.
OK, this really is the last time. Let’s move quickly to define tragedy of the commons. Wiki again….
The tragedy of the commons is a dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone's long-term interest for this to happen.
Let me start off by saying that no where does it state that any of these definitions are strictly financial ethical doctrines. More than likely it started as a general social belief and was adopted by financial professions, though I haven’t done any research to determine its genesis and evolution. Of particular interest to me is how difficult it is to measure how well this ethical standard works in the best of times, let alone in a financial world that has turned (some would say always was) corrupt and (self) destructive.
It could be argued that every Too Big To Fail (TBTF) Goldman Sachs, JP Morgan or Bank of America employee was, and is, acting to further the interests of the group to which they belong and are employed, thus they are doing well for themselves by doing good for their group. The same applies to any financial professional (not just those working in a TBTF bank) even those in small firms or working a solo practice. Supporting the financial profession by supporting yourself is essentially working in and for a group.
So how is Enlightened Self Interest (ESI) any different from Unenlightened Self Interest (USI) as long as it serves the group and the group believes they are working towards the greater good? Those bonuses come out of a pool, don’t they? And that bonus pool is designed to benefit the greater good of the group, right?
Ethical and moral behavior, it can be argued, is context and situation sensitive. And like the definition of insanity or anti-social behavior, ethical behavior is determined by the majority, be it local community, state, national, global, corporate or institutional in scope. As well, the time/era in which you live determines what is right or wrong; or more to the point, good and evil.
Slavery was considered ethical by the majority (at least by the non slave majority) for centuries, millennium even, as long as you did not abuse the slaves…..too much. After all, some beatings and even murder were considered fair game if the slaves’ transgression(s) warranted it. The slave was your property and you could destroy it as you wished. At least that was the justification.
Of course the judge, jury and (slave) executioner were usually the same person and the property did not have a say in the matter. I remember reading a quote by some southern Congressman from that era, who said that you do not usually consult your cattle about your dinner menu, now do you?
The ‘moral’ justification for slavery, which in its basic economic form is purely an unequal and unilateral financial arrangement, was manufactured by declaring that we were saving those poor uneducated savages from themselves, a moral argument used by the powerful for eons. So in effect we were improving their lives despite their protestations otherwise, often expressed in their repeated efforts to escape.
Even today this moral argument is frightening similar to what we convince ourselves is the ‘truth’ behind our actions just before we invade a foreign country and kill tens of thousands, even millions, of innocents. We trot it out to explain why we are bombing some near Stone Age people back to the Stone Age. Yup, we’re just exporting the shining light of democracy while liberating some unappreciated and unexploited natural resources. Viewed in this light, those brown, yellow, red and black savages should just be grateful and shut up.
Take your pick of the era you wish to examine because it does not matter. The soon–to-be dispossessed are always considered uneducated savages, or better yet ‘evil’, in the eyes of the master(s) in order to dissipate any moral quandaries on the way to higher profits. So while we may wish to believe we Americans are just victims, or even victimized wage slaves, we are in fact junior masters enabling the supreme masters.
That is until our own time in the Stocks and Pillory comes around…..again. And this time it won’t be so narrowly constructed to disenfranchise a race of people, but rather an entire economic class within many nations. Equal opportunity and all that you know. In fact it appears to be happening right now in middle-class America.
Stocks and Pillory
The Chicago mob, temporarily transplanted to DC to create a more powerful synergy with Wall Street and the Fed, certainly has its own moral code and set of ethics. Consider Omerta, or the code of silence, which when implemented within the clan most definitely fits the definition of individuals acting to further the interests of the group aka Enlightened Self Interest. And they certainly feel they are doing well for the group by keeping silent…..so what right do outsiders have to question their motives and methods?
In fact I suspect one would need to look long and hard to find individuals or groups involved in illegal and ‘immoral’ activities who don’t feel justified in their actions, and even morally correct. This extends to little ole you and me as well, though admittedly on a much smaller scale….I hope. But remember what mom said, it is the intent that really matters, not necessarily the action alone. And our legal code reflects this view, with varying degrees of guilt and punishment……sorry rehabilitation, based upon intent and remorse for our illegal actions.
Who hasn’t ‘liberated’ office supplies or copy paper and ink from the office supply depot or ‘spent’ a few hours of a day surfing the Internet and shooting the breeze with friends or co-workers. When that cute little number behind the counter (male or female, it doesn’t matter) gives you too much change back do you always promptly return it? Sure…..if it’s an extra quarter or even a few singles. But I’m certain you would be morally and ethically tested if a few twenties were mixed in with the ones or two hundred showed up in your bank account.
Granted, there is all the difference in the world between droning innocent civilians in a wedding party or engineering a false flag attack (9/11 for example) to justify renewed expansion of the financial/military/industrial/pharma complex, and you or I pilfering some plastic pens from the supply closet. But all these actions begin with the desire to pursue self interest and it is simply a matter of scale and degree of psychopathy involved.
Our culture conditions us to believe there is room to fudge in all things ethical. If we give ourselves wiggle room and then exercise that discretion, we are more likely not to point fingers at those who also wish to exploit this character weakness for their benefit. Remember the classic ‘Bank Error in Your Favor’ by way of Parker Brother’s Monopoly, who taught us ethics and morality during make believe game time? The bank error was a capitalism windfall, not a time for self reflection and soul searching.
Not only is capitalism fun and profitable, but ethical lines can be smudged if they fall in our favor. Notice how quickly and eagerly we took the ‘Community Chest’ bank error ‘free’ money. And best of all it was sanctified and codified by the Monopoly rule book. And wasn’t it odd how the Monopoly ‘banker’ almost always won the game? Life lessons writ large and they certainly come in handy when dealing with modern day trading and buying the freaking dip to front run the Fed.
Or let’s say you are hurting for pocket money when you stumble upon a wallet with four hundred dollars inside. It’s real easy to pull the cash, then contact the owner and say it was empty when you found it. Or better yet, you can sooth the guilty conscience by just trashing the wallet, then hitting the bar to get trashed with the free cash.
Why would you want to look the owner in the eye after keeping the loot? Too damn messy, and totally unnecessary. “Finder keepers, loser weepers” is how we call that dice roll, particularly when it is in our favor. How many times have we seen or read a news story of someone finding several thousand dollars and promptly returning it. It was ‘news’ because it was expected that most people would not do so. So it seems we are nearly all whores of one sort or another and it’s just a matter of the cost for our services.
Some difficult questions need to be asked of “We the People”. Is our anger with the Fed, the TBTF banks and other assorted Ponzi Goodfellas really righteous indignation at the injustice? Or deep down in a place we rarely ever acknowledge even exists, is there abject jealousy and we won’t admit it to ourselves or to anyone else? Flash back to grade school when Johnny and Joey were cheating during the big end of semester test. You studied your butt off for days and here these bastards were passing notes and signals to each other on their way to passing the test. That just chapped your ass, didn’t it?
Were you really that pissed because they were ‘just’ cheating? Or maybe it was really about them getting away with it, thus they would profit from their unfair and ‘illegal’ activity with little to no effort involved? And here you were struggling just to keep your head above water. Worse, their stolen grades might push you lower in the standings.
And the bastards were so smug as well. Boy, didn’t that just burn your butt? And you knew that if you turned them in they would pound the living daylights out of you. So even if justice was served, you would suffer far more than they would. Nope, none of this is the reason why you and I are so angry with the Ponzi.
‘We’ seem to be expressing a lot of anger when we see people living mortgage payment free for a year or two. So much anger in fact that we tend to support the Ponzi’s efforts to evict them even if some of them were defrauded on several levels when they ‘bought’ their loan and home. Do we feel those squatters are cheating when you and I are not and so they should be punished?
Maybe we’re just angry at ourselves because, for whatever reason, we won’t do the same thing. Perhaps we don’t wish to ruin our credit rating or we have actual equity in our house because we followed the old school rules and were responsible and played ‘fair’. Sum-bitches are getting away with murder and a free ride while we are slaving away on our exercise wheel.
Wait a minute; I thought we wanted the system to collapse? Won’t non performing loans and underwater banks help bring the evil empire closer to the brink? If that’s our stated goal, then why aren’t we cheering on anyone or anything that brings eventual justice to the equation? Oh, that’s right; no one else can profit from the demise of the evil empire….except me and my trading because I know I’m (mostly) pure in thought and deed. That hypocrisy just stinks when it’s been left out to thaw for too long.
The Cognitive Fog of (Personal) Corruption
So does this mean we would rather bloody our fellow slaves because they are enjoying better gruel than us? Are the squatters displaying Enlightened or Unenlightened Self Interest here? Even if they weren’t defrauded, why can’t the junior master slaves treat life as nothing more than a business decision just like the big boys? I know, I know, it’s not as simple as that……but maybe it is. Divide and conquer is the favored tactic of the supreme masters and we seem to have taken the bait in the pursuit of our own Unenlightened Self Interest.
Before the reader’s righteous indignation becomes inflamed by the prior paragraphs, consider that for decades after World War Two Americans (and the citizens of many other so-called first world nations for that matter) have had a sort of laissez-faire attitude regarding government corruption as well as individual and corporate profiteering. As long as the skim from the scam was kept down to reasonable levels and every deserving (read productive) citizen received a taste, or a piece of the action, our eyes were blind and turned away. I remember trickledown economics as just one of many examples. Sounds like a collective bribe by any other name to me.
This is exactly how a crime family works, with all productive workers (i.e. citizens) getting just enough of a taste of the profits (subsidized employee health insurance, tax deductible mortgage interest, 401(K) profit sharing, deferred compensation, Social Security and Medicare etc, cheap and easily accessible money etc) to be mostly sated, but not so much as to become complacent.
Show me the significant difference between The Godfather and the government or the Godfather’s ‘soldiers’ and ‘We the People’. Contrary to popular belief, only the mob bosses lived the high life. The workers and soldiers, while living better than the average standard of living wage slave, did not live extremely well.
What’s that you say? ‘We the People’ are doing ‘good’ and the Goodfellas are doing ‘bad’? That we have no control over the economic situation and that it is the bad guys who are to blame? That might be so to a limited extent now that the vampires have completely taken over. But ‘We the People’ are not the innocent victims we desperately wish to paint ourselves as. The simple fact is, now that it has become inconvenient for the masters to continue to share the profits, we are being cut out of the deal and told tough stuff.
The masters have unilaterally changed the rules of the game and we aren’t happy. What are we going to do about it? Theoretically, this is where we the workers conspire among ourselves to take back what is ours, meaning a piece of the action just like the good old days. Unfortunately, after five or six generations of fattening before the slaughter, the American workers have become literally and figuratively obese dependent zombies.
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Broken Beyond Repair
About a month ago, English bank Co-Operative Bank plc, which in October was handed over to bondholders in order to plug a 1.5 billion pound capital shortfall and which added last month it will need to raise an additional 400 million pounds to plug another funding shortfall related to legal and restructuring costs, surprised its brand new owners with news that its full year loss would be a massive $2.2 billion. However the bank's insolvency was just the beginning, and the biggest surprise was not to be unveiled until today when UK prosecution charged Paul Flowers, the banks' former chairman from March 2010 until June 2013, and a Methodist minister, with possession of cocaine and ketamine. Oh and crystal meth.
Bloomberg reports that Flowers, 63, is scheduled to appear at a criminal court in Leeds, England, on May 7 to face the charges, the U.K. Crown Prosecution Service said in a statement today. Flowers, who was arrested in November as part of a drug investigation after he was filmed buying crack cocaine by a U.K. newspaper, was released on bail, West Yorkshire Police said in a statement.
“I have concluded that there is sufficient evidence and it is in the public interest to charge Paul Flowers with possession of Class A and Class C drugs relating to an incident on Nov. 9, 2013,” prosecutor Clare Stevens said in the statement.
And while everyone enjoys mocking the tabloids, guess who broke the story: "Regulatory and government probes are also in the works after the Mail on Sunday newspaper reported Nov. 17 that Flowers bought crystal meth and crack cocaine."
“At the lowest point in this terrible period, I did things that were stupid and wrong,” Flowers said in the November statement. “I am sorry for this, and I am seeking professional help, and apologize to all I have hurt or failed by my actions.”
As for Flowers, he is sorry: "Flowers apologized for his conduct in a statement after his arrest last year, saying there had been a death in the family and pressures related to the bank.
That... and the monkey on the back.
As for seeking professional help, he can talk to Bubba in prison if he would be willing to become his personal bodyguard, as he will need it. Unless of course the UK legal system is as broken as that in the US, in which case Paul's sentence will be 3 hours of community work and a promise never to look at blow again.
I’m seeing big buyers of SPX call upside around 1850 and 1860. Upside vol is cheap, and unless Yellen destroys the party, market can rally into long weekend. Expecting a re-test of highs on cash deployment and continued decent earnings off LOW BAR into earnings season.
Where have all the bears gone? Last Friday people were talking about crashes and we said that sentiment was too bearish (AAII Investor readings) which really meant we were set for a turn higher…US macro is more than “spring loaded” from a combination of 1Q weather weakness and real demand. Today’s CAP UTIL at multi year highs to pre-crisis levels, Ind production beat by a mile…and housing starts were very strong in single family component.
Russell 2000 (small cap) has largely been a pain trade for short players all year looking for cracks in the rally. IWM gave 7% back in a week but expect many shorted into the hole on Friday when world seemed to be ending. The index had an impressive bounce off the 200mda the last two days setting stage for a rally I would not challenge until mid-next week when markets are past their Easter sweets. I would be covering IWM shorts if you haven’t already….
Gold rallies are bear mkt rallies and vicious and deceiving. Gold will break $1300 today or tomorrow and move to $1250 before finding temp support.
- No inflation
- US growth is very real
- Fed is on course…
…And Yes, EM can continue to rally in this environment. Less bad from China is good enough. Currencies were a little overdone and have cooled off a bit paving way to test and push through recent highs. The spread of EM to DM on the EEM v SPY had respectable and tradable 4.5% pullback before reversing small. Get back into this trade.
US Cap Utilization is at multi-year highs as US data points improve with the spring weather.
What does it mean? People are underestimating real demand in durables, housing, and the US consumer overall. Take a look at other data points like Industrial Production (+0.7%) with a huge revision for Feb and US Single Family Starts (+6%) which are the important component of US Housing Starts data out today.
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The essence of crony-capitalism is the merger of state and corporate power--the definition of fascism.
When it comes to the real world, the difference between fascism, communism and crony-capitalism is semantic. Let's start with everyone's favorite hot-word, fascism, which Italian dictator Benito Mussolini defined as "the merger of state and corporate power." In other words, the state and corporate cartels are one system.
Real-world communism, for example as practiced in the People's Republic of China, boils down to protecting a thoroughly corrupt elite and state-owned enterprises (SOEs). The state prohibits anything that threatens the profits (and bribes) of SOEs--for example, taxi-apps that enable consumers to bypass the SOE cab companies.
The Chinese mega-city of Shanghai has been cracking down on popular taxi-booking apps, banning their use during rush hour. Until the apps came along, the taxi companies, which are government owned, set the real price for fares and collected about 33 cents each time someone called for a cab. That can add up in a city the size of Shanghai. Wang says the apps bypassed the old system and cut into company revenues.
Much has been made of China's embrace of capitalism, but — along with transportation — the government still dominates key sectors, including energy, telecommunications and banking. Wang says vested government interests won't give them up easily.
How else to describe this other than the merger of state and corporate power? Any company the state doesn't own operates at the whim of the state.
Now let's turn to the crony-capitalist model of the U.S., Japan, the European Union and various kleptocracies around the globe. For PR purposes, the economies of these nations claim to be capitalist, as in free-market capitalism.
Nothing could be further from the truth: these economies are crony-capitalist systems that protect and enrich elites, insiders and vested interests who the state shields from competition and the law.
The essence of crony-capitalism is of course the merger of state and corporate power. There are two sets of laws, one for the non-elites and one for cronies, and two kinds of capitalism: the free-market variety for small businesses that are unprotected by the state and the crony variety for corporations, cartels and state fiefdoms protected by the state.
Since crony-capitalism is set up to benefit parasitic politicos and their private-sector cartel benefactors, reform is impossible. Even the most obviously beneficial variety of reform--for example, simplifying the 4 million-word U.S. tax code--is politically impossible, regardless of who wins the electoral equivalent of a game show (i.e. Demopublicans vs. Republicrats).
Since 2001, Congress has enacted about one new change to the tax law per day. Pathetic, isn’t it? This tax code is a burden and a fiasco and deeply unpatriotic. As Olson’s Taxpayer Advocate Service notes, this code helps tax evaders; hurts ordinary, honest taxpayers; and corrodes trust in our system.
Here's why the tax code will never be simplified: tax breaks are what the parasitic politicos auction off to their crony-capitalist benefactors. Simplify the tax code and you take away the the intrinsically corrupt politicos' primary source of revenue: accepting enormous bribes in exchange for tax breaks for the super-wealthy.
You would also eliminate the livelihood of an entire industry that feeds off the complexities of the tax code. Tax attorneys don't just vote--they constitute a powerful lobby for the Status Quo, even if that Status Quo is rigged, unjust, wasteful, absurd, etc.
It's not that hard to design a simple and fair tax code. Setting aside the thousands of quibbles that benefit one industry or another, it's clear that a consumption-based tax is easier to collect and it promotes production rather than consumption: two good things.
As for a consumption tax being regressive, i.e. punishing low-income households, the solution is very straightforward: exempt real-food groceries (but not snacks, packaged or prepared foods such as fast-food), rent, utilities and local public transportation--the major expenses of low-income households.
1. A 10% consumption tax on everything else would raise about $1.1 trillion, or almost 2/3 of total income tax revenues, not counting payroll taxes (15.3% of all payroll/earned income up to around $113,000 annually, paid half-half by employees and employers), which generate about one-third of all Federal tax revenues and fund the majority of Social Security and a chunk of Medicare.
As for the claim that a 10% consumption tax would kill business--the typical sales tax in California is 9+%, and that hasn't wiped out consumption.
2. The balance could be raised by a progressive tax on unearned income, collected at the source. Most of the income of the super-wealthy is unearned, i.e. dividends, investment income, interest, capital gains, stock options, etc. As a result, a tax on unearned income (above, say, $10,000 annually to enable non-wealthy households to accrue some tax-free investment income) will be a tax on the super-wealthy who collect the vast majority of dividends, interest, capital gains and investment income.
A rough estimate would be 20% of all unearned income.
This would "tax the rich" while leaving all earned income untaxed, other than the payroll tax, which is based on the idea that everyone should pay into a system that secures the income of all workers. This would incentivize productive labor and de-incentivize speculation, rentier skimming, etc.
The corporate tax would be eliminated for several reasons:
1. It is heavily gamed, rewarding the scammers and punishing the honest
2. All income from enterprises is eventually distributed to individuals, who would pay the tax on all unearned investment income.
But such common-sense reform is politically impossible. That's why the answer to the question, what's the the difference between fascism, communism and crony-capitalism is nothing.
Markets will be hanging on every word of what is likely Janet Yellen's first monetary policy speech and even more so the Q&A afterwards as she suggests that a considerable time is more than 6 months, and the delicate balance she has to play between admitting the economy is ugly while admitting that QE is over no matter what... all the while maintaining some semblance of credibility. One has to wonder if the ripfest rally of the last 24 hours is a buy the rumor ramp ahead of a sell the Yellen news event as once again she is tested...
The 3 key factors will be:
- her jobs (economy) dashboard - just what does she look for and how does she use them...?
- her view of inflation - transitory dip, weather? or rip she's afraid of...?
- Financial stability - nope, no bubbles here...?
- *YELLEN SAYS FED COMMITTED TO ACCOMMODATION TO SUPPORT RECOVERY
- *YELLEN SAYS NEW GUIDANCE RELIES ON `WIDE RANGE OF INFORMATION'
- *YELLEN SAYS CHANGE IN GUIDANCE DIDN’T MEAN ALTERED POLICY PATH
- *YELLEN: POLICY NEEDS TO REACT TO ECONOMY'S `TWISTS AND TURNS'
- *YELLEN: WEATHER CAUSED `SIGNIFICANT PART' OF RECENT SOFTNESS
- *YELLEN: QUITE PLAUSABLE FED HITS JOBS, INFLATION GOALS END-2016
Janet Yellen is speaking at The Economic Club of New York:
(click image below for Bloomberg feed)
Full prepared remarks...
Monetary Policy and the Economic Recovery
Nearly five years into the expansion that began after the financial crisis and the Great Recession, the recovery has come a long way. More than 8 million jobs have been added to nonfarm payrolls since 2009, almost the same number lost as a result of the recession. Led by a resurgent auto industry, manufacturing output has also nearly returned to its pre-recession peak. While the housing market still has far to go, it seems to have turned a corner.
It is a sign of how far the economy has come that a return to full employment is, for the first time since the crisis, in the medium-term outlooks of many forecasters. It is a reminder of how far we have to go, however, that this long-awaited outcome is projected to be more than two years away.
Today I will discuss how my colleagues on the Federal Open Market Committee (FOMC) and I view the state of the economy and how this view is likely to shape our efforts to promote a return to maximum employment in a context of price stability. I will start with the FOMC's outlook, which foresees a gradual return over the next two to three years of economic conditions consistent with its mandate.
While monetary policy discussions naturally begin with a baseline outlook, the path of the economy is uncertain, and effective policy must respond to significant unexpected twists and turns the economy may take. My primary focus today will be on how the FOMC's monetary policy framework has evolved to best support the recovery through those twists and turns, and what this framework is likely to imply as the recovery progresses.
The Current Economic Outlook
The FOMC's current outlook for continued, moderate growth is little changed from last fall. In recent months, some indicators have been notably weak, requiring us to judge whether the data are signaling a material change in the outlook. The unusually harsh winter weather in much of the nation has complicated this judgment, but my FOMC colleagues and I generally believe that a significant part of the recent softness was weather related.
The continued improvement in labor market conditions has been important in this judgment. The unemployment rate, at 6.7 percent, has fallen three-tenths of 1 percentage point since late last year. Broader measures of unemployment that include workers marginally attached to the labor force and those working part time for economic reasons have fallen a bit more than the headline unemployment rate, and labor force participation, which had been falling, has ticked up this year.
Inflation, as measured by the price index for personal consumption expenditures, has slowed from an annual rate of about 2-1/2 percent in early 2012 to less than 1 percent in February of this year.1 This rate is well below the Committee's 2 percent longer-run objective. Many advanced economies are observing a similar softness in inflation.
To some extent, the low rate of inflation seems due to influences that are likely to be temporary, including a deceleration in consumer energy prices and outright declines in core import prices in recent quarters. Longer-run inflation expectations have remained remarkably steady, however. We anticipate that, as the effects of transitory factors subside and as labor market gains continue, inflation will gradually move back toward 2 percent.
In sum, the central tendency of FOMC participant projections for the unemployment rate at the end of 2016 is 5.2 to 5.6 percent, and for inflation the central tendency is 1.7 to 2 percent.2 If this forecast was to become reality, the economy would be approaching what my colleagues and I view as maximum employment and price stability for the first time in nearly a decade. I find this baseline outlook quite plausible.
Of course, if the economy obediently followed our forecasts, the job of central bankers would be a lot easier and their speeches would be a lot shorter. Alas, the economy is often not so compliant, so I will ask your indulgence for a few more minutes.
Three Big Questions for the FOMC
Because the course of the economy is uncertain, monetary policymakers need to carefully watch for signs that it is diverging from the baseline outlook and then respond in a systematic way. Let me turn first to monitoring and discuss three questions I believe are likely to loom large in the FOMC's ongoing assessment of where we are on the path back to maximum employment and price stability.
Is there still significant slack in the labor market?
The first question concerns the extent of slack in the labor market. One of the FOMC's objectives is to promote a return to maximum employment, but exactly what conditions are consistent with maximum employment can be difficult to assess. Thus far in the recovery and to this day, there is little question that the economy has remained far from maximum employment, so measurement difficulties were not our focus. But as the attainment of our maximum employment goal draws nearer, it will be necessary for the FOMC to form a more nuanced judgment about when the recovery of the labor market will be materially complete. As the FOMC's statement on longer-term goals and policy strategy emphasizes, these judgments are inherently uncertain and must be based on a wide range of indicators.3
I will refer to the shortfall in employment relative to its mandate-consistent level as labor market slack, and there are a number of different indicators of this slack. Probably the best single indicator is the unemployment rate. At 6.7 percent, it is now slightly more than 1 percentage point above the 5.2 to 5.6 percent central tendency of the Committee's projections for the longer-run normal unemployment rate. This shortfall remains significant, and in our baseline outlook, it will take more than two years to close.4
Other data suggest that there may be more slack in labor markets than indicated by the unemployment rate. For example, the share of the workforce that is working part time but would prefer to work full time remains quite high by historical standards. Similarly, while the share of workers in the labor force who are unemployed and have been looking for work for more than six months has fallen from its peak in 2010, it remains as high as any time prior to the Great Recession.5 There is ongoing debate about why long-term unemployment remains so high and the degree to which it might decline in a more robust economy. As I argued more fully in a recent speech, I believe that long-term unemployment might fall appreciably if economic conditions were stronger.6
The low level of labor force participation may also signal additional slack that is not reflected in the headline unemployment rate. Participation would be expected to fall because of the aging of the population, but the decline steepened in the recovery. Although economists differ over what share of those currently outside the labor market might join or rejoin the labor force in a stronger economy, my own view is that some portion of the decline in participation likely represents labor market slack.7
Lastly, economists also look to wage pressures to signal a tightening labor market. At present, wage gains continue to proceed at a historically slow pace in this recovery, with few signs of a broad-based acceleration. As the extent of slack we see today diminishes, however, the FOMC will need to monitor these and other labor market indicators closely to judge how much slack remains and, therefore, how accommodative monetary policy should be.
Is inflation moving back toward 2 percent?
A second question that is likely to figure heavily in our assessment of the recovery is whether inflation is moving back toward the FOMC's 2 percent longer-run objective, as envisioned in our baseline outlook. As the most recent FOMC statement emphasizes, inflation persistently below 2 percent could pose risks to economic performance.
The FOMC strives to avoid inflation slipping too far below its 2 percent objective because, at very low inflation rates, adverse economic developments could more easily push the economy into deflation. The limited historical experience with deflation shows that, once it starts, deflation can become entrenched and associated with prolonged periods of very weak economic performance.8
A persistent bout of very low inflation carries other risks as well. With the federal funds rate currently near its lower limit, lower inflation translates into a higher real value for the federal funds rate, limiting the capacity of monetary policy to support the economy.9 Further, with longer-term inflation expectations anchored near 2 percent in recent years, persistent inflation well below this expected value increases the real burden of debt for households and firms, which may put a drag on economic activity.
I will mention two considerations that will be important in assessing whether inflation is likely to move back to 2 percent as the economy recovers. First, we anticipate that, as labor market slack diminishes, it will exert less of a drag on inflation. However, during the recovery, very high levels of slack have seemingly not generated strong downward pressure on inflation. We must therefore watch carefully to see whether diminishing slack is helping return inflation to our objective.10 Second, our baseline projection rests on the view that inflation expectations will remain well anchored near 2 percent and provide a natural pull back to that level. But the strength of that pull in the unprecedented conditions we continue to face is something we must continue to assess.
Finally, the FOMC is well aware that inflation could also threaten to rise substantially above 2 percent. At present, I rate the chances of this happening as significantly below the chances of inflation persisting below 2 percent, but we must always be prepared to respond to such unexpected outcomes, which leads us to my third question.
What factors may push the recovery off track?
Myriad factors continuously buffet the economy, so the Committee must always be asking, "What factors may be pushing the recovery off track?" For example, over the nearly 5 years of the recovery, the economy has been affected by greater-than-expected fiscal drag in the United States and by spillovers from the sovereign debt and banking problems of some euro-area countries. Further, our baseline outlook has changed as we have learned about the degree of structural damage to the economy wrought by the crisis and the subsequent pace of healing.
Let me offer an example of how these issues shape policy. Four years ago, in April 2010, the outlook appeared fairly bright. The emergency lending programs that the Federal Reserve implemented at the height of the crisis had been largely wound down, and the Fed was soon to complete its first large-scale asset purchase program. Private-sector forecasters polled in the April 2010 Blue Chip survey were predicting that the unemployment rate would fall steadily to 8.6 percent in the final quarter of 2011.11
This forecast proved quite accurate--the unemployment rate averaged 8.6 percent in the fourth quarter of 2011. But this was not the whole story. In April 2010, Blue Chip forecasters not only expected falling unemployment, they also expected the FOMC to soon begin raising the federal funds rate. Indeed, they expected the federal funds rate to reach 1.3 percent by the second quarter of 2011.12 By July 2010, however, with growth disappointing and the FOMC expressing concerns about softening in both growth and inflation, the Blue Chip forecast of the federal funds rate in mid-2011 had fallen to 0.8 percent, and by October the forecasters expected that the rate would remain in the range of 0 to 25 basis points throughout 2011, as turned out to be the case.13 Not only did expectations of policy tightening recede, the FOMC also initiated a new $600 billion asset purchase program in November 2010.
Thus, while the reductions in the unemployment rate through 2011 were roughly as forecast in early 2010, this improvement only came about with the FOMC providing a considerably higher level of accommodation than originally anticipated.
This experience was essentially repeated the following year. In April 2011, Blue Chip forecasters expected the unemployment rate to fall to 7.9 percent by the fourth quarter of 2012, with the FOMC expected to have already raised the federal funds rate to near 1 percent by mid-2012.14
As it turned out, the unemployment rate forecast was once more remarkably accurate, but again this was associated with considerably more accommodation than anticipated. In response to signs of slowing economic activity, in August 2011 the FOMC for the first time expressed its forward guidance in terms of the calendar, stating that conditions would likely warrant exceptionally low levels for the federal funds rate at least through mid-2013. The following month, the Committee added to accommodation by adopting a new balance sheet policy known as the maturity extension program. 15
Thus, in both 2011 and 2012, the unemployment rate actually declined by about as much as had been forecast the previous year, but only after unexpected weakness prompted additional accommodative steps by the Federal Reserve. In both cases, I believe that the FOMC's decision to respond to signs of weakness with significant additional accommodation played an important role in helping to keep the projected labor market recovery on track.16 These episodes illustrate what I described earlier as a vital aspect of effective monetary policymaking: monitor the economy for signs that events are unfolding in a materially different manner than expected and adjust policy in response in a systematic manner. Now I will turn from the task of monitoring to the policy response.
Policy Challenges in an Unprecedented Recovery
Fundamental to modern thinking on central banking is the idea that monetary policy is more effective when the public better understands and anticipates how the central bank will respond to evolving economic conditions. Specifically, it is important for the central bank to make clear how it will adjust its policy stance in response to unforeseen economic developments in a manner that reduces or blunts potentially harmful consequences. If the public understands and expects policymakers to behave in this systematically stabilizing manner, it will tend to respond less to such developments. Monetary policy will thus have an "automatic stabilizer" effect that operates through private-sector expectations. It is important to note that tying the response of policy to the economy necessarily makes the future course of the federal funds rate uncertain. But by responding to changing circumstances, policy can be most effective at reducing uncertainty about the course of inflation and employment.
Recall how this worked during the couple of decades before the crisis--a period sometimes known as the Great Moderation. The FOMC's main policy tool, the federal funds rate, was well above zero, leaving ample scope to respond to the modest shocks that buffeted the economy during that period. Many studies confirmed that the appropriate response of policy to those shocks could be described with a fair degree of accuracy by a simple rule linking the federal funds rate to the shortfall or excess of employment and inflation relative to their desired values.17 The famous Taylor rule provides one such formula.18
The idea that monetary policy should react in a systematic manner in order to blunt the effects of shocks has remained central in the FOMC's policymaking during this recovery. However, the application of this idea has been more challenging. With the federal funds rate pinned near zero, the FOMC has been forced to rely on two less familiar policy tools--the first one being forward guidance regarding the future setting of the federal funds rate and the second being large-scale asset purchases. There are no time-tested guidelines for how these tools should be adjusted in response to changes in the outlook. As the episodes recounted earlier illustrate, the FOMC has continued to try to adjust its policy tools in a systematic manner in response to new information about the economy. But because both the tools and the economic conditions have been unfamiliar, it has also been critical that the FOMC communicate how it expects to deploy its tools in response to material changes in the outlook.
Let me review some important elements in the evolution of the FOMC's communication framework. When the FOMC initially began using its unconventional tools, policy communication was relatively simple. In December 2008, for example, the FOMC said it expected that conditions would warrant keeping the federal funds rate near zero for "some time." This period before the "liftoff" in the federal funds rate was described in increasingly specific, and (as it turned out) longer, periods over time--"some time" became "an extended period," which was later changed to "mid-2013," then "late 2014," then "mid-2015."19 This fixed, calendar-based guidance had the virtue of simplicity, but it lacked the automatic stabilizer property of communication that would signal how and why the stance of policy and forward guidance might change as developments unfolded, and as we learned about the extent of the need for accommodation.
More recently, the Federal Reserve, and I might add, other central banks around the world, have sought to incorporate this automatic stabilizer feature in their communications. In December 2012, the Committee reformulated its forward guidance, stating that it anticipated that the federal funds rate would remain near zero at least as long as the unemployment rate remained above 6-1/2 percent, inflation over the period between one and two years ahead was projected to be no more than half a percentage point above the Committee's objective, and longer-term inflation expectations continued to be well anchored. This guidance emphasized to the public that it could count on a near-zero federal funds rate at least until substantial progress in the recovery had been achieved, however long that might take. When these thresholds were announced, the unemployment rate was reported to be 7.7 percent, and the Committee projected that the 6-1/2 percent threshold would not be reached for another 2-1/2 years--in mid-2015. The Committee emphasized that these numerical criteria were not triggers for raising the federal funds rate, and Chairman Bernanke stated that, ultimately, any decision to begin removing accommodation would be based on a wide range of indicators.
Our communications about asset purchases have undergone a similar transformation. The initial asset purchase programs had fixed time and quantity limits, although those limits came with a proviso that they might be adjusted. In the fall of 2012, the FOMC launched its current purchase program, this time explicitly tying the course of the program to evolving economic conditions. When the program began, the rate of purchases was $85 billion per month, and the Committee indicated that purchases would continue, providing that inflation remained well behaved, until there was a substantial improvement in the outlook for the labor market.
Based on the cumulative progress toward maximum employment since the initiation of the program and the improvement in the outlook for the labor market, the FOMC began reducing the pace of asset purchases last December, stating that "[i]f incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-term objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings." Purchases are currently proceeding at a pace of $55 billion per month. Consistent with my theme today, however, the FOMC statement underscores that purchases are not on a preset course--the FOMC stands ready to adjust the pace of purchases as warranted should the outlook change materially.
Recent Changes to the Forward Guidance
At our most recent meeting in March, the FOMC reformulated its forward guidance for the federal funds rate. While one of the main motivations for this change was that the unemployment rate might soon cross the 6-1/2 percent threshold, the new formulation is also well suited to help the FOMC explain policy adjustments that may arise in response to changes in the outlook. I should note that the change in the forward guidance did not indicate a change in the Committee's policy intentions, but instead was made to clarify the Committee's thinking about policy as the economy continues to recover. The new guidance provides a general description of the framework that the FOMC will apply in making decisions about the timing of liftoff. Specifically, in determining how long to maintain the current target range of 0 to 25 basis points for the federal funds rate, "the Committee will assess progress, both realized and expected, toward its objectives of maximum employment and 2 percent inflation." In other words, the larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained. This approach underscores the continuing commitment of the FOMC to maintain the appropriate degree of accommodation to support the recovery. The new guidance also reaffirms the FOMC's view that decisions about liftoff should not be based on any one indicator, but that it will take into account a wide range of information on the labor market, inflation, and financial developments.
Along with this general framework, the FOMC provided an assessment of what that framework implies for the likely path of policy under the baseline outlook. At present, the Committee anticipates that economic and financial conditions will likely warrant maintaining the current range "for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored."
Finally, the Committee began explaining more fully how policy may operate in the period after liftoff, indicating its expectation that economic conditions may, for some time, warrant keeping short-term interest rates below levels the Committee views as likely to prove normal in the longer run. FOMC participants have cited different reasons for this view, but many of the reasons involve persistent effects of the financial crisis and the possibility that the productive capacity of the economy will grow more slowly, at least for a time, than it did, on average, before the crisis. The expectation that the achievement of our economic objectives will likely require low real interest rates for some time is again not confined to the United States but is shared broadly across many advanced economies. Of course, this guidance is a forecast and will evolve as we gain further evidence about how the economy is operating in the wake of the crisis and ensuing recession.
In summary, the policy framework I have described reflects the FOMC's commitment to systematically respond to unforeseen economic developments in order to promote a return to maximum employment in a context of price stability.
It is very welcome news that a return to these conditions has finally appeared in the medium-term outlook of many forecasters. But it will be much better news when this objective is reached. My colleagues on the FOMC and I will stay focused on doing the Federal Reserve's part to promote this goal.
Yahoo shares are +5.4% today and +10.1% since hitting lows last friday on the Nasdaq bloodbath.
Yahoo shares had suffered over the last month on China internet bubble fears and the whisper numbers on the Alibaba valuation into the IPO being well below the bandied about $150Bn level which were assumed only 2 months ago.
At $150bn, Yahoo’s SOTP (sum of the parts) valuation is well north of $40. Yahoo owns a 24% stake in Alibaba. Yahoo also owns a 35% position in Yahoo Japan (market cap of $27Bn).
If you believe that Alibaba will fetch $150bn in IPO, you get $36Bn in market cap accreted to Yahoo. Yahoo Japan is another $7Bn. This leads you to 43Bn in market cap, even after a 5.4% rally trades with a $36.8Bn market cap.
Alibaba numbers reported last night were much stronger than expected for 4Q ’13. Alibaba doubled revenues realizing +66% growth/y. The fourth quarter was highlighted by the $5.6Bn shopping spree that Chinese consumers carried out on China’s version of “Black Friday,” known as “11:11″ or “Singles Day”.
At $33.00 Yahoo shares have seen solid support over the recent pullback with three different tests. The trade in Yahoo remains higher to $40.00 until we get real levels on the IPO valuation.
One of the more bullish "fundamental" theses discussed in recent weeks, perhaps as an offset to the documented record collapse in mortgage origination - because without debt creation by commercial banks one can kiss this, or any recovery, goodbye - has been the so-called surge in loans and leases as reported weekly by the Fed in its H.8 statement. Some, such as the chief strategist of retail brokerage Charles Schwab, Liz Ann Sonders, went so far as to note that this is, to her, the "most important chart in the world."
This is indeed notable because as we have shown in the past, for nearly five years, total loans and leases within the US commercial system remained virtually unchanged from a level of about $7.3 trillion, first attained when Lehman filed for bankruptcy. And it doesn't take a PhD in monetary theory to figure out that this lack of credit revival (alongside the historic collapse in shadow bank liabilities) is precisely what the Fed's endless QE programs had been, at least on paper, trying to avert.
Of course, if the data represented by the Fed which supposedly is a sample of call reports distributed to commercial banks, is accurate, then it would be a welcome development to the economy as it would indicate that finally lending conditions are easing, and demand for money is rising at the retail level as opposed to just the institutional (where it is merely used to buy risk assets). In other words, it would slowly allow the elimination of the Fed's artificial conditions and removal of the central-planning umbrella.It would also indicate inflation may finally be returning to the economy (as opposed to just food and energy prices).
And logically, since the Fed's data is sourced by the banks themselves, what the Fed is representing and what the banks report quarterly should be in rough alignment.
Unfortunately it isn't.
Now that the Big 4 commercial banks - JPM, Wells, Bank of America and Citi - have reported their March 31 numbers, we can compile not only what the total amount of outstanding loans was as of the end of Q1, but more importantly, what the change in the quarter was. After all, for Liz Ann Sonders it is this change that is "the most important" data in the world.
What we learn is that the Top 4 banks held some $3.14 trillion in loans and leases at March 31.
So far so good. But what is not so good is that the change of this number in the first quarter is not an increase even remotely comparable to what the Fed makes those who read its H.8 statement believe it is. Quite the opposite.
As the chart below shows, in the first quarter, of the Big 4 banks, only Wells Fargo reported an increase - a tiny $4 billion to be exact - in its loans and leases portfolio. All the other banks... saw a decline in their loans and leases holdings.
We show this on the chart below.
We admit that we have taken a sampling of banks, even if it is the four biggest banks in the US, those which account for 42% of all loans outstanding, and a complete analysis would require complete data from not only regional banks, but also foreign banks operating in the US. However, if the four best capitalized banks, flush with trillions in Fed excess reserves, are indicating on their own that they are nowhere near lending at the level the Fed is telegraphing, and are in fact reducing their loans outstanding, why should the others be more generous in their lending activities?
Which brings us to the question: is the Fed fabricating loan level data?
Or, less dramatically, is the Fed merely once again goalseeking its weekly "data" to account for a world in which deposit expansion is no longer running at the pace seen in pre-taper days. It would be logical that the one "plug" the Fed would adjust to balance off its model is to boost lending activity, which would explain why the Fed is suggesting lending is surging.
Unfortunately, lending is not only not surging, it is contracting, if only among the Big 4 banks in the first quarter.
So whether the Fed has an ulterior motive, or is simply fudging for a lowered Fed reserve creation growth trendline, we believe the people deserve an answer: just what is really going on here?