Friday, June 06, 2008

Bernanke's Next Moves

Federal Reserve Chairman Ben Bernanke this week took the unusual step of defending the US Dollar and stated:

"We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations."

In layman's terms: We understand that our policy of cutting interest rates and injecting massive sums of money into our banking/financial system is causing significant dollar devaluations which is, in-turn, stoking massive inflation and future inflationary pressures. We the Fed, are on top of things and are in the process of formulating new policies to stave off these pressures, so don't bet on future rate cuts and you might even want to plan on seeing future rate increases.

HA! What a bunch of bologna... He's trapped and knows it!

With reports of the biggest jobless increase in over two decades, the largest housing bust since the Great Depression, Contagion spreading across the banking sector -- with massive writedowns to follow, recent MBIA and AMBAC downgrades, and credit crunch phase-2 ready to kick in, he is absolutely, unequivocally a caged animal with no room to move.

If he dare increase rates (he won't) our current, severely understated economic contraction will intensify and the downward sliding economic snowball, gathering momentum, will likely burst into a banking/financial system collapse.

Previously, I stated we'll likely see a 2% FFR in 08 and a 1% rate in 09. Thus far, I've been right in 08 and I still feel strongly I'll be right in 09.

As I see it, the Fed will hold five more FOMC meetings between now and the end of this year and rate announcements will be announced on the following dates:

June 25th
Aug 5th
Sept 16th
Oct 29th
Dec 16th

Baring any drop below 11,700 on the DOW between now and June 25th, I expect the fed to pause at the next FOMC meeting(no action on rates) -- If we do drop below the stated number, expect a new rate cut.

I expect Credit Crunch Phase-2 to kick in by Aug/Sept 08, and it will likely make phase-1 look like a walk in the park, so expect a cut at one of these meetings and another in October 08.

By December, semantic debate over our full-blown economic recession will be over/recession will be unquestionable and our newly elected President will demand action -- so expect another cut.

Bottom Line: Expect a 1.5% or lower FFR between now and the end of this year and a 1% or lower in 09.

Helicopter Ben's recent "strong dollar" talk is just that -- "talk", so don't expect any change from current policy.

US Dollar index going below 70 this year and inflation will intensify... His rant was all smoke and mirrors for the gullible.

Best regards




Anonymous said...

Hi Randy;

A (short) open letter today to Helicopter Ben from Jim Sinclair after today's Dow -394:


If you want a 1000 point down day for the Dow all you need to do is play Hawk.

Your friend,

It's looking dire Randy!


Randy said...

That's Hilarious! Leave it to Jim Sinclair to say so very much with so few words.

Why didn't I think of that?

Thanks for the laugh David - wish I could keep on laughing, but (as you know) this really is a very serious subject with massive, worldwide economic and lifestyle implications.

All the Best!

Anonymous said...

The wildcard you leave out of the analysis is if dumb Ben is replaced with a volcker. Definitely possible in a Dem administration. I dont agree with your analysis that rates wont rise. they are already rising in the LT market and the Fed will raise ST rates so as not to look completely irrelevant.

Randy said...

Anon 3:44AM,

Bernanke will survive through 08 and likly 09.

Rates are rising in the LT market due to inflation expectations -- no one wants to hold Treasury bonds with a low yield; so a decline in demand drops bond prices, and causes the yield to go up.

This usually is quite good for banks, as they borrow short and lend long -- making profits on the difference in rates, but it's quite bad for our struggling housing market, as the higher long term rate makes mortgages less affordable.

Bottom line: the waning demand for US bonds and dollars is causing the long term rate to rise and there is nothing Bernanke can do to rectify the situation without making things worse.

Volcker had cajones and was willing to cause significant short-term pain for a longer-term good.

Helicopter Ben lacks these cajones and will continue to serve his masters (Banking/financial system)

Thanks for posting up


Justin_n_IL said...

Spot on Randy. Ben is most certainly trapped in a cage. It's laughable how they try to paint a "it's not so bad" picture. He dare not speak with total honesty. No surprise there.

Aktaion said...

Gold gonna fly come Labor Day. Thanks, Ben! I got my kids to name their Golden Hamster after you!

BTW, it's 'cojones' not 'cajones'. If you gonna speak 'spic, do it correctamundo ;)

Anonymous said...

Hey Randy;
Just received this email update from Sinclair:
Posted On: Saturday, June 07, 2008 6:00:00 PM EST

The World's Most Dangerous Situation

Author: Jim Sinclair

My Dear Friends,

I have not been warning you about the developments in Pakistan for two years based on imagination. My sources are people who know and have yet to be wrong.

Do you remember the spin when Musharraf was politically unseated? The spin that day was that it was a true exercise of Democracy, and positive to Western interests. That will go down in the history of spin as world class stupid.

The end of Musharraf will compete in the annals of history with the disposition of the Shah of Iran.

This is not about the in-place nukes.

Crude is going to $170 and gold to $1200 this year with sound reasoning. Globalization now poses a problem for the Authoritarian central planners.

There is absolutely nothing the Authoritarian central planners can do to prevent $170 crude and $1200 gold because markets everywhere are licking their chops for US price controls and market interference.



Bens next move should be to step down.


Not bad information.