Tuesday, April 26, 2011

Bumbling Ben Bernanke Steps Up To The Microphone

Following Wednesday's FOMC statement at 12:30PM est, the Captain of the US Sinking Dollar will meet the press for a live chat on the Fed's monetary policy.  Ben is scheduled to appear before the microphones at 2:15PM est.  His chat with financial reporters should score higher in the ratings than this weekends Royal Wedding.  Odd that Ben is going to wait one hour and forty-five minutes before taking questions about the latest monetary drivel from his FOMC meeting...

Listening closely to what Bumbling Ben has to say about monetary policy going forward from today will be key:

Bernanke's Code: a Guide to Fed Chairman's First Q&A
When Federal Reserve Chairman Ben Bernanke makes his debut press conference Wednesday, his every word will be parsed for signs of where he hopes to take U.S. monetary policy.

Specifically, many people want to know when the central bank will begin raising interest rates, and when it will begin off-loading some assets, including Treasurys and its multitrillion-dollar cache of mortgages.

As Mr. Bernanke touches on topics familiar to Fed-watchers, he will use seemingly ordinary words or phrases that are freighted with important economic messages in the world of the Fed. A few examples:

I suggest listening intently should the issue of "rolling over principle payments on maturing debt, to purchase new debt":

Bernanke May Reinvest Maturing Debt to Avoid ‘Cold Turkey’ End to Stimulus
Federal Reserve Chairman Ben S. Bernanke may keep reinvesting maturing debt into Treasuries to maintain record stimulus even after making good on a pledge to complete $600 billion in bond purchases by the end of June.

Ben has been doing this since August 2010.  It's a kind of QE-lite.  Continuing to "reinvest" maturing debt allows him to keep buying US Tresury debt, but without "creating money out of thin air".

What to Expect from the FOMC Tomorrow and Going Forward

OptionsFor Battling Inflation That Are Not Raising the Federal Funds Rate

1. The Fed could raise the rate it charges banks for emergency loans. That rate, called the discount rate, is at 0.75%. It won't impact consumers and businesses but it does signal to banks and other financial institutions that the Fed may move its federal funds rate soon as well. 2. The Fed can raise the interest rate it pays banks on money they leave at the central bank, or their "excess reserves". This would tighten credit as it encourages banks to keep their money at the Fed rather than lend it out. Therefore, this step would raise rates tied to commercial banks' prime rate and affect many consumer loans. Currently this rate is at 0.25%. The Fed has put some importance on the use of this tool in order to battle inflation. The NY Fed's Dudley, a leading member of thee FOMC, has touted it. From Bloomberg: "Congress granted the Fed this ability in 2008, and Chairman Ben S. Bernanke, Vice Chairman Janet Yellen and New York Fed President William Dudley have all cited it as a main reason why they'll be able to keep the U.S. economy from overheating after pumping record amounts of cash into the financial system.The amount of excess reserves climbed to $1.47 trillion this month from $991 billion at year-end and $2.2 billion at the start of 2007, Fed data show.

This would be the FIRST step in signaling that the Fed may be thinking about raising interest rates.  Ben would be wise to dodge this question.  If his answer is "misinterpretted" the equity markets will get spooked by the "threat of rising interest rates" and head south, the Dollar would rise from the dustbin, and commodities would get whacked.  IMO, this is the single biggest issue to listen for during this press conference.

No point in speculating further on what Bumbling ben might treat us to tomorrow.  You can be certain that a lot of what slips from this man's jaw tomorrow, in front of the whole world no less, will be pure BS.  It should be entertaining.  A Dollar rally is expected by many.  I expect a dead cat bounce at best, but then cats do have nine lives...

What Goldman Expects From Tomorrow's "Watershed" FOMC Press Conference

From Goldman's Andrew Tilton: A summary of tomorrow's events

Here is some incendiary insight into the Silver market:

Short Sellers Now Screaming About a Buy Side Silver Conspiracy
By Avery Goodman
Had the worldwide silver scam remained a secret, suppression of precious metals prices might have gone on forever. But the genie is now out of the bottle and mortal men, not even those who run casino-banks, cannot hope to put him back in. Once it became clear that the bullion banks were leveraged 100 to 1 in a silver based fractional banking scheme, it was only a matter of time before the market clobbered them. That is what is happening.

People have only begun to scratch the surface of the precious metals markets, and few fully understand how undervalued all of them are. Silver has always been worth far more than it had been selling for in the last 30 years. People are starting to see not only this, but also how that corrupt pricing situation came to pass. The whole world now understands that the silver trade has been carried out in a deceitful manner for many years. So, naturally, many people are starting to buy physical silver again, just as they did for 10,000 years before COMEX began trading it. Those people happen to include, in all likelihood, a few billionaires, a few sovereign wealth funds, and a few Asian bankers. Many are politely refusing offers of "unallocated" bullion bank "storage".

The silver market is not rising because of a conspiracy. If so, it would be the most disorganized conspiracy that has ever existed. On the contrary. What we are seeing is the massive unwinding of a silver price control conspiracy that many of us predicted, in public or private for many years. The biggest scam in world history is ending. Sellers are now desperately trying to find metal. A lot of banks that were supposed to be storing silver are really storing air. Converting large amounts of air to large amounts of silver is difficult and bound to be costly. The process, once completed, will permanently increase the price of silver.

Intense upward pressure on silver prices is evident because physical silver is being purchased as never before. It is not stemming from trading on COMEX. In fact, deliveries at COMEX have been relatively small for several months. The process that is now ongoing is one that no performance bond committee can stop. COMEX could declare liquidation-only, as they did in 1980. The only end result would be to catapult the demand for and price of silver even higher. COMEX is now irrelevant except as a way for banks to bankrupt themselves if they continue to try to reduce the price of physical silver by manipulating futures prices there and taking on more short positions to do it. They can crash the paper futures price as much as they wish. It won't stop buyers from demanding physical silver in the real market outside COMEX.

The old prices were a result of a naive market, overwhelming short positions at the futures exchanges, manipulative trading techniques and a deceitful unallocated storage arrangement. The current silver pricing surge may look like a typical short squeeze, but it is nothing of the kind. It represents a permanent change in market perceptions. That is not to say that silver prices cannot fall, but the pressure to buy physical silver will continue to mount. When silver prices finally reach equilibrium, $50 per ounce might be the floor, rather than the ceiling. We don't know how high the price will climb under these circumstances.

One thing is clear. Buyers have discovered that they hold the power to defeat the largest financial firms in the world at their own game. But they still don't recognize the extent of their victory. Silver is the beginning, not the end. It is only one of the precious metals, but not the only one. The same unethical practices have been used for years to suppress the price of gold and platinum, for example. Both metals have been traded in a naive market, with overwhelming short positions at the futures exchanges, manipulative trading techniques and deceitful "unallocated" storage arrangements. There is no fundamental difference except that the metals have different names and appear at different locations on the periodic table.

And here is some truth about the US Treasury market:

Pimco's Observations As The US "Reaches The Keynesian Endpoint" - The QE2 Ponzi Scheme Is "Nothing But A Profit Illusion"
Once again, it is the world's biggest bond manager which either is really tempting fate by telling the truth in an increasingly more aggressive manner day after day, or is engaging in the most acute case of reverse psychology ever seen, coming out with the most critical opinion of the Fed's actions on the verge of the Fed's historic first press conference. And this one is truly a stunner, far more real than anything even Bill Gross has said in the past: "Just as Charles Ponzi needed donuts to turn back a suspicious crowd of investors, the Fed needs “donuts” in order to fill the bellies of the literally millions of investors worldwide who worry about the alarmingly large U.S. budget deficit and the impact that the U.S. debt dilemma could have on their Treasury holdings...Their collective buying has created what we believe to be a profit illusion with many investors mistakenly believing they can continuously reap profits from perpetually falling bond yields and rising bond prices, just as they have had opportunity to do over the past 30 years, amid the great secular bull market for Treasuries and the bond market more generally...For many reasons, this “duration tailwind” for Treasuries can’t last, particularly because the United States has reached the Keynesian Endpoint, where the last balance sheet has been tapped."Must read

Summary of "The End of QEII: It’s Time to Make the Donuts"

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