The Fed Reintroduces More QE Into The Narrative

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Podcast Summary:



St. Louis Fed President James Bullard Does a 180 on His Economic Outlook and Fed Policy


The market takes the Feds comments at face value and doesn’t second guess the Fed.

Fed President James Bullard changes his tune from the economy is doing fine and rate hikes are imminent, to concern over the economy and ending quantitative easing.

A market rally ensues.

Fed’s Bullard says QE3 could last longer than October

Fed’s Bullard comments that QE3 could last longer than October

“Inflation expectations are declining in the U.S.,” he said in an interview today with Bloomberg News in Washington. “That’s an important consideration for a central bank. And for that reason I think that a logical policy response at this juncture may be to delay the end of the QE.”

And the desired result! The stock market soars after getting hammered all week.

Bullard: Fed Could Delay QE’s End; Stocks Rebound

The Fed “could go on pause on the taper at this juncture and wait until we see how the data shakes out into December.” said James Bullard

Bullard’s comments on October all contradict what he had been saying re rate hike and repeated as recently as Oct 9 and who had been calling for a rate rise in early 2015
“I’m not worried about the dollar’s strength having an impact on inflation.” Bullard said.

James Bullard’s St. Louis Comedy Central

The Next Day…

Boston Fed President Eric Rosengren CNBC Runs Headlines:

Don’t expect another round of QE: Boston Fed’s Rosengren

Rosengren Too soon to make an adjustment on QE plans: Boston Fed’s Rosengren

But did Mr. Rosengren rule out another round of QE?:”

“I don’t expect that we need to,” “If the economy got weak enough that it was required, we should do it. I certainly hope and I don’t expect that will be the case, but I can’t rule anything out at this time.”

Thus, the Fed has changed the narrative from ending QE and raising rates soon, to perhaps raising rates later to not raising rates and continuing or re launching a new QE.

The Fed to Continue QE3 or start QE4 or is it QE5?

Prior Smaulgld.com podcast discussed this possibility based on what Fed presidents had been saying before and after the FOMC meeting minutes were released a couple of weeks ago.

San Francisco Fed President John Williams Hints at More QE

Fed President John Williams hinted at the possibility of more QE on October 14th but did not utter the phrase: QE, rather he mentioned “another round of asset purchases”

The headlines did not reflect that more QE might be in the offering:

Reuters headline – Exclusive: Fed’s Williams downplays global risks, eyes U.S. inflation

“If we really get a sustained, disinflationary forecast … then I think moving back to additional asset purchases in a situation like that should be something we should seriously consider,” Williams said.

Then on October 16 the QE headlines finally come!

Bullard utters the magic words: QE

Labor Market Statistic/Inflation

12:00-14:37 while the official job numbers look good (they are not)- unemployment is low, initial jobless claims are at a fourteen year low, the Fed needs to focus on another failing indicator (“lack of enough inflation”) as an excuse to keep rates low and do more QE.

Initial Jobless Claims

CNBC reports on the latest initial jobless claims numbers- lowest in 14 years! Really, the initial jobless claim numbers are down because there are fewer people left in the labor force to fire and the non farm payroll numbers are up as more part time jobs are being created.

Yet CNBC gushes:
“The number of Americans filing new claims for jobless benefits fell to a 14-year low last week, a positive signal for the labor market that could counter doubts over whether the economy is shifting into a higher gear. That suggests the labor market is gaining steam and could bolster the view that the Federal Reserve will hike interest rates next year when the jobless rate is expected to continue to fall.”

The Stagnating Real Estate Market- Will Even Lower Rates help?

14:37-16:19 -lower rates haven’t spurred real estate sales, more jobs and higher wages are needed (and lower prices). Discussion of market conditions as homes stay on the market longer and go through multiple price cuts.

Mortgage Applications Down- But CNBC Pumps Real Estate Anyway


Spin, Pump & Distort

The facts are all in the CNBC article:

-Home purchase applications down again -buried in paragraph five; and
-refinances off 27 percent from last year at the end of paragraph two.

YET the story is spiced up with words like “surge” “jumped” “highest level since” with a headline “Refinancing BOOMLET!”

All metrics of real estate are down even though interest rates are at or near all time lows.

The media doesn’t report on the details of the job report; they just tout the “strength in the labor market”

Older people cant retire and cant make money from interest in savings account, so they are coming out of retirement and are taking entry level jobs at supermarkets and Home Depot that should go to younger workers.

Retirees are not buying homes either.

The labor participation rates is even lower for those in their prime earning years.

YET CNBC reports on top line number and says “That suggests the labor market is gaining steam and could bolster the view that the Federal Reserve will hike interest rates next year when the jobless rate is expected to continue to fall.

Home Sales are at levels of the 1950-60’s when the population was much lower- yet housing “recovery” stories persist.

New homes sold since

Why are Millennials Not Buying Homes


Is it cultural? They don’t to go through the experience of their foreclosed parents or is it really because they can’t afford it? like saying I don’t want to play for the New York Yankees because I don’t like to fly.

Home Builders


Discussion of the new home building market. Many builders have started new homes on the concept that there is demand and prices are rising. They may have received a classic false signal from artificially low interest rates.

New homes will have difficulty being sold when the inventory of existing homes is rising and their prices are being reduced.

Rising Health Insurance Premiums

28:45-38:47 Good news! if you like your plan you can keep your plan- you just have to pay more. Ryan and Louis discuss their health insurance plans. Discussion of how high monthly premiums reduce the ability to pay mortgages (even though monthly insurance premiums are not included as a debt when applying for a mortgage).

Discussion of the difference between paying the penalty for not having mandated insurance vs.the premiums. Discussion of fines as barriers to entry.

Part time jobs come without insurance so people have to spend more out of pocket to buy individual plans putting further strain the ability to pay a mortgage.

Good news!: the increased spending on insurance premiums is included in the GDP as consumer spending, so GDP rises!

38:47-39:20 Rush bot?

39:20-47:30 discussion of the impact of the Affordable Health Care Act on the housing market and overall economy. Discussion of the pros and cons of paying for health insurance vs paying the fine. Discussion of the simplicity of a tax hike option vs implementation of the ACA. Much simpler way (albeit socialist) would have been to institute a tax to pay for the uninsured.

Is the Fed Credible?

47:06 Discussion of Janet Yellen’s view of the economy and how the stock market is holding up the economy.

Discussion of the Fed’s credibility, Bullard’s 180 and how CNBC promotes the Fed’s narrative.

CNBC Bashes Gold Again

Gold debate CNBC style: One against and one more against:

The Fed never talks about gold.

The Save our Swiss Gold initiative is discussed.


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Further Reading:

Low interest Rates Send a False Signal To Home Builders

The Dark Side of Artificially Low Interest Rates

How the Stock Market is Holding up the Economy

Initial Jobless Claims Misinterpreted

Janet Yellen and Negative Interest Rates

Royal Canadian Mint

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