Will The Fed Raise Interest Rates Soon?

Will the Fed Raise Interest Rates?

The Fed has been threatening to end quantitative easing and raise interest rates since 2009. Will they ever raise rates?

Even though gold represents less than 1% of investible assets, CNBC spends an inordinate amount of time bashing it.

The Lowest Cost. Period.

The Fed seems to be rethinking its six year musings about raising interest rates.

The Fed, after threatening to stop QE and raise rates since 2009 “when the economy begins to recover” and having stopped and started QE three times and printed $4 trillion, has been talking about raising interest rates again.

Is the Fed finally ready to raise interest rates?

Podcast Summary:

0:00 -4:10 Introduction

Housing is Back! – Really?

4:10 – 7:38 Discussion of the continuation of the narrative that the economy is “recovering”.

Discussion of the reversal of the poor housing market story with a sharp rise in new home sales in August. The Fed had made a housing recovery the centerpiece of their $4 trillion quantitative easing (QE) program. When the housing market appeared to fizzle out on low sales the housing story was relegated to back page news, the Fed pretended to be confident that QE had done the trick and the program could be ended and rates could be raised.

The recent disappointing non farm payroll report is discussed.

New Home Sales Are Up

New home sales which make up 9.1% of overall home sales were up 18% in August from July.

Existing home sales, pending home sales and mortgage applications, however were down and cash buyers are exiting the market.

The new home sale surge doesn’t square with what seems to be a declining real estate market.

Possible reasons for the rise in new home sales:

– cash buyers;
– new homes are more expensive and richer people can afford them;
– new homes are only about a tenth of the overall housing market so these sales represent the luxury analog to Tiffany’s vs. Walmart where the upscale stores are doing well but the mainstreet ones are stagnant;
– the numbers will be revised; or
– the numbers were made up

Is an Increase in New Home Sales Harming Existing Home Sales?

7:38 -12:15 During the fall, home builders offer incentives and discounts to clear out inventory. After extremely low new home sales, there might of been some pent up demand that was satisfied via discounting.

The new home sales were up sharply but off a very low base, making the gain seem larger than it was.

Existing Home Sales Down

Perhaps, stronger new home sales are driving existing home sales lower.

The Housing Inventory Shortage Myth persists

12:15-19:27 the housing inventory shortage myth and comments of NAR’s chief economist are discussed.

Lawrence Yun, NAR chief economist said recently re the housing market “There was a marked decline in all-cash sales from investors,” he said. “On the positive side, first-time buyers have a better chance of purchasing a home now that bidding wars are receding and supply constraints have significantly eased in many parts of the country.”

Touting Real Estate Again: “Solid” is the new favorite economic cheerleading word replacing “recovery”

“As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying.” said Mr. Yun.

Investors Have left the Real Estate Market – HomeBuyers Get to Pick at the Over Priced Leftovers

Yun points out that first time homebuyers now have the opportunity to bid on homes because investors are exiting the market. This means the investors no longer find the homes on the market attractive and there are more homes being listed attracted to the rising prices, so home buyers have a larger pick of over priced leftover homes and newly listed homes on the market to chose from -IF they can get mortgages.

More homes on the market doesn’t create more demand.

Wall Street Journal Touts the Non Existent Real Estate Recovery

How to Play the Real-Estate Market:

“Housing Has Seen a Remarkable Recovery, but its Foundations Look a Little Wobbly
Is it too late to catch the real-estate rebound? Just a few years after suffering its worst downturn since the Great Depression, housing has seen a remarkable recovery.”

CNBC Blames Each Poor Housing Report on a Slight Increase in Interest Rates

Even though rates are at historic lows, and mortgage applications have been heading down, CNBC chooses to blame a slight rise in mortgage rates for the decline in mortgage applications (re-finance and purchase).

Lower rates will not spur greater housing demand without job and wage growth.

The Fed’s New View on Raising Interest Rates

19:27-23:28 Before QE even ends the Fed is already starting to have second thoughts about raising rates.

Charles Evans – Federal Reserve President of Chicago: Let’s Be Patient

Evans is not comfortable raising rates yet:

“I am very uncomfortable with calls to raise our policy rate sooner than later.” “I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals.”” I’m nervous that there’s not as much upward momentum in inflation as I would like.” “The decision to lift the funds rate from zero should be made only when we have a great deal of confidence that growth has enough momentum to reach full employment and that inflation will return sustainably to two percent.”

Narayana Kocherlakota – Minneapolis Federal Reserve President: We need more inflation!

Give the people what they want- Inflation!

Mr. Kocherlakota said recently: “We want to make sure inflation is on the path back to 2%.” “We don’t want to create more risk. You have to be very cautious about removing stimulus.” “Inflation persistently below the 2% target could create doubts in households and businesses about whether the FOMC is truly aiming for 2% inflation, or some lower number,” he said. “This kind of unmooring of inflation expectations would reduce the effectiveness of monetary policy as a mitigant against adverse macroeconomic shocks.”

William C. Dudley – New York Federal Reserve President: A Too Strong Dollar Will Dampen Inflation

A strong dollar is interfering with our inflation plans

Mr. Dudley commented on the recent rise in the U.S. dollar:

“If the dollar were to strengthen a lot, it would have consequences for growth.” “We would have poorer trade performance, less exports, more imports,” he said. “And if the dollar were to appreciate a lot, it would tend to dampen inflation. So it would make it harder to achieve our two objectives. So obviously we would take that into account.”

Reading between the lines: raising rates would be deflationary, so raising them isn’t a good idea.

Loretta Mester – Cleveland Federal Reserve President: Raising Rates Should be Data Dependent Not Time Sensitive

We should raise rates when we raise rate, there should be no time line

A “considerable period of time” definition is discussed.

QE 4?

23:28-23:59 will there be another round of QE?

Will Janet Yellen opt for continued “hoily accalmaudative mawnetree paulicy” for a considerable, indefinte period of time?

CNBC Launches Attack Against Fed Critics and Gold

23:59-28:20 CNBC’s recent attacks against Fed critics and gold are discussed.

CNBC’s Attack on Fed Critics

Trashing Bill Fleckenstein

Jackie DeAngelis to Bill Fleckenstein: “when will you admit you don’t understand monetary policy?”

CNBC’s Attack on Gold

There is nothing to support gold

Earlier in the week CNBC’s Brian Sullivan hosted a discussion on gold. The participants, two gold bashers – (basher and bashe) and Mr. Williams trashed gold.

At one point the basher stated with a straight face -“it’s been really quiet on the geo-political front”, ignoring turmoil in Ukraine, Russia, Syria and a war against ISIS.

The message: QE works because the sky hasn’t fallen – Yet. They will never blame their loose monetary policies once the credit and stock market bubbles burst.

Market Manipulation and the U.S. Debt Bubble

If the stock market is up, all is fine!

28:20-31:40 market manipulation on a grand scale is discussed. The U.S. debt situation has not been solved and has been effectively ignored -because the stock market has gone up.

Has Home Ownership Jumped the Shark?

31:40- 39:40 discussion of cultural factors that have set in against homeownership. Credit unions and lending standards are discussed. Monetary policy is not taught in school.

39:40 -41:58 You can’t just print $4 trillion and expect everything to be fine.

Whither Obamacare?

41:58 – discussion of whether Obamacare is an issue in the fall 2014 elections. Other issues have superceded it.

Discussion of how insurance companies inform you of the “good news” that you can keep our plan and pay more for it. Bad News=Good News discussion. Use of credit is discussed. The loss of personal responsibility for finances through 401K’s IRA and social security as well as self education and homeschooling is discussed.


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Further Reading:

Housing Recovery Law of Small Numbers

The Housing Inventory Shortage Myth

Gold and Silver Manipulation – Suspected

Gold and Silver Manipulation – Actual
Royal Canadian Mint

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