Monday, October 01, 2012

All red is mine.

All times ET.

Joan McCullough, East Shore Partners, 1-212-226-1223 Trading: 1-800-222-8723 joanmccullough@eastshorepartners.com

For weeks and weeks writing had become a tedious chore. You know exactly why, too! Because theres about a half dozen scenarios that continue to replay themselves over and over; there is never resolution. Compounding the ad nauseam tedium, the amount of reading that needs to be done on a daily basis just to keep up with all the characters in the current Russian novel is overwhelming. And time consuming. Put this picture together and you get an over-tired writer starin at a blank screen pretending to be buffering. Then you get a day like today. Which starts out with a load of crap from Asia, followed by more gar-baage from Spain with a side of nonsense from Portugal and a schmear from Ireland. The buck gets creamed, commodities soar. US stocks bolt from the gate at the starting bell, take out the first technical objective without breakin a sweat. And then roll over. So just when you thought it was gonna be another one of those Duh sessions when there was absolutely no new nugget to expose, up and pops Bernanke with a talk in Indiana. My head, kids, is still spinning. Thats how delighted I am to see how he royally and repeatedly stepped on his own stick in plain sight today. Underscoring the realization that he is an even bigger buffoon than currently thought. This is the link to the speech; Ill make it snappy and give you the quick low down forthwith: http://www.federalreserve.gov/newsevents/speech/bernanke20121001a.htm I gotta say it again: this guy is just so over the top idiotic, I am having trouble containing myself. The format took the form of 5 questions posed by Bernanke to the audience, the Economic Club of Indiana. Let me say right off the bat, the way he spoke to them made me wonder if perhaps he was addressing Brownie Troop 575 in a church basement somewhere in Kokomo instead. Holy smokes. As for the questions, here they are. Honk if while reading them, you get a rush of blood supply to your head. I know I did! To wit:

1. What are the Fed's objectives, and how is it trying to meet them? 2. What's the relationship between the Fed's monetary policy and the fiscal decisions of the Administration and the Congress? 3. What is the risk that the Fed's accommodative monetary policy will lead to inflation? 4. How does the Fed's monetary policy affect savers and investors? 5. How is the Federal Reserve held accountable in our democratic society? Freud said that all dreams may be reduced down to one of two categories or a combination thereof: A. fear B. desire. I would right now like to add the Bernanke laundry list of questions to the currently available options, fear and desire. Note is also made that run-of-the-mill dreams are now extended to include the threshold consciousness phase of lucid dreaming, an ailment from which Mr. Bernanke obviously suffers. Basing this diagnosis on his producing the laundry list which is all the evidence needed to treat this nutcase empirically. Hows that for circular thinking, eh? Am I nuts yet or what? LOL. The point I am trying to get at is this: If you read the list closely enough, you will see that for all intents and purposes, Bambis brewing-below-the-surface fears are not-so-cleverly disguised as questions. Put bluntly, hes askin us: 1. How soon do you think I will get fired if Romney is elected? 2. Do you think the history books will paint me with the same brush they will use on the Obama Administration? 3. How long do you think I can pretend that ZIRP is innocuous? 4. I am very guilty about screwing the savers, but tough noogies, what other choice is there? 5. Based on the adage Youre only as good as your last trade, whats the odds I do time? A cry for help if you ask me. I see youre as moved as I am. Sheesh. Here now are the passages which I find just so outrageous, I am finding it hard to sit still long enough to share them with you. This guy has one helluva nerve even speaking these words. They are utter rubbish and he needs to be brought up short. Yesterday. Red is all mine.
In the category of communications policy, we also extended our estimate of how long we expect to keep the short-term interest rate at exceptionally low levels to at least mid-2015. That doesn't mean that we expect the economy to be weak through 2015. Rather, our message was that, so long as price stability is preserved, we will take care not to raise rates prematurely. Specifically, we expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens. Do you think this eejit knows just how

busted he is right now after this last sentence? That he busted himself? What do you say to such a pathetic attempt to obfuscate reality? I know what Id say: You have the right to remain silent as I mentioned, monetary policy mainly involves the purchase and sale of securities. The securities that the Fed purchases in the conduct of monetary policy are held in our portfolio and earn interest. The great bulk of these interest earnings is sent to the Treasury, thereby helping reduce the government deficit. He forgot to mention that when the FED buys govvies, Treasury is the source of the FEDs interest earnings. Which, after deducting expenses, the FED later returns to Treasury. As for the interest earnings on the agency MBS they purchase, the source is the GSEs. Round and round it goes, eh? You bet. The only thing worth noting here in terms of economic impact is that the government has confiscated the right of the private sector to manage the ebb and flow of funds in these markets which is critical in the search for private investors to pick up yield. In the past three years, the Fed remitted $200 billion to the federal government. Ultimately, the securities held by the Fed will mature or will be sold back into the market. So the odds are high that the purchase programs that the Fed has undertaken in support of the recovery will end up reducing, not increasing, the federal debt, both through the interest earnings we send the Treasury and because a stronger economy tends to lead to higher tax revenues and reduced government spending (on unemployment benefits, for example). This is horrifically disingenuous. I am ashamed to read it, let alone attribute it to the chairman of the central bank of the United States. Odds are high, eh? Federal debt is out of control and the only way the government is saving money on UE bennies is because huge chunks of the labor force have dropped off the radar screen. Again, I cannot believe that somebody didnt throw a dinner roll at the dais. A related question I sometimes hear--which bears also on the relationship between monetary and fiscal policy, is this: By buying securities, are you "monetizing the debt"--printing money for the government to use--and will that inevitably lead to higher inflation? No, that's not what is happening, and that will not happen. Monetizing the debt means using money creation as a permanent source of financing for government spending. In contrast, we are acquiring Treasury securities on the open market and only on a temporary basis (He actually started talking about an exit strategy in February of 2010!!!) with the goal of supporting the economic recovery through lower interest rates. At the appropriate time, the Federal Reserve will gradually sell these securities or let them mature, as needed, to return its balance sheet to a more normal size. Bernanke also did not have sex with that Lewinsky woman.

I am dumbfounded to see him actually claim that monetization only takes place if he buys paper direct from Treasury for its use in financing the government. That the effort has a middleman is supposedly proof positive that he is not running a monetization operation. Baloney. By creating an artificial market for Treasury paper, he is also creating artificial demand for same. And at rockbottom rates as it turns out, another plum for a government on spending steroids. Think of Treasury supply to meet funding needs like a stock overhang. If a huge buyer announces himself and comes to the floor to suck up a ton of shares, the overhang (supply) disappears. Which results in more room for further flotation by the issuer (Treasury) and more demand by investors who have been relieved of their existing positions and now have money to spend. KMA. Next.

My colleagues and I know that people who rely on investments that pay a fixed interest rate, such as certificates of deposit, are receiving very low returns, a situation that has involved significant hardship for some. Keyword, evidently, is some. Because, look what the rest of the yield-starved are doing:

savers often wear many economic hats. Many savers are also homeowners; indeed, a family's home may be its most important financial asset. Many savers are working, or would like to be. Some savers own businesses, and--through pension funds and 401(k) accounts--they often own stocks and other assets. Can you hear me screaming? Good. Feel free to join in.

He knows he could be toast after November: At the same time, the Congress wisely designed the Federal Reserve to be insulated from short-term
political pressures. For example, members of the Federal Reserve Board are appointed to staggered, 14-year terms, with the result that some members may serve through several Administrations. Research and practical experience have established that freeing the central bank from short-term political pressures leads to better monetary policy because it allows policymakers to focus on what is best for the economy in the longer run, independently of near-term electoral or partisan concerns. Keep dreamin.

There you have it. A full disgrace in full light of day. No, I dont fell one iota of sympathy for this jamoke. Rather, what incenses me currently is all the chatter about the hot, diggity, dawg quarter stocks just completed. And how the average voter will see this in his 401-k and think that all is right in the world again. What the media is egregiously remiss in reporting, though, is the assault on the US dollar that is the quiet m.o. of the FED. Rest assured, there is no 401-k rally that can offset in any way, shape or form, the damage being done by the debasement of the buck. Ever. Looks like were gonna learn this the hard way. Hasta manana.

This report is issued for informational purposes only and is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. Any recommendation made in this report may not be suitable for all investors. This report does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it. Moreover, although the information contained herein, and the opinions, forecasts or estimates based thereon, has been obtained from sources deemed to be reliable by East Shore Partners, its accuracy and completeness cannot be guaranteed and should not be relied upon as such. Past performance is no guarantee of future results. Under no circumstances should any of the information contained herein be changed or reproduced without the express written consent of East Shore Partners, Inc. East Shore Partners, Inc. does not engage in investment banking activities, nor does it make markets in securities or trade for its own account. East Shore Partners, Inc. does not maintain any relationship with any issuer of securities. East Shore Partners, Inc., Member FINRA, SIPC. Copyright 2012 East Shore Partners. All rights reserved.