The continued parade of stock market analysts who proclaim the equity market is rallying merely on Fed monetary policy instead of market fundamentals have spent far too much time doing case studies and not reading economic history. Interest rates as the variable signaling the cost of money are a very critical element and a key fundamental of the economy and especially the equity markets. U.S. multinational corporations are sitting on record piles of cash and also reporting strong profits. Much of the growth in profits can be attributed to two factors: Very low borrowing costs and continued pressure on wages. The FED has created the low interest rates and has hoped that the profitability resulting from low borrowing costs would bleed into higher wages and thus the need for increased hiring. The problem is many fold on the lack of success in aiding jobs creation. Globalization has kept pressure off wages and the deleveraging of the private balance sheets has meant that downward pressure remains on demand.
Posts Tagged ‘dollar index’
Notes From Underground: The Fed’s Zero Rate, Quantitative Easing Policies Are Stock Market Fundamentals
March 10, 2013Notes From Underground: Bernanke and Yellen Are in Lockstep With Policy
March 4, 2013Friday night Chairman Bernanke delivered a speech on long-term interest rates at the Annual Monetary/Macroeconomics Conference sponsored by the San Francisco Federal Reserve. The basis of his remarks was that the Fed would continue to maintain its robust monetary accommodation because any early extraction may result in the economy slowing and thus the Fed would have to move to extend the period of aggressive Fed action. It is always important to remember that Ben Bernanke is the main ’37er in the realm of preventing an economic relapse to the deflationary impact of deleveraging. When I say that Chairman Bernanke is a ’37, it refers to the pledge the chairman made to Professor Milton Friedman at the esteemed economist’s 90th birthday party. Bernanke said the Fed made a huge mistake by tightening rates and reserve requirements in 1937 while the U.S. Treasury was instituting an austerity budget at the behest of Secretary Andrew Mellon. It has been Bernanke’s belief that the Fed’s actions coupled with a badly flawed fiscal policy sent the U.S. back into a very severe recession.
Notes From Underground: The Unemployment Data Was Almost as Disappointing as Europe
July 10, 2011Friday’s unemployment report revealed that Thursday’s ADP data was, again, a “FALSE POSITIVE.” The 157,000 ADP gain failed to show in the BLS numbers and all the Wall Street economists were caught off guard as they spent Thursday night ramping up their guesstimates to be more in-line with the private sector prognosticator. The initial response by the EQUITIES was to sell off as the lack of job growth undermines the recent S&P and DOW rally. At day’s end, the equities staged a rally and the loss on the day was small, especially relative to the strength shown early in the week.