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Has The Fed Turned "Hawkish?"
12-16-2016, 04:19 PM,
#1
Has The Fed Turned "Hawkish?"
Has The Fed Turned "Hawkish?"

<p><a href="http://economicprism.com/has-the-fed-turned-hawkish/"><em>Submitted by MN Gordon via EconomicPrism.com,</em></a></p>
<p><strong>Stimulus, in a general sense, is something that causes an action or response.&nbsp;</strong> A ringing alarm clock may prompt someone to exit their slumber.&nbsp; Or a fist to the gut may force someone to gasp for breath.</p>
<p>Stimulus can come in many forms and varieties.&nbsp; It can come in the form of a stick; do this and you won&rsquo;t get whacked over the head.&nbsp; So, too, it can come in the form of a carrot; do that and you&rsquo;ll get a reward.</p>
<p>Other forms of stimulus can produce a short, burst like, reaction.&nbsp; The caffeine in a cup of coffee, for instance, will temporarily reduce drowsiness.&nbsp; Yet once the caffeine wears off, more coffee is needed to sustain the effect.</p>
<p><strong>Former professional baseball player, and all around dirt bag, Jose Canseco knows a thing or two about stimulus.</strong>&nbsp; Not from what someone has taught him.&nbsp; But from what he learned through real world experience.&nbsp; He literally wrote the book on it.</p>
<p>His 2006 memoir, Juiced: Wild Times, Rampant &lsquo;Roids, Smash Hits, and How Baseball Got Big, tells the story of how he and other athletes experimented with performance enhancing drugs to stimulate their baseball careers.&nbsp; If you recall, baseball players in the later 1990s &ndash; their necks and baseball statistics puffed up like balloons.&nbsp; They became caricatures in appearance and performance.</p>
<h3><u><strong>DOW 40,000!</strong></u></h3>
<p>Apparently, Canseco&rsquo;s experimental research makes him an expert on all things related to stimulus.&nbsp; Even monetary stimulus.&nbsp; In fact, Canseco&rsquo;s lobbying President-elect Donald Trump to make him Chairman of the Federal Reserve.</p>
<p>As of market close on Thursday, the DOW was a horse&rsquo;s hair away from 20,000.&nbsp; Make of it what you will.&nbsp; Every historical metric and inkling we know of informs us that this market is extremely overvalued.</p>
<p>But according to Canseco, if he were Chairman of the Federal Reserve, the DOW would hit 40,000 in four years.&nbsp; On Monday Canseco directed the following <a href="https://twitter.com/JoseCanseco/status/808172792688439297">tweet</a> at Trump:</p>
<p><strong><em>&ldquo;Hey brother @realDonaldTrump give me control of the Fed and we will make the economy great again. &nbsp;Dow at 40k in 4 Years. #Yeswecanseco.&rdquo;</em></strong></p>
<p>Quite frankly, only an idiot would think DOW 40,000 in four years would somehow make the economy great again. &nbsp;<strong>Monetary stimulus has already puffed up the market to something that has no obvious connection with the economy.&nbsp;</strong> Moreover, the economy ain&rsquo;t great.&nbsp; Wall Street&rsquo;s gone up.&nbsp; Main Street&rsquo;s flat lined.</p>
<p><strong>Of course, the only way to achieve a DOW 40,000 target in four years is through massive amounts of monetary stimulus.&nbsp;</strong> Given the radical monetary policy, and subsequent market distortions and economic flailing that has taken place over the last eight years to reach DOW 20,000, there&rsquo;s no reason to believe DOW 40,000 would make the economy great again.</p>
<h3><u><strong>Has the Fed Turned &ldquo;Hawkish?&rdquo;</strong></u></h3>
<p><strong>Canseco, however, isn&rsquo;t alone in his fantastical thinking and enthusiasm.&nbsp; Countless intelligent individuals, that have made careers out of economics, have had their minds softened over by theories not too different from Canseco&rsquo;s.&nbsp; Namely, that a perpetually higher stock market is good for the economy.</strong></p>
<p>This philosophy is best illustrated by a popular idea of economists called the &ldquo;wealth effect.&rdquo;&nbsp; In a nut shell, the wealth effect is the idea that people spend more as the value of their assets rises. &nbsp;When investment portfolios increase in value, consumers feel more financially secure and they buy stuff&hellip;like cheaply made light up reindeer antlers from China.&nbsp; The increase in spending, in turn, stimulates the economy.</p>
<p>Yet the experience over the last 8 years tells a different story.&nbsp; The DOW has gone up 160 percent.&nbsp; GDP has gone up just 30 percent.</p>
<p>This week we learned the Fed will finally begin to make <a href="https://www.federalreserve.gov/newsevents/press/monetary/20161214a.htm">gradual increases</a> to the federal funds rate.&nbsp; On Wednesday, Fed Chair Janet Yellen announced the Fed will raise the federal funds rate a quarter percent to somewhere between 0.5 to 0.75 percent.&nbsp; Following the announcement we came across numerous statements from economists whom are of the opinion that the Fed has somehow turned <a href="http://blogs.wsj.com/economics/2016/12/14/economists-react-to-the-federal-reserve-a-bit-hawkish/">&ldquo;hawkish.&rdquo;</a></p>
<p>What planet are these fellows from?&nbsp; If the Fed&rsquo;s now hawkish, then a canary&rsquo;s a big fat juicy turkey.</p>
<p><strong>To be clear, despite the slight increase, and the possibility for gradual increases in 2017, a federal funds rate of 0.75 percent is still highly accommodative.&nbsp; Similarly, the Fed is still a dove.</strong></p>
<p>So in the world we&rsquo;re entering, where Donald Trump will be pushing hard for new fiscal stimulus, the Federal Reserve will continue to press the monetary stimulus pedal to the metal.&nbsp; Nonetheless, Jose Canseco&rsquo;s DOW 40,000 and the Fed&rsquo;s wealth effect will not come to pass.</p>


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