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Jackson Hole Joan

Jackson Hole Joan

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Published by richardck61

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Published by: richardck61 on Aug 31, 2012
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11/05/2012

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8/31/12All red is mine.
HBBC
(
H
oney
B
oo-
B
oo
C
hild a/k/a the
H
onorable
B
en
B
ernanke,
C
hairman; take your pick)delivered comments today at
Jackson Hole.
s the juicy part that we were all waiting for:
 
As we assess the benefits and costs of alternative policy approaches, though, we must notlose sight of the daunting economic challenges that confront our nation. The stagnation of thelabor market in particular is a grave concern not only because of the enormous suffering andwaste of human talent it entails, but also because persistently high levels of unemployment willwreak structural damage on our economy that could last for many years.Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market.Taking due account of the uncertainties and limits of its policy tools,the Federal Reserve willprovide additional policy accommodation as needed to promote a stronger economic recoveryand sustained improvement in labor market conditions in a context of price stability
 
 
HBBC from Jackson Hole, August, 2010:
 
… “
We will continue to monitor economic developments closely and to evaluate whetheradditional monetary easing would be beneficial.In particular, the Committee is prepared toprovide additional monetary accommodation through unconventional measures if it provesnecessary, especially if the outlook were to deteriorate significantly. The issue at this stage is notwhether we have the tools to help support economic activity and guard against disinflation. Wedo. As I will discuss next, the issue is instead whether, at any given juncture, the benefits of eachtool, in terms of additional stimulus, outweigh the associated costs or risks of using the tool.
Policy Options for Further Easing
 Notwithstanding the fact that the policy rate is near its zero lower bound, the Federal Reserveretains a number of tools and strategies for providing additional stimulus. I will focus here onthree that have been part of recent staff analyses and discussion at FOMC meetings: (1)conducting additional purchases of longer-term securities, (2) modifying the Committee'scommunication, and (3) reducing the interest paid on excess reserves. I will also comment on afourth strategy, proposed by several economists--namely, that the FOMC increase its inflationgoals.
” …
 
 As you know, HBBC busted a QE move at the subsequent, November, 2010 FOMC meeting
.
 
English is my native tongue. Yours?
 Huh?
You spoke Polish until kindergarten when theyenrolled you in the Alliance
Française
 
until you were sent to bilingual Korean classes everyweekend up to the age of 16 when you got an after-school job in a bodega?No problem, Sunshine. You, too, can understand that the message of 2010 is the same as themessage of 2012.
Case closed
. He must have had one heck of a scare from the August NFPreport which is due a week from today. Yee-ha.
 The difference, IMHO, is in the focus of his commentary.In 2010, it was a broader-based view of economic malaise that inspired his wording. Today,there is a major league, almost exclusive focus on the problem of the Unemployment situation.Here are a couple o
things which he said; had I been in attendance, I probably would be underarrest by now.This is basically how he describes the genius of buying US treasuries: It
s a
portfolio balancechannel
, don
t you know?The FED buys the govvies, taking them from, say, investor hands. Govvie prices go up; yieldsdown. The investor then takes that money and goes and buys something else, say, MBS, takingthem from other investor hands. MBS prices go up, yields go down. And so on and so forth,thru the asset-class food chain, noting that at each and every turn, the grease that makes theeconomic wheels turn, is being spread around.Eventually, the chain gets to stocks. This is where I had to restrain myself. (Italics are myinput.)
 
Importantly, the effects of *LSAPs do not appear to be confined to longer-term Treasuryyields.Notably, LSAPs have been found to be associated with significant declines in the yields on bothcorporate bonds and MBS.
 The first purchase program, in particular, has been linked tosubstantial reductions in MBS yields and retail mortgage rates. (
See? That 
’ 
s the channel thingwhere the positive effects of the stimulus are passed along.
)LSAPs also appear to have boosted stock prices, presumably both by lowering discount rates andby improving the economic outlook; it is probably not a coincidence that the sustained recoveryin U.S. equity prices began in March 2009, shortly after the FOMC's decision to greatly expandsecurities purchases. This effect is potentially important because stock values affect bothconsumption and investment decisions.
” …
*Large Size Asset PurchasesGo on. I
ll wait for you to read that again. This essobee has abused not only the micro guys butthe macros as well. As he has jackassed the asset classes around until the only focus is Risk Onor Risk Off on any given trading day. I could spit.
 
 And then has the
sand 
to make a public comment that stocks go up when he prints moneybecause discount rates have gone down and the economic outlook has improved on account of it?This is what makes the hot dogs run stocks up the flagpole when The Bernank saddles up?Better economic outlook? Amazing.Lemme go back now and give you the reality version of the Bernanke portfolio balance channel.He relieves investors of the lowest risk-bearing vehicles, forcing them to seek yield elsewhereand at the same time, take on increasing risk. Until, increasingly yield-starved as this
balancing
is relentless, they arrive at the door of the stock market. And mindlessly take theplunge. Because they have no choice. They are now balls-to-the-walls exposed. Waiting for thenext round of QE.Because Lord knows, the first two did jack. Of course, in the earliest part of his diatribe today,he does make a case as to how the lower rates worked some magic on the economy, althoughexactly how much is difficult to pinpoint. As usual, too, he also blames the fiscal intransigenceas well as tight credit conditions at the banks for holding back the beauty of his genius fromworking its total magic. And yes, today
s pop in Crude is
demand-driven
.
 KMA.Employment: 8.3%.One more time: At this stage of the game, ZIRP is destructive.I
don’t
know how many more times I can say it.Have a nice 3-day weekend!
 
Joan McCullough, East Shore Partners, 1-212-226-1223Trading: 1-800-222-8723 joanmccullough@eastshorepartners.com 
This report is issued for informational purposes only and is not intended to be an offer, or the solicitation of anyoffer, to buy or sell the securities referred to herein. Any recommendation made in this report may not be suitablefor all investors. This report does not take into account the particular investment objectives or financialcircumstances of any specific person who may receive it. Moreover, although the information contained herein, andthe opinions, forecasts or estimates based thereon, has been obtained from sources deemed to be reliable by EastShore Partners, its accuracy and completeness cannot be guaranteed and should not be relied upon as such. Pastperformance is no guarantee of future results. Under no circumstances should any of the information contained

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