Friday, March 2, 2012

Tuesday, February 28, 2012

Sunday, February 26, 2012

Since the price of oil/gas has been front and center this week, I wanted to take a look.

First a 10 year chart of oil futures with some significant dates.

4 year chart showing what happened after the crash.

1 year chart with significant dates - notice the date of October 4th - or when Operation Twist began.

October 4th was significant for a couple of reasons;

1)The fiscal year of the United States closed the Friday before on September 30th.  The 3rd, a Monday was the first day of the new fiscal year.

2)On October 4th, the Federal Reserve started buying bonds in what is known as Operation Twist.  This same day Chairsatan Bernanke said the following to the Joint Economic Committee, U.S. Congress - You can read the prepared testimony here

Returning to the discussion of the economic outlook, let me turn now to the prospects for inflation. Prices of many commodities, notably oil, increased sharply earlier this year, as I noted, leading to higher retail gasoline and food prices. In addition, producers of other goods and services were able to pass through some of their higher input costs to their customers. Separately, the global supply disruptions associated with the disaster in Japan put upward pressure on prices of motor vehicles. As a result of these influences, inflation picked up during the first half of this year; over that period, the price index for personal consumption expenditures rose at an annual rate of about 3-1/2 percent, compared with an average of less than 1-1/2 percent over the preceding two years.

As the FOMC anticipated, however, inflation has begun to moderate as these transitory influences wane. In particular, the prices of oil and many other commodities have either leveled off or have come down from their highs, and the step-up in automobile production has started to reduce pressures on the prices of cars and light trucks. Importantly, the higher rate of inflation experienced so far this year does not appear to have become ingrained in the economy.  Longer-term inflation expectations have remained stable according to surveys of households and economic forecasters, and the five-year-forward measure of inflation compensation derived from yields on nominal and inflation-protected Treasury securities suggests that inflation expectations among investors may have moved lower recently. In addition to the stability of longer-term inflation expectations, the substantial amount of resource slack in U.S. labor and product markets should continue to restrain inflationary pressures.

In view of the deterioration in the economic outlook over the summer and the subdued inflation picture over the medium run, the FOMC has taken several steps recently to provide additional policy accommodation. At the August meeting, the Committee provided greater clarity about its outlook for the level of short-term interest rates by noting that economic conditions were likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. And at our meeting in September, the Committee announced that it intends to increase the average maturity of the securities in the Federal Reserve's portfolio. Specifically, it intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less, leaving the size of our balance sheet approximately unchanged. This maturity extension program should put downward pressure on longer-term interest rates and help make broader financial conditions more supportive of economic growth than they would otherwise have been.

The Committee also announced in September that it will begin reinvesting principal payments on its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities rather than in longer-term Treasury securities. (<--backdoor bank bailouts - added my me) By helping to support mortgage markets, this action too should contribute to a stronger economic recovery. The Committee will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability. (<--Really - added by me).

Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector. Fiscal policy is of critical importance, as I have noted today, but a wide range of other policies--pertaining to labor markets, housing, trade, taxation, and regulation, for example--also have important roles to play. [B]For our part, we at the Federal Reserve will continue to work to help create an environment that provides the greatest possible economic opportunity for all Americans.

Really Ben?  How's all that working out?

Crude closed where on Friday and could go to....?  Is that what you said you would do Ben?

The S&P 500 with significant dates;

Some investors will argue the oil bubble of July 2008 is what broke the camel's back and led to the crash of 2009. I can't accurately overlay the S&P chart on top of the crude oil chart, but if I could, you would see the S&P rolled over and started falling before crude topped out at the $147 dollar area.

When the price of oil (or any and all other commodities) goes up, it squeezes margins for all companies. They must eat the costs until they are forced to pass it along to us, the consumer. We the consumer, are effected immediately by higher gasoline prices and then get whacked again when the prices of food and other consumables rise as well, cutting into our discretionary spending, thus the economy and GDP take a hit as well. We can see what happened quite clearly in the charts. 401ks, pension funds, and all other vehicles used for investments get pummeled, as we well know.

Operation Twist, as announced by Bernanke, was to flatten the yield curve in order to keep borrowing cost low (for the banks) and help the housing market by making it cheaper to re-finance your home - in hopes of spurring the already decimated housing market. It has failed miserably.

If we had a so-called free market, the bond vigilantes would have called Chairsatan Bernanke's BS. They would have started dumping bonds and the yield would have skyrocketed higher, exposing Ben for what he is - a liar. Like Greece, our spreads would have ballooned, borrowing costs would become crippling, and our debt problem obvious and very costly.

Even though Ben claims to be selling the shorter end of the curve and buying longer maturities - to keep the balance sheet the same (which is like NOT printing money) - he is still buying MBS from the balance sheets of the banks (by playing three card Monty with the banks and Treasury) which is inflationary. Operation Twist negates the rising yields to hide this fact.

That is proof positive the market is being manipulated by the Fed, and why many investors, including the larges institutions with all the leverage (thanks in part to ZIRP (zero interest rate policy)) are front-running the Fed's actions.

What this also does, thanks to the fixed income area (bonds) paying next to no return (even the 10 year is under 2 percent), this leverage and money is forced into areas where returns are better. What better place to put it to work than the risk market, especially commodities aka crude oil. The money has to go somewhere, and it will.

These actions by the Fed, claiming "price stability and helping the economy grow" will not happen with crude oil prices soaring higher. Chairsatan Bernanke is, and continues to be, an utter and complete failure. He has also lied to congress, and has continued policies that go against his very own promises.

Crude oil is the new bond vigilante. When the expansion of the money supply occurs (as it is now) crude oil will tell us by going higher. History, as some believe, will tell us when the price of oil gets too high, any economic growth will stop, and maybe even go backward, as we saw in 2008-2009.

Chairsatan Bernanke shows no signs of helping the people or economy, only helping the balance sheets of the big banks he caters to. Depending on the next election, the choice of Fed Chairman may be more important than who wins the election - this type of monetary insanity has to stop.