Peter Schiff of Euro-Pacific Capital was on CNBC saying that gold prices will shoot through the roof once The Fed announces that QE3 has ended.
On the other hand, suppose that gold has been inflated by The Fed’s QE. That would lead to gold prices FALLING at the end of QE3.
Well, yesterday The Federal Reserve announced an end to QE3. The reaction?
This does not seem to support Peter Schiff’s pro-gold argument. But then again, it is probably too early to tell.
Here is what technical analysis is telling us.
Even former Federal Reserve Chairman Alan Greenspan is saying that QE did no good for the economy, but helped assets prices soar (which I have been saying for years).
Oct. 29 (Bloomberg) — The Federal Reserve confirmed it will end an asset-purchase program that has added $1.66 trillion to its balance sheet and maintained a pledge to keep interest rates low for a “considerable time.”
“Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate,” the Federal Open Market Committee said today in a statement in Washington.
“A range of labor market indicators suggests that underutilization of labor resources is gradually diminishing,” the panel said, modifying earlier language that “there remains significant underutilization of labor resources.”
Policy makers said that while inflation in the near term will probably be held down by lower energy prices, it repeated language from its September statement that “the likelihood of inflation running persistently below 2 percent has diminished somewhat.”
So, despite the lack of success in improving the underlying economy (like stagnant wages),
asset bubbles abound.
Mortgage purchase applications keep FALLING with declining rates.
QE doesn’t help the economy, but makes housing even MORE unaffordable.
Gold dropped on the announcement of QE3 withdrawal.
I remember the good old days when Peter Schiff and I would appear on the same news program. But alas, those days are gone.
Here is Peter Schiff’s interview on CNBC entitled “The Market That Lives By Q.E. Dies By Q.E.”
Very likely, The Fed will announce tomorrow that their QE program will be stopped.
Peter Schiff fears that the wheels will come off the train when it does. [Bear in mind that stopping QE is not the same as SHRINKING the Fed's balance sheet and removing the liquidity].
Let’s see what happens tomorrow.
But here is a chart of gold prices, the Dow, The Fed’s Balance sheet and the INVERSE of the devaluation of the purchasing power of the dollar. In this simplistic chart, gold does look relatively undervalued compared to the stock market.
Tomorrow should be fun!
The Federal Reserve Open Market Committee (FOMC) will be meeting Wednesday to decide whether to raise the Fed Funds target rate or continue to taper The Fed’s asset purchases.
The Federal Reserve helped to push down interest rates, particularly compared to the end of 2006. Short-term rates (those utilized by savers and seniors) by 500 basis points. Long-term rates (those utilized by mortgage borrowers) have fallen by 250 basis points, about half the decline of short-term rates.
But has The Fed’s aggressive easing (and rate lowering) done any good for the target mortgage borrowers? Mortgage debt outstanding continues to fall, house prices continue to rise as mortgage purchase applications deteriorate.
The FOMC will look at inflation compared to labor market “improvements.” While inflation is only 1.7% (according to the CPI YoY), Urban Consumers Owners Equivalent Rent of Residences is growing at a rate of 2.7%.
While Owner’s Equivalent Rent of Residences is growing at 2.7%, average wage growth is lagging at 2.0% growth.
Food is shooting through the roof, which is an important cost to American consumers.
The US Dollar?
Yes, it is “The Night of the Living Fed!” where wages and interest rates remain zombified.
Courtesy of Jessie’s Cafe Americain.
I can’t bring myself to turn on CNBC or Fox Business and listen to apologists try to sugar coat the dismal jobs recovery in the USA (Mark Zandi, can you hear me now?)
First, the good news. Initial jobless claims rose to 283,000. But that remains far below the peak in March 2009 of 665,000.
Now for the bad news. Despite the improvement in initial jobless claims, real median household income and average wage growth remain lower than in 2007.
And to top if off, The Federal Reserve through it’s policies have driven short-term rates to near zero, punishing savers. This of course is an attempt to encourage Americans to take on more risk and invest in risky assets.
Now, while America’s middle class is lagging in terms of wage and income growth, The Federal Reserve is pumping air into real estate prices and the stock market.
So now you can understand Fed Chair Janet Yellen’s plea for folks to “get on the asset train!”
That is, until it crashes and burns.
But not to worry. As long as Chinese investors pump up Irvine and Arcadia home prices in the Los Angeles area and continue to purchase New York commercial property, what can go wrong?
Existing home sales in September rose 2.4% to get back to 2001 levels. Year over year change in existing home sales were down 1.70%.
If it wasn’t for 30% cash sales, the existing home sales numbers would be dreadful.
The growth was mostly in the West and South.
We can thank The Federal Reserve’s quantitative easing programs (particularly QE3) for juicing existing home sales in the face of lower/stagnant real income and “Death Valley” mortgage purchase applications.
The Fed Futures data is pointing to a Carnival Cruise trip with The Fed Funds rate likely to rise in the near future. Or at least more likely than it has been in the past year.
Here is The March of The Federal Reserve as it distorts prices and incentives.
According to the Fed’s triennial Survey of Consumer Finances, the top 10% of U.S. families are doing just fine, and those in the bottom fifth are essentially being kept afloat by transfer payments; but the inflation-adjusted median family income has shrunk by one-eighth since 2004. Quite simply, middle-class incomes are being gutted.
Citing that same survey, Ms. Yellen expressed concern about “lower-income families without assets” that “can end up, very suddenly, off the road.” She therefore advised families to “take the small steps that over time can lead to the accumulation of considerable assets.” She did not, however, explain how they were to accumulate these assets, in light of falling incomes and zero interest rates.
Not to mention rising home prices when many households can’t qualify for a mortgage due to lower/stagnant incomes. Low interest rates are NOT helping millions of Americans; rather, it is preventing them from earning interest.
And declining real median net worth.
Fed Chair Yellen sounds woefully out of touch with the lower and middle class plight. And starting a new firm leaves the budding entrepreneur facing a wall of regulations and healthcare requirements. Yellen sounds “gone.”
Perhaps “Gone Girl” star Rosamund Pike can reprise her role in “Gone Girl: The Janet Yellen Story.”
And The Rockford Files Stuart Margolin (aka, Angel Martin) as Ben Bernanke.