FOMC Meeting

Once again Bernanke mentions they may or may not be 'tapering' as the will be maintaining their $85 billion bond buying. Most predict that the 'tapering' will be coming in September but I highly doubt it.

The fed is the only game in town and they wont be taking the punch bowl away anytime soon. The last time they mentioned tapering, bond yields began to creep and this time it is no different. The party is going to continue as long as the bartender continues to supply the alcohol.

Unemployment has gone for the worse despite what the media says about the job creation. They failed to mention that most of the jobs are part-time jobs as opposed to full time jobs. Potentially this could be because businesses are scared to hire full time jobs due to obamacare and most business know that if interest rates rise, they may potentially be hitting another large downturn.

The fed's balance sheet is now about $3.6 trillion. Read that again.

All this inflation has not hit home yet because most of the banks that have received this money is leaving it with the fed to earn interest so we are not seeing the money being lent out to businesses. All this "QE" benefits wallstreet and speculators and none to the average person. This is why we are seeing record profits again for the big banks because essentially all this money printing also has gone into the markets and housing. These prices are being artificially being bid up and people feel 'richer' but the actual economy does not actually benefit. Once the velocity of money picks up and people are turning over their cash for products, that is when we will see inflation begin to pickup.

Also the GDP numbers came out for the U.S. and it mentioned that they grew 1.8%. Well if you delve into these numbers, you will see that they began calculating GDP a bit differently now and have revised it all the way back to about 1929. "Investments" now include production of movies, music, and tv shows to name a few. Making a youtube video potentially can get calculated as well.

Marc Faber: "The fed is completely clueless"

Strikes in the U.S. Demanding 100% Raise

From USA Today : "Workers at McDonald's, Burger King and Wendy's restaurants across New York walked out Monday in a one-day strike to demand better pay and the right to unionize, calling for minimum wage to more than double from $7.25 to $15 an hour and the end to what activists called "abusive labor practices.""

Calling for minimum wage increases seems like a great idea, who wouldn't want to give higher wages to workers? We would all be happy people and everyone can have a great life and buy everything they need!  Unfortunately, that is now how the real world works. 

In a free market society, employers and employees come to an agreement at a set price for their labor. If the employee does not like the wage, they do not have to accept the job and they can go find another job that they feel that their labor is worth or they can become entrepreneurs and start their own business. Nobody is forcing them to accept the job at an undesired wage for their labor. 

Lets say there was no minimum wage and a gas station owner was only willing to pay an employee 5 dollars to pump gas and wipe windows for 5 dollars an hour. Typically, these jobs will go to teenagers. Now five dollars is not a whole lot of money but the teenager is getting the experience of working and being a productive member in society. On his downtime, the teenager may head over to the car mechanic working at the time and learn a few things about being an auto mechanic and how to fix cars and maybe eventually save up enough to start his/her shop. Now lets say we pass a law and the minimum wage is now 15 dollars an hour, by setting a minimum wage, the employer will no longer hire the teenager and will change the gas station from full serve to self serve which we typically have more of now. The teenager will no longer be able to get the job and more importantly, learn on the job. Instead, because the teen is has no experience and is unskilled, he/she may never get the skills to advance and move up.  

Today we encourage everyone to go to college and we PAY for the internships to learn on the job and we come out with $25,000 of debt. However, this is another story. 

Going back to McDonalds and other fast food businesses, these are generally entry level jobs, they are low skilled labor jobs that are not meant for raising families. The free market will adjust to the new minimum wage (if it were to happen) by becoming more efficient. Typically if the minimum wage is high enough, what we will see is more investment by the employer to automate. Eventually we may only have one or two people working at the McDonalds only to make sure that the machines are functional while at the same time, more teens unemployed, staying at home and being unproductive. 

Mortgage Stress Tester

The Canadian Mortgage Trends has created a mortgage stress tester available for everyone to use. This tool shows your mortgage payment at renewal, given an estimated future interest rate that you choose. It is my opinion that housing is currently an unwise investment given the current values of homes in the U.S. and Canada.

The media has been mentioning a housing recovery in the U.S. and although housing prices have appreciated, you must take a look at the fundamentals in the U.S. economy especially with bond yields rising, and you have more people on food stamps than ever. Just the thought of "tapering" from Bernanke had sent bond yields rising. After all, sovereign wealth funds have been slowly liquidating treasuries and if the fed was in the market buying, who would buy?

Would you loan the U.S. government money for 30 years making an abysmal 3.61%?  Looking back at history, inflation has easily been higher than 3.61% and yields historically average around 7%.

Going back to the Canadian Housing Market, Canadians are more indebted than ever. Canadian household debt-to-disposable income ratio hit 163%. The signal for interest rates from the BOC has nowhere to go but up. We'll have to see when the implosion comes, what goes up, must come down.

For the mortgage stress click here.

Feel free to leave your comments and let me know what you think.

Peter Schiff on Detroit

Peter Schiff on Detroit

Schiff Bang on as Usual

Schiff is bang on as usual. Does an excellent job navigating through the bogus media on what is really going on.

The end where he talks about the Fed's Advisory Panel Minutes was rather interesting since this is coming from the horses's mouth.




Here is the link to the minutes if you are interested. The part that Schiff is reading from is Item 8 (Page 14) Link

Messed Up Markets

Looking at the Dow Jones Industrial Average, we have reached all time highs. Does anyone feel like this is a recovery?  We have ultra low interest rates, savings rates are down, more people on food stamps, and QE to to infinity across the world.

The real reason why the markets are up is simply because we have all this money printing across the world. Although the velocity of money is not quite picking up just yet because of banks not lending out the money to small businesses, what they are doing is taking this money and bidding up the markets.

The truth is, the real economy has nothing to do with the stock market. Take a look at Japan recently, their monetary policy was to double the money supply. What has happened since? Their stock market went up tremendously, however, with the laws of economics, what goes up, must come down. I"m sure the Japanese Central Bank is terrified on what to do next. If they continue with this kind of monetary policy, the market will continue to go back up after this large increase. (Zimbabwe anyone?)  The currency markets will not be very kind to the Yen.

The current trend in Japan is rising prices, which central bankers tell us, is good for the economy. I guess the Japanese enjoy paying higher prices. After all, its clearly not logical for anyone to be able to want to buy more with their money. Apple announced that they will be hiking their prices, along with many other companies like Tiffany & Co. With so much more money sloshing around in the economy, the velocity of money is beginning to pickup and prices will be bid up much higher in Japan.

Here is the chart of the DOW jones, it had a big reversal at the close yesterday. We will most likely see a fall back down to the 200 day moving average after this big run up in the DOW. Does this trend seem sustainable you?