Markets React to the Fed’s Newest Form of Intervention
By Joel Bowman
09/23/11 Buenos Aires, Argentina – Confidence down. Stocks downer. Gold downest.
Gold, as Fellow Reckoners have no doubt observed, is off big time today. The Midas metal has tumbled almost $100 in the past 24 hours. As of this writing, an ounce trades for about $1,638…although that figure is likely to be outdated by the time you read this. For perspective, the $1,650 mark was celebrated as an all-time nominal high just a month and a half ago. What a change six weeks can make.
Stocks, similarly, are suffering. The Dow has shed almost 800 points this week; 650 of them since B.S. Bernanke and the Fed announced its Operation Twist program a couple of days ago.
So, what’s happened? It’s more of the same from the Fed, right? Why the long face? Was it because it wasn’t enough of more of the same?
“The stock market threw a tantrum after the Fed announcement, because on the surface, the decision seems tame compared to past Fed actions,” explains our short selling maven, Dan Amoss, in a note carried in today’s edition of The 5-Minute Forecast. “Also, Operation Twist will shrink the profit margin on the Wall Street banks’ carry trades. But there is more than meets the eye.”
Dan laid out three important effects the Fed’s latest move will likely have on both markets and the economy in his note. Here they are:
1) As with QE2, the Fed will continue to make it painful for institutional investors to own Treasuries. In the Fed’s
Operation Dumber
By Chris Mayer
09/23/11 Gaithersburg, Maryland – It’s a plan so dumb you have to have to Ph.D. to believe it will do any good. Quantitative easing was dumb. This is dumber.
They are calling it Operation Twist. The Federal Reserve will buy $400 billion of long-dated Treasuries, financed by selling bonds with three years to go or less. The idea is to try to drive long-term rates lower, which the Fed thinks will help the mortgage market.
The Fed unveiled its crackpot scheme on Wednesday and the market quickly registered a firm opinion, as you see in the daily chart of the S&P500:
Yesterday was no better, with the stock market ending the day deeply in the red.
Aren’t you glad we have the Federal Reserve to run to our rescue? What’s the old saying, “with friends like these…”?
The market tanked presumably because of the Federal Reserve’s gloomy prognosis for the economy. Housing is “depressed.” (Yup, we knew that.) Unemployment will remain “elevated.” (Unfortunately, not so for central bankers and their legion of economists). Growth “remains slow.” (With the private sector under siege, it’s amazing we’ve done as well as we have.)
Why people still take the Fed’s forecasts seriously is beyond me. Here is an organization that has been behind on calling every turn and yet investors still parse Fed statements as if going over the words uttered by a prophet. I can only chalk up such foolishness to a persistent belief in oracles.
But back to Operation Dumber. It won’t work. It will make things worse, much worse, than they would’ve…Read more…
Operation Twist and More Ways to Throw Money Down the Drain
By Joel Bowman
09/22/11 El Calafate, Argentina – Last we checked, the world of money was still falling apart, breaking off one chunk at a time. And, just as might be expected, those trying to “fix” it were still busy hastening its demise. Some people never learn. More on that in a moment. First, a none-too-subtle analogy…
Your editor spent much of the past week trekking around Los Glaciares National Park, down in the Santa Cruz province in Argentine Patagonia. Our folks are in town from Australia, catching up with their walkabout son and his gypsy girlfriend. There’s not a lot of glacier parks back on the “sunburned continent,” so we thought a few days in crampons and thermals, hiking over the freezing ice pack, might make for a fun little excursion. Besides, nothing clears your mind quite like a sub-zero gust fresh off a snowy peak.
The Perito Moreno glacier is one of a small handful of glaciers in the world still thought to be growing. It’s gained approximately 700 meters in length since some intrepid adventurers discovered and mapped it sometime in the late 1800s. Top to bottom it measures roughly 200 meters in thickness, although only about one sixth of that can be seen above water. The “front” of the glacier, where all the calving takes place, is nearly five kilometers from side to side. There is something rather humbling about watching a chunk of ice the size of an apartment block fracture, break off from the main body, and tumble into the icy waters below.
Standing atop the Perito Moreno glacier itself, you can see the snow-capped mountains of the Austral Andes rise up spectacularly on…Read more…
Reinventing the Wheel for Greater Energy Efficiency
By Ray Blanco
09/22/11 With fuel prices edging ever higher, engineers are scrambling to find new ways to improve the energy efficiency of vehicles. We’ve already seen a few attempts on the market. Hybrid automobiles — vehicles that combine electrical and internal-combustion powertrains — are becoming commonplace. Pure electric vehicles, such as those in development by Tesla Motors, are expected to be seen on the road in the next few years.
Unfortunately, the weakest link of all-electric powertrains is the energy storage medium: batteries.
Even with the best technology available, batteries are expensive and bulky and have a low energy density. The result is more-expensive vehicles with lower range between fill ups. Since batteries can’t be topped off in a few minutes like fuel tanks can, the ability to easily extend range also suffers.
Innovators are taking a look at some of the oldest-known technologies as alternatives to batteries. In a sense, they are reinventing the wheel — the flywheel, that is.
The flywheel idea is an old one that dates back to the potter’s wheel: A heavy wheel was used to store rotational energy so that the potter could form symmetrical shapes out of clay.
Unlike batteries, which are a chemical form of energy storage, flywheels store energy mechanically in a rotating device. Flywheels can store more energy than batteries in a package a fraction of the size.
Flywheels were used as a form of energy storage in Swiss “gyrobus” electric buses of the 1950s. Developed for use on bus routes where overhead power lines weren’t available, gyrobuses…Read more…
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