Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Are Apple, Tesla, and Bitcoin Entering Market Technical Excess Top Phase? - 18th May 21
Gold Watch Out as Price May Be Staging New Momentum Base In Preparation For A Big Move Upwards - 18th May 21
Why the Demand for US Real Estate Licenses May Soon Fall into a Sinkhole - 18th May 21
Semiconductor Equipment Maker ASML Is at the Center of the Global Chip Shortage - 18th May 21
Could This Be The Hottest Investment Sector For 2021? - 18th May 21
TESLA Tech Stock Bubble BURSTS! Stock Price Heading for CRASH to below $400 - 18th May 21
The Most Exciting Biotech Stock Of The Year? - 17th May 21
Gold Mining Stocks Fundamentals - 17th May 21
Junior Gold Miners Should be Rallying – What’s Holding Them Back? - 17th May 21
Stock Market - Should You Be In Cash Right Now? - 17th May 21
Learning the Financial Markets - 17th May 21
INVESTING IN HIGH RISK TECH STOCKS - ALL OR NOTHING - 16th May 21
Is Stock Market Selling Madness About Over? - 16th May 21
Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
Budgies Birds of Paradise Indoor Grape Vine Singing, Chirping and Flying Parakeets Fun 3D VR180 UK - 16th May 21
Wall Street Roiled by Hot Inflation Data: Is This REALLY “Transitory”? - 16th May 21
Inflation Going Stag - 16th May 21
CHIA Coins After 1st Week of Plotting 140 Plot 14tb Farm. Crunching the Numbers How to Win - 15th May 21
Tips to Create the Best Cross-Functional Teams - 15th May 21
Gold: Lose a Battle to Win the War - 14th May 21
Are You Invested in America’s “Two-Hour Boom” Fast Shipping Stocks? - 14th May 21
Gold to Benefit from Mounting US Debt Pile - 14th May 21
6 Solid Signs You Should Have Your Smart Device Repaired Right Away - 14th May 21
Ways to Finance Your Business Growth - 14th May 21
Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
How Much CHIA Coins Profit from 100 Plot 10tb Farm? Hard Drive Space Mining - 13th May 21
Stock Market Bulls Getting Caught in the Whirlwind - 13th May 21
Legoland Windsor Mini land and Sky Train Virtual Tour in VR 360 - UK London Holidays 2021 - 13th May 21
Peak Growth and Inflation - 13th May 21
Where’s The Fed? Watch Precious Metals For Signs Of Inflation Panic - 13th May 21
Coronavius Covid-19 in Italy in August 2019! - 13th May 21
India Covid Apocalypse Heralds Catastrophe for Pakistan and Bangladesh - 13th May 21
TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
Gold Price During Hyperinflation - 12th May 21
Stock Market Extending Phase Two? - 12th May 21
Crypto 101 for new traders – ETH or BTC? - 12th May 21
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Don’t Fight the Fed

Stock-Markets / Financial Markets 2010 Nov 06, 2010 - 04:56 AM GMT

By: Joseph_Toronto

Stock-Markets

Does this rule still really apply?
Comparisons of economic conditions of today with those of the Great Depression abound, as well as comparisons with Japan’s “lost decades”, most implying that we are doomed to a repeat of those woeful eras. We know of course that the Fed did everything wrong in the 30′s and made things worse. Beginning in 1990, the Bank of Japan did everything right but it did no good. Why would this time around be any different?


I wrote previously about the phenomenon known as the liquidity trap, a condition that renders the monetary policy levers of the Fed impotent, leaving the Fed to try to push on a string. As Paul Kasriel of Northern Trust noted,

Most people are not aware of actions the Fed took during the great depression. Bernanke claims that the Fed did not act strong enough during the great depression. This is simply not true. The Fed slashed interest rates and injected huge sums of base money but it did no good. More recently in the 1990′s, Japan did the same thing. It also did no good. If default rates get high enough, banks will simply be unwilling to lend which will severely limit money and credit creation.

The mistakes the Fed made in the 30′s were that it let too many banks fail thereby vaporizing peoples savings, collapsing the money supply, and which drastically reduced the number of lending spigots (shuttered banks).

So what monetary policies are in place today that may lead to a different result?

  • There are not massive bank failures. The lending spigots all remain available and in place although maybe not being put to use at present.
  • People’s savings are not being vaporized. On the contrary, FDIC insurance is in place, it’s limits recently have been doubled, and the Fed is proactively now insuring money market funds which don’t carry FDIC insurance.
  • Although the 30′s Fed drastically reduced interest rates, the bank failures and the liquidity trap rendered the ZIRP policy generally fruitless. The Fed was also held hostage by the gold standard which forced the Fed to actually raise rates in 1931 to stem the outflow of gold. Countries which abandoned the gold standard earlier, emerged from depression earlier. There is no gold standard today. The Fed can print money at will and is threatening to do exactly that by monetizing federal debt with outright Treasury bond purchases.
  • In 1930, Congress eviscerated the Feds monetary efforts with protectionist legislation (Smoot-Hawley tariffs). Such trade protectionism is virtually absent in today’s free trade climate.
  • In the 1930′s Congress further complicated monetary policy with the false perception that fiscal responsibility would improve the economy and raised taxes. Tax cuts and massive deficit spending are the order of the day today.

Having said all of that, is it safe to get in the pool again with the Feed’s massive easing policies in place?  Believe it or not, there actually is good credit out there, backed by good assets, that is seeking good borrowers. They will eventually meet up.

Finally, the clincher. When the Congress finally finds its will to act with some form of misguided legislation, it’s usually too little or too much, too late and a recovery is usually already underway. Just remember that most economic data coming out now, the same stuff that Congress and the Administration watch such as employment and/or unemployment, is lagging data. The banking system will continue to unfreeze and the economy will recover as the Fed and Congress plan to provide overkill.

Bottom line: “DON”T FIGHT THE FED.” Do so only at your own risk.

Very Best Regards,

Joseph Toronto

Affiliated Investment Advisors, Inc.
http://joesinvestoblog.com
joe@aiadvisors.com

Joseph Toronto has been a portfolio manager for 26 years for some of the largest institutions in the western U.S. In 1993, Joe founded Affiliated Investment Advisors, Inc., as a registered investment advisor for serious investors seeking professional management for superior safety and returns. Mr. Toronto is a Chartered Financial Analyst and is a member of the Salt Lake City Chapter of the Financial Analysts Society and the Association for Investment Management and Research. He has a Master's degree in investment securities and a B.A. degree with a dual major in finance and management.

© 2010 Copyright Joseph Toronto - All Rights Reserved

Affiliated Investment Advisors, Inc. is a "traditional" portfolio manager for retirement plans, profit sharing plans, individuals, IRA's and other trusts. Affiliated’s portfolio management services are NOT alternative "hedge" fund style and are “fee only” taking no commissions or performance incentives. Affiliated is not a stock broker or financial planner and does not sell any investment or insurance fund or product.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in