Fed Tapers Letting As Always the Lame Duck Do the Job
The U.S. Federal Reserve announced plans to trim its aggressive bond-buying program by $10 billion but will maintain its key interest rate at low levels for even longer than previously promised. This is precisely the way things always go in Washington. Granted, only a 12% of the analysts thought the Fed would Taper today pushing the decision off until March. However, this is where understanding politics comes in handy.
This is the Lame Duck strategy. Just look at Congress. After the elections yet before the new Congress comes in, they vote for things that nobody would do otherwise. Why? This is when people are leaving and they have nothing to lose.
This is a psychological game of CONFIDENCE and has no real economic impact whatsoever. $10 billion relative to the $17 trillion national debt is 0.00058%. Someone who pisses in a swimming pool has a bigger impact. This is why the Fed came out and said it will keep interest rates low even longer trying not to harm the markets. For you see, the Fed sent emails looking to speak to people on the HILL yesterday to explain their position. Those calls go out into tomorrow.
In the Dow, we need a closing ABOVE 16060 to press to new highs short-term. Why is the Fed concerned about markets? The ONLY time I get phone calls from the HILL asking my opinion should there be some intervention is when the stock market declines – nothing else. Why? Because people on the HILL have pension funds and unless you personally impact them, they are neutral. Thus, the Fed explaining the change in QE, but offsetting that with promising to keep rates low even longer. That is a hollow promise for things will change and force changes based upon trends irrespective of what they promise.
Behind the Curtain and looking beyond the hype, this is the way it really works on the HILL. It is NEVER as portrayed to the public.
Is 40,000 on the Dow Enough?
QUESTION:
Hi Mr. Armstrong,
You have said that the Dow could reach 40,000 by 2032. That is a compound annual growth rate of 4.94%. Is that even enough to rescue the pension funds, or are they doomed regardless?
Thanks,
MB
You have said that the Dow could reach 40,000 by 2032. That is a compound annual growth rate of 4.94%. Is that even enough to rescue the pension funds, or are they doomed regardless?
Thanks,
MB
ANSWER: No it is not. The projection of 40,000-42,000 is a NORMAL projection, and not the extreme that you would see in a Phase Transition bubble. The value of the currency will also decline by that time. The dollar is strong and will move higher AFTER the crisis manifests in Europe and Japan. Then the dollar will decline. Yes, there could be a Phase Transition where the Dow is at 100,000, but a can of Coke might be $5 as well. Everything is relative. People hear projections and think they will be rich. If you sold your gold in 1980, you never reached the purchasing power of that sale in 2011. So in real terms, you were better off selling gold in 1980 and shift to stocks. The Dow rose from 1,000 where we are today. You have to look at everything from every direction – currency & inflation.
We are setting up our Asset Allocation Models on the Institutional Site that are designed to beat that problem by looking at the complexity globally and correlating that back to reality reflected in each entity;s base currency. Understanding the global flows enables you to avoid getting involved in things like gold and Treasuries that seem to be in a race to see who can reach the bottom of the barrel faster. Just looking at our US bond index demonstrates that if you need income, stay away from bonds..
China Shutting Down Deposits at Bitcoin
China’s largest Bitcoin exchange said Wednesday that it has stopped accepting new deposits. China has dealt Bitcoin a crippling blow that could make it much harder to trade the virtual currency in China.
Why Tapering in No Big Deal
This insane focus of the Fed’s options — “tapering” or not, misses the entire point. Most people admit that the whole quantitative easing has failed. True, the unemployment rate has fallen from a peak of 10% in 2010 to 7% today and the Fed’s target it claims is to keep short-term rates a near zero until that falls to 6.5%. But there are many who believe tapering is required as quickly as possible, because they argue it is contributing to an overinflated stock market.
The intense debate over the virtues of quantitative easing is really meaningless. It has failed to accomplish any goals because the Fed does not take direct action. It offset the quantitative easing by creating an excess reserve facility paying 0.25%. Banks have over $2 trillion deposited there risk free. So while the Fed “bought” bonds to lower long-term rates, it then replaced that avenue with a boulevard allowing banks to sell their junk bonds to the Fed and then park the cash on which they then paid them interest. The idea this would “stimulate” the economy has proven to be false because the banks failed to lend the money out.
Lower the interest rate the Fed pays banks is the ONLY real stimulus. If the Fed eliminated the interest rate it pays banks of 0.25%, then you would see stimulation. Everything the Fed has done to this day has failed to produce inflation and the stock market rise is simply capital trying to earn a living. This is still no speculative bubble.
Complexity & the Future of the Dow
QUESTION: Hi Mr Armstrong.
Going by your projections, is it reasonably safe to assume we will not have a major depression/crash before the 2032 ultimate cycle high?
Many thanks.
ANSWER: No. Nothing goes straight up. What does have to happen is the thinking process will invert and higher interest rates will be seen as bullish for people are bidding for money to invest. There is a possibility that we get an initial high at the end of the summer of 2014 with the Dow. The minimum target for a high in 2014 is 16650 with the optimum target being 18545. Passing the first target will start to get the retail involved. Thereafter, the critical support will form at 10350-9580 level for the maximum extent of any correction. However, the Dow will then take off to new highs again and we are probably looking at 40,000 level when this Private Wave ends by 2032.
Keep in mind that this is not a one-dimensional world that we live in. This is very much like the movie MATRIX where the main character finally realizes the world he is in and sees the code rather than the projection of an image we think is reality. The degree of complexity is off the charts. Our minds see one-dimension and we think in this manner if x rises then y falls. But this is merely a reduced perception of reality. Our brains truly function in a multidimensional complexity state.
Our brains function in the same manner as the world around us. It has been recognized at last that neuronal diversityis vital to the overall function of our brain. People look basically the same, yet we are all unique in our appearance, speech, and habits. The diversity in human nature is astounding. The world around us is equally diverse. This is a basic building block of how the universe is designed. Everything functions based upon structural rules. Once you are able to see this structure, it jumps out at you and suddenly you can observe how everything is connected precisely as the design structure within our own brains. As a result, the outcome of events is always the same just as a basic structure of a human form, but the complexity behind the scenes produces unique signatures for each event causing the surface to appear different from the underlying core.
I have stated that what the Economic Confidence Model does is ALL markets – not just one. This is our peek into this world of complexity. Humans will speculate on something so we get the boom bust cycle on a regular basis, but the object of the speculation changes. Each market is on its own empirical transverse cycle, but then there are longitudinal cycles at workSIMULTANEOUSLY. There are layers upon layers of activity within each market that is truly fascinating – but mind bending at times until we get use to the basic structural design of complexity. This is why the Economic Confidence Modelhas been called the Secret Cycle. It is not only the perfect cycle being Pi, but it is the composite that emerges from the complexity of everything being inter-connected.
Another reader asked“How do you calculate the cycle lengths for different markets – eg silver 18 units etc?” Each market has a fixed empirical cycle that is a unique signature of its character. They combine with other markets and play off each other. Then they interact within the same market with countless other waves of a transverse and longitudinal structure. Decoding this complexity REQUIRES a computer just as it was a computer that saw the patterns in weather data that allowed Lorenz to become the father of Chaos theory.His strange attractor in weather demonstrated there is incredible order behind the facade of randomness.
So anyone who thinks there is but one cycle in a market or that there is really just a random walk through the park, or even no cycles so we can manipulate our environment (Marx-Keynes), is clearly not ready for prime time. Once you see it, you cannot believe it. It is amazing. I will deal with this in more detail at the training seminar. It is truly how the universe is constructed.