The Federal Reserve meeting Wednesday went exactly as our Model had been suggesting (on our www.peoplenomics.com subscriber site):
The global index we measure had broken out a couple of weeks ago to new all-time highs and this, argued our domestic (US, Aggregate Index) was set to drag the US markets higher.
By implication, then, the Fed would do nothing to upset the markets and since mention of the word “patience” was conspicuously missing, it became clear to Fed-watchers that no news was good news and rates would be where they are right now, for a long time to come, and it opens the door for even lower rates and – as my friend Jas has been predicting – a drop in long-term treasuries to the 0.75% range. Which, to put things into perspective would be less than half the 10-Year’s current 2.05%, or so.
What’s not appreciated widely, is where we will be 10 years from now. While it’s true that nearly free money is great for high capex projects, like oil and gas exploration, when the worm turns, we will get to see some horrific energy prices. But those could be as much as 10-years out.
It all depends on how long the Fed holds money rent so incredibly low.
A look at the chart from the US Energy Information Agency of crude oil prices over the past several decades doesn’t describe Peak Oil very well, nor was it intended to. This is price only, not production (which is where you can see the peak).
The price information is key in setting the ultra-long-term price expectations, though: And since we know oil prices were up around $136 a barrel in 2008, an inflation adjust price today would be in the vicinity of $151. It’s obviously nowhere near that.
What we’re seeing, instead, is a good old-fashioned deflationary spiral.
To be sure, there are economists who push off concerns of a deflationary spiral and excessive pessimism, and it’s exactly this sort of thinking that qualifies as a “wall of worry for stocks to climb.” So we’re still expecting higher prices immediately ahead – or at least that’s what our Model says.
As long as oil prices stay in the recent price channel to the downside, the administration is getting a freebie economic stimulus. And while that may sound peachy on the surface, it’s not, quite.
Being an economist in contentious times is some of a risk. Paul Krug man is finishing this out first-hand. Despite having a better track record of understand what’s going on than 99% of his peers, a key Swedish Riksbanker is telling whoever will listen, that Krugman should read more and write less.
Which is rich, coming from a bank that is complicit with the EU, which in turn gets us into discussion of the ECB’s $1.4 billion dollar ego monument to banksterism which almost opened in Frankfurt, German on Wednesday. I say almost because of the demonstrations of Blockupy that went seriously sour with some 350 people arrested.
P.T. Barnum was partly right, you can’t fool all of the people, all of the time, and at least 350 of them live in Germany, or elsewhere and have the brains to see the economic handwriting on the wall: The EU as an economic experiment is likely to fade – the topic of a finely timed Peoplenomics piece Wednesday.
We also reminded readers of the long-term option for the megalomaniacs who will continue to hold sway in northern Europe have been honing: A kind of Grand Teutonic Lodge of Money Masters. (That would be what it will be in fact, but for marketing purposes they might fuzz it up to the “Not going to pay freeloaders (like Greece) that is running your life whether you like it or not, and we’re going to ensure you have to rent your life and will never own anything of consequence without our control Bank.”
Slow to Learn in America
Tom Udall may be retiring from the Senate shortly. The reason? A bill which he introduced turned out (says so right in the document properties) was written by? The American Chemical Council according to this report. Tisk, tisk.
Wait! I know, you’re thinking wasn’t Udall a strong New Mexico environmental guy and why would he back a bill that would replace tough state laws with a national dangerous chemicals bill that would be a plum (or cherry) for the chemical industry and would save them billions and allow a return to more toxic times?
.A couple of weeks back, the NY Times revealed this about Udall and his co-sponsor David Vitter from Louisiana:
“Millions of dollars in campaign contributions were also distributed among the political accounts of the lawmakers involved in the debate, including Mr. Udall. First elected to the House in 1998, Mr. Udall had never before received a contribution from the Chemistry Council. The industry also made donations to Mr. Vitter, who is running for governor in Louisiana, and Representative Fred Upton, Republican of Michigan, the chairman of the House Energy and Commerce Committee, which would oversee the debate in the House.”
This is about as crooked and crass as I’ve seen it in the District of Corruption. The problem is that lobbyists through their campaign contributions are buying public policy and no one in America seems to get it – that this is the cancer (in this case perhaps literally as well as figuratively) that ruins America’s outlook.
I have nothing against lobbyists and yes, they have a role in providing Information about their constituencies. But, couple that with fundraising and now you have corruption of the worst possible sort?
I’ve promoted the idea before that all interstate campaign contributions should be outlawed.
Yesterday, my friend Howard Hill summed up the solution even more gracefully: “Outlaw campaign contributions except for those contests in which a voter is legally entitled to cast a ballot.’
Yes, that would end the politics for sale at the state level, too, and would go a long ways toward what didn’t on Tuesday: Drive the snakes out of Washington.
Meantime, another tack would be for the Federal Trade Commission to investigate members of congress – for false advertising. Saying they’ll do X and as soon as they land in Washington, they do Y.
Meantime, at least someone gives a rip: Never thought this close to tax time that I would be sounding warm and fuzzies about IRS but they are about to start policing nonprofits more closely for political purchases. I wonder how those get expensed, by the way, since we all pay for bad legislation?
Busting Jeb’s Chops
The front page of the Washington Post this morning is laying out Jeb Bush’s ties top a financial fugitive who is suspected of ripping off millions.
The headline is pretty clear: “Jeb Bush’s tie to fugitive goes against business-savvy image he promotes” is how they put it.
And I strongly agree.. I hope Jeb doesn’t rub off of the fugitive any more than it already has.
The Middle East Ant Farm
The Bibi followers in Israel are overwhelmingly behind his backing out of all negotiations with Palestinians…and that’s a problem because Israel keeps pushing out along the West Bank.
So the Obamanistas will go for checkmate at the UN, but whether it will work is dubious.
Speaking of Borders
Something reasonable in the works? The Op-Ed by republican Alan Simpson and democrat Bruce Morrison in the NY Times this morning is something to keep an eye on. Something as simple as scaling up E-Verify?
At Other Borders
Russia has been running test flights to see how sharp NATO is; this time it was Latvian airspace, but again the Dnieper-Donets petroleum reserve run up there…
The West has a big problem in Ukraine: TIME reports the revolution losing popular support it enjoyed a year ago Still, the new government is keeping up pressure on the EU to keep up sanctions on Russia..
Depends how much of a chess player Vlad Putin is: On the one hand, he could go any time into Eastern Europe and that’s suggested by his wide-ranging military forays. Or, he could simply run the clock, wait for internal dissent to build in Ukraine and wait for the next revolution having his operatives out cookie the West.
I don’t know about you, but I would sure like to see world leaders play chess. It might be instructive for voters in both Russia and the US to see how a Putin-Obama chess match would play out. My money would be on the Russian dude.
New Current Account data for the US just out:
The U.S. current-account deficit—a net measure of transactions between the United States and the rest of the world in goods, services, primary income (investment income and compensation), and secondary income (current transfers)—increased to $113.5 billion (preliminary) in the fourth quarter of 2014 from $98.9 billion (revised) in the third quarter. The deficit increased to 2.6 percent of current-dollar gross domestic product (GDP) from 2.2 percent in the third quarter. The increase in the current-account deficit was primarily accounted for by a decrease in the surplus on primary income. In addition, the deficits on goods and secondary income increased. These changes were partly offset by an increase in the surplus on services.
The market doesn’t seem to much give a rip – futures down 37 and that’s a tiny give-back from the rally after the Fed meeting.
Not much of a Thursday…and I suppose that’s a good thing. Real news (like consumer prices) will have to wait until next week.