Addison Wiggin

Oy… as if being beaten over the head with an examination of every word from the current Fed chairman isn’t painful enough, some researchers are doing it retroactively.

“Researchers at Edinburgh University,” writes 5 Min. Forecast’s Dave Gonigam citing The Globe and Mail this morning, “used text analysis software, Diction 6.0, to analyze some 400 speeches and comments between mid-1999 and mid-2012, looking at ‘certainty, optimism and realism’ in the comments of the world’s most powerful central bankers.”

“Aside from proving conclusively,” Dave continues, “the researchers have way too much time on their hands, the study found a 1% increase in the amount of certainty in Greenspan’s voice could move the gold price 0.1%.”

A similar rise in Ben Bernanke’s tone did not move gold even by that fraction. Would that our jobs as prognosticators be so easy!

“The world’s financial asset prices have become a plaything of central banks,” writes Ambrose Evans-Pritchard in The Telegraph, “and the sovereign wealth funds of a few emerging powers.”

Today, we catch up on a little light reading while waiting — along with the rest of the market — to hear whether the Maestro’s ill-begotten successor will announce a plan to slow Fed purchases of assets down from $85 billion a month to some unknown lower number. Whether those assets include Treasuries and mortgages… just Treasuries… just mortgages… or who knows what?

Evans-Pritchard cites a Barclays study showing together central banks and sovereign wealth funds are buying $1.8 trillion worth of AAA or safe-haven bonds each year from an available pool of $2 trillion.

“Nothing like this has been seen before in modern times,” Evans-Pritchard notes, “if ever.” He continues with the data:

“The Fed, the ECB, the Bank of England, the Bank of Japan, et al., own $10 trillion in bonds. China, the petro-powers, et al., own another $10 trillion. Between them they have locked up $20 trillion, equal to roughly 25% of global GDP. They are the market.

“That is why Fed taper talk has become so neuralgic,” Evans-Pritchard surmises, “and why we all watch Chinese regulators for every clue on policy.”

Time.

Again.

Passes.

Slowly.

Half an hour before the Fed announcement, the markets took a small dive, stocks shed 40 points and gold started to gyrate down $10.

Sip of coffee. Back to Evans-Pritchard.

“In Fed hiking cycles over the past half century,” he cites Jan Loeys from JP Morgan saying, “10-year U.S. Treasury yields on average bottomed some six months before the first rate hike. In the current cycle, where rate cuts have been complemented by large-scale asset purchases, the end of the easy-money period is harder to define.

“The end of the current easy-money regime is set to have a bigger impact than previous ones, as the current one will have lasted much longer and was much more extreme. We have learned from past regime changes that the longer they last, the more the market will have got used to them, and could even be said to become leveraged and addicted to the old regime.”

Indeed. Addicted to the old regime…

“We had an expression in Empire of Debt,” our erstwhile writing partner Bill Bonner recalled in an interview we did for the documentary I.O.U.S.A. , “that basically said there are not many people who can afford to live like Americans today, and too bad Americans can’t either. The fact is that Americans live beyond their means. This is a very, very old concept, but today people don’t even think about it because they don’t know what their means are.”

As every day passes, they have become ever more addicted to the old regime.

Ahh… and there it is… the Bernanke announcement. The Fed is not going to pull the needle from the market’s collective arm after all. They’ll continue business as usual with $85 billion in asset purchases per month.

Sheesh. All that hand-wringing over “tapering” for what? Let the party continue.

Regards,

Addison Wiggin
for The Daily Reckoning

P.S. The Bernanke announcement is just another example of the Fed not seeing the big picture — something we write about frequently in the pages of The Daily Reckoning email edition. If you’re not yet receiving the DR — delivered for free straight to your inbox each day — you’re only getting half the story. Click here now to sign up now, completely free.

You May Also Like:


How to Predict an Economic Collapse

Kate Incontrera

In his recently released book, A Viennese Waltz Down Wall Street, Mark Skousen gives the Austrian School's take on what triggered the 2008 financial crisis - and why you should be wary of the artificial boom that's driving the recovery.

Addison Wiggin

Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.

Recent Articles

5 Min. Forecast
How to Profit On the Back of an “Activist Investor”

Dave Gonigam

Since the invention of the "shareholder rights plan" (i.e. the "poison pill"), most companies are relatively immune to hostile takeovers. But according to Dave Gonigam that could all change thanks to one activist investor. And if you're savvy enough, you may just be able to follow his lead for big gains. Read on...


Extra!
Why Americans Shouldn’t Worry About Income Inequality

Jim Mosquera

As the markets have continued to rally over the last several years, more and more people have touted the problem of "income inequality" in the US. But as Jim Mosquera explains, this perceived problem will likely sort itself out with the arrival of one specific market event. Read on...


One ETF to Play Asymmetric Warfare

Addison Wiggin

Almost one year ago, substation telephone cables were maliciously cut in San Jose, CA. In 20 minutes, 17 transformers were knocked out. A year on, similar threats have cropped up. Today, Addison Wiggin explains why these threats are so serious for the safety of the global economy... and shows you one way to play it...


What Small-Caps are Saying About the Current “Bubble”

Greg Guenthner

The big problem with declaring bubbles is that it really does you no good. Unless you're attempting to measure and time market moves, you're also blowing hot air. But if you keep watch for negative divergences, you have a much better shot at figuring out big market moves than the latest bubble-busters. Greg Guenthner explains...


A Simple Strategy for Investing in the US Energy Boom

Byron King

Too often investments are made in a vacuum. But as Byron King demonstrates, the global economic crash... easy money... and technological advancements are all interdependent. In particular, that connection has changed the investment calculus in the resource market. Read on to learn how...


How Gold Will Respond to Declining Discovery

Henry Bonner

Oil isn't the only resource to experience "peaks." Due to a major contraction in gold exploration over the past few years, the mining sector is no longer mining gold at its replacement rate. In other words, the amount of gold above ground is running out. And according to Henry Bonner, it will get worse before it gets better...