Wednesday, May 31, 2017

How Long Can the Fed Keep the Boom Going?

How Long Can the Fed Keep the Boom Going?

"The US bond market trades at a quite high valuation. For instance, the 10-year US Treasury bond presents a price earnings (PE) ratio of 43. In other words: It takes 43 years for the investor to recoup the bond’s purchase price through coupon payments; the bond market’s PE ratio even went up to 68 in June 2012 and July 2016, respectively.

At the same time, the PE ratio of the stock market is at 23, significantly higher than its long-term average of close to 17 for the period from 1973 to 2017. That said, the 10-year Treasury bond has become more hazardous compared to stocks. This is exactly what the PE ratio tells us: The higher (lower) the PE ratio, the higher (lower) the investor’s risk.................."

"..........Given current bond and stock market valuations, investors seem to be fairly confident that the Fed will succeed in keeping the boom going, that the central bank will not overdo it in terms of raising interest rates. And yes, perhaps central bankers have learned a great deal in recent years, having become true maestros in holding up the make believe world of fiat money.

The investor should be aware of the damages caused by fiat money — for instance, boom and bust. At the same time, he should not run for the exit prematurely: The fiat money system might be held up for longer than some may fear and others might hope............"[ my emphasis]

Original article in full here.

Financial Safety Services commentary:

What is next: Recession? Inflation? Deflation? Stock market boom? 

Fact: nobody knows.

Wondering, worrying about what the Fed, the president, congress etc. etc. may, or may not do, [ or about what it/they have already done], or where "the market" will be 6 months, a year or more from today, is an unnecessary waste of your precious time!

Danger Sign

However, if you are personally worried about what might be coming next, then that is a sure sign that you are dangerously overexposed in [either] stocks, bonds, cash, gold, real estate, or whatever.

2 hard -learned lessons of investment/speculation reality:

[1]: nobody, but nobody can reliably, consistently predict future economic conditions.

[2]: It's wholly unnecessary for the individual to
have to try to predict future economic conditions, or to utilize the services of someone who claims to be able to do that, in order to secure one's precious savings against inflation, deflation, recession etc..

See: "Got Money You Can Afford To Lose?"

Regards, onebornfree

Monday, January 30, 2017

Will The Yellen Fed Cause a Trump Recession?

Ms. Janet Yellen. Fed Chair since Feb. 3rd 2014

The graph below explains the title of this post.

 Obviously, the Fed under Janet Yellen has been gradually decreasing the Monetary Base [MB], that is, the most narrow, generally considered most liquid, money supply figure, since at least the 3rd quarter of 2016:

Fig. 1: Federal Reserve Monetary Base, Non-Seasonally Adjusted, [Fed Chair J. Yellen], 
 January 2014 - December 2016, Millions of $'s, Log scale

Financial Safety Services Commentary:

Exactly What Does The Fed's  Monetary Tightening Mean?: 

It could mean that a recession, at the very least, is on the way during the new  presidents [Donald Trump] first term. [ Basically, a recession within an  ongoing recession/depression]. 

It is impossible to know for certain, and  the picture becomes ever more cloudy if we go back and look at the enormous monetary base  manipulations that have occurred since 2008 [ via Ms. Yellen's predecessor, Ben Bernanke]:

Fig. 2: Monetary Base [MB] , Millions of $'s, Non-Seasonally Adjusted, Federal Reserve, '07- Dec.2016, Log. Scale

Will this more recent tightening under Yellen have any effect on dampening the  effects of the massive Fed monetary base injections of the recent past? Maybe, maybe not. The longer the tightening continues, the more likely it is to actually have an effect and initiate a "Trump recession", in theory at least. 

Good News!

However, here is some good news: it is entirely unnecessary  for  you to have to try to predict/forecast future economic events from graphs [or similar], or to have to rely on [and pay] someone else to do that for you. 

A real world fact: the economic future cannot be accurately predicted via any graph, no matter who constructed it,  or what it claims to show. If you need to know why that is so, then for a very large fee, I can explain to you exactly why all graphs are useless for predicting future economic events.  :-)  

So, if you are worried about your own savings either because of, or despite what is revealed in these graphs/figures, here is some free advice on how to best protect your savings etc.

Regards, onebornfree.

Three More [Broader], Money Supply Graphs :

Fig. 3: M1 Money Supply, Non-Seasonally Adjusted,  Billions of $'s, Federal Reserve, '07- Dec.2016, Log. Scale

 Fig. 4: M2 Money Supply, Non-Seasonally Adjusted,  Billions of $'s, Federal Reserve, '07- Dec.2016, Log. Scale

Fig. 5: MZM Money Supply, Non-Seasonally Adjusted,  Billions of $'s, Federal Reserve, '07- Dec.2016, Log. Scale

Interest Rates: 

Fig. 6 U.S. 3 month Treasury Bill Interest Rates, January '07-December '16, Monthly Averages, 
Log scale

Fig. 7:U.S. 10 year Treasury Bond Interest Rates, January '07-December '16, Monthly Averages, 
Log scale.

 Fig. 8:U.S. 30 year Treasury Bond Interest Rates, January '07-December '16, Monthly Averages, 
Log scale.