The Next Selling Wave Is About to Begin | Toby Connor |

As the stock market moves down into the next daily cycle low and the selling pressure intensifies, this should drive the dollar index much higher. It remains to be seen if gold can reverse this pattern of weakness in the face of dollar strength, especially since the dollar will almost certainly be rallying violently during the intense selling pressure that is coming in the stock market.

via The Next Selling Wave Is About to Begin | Toby Connor |


When the dollar strengthens, gold normally falls. Except in times of high uncertainty (like the present), when demand for gold as a safe haven overcomes downward pressure from a stronger dollar. Buying gold at current prices is a bet that either Greece will default — a pretty safe bet — or that the Fed is again forced to use its printing press (not quite as certain).

FRB: Press Release–Federal Reserve issues FOMC statement–September 21, 2011

The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets.

………The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.

via FRB: Press Release–Federal Reserve issues FOMC statement–September 21, 2011.

Fed Shifts Bond Portfolio –

The Fed is trying to ease financial conditions without taking the more controversial step of increasing the amount of money that it’s pumping into the financial system, since it will be using money already generated from other programs. A bond buying program the Fed completed in June was widely criticized internally and externally because it pumped $600 billion of newly printed money into the financial system, sparking fears of inflation……..

The more potent step of launching a new round of bond purchases that would further expand the Fed’s $2.867 trillion balance sheet remains a possibility, but inflation likely would need to slow much further to spur Fed officials to take that step……..

Economists aren’t so sure that the Fed’s latest gambit will do much to spur growth.

“The odds are ‘Operation Twist’ won’t work,” Anthony Sanders, a real-estate finance professor at George Mason University, said before the Fed action. The housing market has shown no reaction to interest rates that are already at record-low levels, he said. Freddie Mac’s latest survey finds the average rate on 30-year, fixed-rate mortgages at 4.09%, the lowest level in more than 50 years.

via Fed Shifts Bond Portfolio –

Of course it’s right to ringfence rogue universals – Martin Wolf

Thank you, UBS. As a member of the UK’s Independent Commission on Banking, under Sir John Vickers, I could not have asked for a better illustration of the unregulatable risks to which investment banks are exposed than Thursday’s announcement of a loss of $2bn in “unauthorised trading”. No sane country can allow taxpayers to stand behind such risks.

That is the kernel of the case for ringfencing of retail banking from investment banking, recommended in the ICB’s final report.

via Of course it’s right to ringfence rogue universals –

Flight to safety

10-Year Treasury yields fell to a new low on Friday, warning of further falls in the stock market as investors seek save havens in Treasurys and precious metals.

10-Year Treasury Yields

Jobs Paralysis Raises Odds of Fed Action – Real Time Economics – WSJ

Job market paralysis in August increases the chance the Federal Reserve will do something new to help the economy……. The current environment is pushing the Fed towards action. A week ago, Chairman Ben Bernanke told a gathering of the world’s top economic officials he was expanding the length of the upcoming September Federal Open Market Committee to give policy makers additional time to talk about what the Fed can do, which by itself increased the odds something was going to happen.

via Jobs Paralysis Raises Odds of Fed Action – Real Time Economics – WSJ.

The Second Great Contraction – Kenneth Rogoff – Project Syndicate

…The only practical way to shorten the coming period of painful deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4-6% for several years. Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery. Eventually, it will take place one way or another, anyway, as Europe is painfully learning.

Some observers regard any suggestion of even modestly elevated inflation as a form of heresy. But Great Contractions, as opposed to recessions, are very infrequent events, occurring perhaps once every 70 or 80 years. These are times when central banks need to spend some of the credibility that they accumulate in normal times.

via The Second Great Contraction – Kenneth Rogoff – Project Syndicate.

Treasury Prices Sink As Investors Pause Ahead Of Jackson Hole –

The fact that buying tapered off after Wednesday’s and Tuesday’s [Treasury auction] sales underscores the attention that traders are placing on the Jackson Hole, Wyo., summit at which Bernanke will speak, betting against the prospect of some form of new bond-buying initiative…..

Troves of tepid economic data in the past few weeks had worked up hopes that the Fed would step in with some sort of disclosure at this weekend’s conference. But those expectations have died down since the start of the week as new data show the global economic recovery might not have slowed down as much as some investors thought.

via Cynthia Lin: Dow Jones Newswires|Treasury Prices Sink As Investors Pause Ahead Of Jackson Hole –

10-Year Treasury yields at new 50-year low

10-Year Treasury yields are testing support at 2.00 percent — a 50-year low. One thing is clear: Fed monetary policy has failed. Suppressing short-term interest rates has, in most cases, lifted the economy out of recession, but also set us up for an even bigger crash the next time round — requiring even more severe interest rate cuts. Long-term yields have been falling for 30 years. We are now clipping the tree tops — with short-term rates near zero and no gas in the tank to lift us over the next obstacle. A bond market revolt cannot be far off.

10-Year Treasury Note Yields $TNX

A “bond market revolt” is a general sell-off of Treasurys when bond-holders decide that rewards (yield) are not commesurate with the risk. We have already witnessed several bond-holder revolts in European markets. A rise in yields would raise the cost of rolling-over existing Treasury debt, ratcheting up the budget deficit even further. This is a threat that should not be ignored.