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A 3 minute synopsis of a recent video interview with Jim Rickards, author of Currency Wars and the upcoming Death of the Dollar, Senior Managing Director at Tangent Capital,, by Lauren Lyster from Yahoo! Finance – The Daily Ticker
FED Announces Tapering and the Stock Market Rallies
Moving Away from QE
What Will Happen
Yahoo! Finance – The Daily Ticker
Interview with Jim Rickards
December 19, 2013
FED ANNOUNCES TAPERING AND THE STOCK MARKET RALLIES
If it were a pure tapering it might not have caused the stock market to rally, but we didn’t get a pure tapering.
Instead we got two messages:
1. They will begin to taper very modest amounts.
2. There will be additional forward guidance and they will not raise interest rates for a very long time.
They had set up a couple of targets that we talked about last year – 6 1/2 % unemployment and 2 1/2% inflation. They basically threw those away.
What’s driving the stock market right now is leverage and margin. So what those investors are worried about is if you’re going to raise interest rates then you want to unwind. It’s a carry trade.
If you’re going to raise rates you want to unwind the carry trade. Sell stock, take the money and pay back the loan.
What the FED is saying is, “Don’t worry. We’ve got your back.” So you can borrow money longer than you thought and that’s what the stock market wanted.
The fact that they’re tapering is kind of interesting, but it’s far less significant than the FED saying, “We’re not going to raise interest rates as far as the eye can see.”.
MOVING AWAY FROM QE
QE doesn’t work.
We talk about QEs, interest rate policy, currency wars, all these things – these are not goals. These are tools.
They are tools that the FED uses. What is the goal?
The goal is inflation.
The FED wants inflation for a lot of reasons. For debt-GDP ratios, we didn’t pay off the debts, etc. But the problem is what the FED has done is they have printed $4 trillion over five years and it did not get the inflation.
Jim’s view is that they came to the conclusion that it doesn’t work so they’re trying something else.
They do have other things in their tool kit. There’s a very pragmatic aspect to this – it’s not working so let’s do something else.
WHAT WILL HAPPEN
We don’t know what will happen. This is one big experiment and has been since 2008. There’s no precedent for what’s going on. We don’t have papers, historical experience and robust models to tell us what’s going on. We have no idea and the FED has no idea.
Don’t assume that the FED knows what they’re doing. They are clearly improvising.
We’ve had forward guidance thirteen times in the last five years.
Bernanke has tied Janet Yellen’s hands and she’s not going to increase asset purchases in March or April. They’re now locked into tapering and it’s a very high hurdle for her to reverse course.
She might because she’s more dovish than Bernanke.
Jim’s expects a recession in 2014.
It’s the timing of the business cycle but also the fundamental weakness. Some averages are going up, only because the rich are getting extremely richer. But we have 50 million on food stamps, 11 million on disability, 26 million unemployed or under employed. We’re creating jobs, sure, but they’re 30 hours per week $7 jobs.
Jim doesn’t want to disparage the work but that’s not what drives the economy.
Another Week on Wall Street
words and music Elaine Diane Taylor
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