"Life is what we make it, always has been, always will be"
Grandma Moses
Rates are go up before the year is over...
Excerpts from a great speech by one of the only few Fed Presidents ( Dallas' s Fisher) that seems to still get it- Unless inflation is brought under control quickly, US Economy might be in for a very long and rough ride...
"We know from centuries of evidence in countless economies, from ancient Rome to today's Zimbabwe, that running the printing press to pay off today's bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid
Earlier I mentioned the Fed's dual mandate to manage growth and inflation. In the long run, growth cannot be sustained if markets are undermined by inflation. Stable prices go hand in hand with achieving sustainable economic growth. I have said many, many times that inflation is a sinister beast that, if uncaged, devours savings, erodes consumers' purchasing power, decimates returns on capital, undermines the reliability of financial accounting, distracts the attention of corporate management, undercuts employment growth and real wages, and debases the currency.
Purging rampant inflation and a debased currency requires administering a harsh medicine. We have been there, and we know the cure that was wrought by the FOMC under Paul Volcker. Even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens, should it take root, is a paramount risk to the long-term welfare of the U.S. economy. The Federal Reserve will never let this happen. It is not an option. Ever. Period."
The good news for the long term health of the economy is that Fed Funds probabilities are now starting to slowly point towards an inevitable rate increase- 13% chance of a rate hike in August... I think we might see at least one hike before the year is over- hence financials are once again might not yet be cheap enough...
source: ClevelandFed.org
Want another confirmation of more trouble coming the Financial's way?- Bernanke's speech today- while pretty worthless and non informative on the inflation part, offered new details of what's in store for financials- if you still own lot's of banking shares- watch out- you could be saying "ouch, that hurts..." a lot more...
"Finally, we are taking action in our role as regulators. We have worked with lenders and servicers to encourage appropriate modifications of distressed mortgage loans, and we have proposed new rules to improve disclosure and to ban unfair or deceptive acts and practices in mortgage lending. We are also collaborating with other regulators, both domestically and abroad, to put in place changes that will help make the financial system less vulnerable in the future. Among the changes we expect to see are strengthening of capital and liquidity rules, greater disclosure requirements, an increased emphasis on the measurement and management of firmwide risks, and further steps to increase the transparency and resilience of the financial infrastructure. Our goal is to emerge from this difficult period with a financial system that will be more stable without being less innovative, with a more effective balance between market discipline and regulation."
Stay safe and cheers,
Vad skepticalcapitalist@gmail.com
