In this week's Off the Cuff, Chris and Mish look at the impact of the recently-released Fed minutes and the worsening situation in Europe (no, the problems there haven't gone away).
On Tuesday, the Fed released its minutes, which showed that only two out of 10 voting members saw the case for additional monetary stimulus at this point. Markets, counting on additional easing measures, were disappointed; stocks and bonds dropped, and the precious metals have been clobbered.
To Chris, this affirms his long-held position that it's nearly impossible to conduct actual "investing" these days, as asset prices are dictated by what the Fed members decide more than any other factor. If you have capital in the markets, you're really speculating instead.
Mish is equally amazed that the market is entirely dependent on central bank policy vs. fundamentals, and he sees Europe as a prime example. In the EU, sovereign bond yields are moving higher as the ECB has announced it is ending the LTRO. Amazing. An injection of over $1 trillion was only able to stabilize rates for about 4 months...
Spain, in particular, is looking increasingly vulnerable. Its prime minister recently announced that Spain has serious economic problems that are folly to underappreciate (a rare admission for a politician to make). Its latest bond auction saw scarily weak demand, and the interest rates on its sovereign debt have resumed climbing at concerning speed. Nearly 57% of its budget is spent on pensions, unemployment benefits, and debt interest payments! The bailouts have not worked, yet at this rate, another bailout in the near future seems in the cards. Where will this end?
And the rest of Europe is faring little better. Portugal and Italy are teetering. Their weakness (along with Spain's, Ireland's, and Greece's) will hit the "stronger" EU countries like Germany -- at the same time that wage price pressure is rising in Germany.
Meanwhile, civil unrest simmers higher in a number of countries. Political backlash against the ruling parties is making it harder for coalitions to form to get real changes made. Demonstrations and outbreaks of violence are on the rise.
And back in the US, the positive news (when you can find any) is anemic. Mish predicts a substantial slowdown in the US economy in the next month.
The takeaway: Proceed with caution.
Click the play button below to listen to Off the Cuff with Mish & Chris (runtime 24m:25s)
At this time I wish to thank Chris Martenson and Adam Taggart (Martenson's general manager) for their help in creating the Website design for the Les Turner ALS Foundation raffle.
Chris and Adam have helped launch a successful campaign. Over 20 countries have made donations or purchased tickets so far, and the campaign is not even a week old.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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