Quiet day in the market today.
Charles Schwab, the founder and Chairman of Charles Schwab Corporation did an op-ed in the Wall Street Journal today and it was one of the best ones I’ve read in a very long time. Everything he said is exactly what I’ve been telling you for the past year or two.
As you know, I consider myself to be logical. Back on 2005, I told you on this show that I had friends getting mortgages that didn’t have a dime in their wallet. I knew something was up. Logically, something gives. Little did I know that the “Countrywides” of the world were giving it to anybody. Little did I know that they were being securitized and being sold. Little did I know that the crooks at the rating services, were rating these things AAA when they shouldn’t have been ZZZ. All logic. Well, there’s another logic. Throughout the history of the world when you have ridiculously easy monetary policy and when you’re printing money:
- You squash your currency.
- You create inflation.
Okay? The thing about this inflation is that nobody’s thinking about it because you don’t have it for the first 2 or 3 years. So nobody cares. Nobody’s worried about it.
As you know, I’ve been talking about a bond bubble…a bubble where the Fed keeps buying up bonds in order to lower those rates so your mortgage rates are very cheap. I was looking at a 15-year mortgage the other day and it was like 3.2%.
So what happens if the market shoots the middle finger at the Fed and, all of the a sudden, the bond market sinks and all their buying doesn’t help — and all of a sudden interest rates start to skyrocket to account for all this massive debt that we have out there. And on and on. So I have told you, I cannot stand the Fed. They nauseate me. I can’t stand Bernanke. I don’t like any of his policies. I don’t like any of Greenspan’s policies. I hate the people that give Bernanke the credit for saving the day in 2008, when he was 50 some odd percent of the cause of the problem.
Remember, we’re supposed to think long-term, not about what we can do now. It’s very easy to create a few trillion bucks kids and make things “better.” But there’s repercussions of it.
So let me quote some excerpts from Charles Schwab in this article:
“We’re now in the 37th month of central government manipulation of the free-market system through the Federal Reserve’s near-zero interest rate policy. Is it working?”
“Business and consumer loan demand remains modest in part because there’s no hurry to borrow at today’s super-low rates when the Fed says rates will stay low for years to come. Why take the risk of borrowing today when low-cost money will be there tomorrow?”
He goes on to say later:
“The Fed’s prolonged, “emergency” near-zero interest rate policy is now harming our economy…creating a massive rise in liquidity but negligible movement of that money. It is sitting there, in banks all across America, unused. The multiplier effect that normally comes with a boost in liquidity remains at rock bottom…”
He then goes on to say, and I agree with this wholeheartedly:
“Average American savers and investors in or near retirement are being forced by the Fed’s zero-rate policy to take greater investment risks. To get even modest interest or earnings on their savings, they move out of safer assets such as money markets, short-term bonds or CDs and into riskier assets such as stocks. Either that or they tie up their assets in longer-term bonds that will backfire on them if inflation returns. They’re also dramatically scaling back their consumer spending and living more modestly, thus taking money out of the economy that would otherwise support growth.”
Mr. Charles Schwab is echoing your handsome host isn’t he?
“In short, the Fed’s actions, rather than helping, are having the perverse effect of destroying the confidence of businesses and individuals to invest and the willingness of banks to loan to anyone but those whose credit is so strong they don’t need loans.”
“The Fed’s Jan. 25 statement that it would keep short-term interest rates near zero until at least late 2014 is sending a signal of crisis, not confidence.”
“Yet the economy doesn’t need life support. Just the opposite. The patient needs to get up and start moving. We could get out of this mess, if only the Fed believed in the free-market system. In free markets, supply and demand find an equilibrium. That’s true whether we’re talking about the supply of grain and housing or cash and credit. But a functioning free market requires confidence that the government isn’t imposing itself unnecessarily in the works, preventing supply and demand from returning to equilibrium.”
GOD BLESS YOU CHARLES SCHWAB. That’s all I’ve got to say. I recommend to each and every one of you to read this op-ed. It’s called the Fed Votes No Confidence. Read the whole thing. It is exactly what I have been telling you for months and months. The Fed is creating problems. They are screwing the saver. They are hurting people. They are telling people to not take as much risk because we’re talking risk down for another two years. That is insanity. And every one of the policies DEFINES future inflation.
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Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.