Bond Market Expresses a Lack of Confidence in Bernanke, Obama, and the GOP

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A lack of confidence can turn a bad situation into a full blown crisis. A crisis in confidence was one of the contributors to the financial meltdown that began in 2008 when transformative Pluto entered cold and contracting Capricorn. A lack of confidence led to bank runs which took many forms, from depositors pulling out of IndyMac to Lehman Brothers and Bear Stearns unable to rollover short term commercial paper. Liquidity in every imaginable form completely froze up.

Given that the Federal Reserve, the FDIC, and the Treasury provided all sorts of liquidity enhancements to break the “ice,” it’s inconceivable why Fed Chairman Bernanke went on “60 Minutes” December 5 sounding like economic conditions could return to those dark days. Bernanke’s extreme nervousness and somber demeanor throughout the interview failed to convey confidence the Fed’s policies are helping the economy to grow. Instead his appearance contributed to the stock market’s weakness the next day and accelerated a selloff in long-term Treasuries that was already underway following the Fed’s $600 billion Treasury purchase program announced at the November 3 FOMC meeting.

Here are the major highlights of Bernanke’s pontifications followed by my comments in parenthesis:

  • The recovery is “very close to the border” and “not very far from the level where the economy is not self-sustaining.”
    (Despite their rhetoric to the contrary, Wall St. and corporate America have become addicted to government welfare from the Fed and Washington.)
  • It could take “4 to 5 years” before the unemployment rate is in the more normal range of “5 or 6%.”
    (It takes time to recover after the collapse of an economy too dependent on housing and consumer spending. As I have written, the employment situation will continue to slowly improve. Bernanke’s timeframe coincides with the conclusion of the cycle of Uranus in Aries squaring Pluto in Capricorn during 2011-2015 which will usher in a new economic model of innovation that starts producing products here in America.)
  • A double dip recession “doesn’t seem likely” because “housing is already very weak and can’t get much weaker.”
    (Recall that in 2007 Bernanke said the housing problem was “contained” to subprime mortgages! House prices must be compared with the historical average and exclude prices during the bubble years of this decade. Millions of houses that have been neglected will have to sell at substantially lower prices due to the amount of renovation they will require. Much of the housing stock built when Pluto was in Sagittarius does not fit with current and future trends as it is too big, too impractical, and too costly to maintain.)
  • The purpose of doing QE2 is to lower interest rates.
    (Yet the bond market is selling as the Fed is buying. Yields on the benchmark 10 year note have risen 0.33% since last Monday, approaching 0.75% since QE2 was announced.)
  • The Fed is not “printing money”; money comes from the Fed’s own reserves not the taxpayers. “The amount of currency in circulation is not changing.”
    (If banks pulled their excess reserves from the Fed, the Fed will have two choices: either sell its Treasuries at a loss or “print money” so the banks can withdraw their excess reserves.)
  • QE2 can be expanded if necessary.
    (This shows Bernanke is even further out of touch with the new political reality.)
  • Inflation is very, very low.”…”This fear of inflation is way overstated.” Bernanke’s defines no inflation as inflation running at “2%.”
    (The Fed switched to using the core PCE index from the CPI in 2001. Core PCE excludes food and energy costs and has historically shown a lower rate of inflation than the CPI. Core PCE is biased to goods and services that tend to be deflationary such as electronics. Unlike core CPI, Core PCE automatically assumes that consumers and businesses will substitute the cost of goods and services that are rising for those that are falling. Inflation could be running rampant in the “real world,” but the worry is that the Fed will say their gauge has not reached the danger zone to tighten. Bernanke should have used the opportunity to explain in layperson’s terms how the inflation or lack thereof the Fed sees is different than what average Americans see.)
  • 100%” sure the Fed can tighten monetary policy in “15 minutes” when the time comes which is “not now.”
    (Why are we supposed to believe Bernanke will know when to tighten monetary policy when he admitted during this interview that he didn’t see the crisis coming even though monetary policy must take into account conditions in the overall economy AND the Fed regulates the nation’s largest banks?! Besides, anyone who professes 100% certainty about a future event shows they are not credible.)
  • Opponents of Fed policy don’t recognize the risk of not acting.
    (What kind of message are we getting with the Fed being just as accommodative now as they were at the height of the financial crisis? An advanced signal followed by gradual tightening would convey confidence that economic conditions are improving which would motivate businesses to hire and make purchases before rates began to rise.)
  • The budget deficit must be cut but not now.
  • Clean up the “very inefficient” tax code by closing loopholes and lowering rates.

Transforming the tax code was the only time during the interview Bernanke made any sense! Yet for all the Republican rhetoric bemoaning the billions spent to bail out banks, automakers, AIG, Fannie & Freddie, the stimulus, and the healthcare legislation, the meter on the tax cut deal announced December 6 when Mercury the planet of communication conjoined Pluto (taxes, debt, death) in Capricorn (government) between the Republican leadership and President Obama is (currently) running at $858 billion. That’s more than the individual cost of each one of the previously mentioned initiatives! And unlike the healthcare legislation which does not fully go into effect until 2014 because it had to be “paid for,” the tax cuts and other goodies in this package are exempt from “pay-go” rules.

I’m calling this tax deal George Bush II. Give everything to everyone and have a “painless” compromise. The Republicans have already abandoned their commitments to deficit reduction and in the spirit of George W. Bush, are happy to let Democrats spend on extending unemployment benefits and other initiatives as long as they can tax cut too. In any case, the unemployment extension is not going to help the so-called “99ers” who are about to or have already exhausted their benefit. Only the unemployed who have exhausted their state benefits could benefit - if they reside in one of the states with the highest levels of unemployment.

Just like you can’t expect a different result from doing the same thing multiple times, we should not expect any more jobs to be created than during the Bush presidency. Republicans have had 7+ years and nothing to show for the tinkle down tax cuts.

There are different types of wealth effects, and the Fed refuses to recognize that not all wealth effects are created equal, generating the same economic impact. Bernanke’s rant about the value of increasing stock prices is almost irrelevant to overall economic growth.

Bernanke and the politicians of both parties are wrong to believe that the wealth effect generated by monetary and fiscal policies will generate jobs. Rock bottom interest rates and tax cuts generate a wealth effect quite different than the one created using housing as it will not cause the mass populace to spend more and boost the economy. Asset price inflation is yet another facet of the economy that the Fed conveniently chooses to ignore in calculating inflation.

With the USA’s natal Mercury retrograde (see below) in the sector of the chart that rules taxes and debt opposing Pluto in Capricorn in the sector representing the nation’s wealth and the economy, the Federal Reserve believes low interest rates are the key to generating the wealth effect. Mercury retrograde reflects the constant tinkering and revisions to the tax code that create temporary tax cuts and provisions that change from year to year. Mercury retrograde in Cancer (real estate) describes the sacred cows of the tax code such as the mortgage interest deduction and all kinds of subsidies and tax breaks for the agricultural industry. Mercury’s opposition to Pluto in the sector of wealth reflects that the wealthiest individuals and corporations are the biggest beneficiaries of the tax code. (Pluto in the sector of money indicates that from the beginning, America has always been a debtor nation.)

The wealthy use tax cuts to spend on assets to generate more wealth for themselves. This might increase the sales of luxury automobiles for example, but will not increase the sales of mass market automobiles which are needed to generate more jobs. Since the poor spend their money on small ticket items, extending unemployment compensation and a small reduction in employee payroll taxes is not going to help boost the purchase of big ticket labor intensive products such as automobiles and washing machines.

Monetary policy is allowing companies to refinance and borrow cheaply. Companies are hoarding cash at unprecedented levels and are borrowing to repurchase their shares. Fundamentals have not kept up with the level of stock prices. The comparison between earnings return and current interest rates is superficial because current interest rates are not sustainable. Think of it as a commercial building that is increasing in value but not generating more rent. The result is asset inflation without an increase in jobs.

Bernanke’s TV appearance emphasizing how bad things are is in complete opposition to his objective of getting Americans to purchase big ticket labor intensive products and encourage companies to hire. Both political parties are selling despair for their own gain.

What America needs now is confidence, not fear emanating from the leaders of the Fed and the federal government. There is a reason why leaders and confidence are both ruled by the Sun. The Sun is our life force that we cannot live without. People tend to feel much more upbeat and energetic on a sunny day than a cloudy day.

A sunny disposition is a confident disposition. Like the rays of the Sun extending out, leaders who radiate confidence help to increase the level of confidence amongst the public which can make even the most difficult challenges seem surmountable. Regardless of your political views, think about which leader conveyed more confidence based solely on his demeanor – Jimmy Carter or Ronald Reagan?

Confident leaders are strong-willed leaders who can compromise yet still achieve their objectives. Reagan was able to achieve tax reform with a Democrat-controlled Congress. The only thing both parties seemed to agree on after he left office was rapidly unraveling those reforms.

President Obama described tax cuts for the wealthy as the “holy grail” for Republicans. He could have easily used that leverage to get Republicans to agree to making the middle class tax cuts permanent while allowing the tax cuts for the wealthy to expire at the end of 2012. Republicans would have agreed to this since they believe they will defeat Obama in 2012 and could then make the wealthy tax cuts permanent. Perhaps the President is still adjusting to his progressed Sun moving into Libra, expressing too much of this sign’s need to please and compromise away one’s core principles.

When Mercury the messenger is retrograde, events and people from the past return to the spotlight. As Mercury turned retrograde Friday, Bill Clinton was back at the White House conducting a press briefing as if he was still the President. Seeing President Obama standing next to him sent a clear message that Obama lacks confidence in his ability to lead if he has to get the former president to “sell” the deal to Democrats on his behalf.

Mercury turned retrograde exactly opposite the USA natal Jupiter in Cancer. Taken together with Pluto also opposing the USA Jupiter, Washington seems to have a literal interpretation that these influences mean it’s okay to increase the federal deficit to Jupiter-sized proportions.

Not even the government’s announcement Friday that the budget deficit in November at $150.4 billion was the highest on record, gave Washington or even Wall Street pause. All these factors are creating a loss of confidence in the bond market that it can continue to make money speculating on Treasuries. Near zero interest and QE2 combined with Washington’s lack of fiscal restraint tells the bond market that inflation and an oversupply of bonds is on the way.

I wrote back in June that “the bond bubble could explode later this summer,” reiterating in Septemberthat Treasury yields could accelerate their creep up.” Instead, speculators believed they could make money trading Treasuries ahead of the Fed’s November 3 announcement. As bond speculators exit, the only buyers left will be people who purchase Treasuries to earn interest. But long-term yields will have to go higher to attract these buyers. If leveraged players (hedge funds) expect more risk in capital gains or a potential capital loss, they will exit before wiping out their capital.

Oppositions represent opposing forces, and the December 6 New Moon opposing the Federal Reserve’s natal Saturn reflects the results of a Bloomberg national poll conducted December 4-7 (meaning some people would have seen Bernanke on 60 Minutes), where the majority of respondents want the Fed to be held more accountable. (54% of those surveyed do not believe that QE2 will help the economy.) The transits of Jupiter, Saturn, and Uranus affecting the Fed’s chart during 2011 will certainly force Bernanke and the Fed to be more accountable and transparent (Jupiter) as the Fed’s independence (Uranus) is vulnerable as Saturn’s influence can indicate Congress takes steps to rein in its authority.

Rep. Ron Paul the author of the book “End the Fed,” will become chairman of the House monetary policy subcommittee that oversees the Federal Reserve. Although it is highly unlikely that Rep. Paul will ever get his wish, it should signal to Wall Street to start weaning themselves of their addiction to more monetary stimulus. With half of the planets moving into Aries in early April, there might be more than the atmosphere heating up as Treasury buyers demand higher yields to compensate for monetary and fiscal policy excesses. With the exception of a few flight to safety runs in December, January, and March, long-term yields will continue to slowly rise.

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