Ed’s Daily Notes for February 12th   7 comments

Bloomberg: Yellen Sees Few Risks to Divert Fed From QE Tapering Strategy

Janet Yellen, taking charge as Federal Reserve chairman, let lawmakers know she’s united with her policy committee and sees few risks that could derail a plan to steadily reduce the Fed’s bond purchases.

Yellen, testifying to the House Financial Services Committee yesterday, said she was surprised by reports showing weaker job growth yet wants to see more data before assessing the health of the labor market. Global financial-market turbulence doesn’t pose a major risk to the U.S. economy, she said, and inflation is likely to move up toward the Fed’s 2 percent target — even after missing it for almost two years.

Central bankers, like generals, are always fighting the last recession. Unfortunately, Yellen thinks she can just return to the old way of keeping the rates low in order to prop up the economy. If that is true, why isn’t the economy chugging along now? The fact is we have China’s growth sucking up dollars in the world economy. This is the side effect of China’s dollar peg, and it is creating a deflationary effect on the dollar. The truth is the Fed needs to pay more attention to the world economy and it’s impact on the dollar, because reserve currency status is having an impact. Just looking at the U.S. economy is the equivalent of ignoring the forest for the tree.

As soon as QE is fully tapered, watch out. If we haven’t seen any signs of the U.S. economy slowing by then, we will, and it may get ugly.

The Telegraph: The next step: 3D printing the human body

I love new tech! Check this out:

Bioprinting, or the process of creating human tissues through 3D printers, is a highly contested area of technological innovation. Theoretically it could save the economy billions on a global scale, whilst boosting weak or war-torn countries’ access to more affordable health care and provision, whether producing prosthetic limbs or highly customised fully-working human organs.

From a technological perspective, the rise and development of 3D printing and its capabilities will play an undeniable part in our future lives. But how does the process work?

The article goes on to describe the process, which is fascinating.

But it also mentions a company involved in this field, Organovo Holdings, Inc. (ONVO). I need to do some more research before making a recommendation on the company’s stock, but the technology certainly has a high upside.

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Posted February 12, 2014 by edmcgon in Economy, Federal Reserve, News, Stocks, Technology

7 responses to “Ed’s Daily Notes for February 12th

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  1. “we will, and it may get ugly”

    Ed, want to venture a guess on “ugly” — 5%, 10%, 20%, 30% 50%?

    • Latetom,
      Best case scenario will be the 200 day moving average. The longer we go, the less likely that will be. The worst case scenario would be the March 2009 low, but I also consider that unlikely, as I would expect the Fed would do something before we dropped that low.

      • If I understand the math you are thinking of a drop somewhere between 100 points (today’s 200 day moving average) and worse case is a 1,000 point drop (and I guess a second great recession in six years). It appears “ugly” covers a lot of ground without a specified time period in which to see it happen other than “when QE is fully tapered” out. And if it is only a 100 point drop how is that different from say early Feb. 2014?

        Which brings up a second question: Is “QE fully tapered” complete only when it is reaches 0 buying or if next month it goes to 5 and holds for a year before going to 0 or ……

        I am trying to figure out how to use the info in the above post. It appears to me that following the above post you should sell everything and wait for the 1,000 point fall and then repurchase or

        once the fall starts (and someone will have to tell me how to identify the start of the fall) sell and then buy back somewhere after a 100 point fall to a 1,000 point fall (and again someone will have to tell me how to identify the bottom of the fall) or

        …………..????????

      • I’m assuming the Fed goes with the current tapering plan, cutting it by $10 billion every month.

        If the S&P 500 were to drop 1000, it wouldn’t be overnight. Consider this: from the top in 2007 to the bottom of 2009, it took well over a year.

        The x-factor in all of this: When will the Fed react to a falling market and/or bad economy? They say they will react to a bad economy, but what do they define as a “bad economy”? As for a falling market, we have no real indication to tell us when or if the Fed will react to a falling market.

      • I am in Toms camp here. Even if we assume it will get ugly, there is a ton of debate about what “ugly” means and when it will happen. Ed has clearly stated ihe believes it will happen soon as he is in leveraged short etfs and sold many of his long positions. My view is that I have absolutely no idea when a correction will happen. So I refuse to take extreme stances as the penalty is too high for being wrong. My only adjustments are at the margin, being 30% cash instead of 20% cash or occasionally buying an inverse eft to hedge (not naked). A lot depends on your time horizon and what you are trying to accomplish with your investing. I have absolutely no need for the money for the next 10 years. Since in virtually all ten year stretches, the markets has gone up, I see no reason to add risk by guessing the direction for a given week. Let time be your ally.

      • Marshall,
        Actually, I am NOT saying that it will happen soon. I am saying it COULD happen soon. It could also happen this summer.

      • I’m with Ed on this one. As Albert Edwards says “Tapering is tightening, which inevitably ends in recession, bailout and tears.”
        The only question for me too is “When?”

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