GUALFIN, Argentina – According to several headlines, the U.S. stock market rose yesterday “ahead of Fed.”

The Dow was up 229 points – or 1.4% – for the session.

And so, we return to poor Janet Yellen. Tomorrow, much of the world turns its lonely eyes to the Fed and its chieftain.

The Fed has as much as promised to make the blind see and the lame walk. It claims that it – and it alone – is capable of improving the U.S. economy and, by extension, the world economy.

People will earn more money. They will live better. And they will have less to fear from financial calamities, such as those that happened before the Fed was set up in 1913.

Master of the Universe

In the popular mind – if there is such a thing – it is further believed that the Fed “won’t allow” a major bear market, because “it would be bad for the economy.” The Fed rules the entire universe of commerce, finance, and investment.

Janet Yellen rules the Fed.

But who rules Janet Yellen?

Yes, the weight of extravagant claims and preposterous promises now falls on one woman: Janet Louise Yellen of Brooklyn, New York.

During working hours, she holds her head up and talks the mumbo jumbo of a normal, confused economist. But late at night, after tossing and turning in bed, her thoughts must focus more clearly.

In moments of pure, enlightened terror, she must see the impossible position she has been put in.

“How am I supposed to know at what price credit should change hands? Of course, it is impossible,” she must think.

“Markets, not bureaucrats, set prices. Try to do it any other way and you always end up with a mess.

“And yet, here I am. I have a responsibility. I am head of the world’s largest banking cartel. I am charged – by law – to do four things.

“At least this is what the Fed’s website tells me…

“One, conduct the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.

“Two, supervise and regulate banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers.

“Three, maintain the stability of the financial system and contain systemic risk that may arise in financial markets.

“Four, provide certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and play a major role in operating and overseeing the nation’s payments systems.

ZIRP for Zip?

“I shouldn’t ask questions. I should just do the job.

“Full employment? Yes… I think we’re on the right track.

“Stable prices? Where did that come from? I didn’t know that was in there. No question – we nailed that one. Prices are more stable than we wanted.

“But we were aiming for 2% inflation. Well, how do you like that, we hit that target without even trying?

“But if the economy is as healthy as I say it is, it isn’t going to be bothered by a quarter-point rate hike. And if it isn’t as healthy… and the rate hike throws it into a tizzy… then all those seven long years of ZIRP did zip for the economy and rates may as well be raised anyway, no?” (Janet smiles; she is pleased with her turn of phrase.)

“Wait… maybe the employment picture isn’t as good as I’ve been told. There’s that former assistant of mine, Andy Levin, shooting off his mouth at Bloomberg.

“He says the U.S. is probably about two years away from achieving full employment… and that millions of Americans working part time would take full-time employment if they could get it. And many others out of the labor market might be induced back in if they felt they had a chance at a job.

“And there are all these clowns on TV explaining why I should or why I shouldn’t raise rates… or why I will or why I won’t.

“One tells me the unemployment rate is not as good as it sounds. Another says China is headed for a serious depression. Another worries that world trade is slowing.

“One says speed up. Another says slow down. They think I’ve got some kind of machine here where all I have to do is to stomp on the accelerator and the economy will race ahead. But if I had that, I would’ve pushed the pedal to the metal a long time ago. It doesn’t work that way…

The Biggest Mess in History

“And… oh no… maybe the whole idea is wrong…

“Maybe I didn’t read the job description closely enough. I mean, maybe you don’t get stability, full employment, safety, and so forth by pulling on these levers and turning these knobs.

“Maybe being a central banker is not like being a car mechanic. Maybe it’s more like being a judge.

“Judges don’t have to come up with new tools, like quantitative easing. They’re not supposed to use unconventional methods. They’re not expected to improve the world, for Pete’s sake.

“Judges are just supposed to apply the law and come to the same judgment tomorrow that they made yesterday. The key feature of a judge’s role is a lack of innovation. You murder someone… the judge throws the book at you. Easy-peasy.

“Murder is murder every day of the year… Saturdays and Sundays included. It doesn’t matter what the unemployment rate is.

“Judge’s don’t have the world watching… anticipating their next move; their next move is supposed to be just like their last move. And they don’t have to care what happens after they render judgment. Their job is simply to render the correct judgment… every time… just like the last time.

“I bet judges sleep better at night.

“Maybe that’s the way central banking is supposed to work, too. It’s not for me to worry about the jokers who have gambled on low rates. What do I care if their stocks go down?

“But wait… if they go down too much… too fast… we could have… hmmm… a situation on our hands. And it could develop into a very big mess… the biggest mess in world history.

“Oh my… is it morning yet?”




Further Reading: Is the Fed pushing us to the brink of another bear market? In the Weekend Edition of the Diary, colleague Alexander Green revealed the three steps you should take to protect your portfolio from the next bear market. If you missed it, you should definitely catch up. Read on here.


If central planners were able to prop up asset prices forever, Shanghai stocks wouldn’t have crashed like they did this summer.

091615 - Shanghai 5Y

As you can see, the Shanghai Composite – Mainland China’s largest stock market benchmark by market cap – has plunged 42% from its peak in June.

This happened despite China’s central planners throwing the kitchen sink at it to keep stock prices rising.

They cut interest rates… they allowed (read that “forced”) pension funds to invest more in stocks… they relaxed rules on margin lending… they extended loans to state-run banks to “encourage banks to increase support” to weak parts of the economy… they forced brokers to vow not to sell any of their proprietary stock holdings… they postponed new IPOs… they injected money directly into a state-owned company that makes loans to margin lenders… they banned company shareholders from selling shares in their own firms… and they bullied anyone who speaks bearishly about the stock market.

Featured Reads

The Truly Stupid Case for More ZIRP
The Fed and other central banks have generated such a humongous and incendiary stock bubble that they dare not risk puncturing it – even if it means keeping ZIRP in place indefinitely.

Obama Goes on Twitter to Boast About the Economy
President Obama has taken to Twitter to try to convince Americans that his government has improved the economy. His Twitter storm has now gone viral… Check it out here.

Where to Stash Your Cash (Legally)
Offshore asset protection experts Ted and Bob Bauman have published a controversial guidebook for moving your money outside the U.S – using the secrets of the ultra-wealthy.


More today on the “living wage.” To catch up on Bill’s original Diaryissue on this theme, read on here.

Loving your daily missives. About the “living wage”: Why is the discussion always about the living wage? Why not about the cost of living?

It seems absurd to me that almost anywhere you go in this country it is likely to cost in the neighborhood of at least… hmmm… let’s see… for a family of four:

  • $500/mo (minimum) on rent
  • $80/mo on utilities
  • $150/wk on food
  • $???/mo on transportation (Maybe they can avoid the need for a car and walk, ride a bike or a bus or other?)
  • $???/yr on clothing (I am not even remotely aware what would need to be spent but it seems that $500 might work?)
  • $???/mo on communications and entertainment (Maybe NOTHING, if they can manage to live without phone or paid TV?)
  • $400/mo on Obamacare (Not sure but this is a new mandated cost…)

Anyway, we could probably go on and on but this represents $1,620/mo. And if we add in taxes, I am supposing that the minimum would be in the neighborhood of $2k/mo. or $24k/yr.

Of course, this family would be considered impoverished and so there would be huge government subsidies for rent, food, utilities, communications, transportation.

But in the end, a lot of the above costs are high due to government regulations and subsidies. Why is there no discussion about making life a little cheaper?

This would go a long way toward helping the poorest without adding additional mandated rules that just make things more and more expensive… Just sayin’…

– Keith O.

Based on the minimum wage debate in your Mailbag, I am guessing that most of your readers are “old dogs.”

The economy no longer works the way these people imagine, if it ever did. Taxes are too high and benefits for people who don’t work are too lucrative.

Sure, we can pretend that it is 1950, and that all we have to do is show up at the factory for 30 years, but that is not the reality today.

I am an engineer. My wife is also an engineer. We are both in our 30s. We just had our first child. After analyzing the tax rates and the Obamacare benefits, we realized that we were better off quitting our six-figure jobs, moving to the country, and just getting the free health care.

Lots of people think this is somehow morally wrong. Lots of people can’t believe that the math would come out that way – but paying taxes on income… then sales tax… paying rent… then considering that any child-care providers and landlords would have to pay income tax (and property tax and sales tax and on and on)… it is insidious.

Add to that the fact that having extra money to invest is virtually worthless right now and we find that there is not much benefit from working.

What would I do with an extra $100k? Hold it as cash while inflation eats it away? Buy commodities? Bonds? Start my own company? Forget it.

Saving is foolish in the current reality. I think that high tax rates and many of the other government policies are morally wrong. I am powerless to change those, so my decision to stop being a productive member of society seems less like a shirking of responsibility and more like a logical response to market conditions.

We cannot be the only people coming to this conclusion, and that is a truly chilling thought. Raising the minimum wage will not fix the economy. Government meddling in the economy destroys it.

– Kelly S.

I live in Florida, on the Gulf Coast, where there is a well-to-do city on the beachfront where all of the local children are provided their every need by parents and have no incentive to work.

So the local fast food joints have to jack up the rates to attract people from the less affluent communities to the inland direction.

That seems like free market forces at its best to me. No need for government interference.

– Geoff D.

The living wage is a hot topic among Diary readers.

Do you have a personal experience to share about the living wage?

Bill and the team would love to hear from you. Write us at [email protected].


In Case You Missed It…

Palm Beach Letter publisher Tom Dyson just released another urgent investing warning. His previous warning came just days before last month’s big crash began…