How to Tell a Hawk from a Vulture

“Participants noted that devoting additional time to discussion of the possible costs and benefits of various potential tools would be useful, and they agreed that the September meeting should be extended to two days in order to provide more time.” – Minutes of 9 August, Federal Open Markets Committee Meeting

It’s just a question of “when” not “if”.

Money-Printing 3 is on the way.

The mainstream likes to talk of monetary “hawks” and “doves” at the U.S. Federal Reserve.

The term “hawks” refers to those who are supposedly cautious about keeping interest rates low as they fear it will cause higher inflation.

The term “doves” refers to those who are supposedly not cautious about keeping interest rates low. They see higher inflation as a necessary payoff in the drive to boost the economy.

In reality there aren’t any hawks and doves at the Fed. They’re all just vultures in disguise.

They’re pro higher inflation and more money printing. It’s just some are more pro-inflation than others.

So whether it’s at the Fed’s September, November or December meeting (note: the Fed doesn’t meet monthly, it meets a total of nine times this year), it’s more likely than not that the Fed will unleash another round of money printing.

You only have to read the latest minutes and compare the language to previous minutes to see they’re gearing up for it.

The changing glass at the U.S. Fed


Here’s a quote from the March meeting noting non-farm payrolls:

“The labor market continued to show signs of firming. Private nonfarm payroll employment rose noticeably in February after a small increase in January, with the swing in hiring likely magnified by widespread snowstorms, which may have held down the employment figure for January.”

In other words, the Fed liked what it saw. Which is hardly surprising seeing as it was half-way through its money-printing 2 ruse.

Here’s what the Fed said at the August meeting:

“Private nonfarm employment rose at a considerably slower pace in June and July than earlier in the year, and employment in state and local governments continued to trend lower. The unemployment rate edged up, on net, since the beginning of the year, and long-duration unemployment remained very high. Meanwhile, the labor force participation rate moved down further through July.”

Now look at the following chart. It shows monthly non-farm payroll numbers over the last two years:

United States Non-farm Payrolls

What do you notice the most? That’s right, non-farm payroll numbers are volatile. It’s pretty hard to analyse the data and draw conclusions on a monthly basis.

Yet back in March when the Fed met, the members looked at the January and February numbers and liked what they saw. Things were heading in the right direction… they thought.

Roll forward a few months and two months of low numbers, suddenly the Fed needs to do something.

The other thing you’ll notice from reading the August minutes is there’s no mention of the drop in the July unemployment rate from 9.2% to 9.1%… and no mention of the fact that four days before the meeting the Labor Department announced total payrolls had beaten market expectations.

A cause for celebration? Not on your life. As far as the Fed is concerned, it’s got to do something. If they highlight the positives, it’s less reason for them to meddle.

Stuffing the economy

So now the Fed has to focus on the negatives. We wouldn’t want the economy righting itself would we? Not when there’s meddling to be done…

But let’s get something straight. The actual underlying economy hasn’t changed. It was the same in June and July, as it was in March – stuffed.

The only difference is the Fed is now doing the old “glass half empty” routine… so it can keep printing money and keep propping up its pals at the banks.

And the markets can see the Fed money printing too. Traders are placing the same old bets. Gold has rebounded after the heavy sell-off last week. It’s now trading at USD$1,827 and AUD$1,713.

And as you’d expect, traders are selling the safety of the Swiss franc and buying the risky Aussie dollar.

As you know, the Swiss franc is one of our early warning signals for crashing markets. The climb back to CHF0.875 this morning has the alarm bells ringing again… albeit quietly at the moment.

It tells you traders are backing out of safety and plunging forward into risky bets.

Enemy of the People

The 500-point snapback in the Aussie market since the recent low proves this is happening. In fact, if you look at the charts, there’s almost a perfect correlation between the Aussie dollar/Swiss franc exchange rate (blue line), and the S&P/ASX 200 (red line):

Aussie Market Chart
Click here to enlarge
Source: Google Finance

But remember: don’t start thinking this is a sure sign of a strong Aussie economy and share market. The reality is that the extreme volatility is the result of the actions of one man… Dr. Ben S. Bernanke.

Or as we prefer to call him: Public Enemy No. 1.

And one thing is for sure, expect the volatility to continue as we approach and pass the next Fed meeting on September 20-21.


PS. Slipstream Trader Murray Dawes is releasing another free market update on You Tube this afternoon. I highly suggest you watch it. The volatility index (VIX) is pushing 30. And this month alone, billions has been wiped off the market (and billions put back on again). This market action is causing havoc for most traders. But Murray has been picking the swings like a peach. In fact, he’s put his readers in a position to bank big gains. To see where Murray expects the market to head next, click here… It’s completely free.


Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Microcap Trader — where he reveals the best opportunities he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays.

Kris Sayce is the Publisher and Investment Director of Australia’s biggest circulation daily financial email, Money Morning Australia.Kris is a fully accredited advisor in shares, options, warrants and foreign-exchange investments.

Kris has close to twenty years’ experience in analysing stocks. He began his career in the biggest wasp’s nest in the financial world — the city of London — as a finance broker back in 1995.

It’s there where he got his ‘baptism of fire’ into the financial markets, specialising in small-cap stock analysis on London’s Alternative Investment Market. This covered everything from Kazakhstani gold miners to toy train companies.After moving to Australia, Kris spent several years at a leading Australian wealth-management company. However he began to realise the finance and brokerage industry was more interested in lining its own pockets with fat fees, commissions and perks —rather than genuinely helping out the private investors they were supposed to be ‘working’ for.

So in 2005 Kris started writing for Port Phillip Publishing — a company which was more attuned to his investment outlook.

Initially he began writing for the Daily Reckoning Australia— but eventually, took over Money Morning. It’s now read by over 55,000 subscribers each day.

Kris will take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money! Whether you agree with him or not, you’ll find his common-sense, thought-provoking arguments well worth a read.

To have his investment insights delivered straight to your inbox each day, take out a free subscription to Money Morning here.

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47 Comments on "How to Tell a Hawk from a Vulture"

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The latest rally in S&P500 with meager volume is a sign of impending QE3 announcement.
After watching the documentary “Inside Job”, I’m not surprised to know that the US Govt nowadays is being run by the Big Boyz in Wall Street.


Oh, BTW nice article from SMH today regarding housing affordability myth……


Cheers Ib


The difference between the last depression and this one is that in the 30,s your average man in the street didnt have any interest in shares.
The current market volatility is akin to gamblers at a casino trying to win their money back.

The Wolf

The markets (both regulated and OTC) are casino’s… nothing more… nothing less… they might have started out many years ago serving worthy goals and have a certain level of legitimacy… but now… then they might have resembled the presidential suite at the Bellagio… now they have more in common with a pay-by-the-hour motel in a very seedy part of town…

The Wolf

lb… nice link… just finished reading the story… who would have thunk it that you could “pay” current consumption items from imputed owner occupier rent and super pre 65yrs of age…

haven’t checked the Super Troopers website yet, but expect Leith will cop a several page written response from El Joye with plenty of adjectives, metaphors and similes…

The Wolf
Guest Noteables According to Bloomberg, since World War II almost every time that the year over year change in real GDP has fallen below 2% the U.S. economy has fallen into a recession….since 1948, every time the four-quarter change has fallen below 2 percent, the economy has entered a recession. It’s hard to argue against an indicator with such a long history of accuracy It is only a matter of time until Europe has a true crisis, which will happen faster – BANG! – than any of us can now imagine. Think Lehman on steroids. The U.S. gave Europe our… Read more »
Peter Fraser
Drood – there was a lot of share market speculation by ordinary men and women in the roaring twenties – it became a casino, much as wolf describes @ 5. The market crashed in 1929, and the small holders were all wiped out, along with many larger holders. The fact that we all know that we have day traders, futures traders, cfd, etc really tells us that has again become a casino where tactics and derivatives designed to be used as a hedge or insurance have just become gambling chips. Thats fine if people want to risk their money, but… Read more »

“Or as we prefer to call him: Public Enemy No. 1.”
No, the bearded one is “Public Enema No 1”. An enemy is just someone who is against you, but an enema gets right up you and gives you the shits.

I know some of you share investors will be upset but the true heroes in this climate are the short sellers and eventually the bond vigilantes. Why? Because no regulation and transparency of balance sheets, companies massage their earning to increase their share price. Short sellers pull the balance sheet apart look at the true earning. Macqaurie Bank is famous for increasing it’s fix capital assets every year. No real cashflow only a bubble paper gain of a overvalued asset. So if you want integrity and the truth don’t buy shares in companies where good short sellers are attacking. Cashflow… Read more »