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DEFLATION...DEFLATION...DEFLATION

Rich Walls - Tuesday, January 19, 2016

The year-to-date stock market declines are the worst start for equities in recorded history. Pundits and guests on financial news networks have done a disservice to viewers by not speaking truth to what is, and what will likely continue to occur in capital markets, and our country, for the foreseeable future. Has anyone dared to utter the word “deflation”? Global central banks have flooded their respective countries with cheap money, and have vowed to continue their devaluation… except for ours! Our Federal Reserve has raised short term rates while simultaneously lowering their GDP estimates for our country. Why? Good question. The only two logical answers are that they are either politically motivated, unlikely, or that they are basing their decisions solely on only one of their two mandates prescribed by congress... unemployment. Leaving their other, and much more significant mandate of price stability (inflation) not only ignored, but shunned. This could not be more of a mistake in our view. Basing Fed policy decisions on a headline 5.0 unemployment rate, which is not reflective of what our actual unemployment/underemployment rate is, is a dangerous route for determining macro-economic policy.   Read More

Greece, Puerto Rico, Chicago, et al.

Rich Walls - Friday, July 17, 2015

In the July 16th, 2015 edition of the WSJ, columnist Greg Ip states it perfectly: “sovereign defaults are like cockroaches – there is seldom just one.” Spain, Italy, and Portugal, which share the Euro currency with Greece, face the same daunting task of paying down their enormous debt obligations in a time of economic stagnation. A country can reduce its large debt several ways: austerity, economic growth, and low real (inflation-adjusted) interest rates. “More common than appreciated, is the more radical step of restructuring debt by reducing interest, lengthening the maturity, or slashing the amount owed to creditors”, Ip says. In exchange for potential debt restructuring, creditors (like the IMF dealings with Greece) will require debtors to engage in pro-growth economic policies, fiscal belt tightening, and policies favoring low real interest rates. The massive global debt service requirements will continue to force central bankers to keep interest rates at extremely low levels for a very long period of time. This “financial repression” will likely be accomplished under the guise of prudential governmental regulations that require banks and pension funds to hold increasing quantities of governmental debt despite the paltry yields.  Read More

Fed Thoughts

Rich Walls - Friday, June 19, 2015

On Wednesday the Federal Reserve announced it was leaving unchanged its 0-.25% Federal Funds target at this time. While noting the improvement in Q2 economic data from the disappointing Q1, interestingly the Fed reduced its 2015 GDP growth forecast from the previous range of 2.3-2.7% to the new projection of 1.8-2.0%. If stronger economic data supports it, the Fed will likely initiate one or two quarter point increases in the Fed Funds rate before year-end. Read More


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