The Fed Whisperer’s View On The Upcoming Fed Meeting

ben bernankeBillionaires Portfolio: I want everyone who owns a stock or ETF to read this: Bryan Rich as you know is a global macro hedge fund manager and top Global Macro Strategist who publishes a daily research piece to his institutional clients (his clients include some of the top hedge funds and wealthiest families in the world). Bryan Rich is also known as a Fed Whisperer, as he tracks, analyzes and predicts what the FED is doing every minute of the day.

I have summarized below some of the key points from his research piece as well as the link to his actual research note.

In recent weeks, people have become panic-stricken about the possibility that the Fed could reduce the size of its current QE program or “taper” it.

This topic has become a dominant focus and created much fear and uncertainty for average traders and investors. But, again, as we’ve seen over and over throughout this crisis period, people are focused on the wrong thing — they can’t see the forest for the trees.

Sure the Fed’s third round of QE, kicked off in September of last year, has been a big deal. It signaled/confirmed that even after two rounds of QE, trillions of dollars worth of backstops, bailouts and global stimuli, the global economy was at risk of another deep downturn. Unemployment was persistently high. Deflation was returning as a reasonable threat.

As such, the Fed’s third act was the warning signal for the rest of the world. And as such, we’ve seen another round of global monetary easing as the response to economic data that had been revisiting the levels we saw in 2009, when the global economic crisis was at peak intensity.

Now, after nine months and nearly $800 billion pumped into the financial system, U.S. employment is better. But it’s still too high and stagnating. And inflation is running at the lowest on record.

With that, what can the Fed do?

Answer: They can keep the QE spigot wide-open. And keep hoping higher stock prices can be the antidote.

Okay, so QE hasn’t directly produced inflation and solved the world’s problems as the Fed might have expected when they launched it in late 2008, but it has produced a direct benefit and an indirect benefit. The direct benefit: The Fed has been successful at driving mortgage rates lower, which has ultimately translated to rising house prices (along with a slew of other government subsidized programs). That has been good for the economy.

The indirect benefit: As Bernanke has said explicitly, “QE tends to make stocks go up.” Stocks have gone up. That has been good for the economy.

But we need a lot more.

As I reiterated in my last Big Picture piece, “the Fed has told us explicitly that it wants employment dramatically better, and inflation higher. They have gotten neither. Their best hope to achieve those two targets is through higher stocks and higher housing prices. While their monetary policy has hit the wall, unable to produce growth, higher stocks and higher housing prices are their only chance. Strength in these key assets has a way of improving confidence and improving paper wealth. Increasing wealth makes people more comfortable to spend. Better spending leads to hiring. A better job market can lead to inflationary pressures. That’s the game plan for the Fed. But they are in the early stages. “

The other HUGE source of assistance to the Fed is Japan.

It’s Japan, not the Fed, where everyone’s attention should lie. Japan can be the answer to the global economic crisis. The Fed is now a mere sideshow.

william meadeWritten By William Meade Editor of The Billionaires Portfolio

William Meade is the President of Pure Alpha Research, a hedge fund consulting and investment research firm. He is the former Director of Research at Zacks Investment Research in Chicago. Before that, he was the lead analyst at a top performing $1.2 Billion dollar institutional investment firm and hedge fund. Mr. Meade has a Masters in Applied Economics from The Johns Hopkins University. Learn more about William Meade and how he follows Billionaire Investors into stocks by visiting the Billionaires Portfolio.

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