6/6/2015 Portland, Oregon – Pop in your mints…
Recently we have been working with some wonderful producers to make many of our volumes here at The Mint available in audio format. The experience has been great as those with talent in the voice department, such as Robert Fox, who brought our newest audio offering, Bitcoins: What they are and how to use them, to life.
We imagine the producers get a good chuckle as they read our prose, to which Long-suffering readers of The Mint are accustomed. We know we do!
Why the Fed will take Baby Steps when it comes to raising rates
The US Economy added 280,000 jobs in May of 2015, which was positive no matter how you slice it. To our readers, this should come as no surprise, every one of our key indicators indicates an economy that is roaring ahead. Take the price of oil, which continues to hover near the $60 per barrel mark. While to some, a lower oil price may signal weakness in demand due to a slowdown in underlying activity, we see it as incredibly positive for US consumers, as oil, which translates into gasoline prices, acts as a quasi tax for many consumers whose demand is relatively inelastic.
We also see the steady prices of copper, around $2.70 per ounce, and corn, clocking in at $3.60 per bushel, as signs that the United States economy is on extremely solid footing looking ahead. These prices tend to tank when bad omens are on the horizon.
The only negative (depending upon who you are), as reflected in the Jobs report, is that wages have not risen at a healthy pace. This is great for employers and the Fed, who can maintain their margins on the backs of the working class, but not so good for those employed.
We sense this will change, as the productivity gains of the past several years are not likely to replicate themselves over the next several. The economy is transitioning to the second half of the chessboard (as Thomas Friedman would say) and it will take a ton of work to get it there. Once it is there, we will see hyperactivity in the economy, it will be a whirlwind that people will either embrace or run direct the other way from. To an extent, humankind will benefit, but mother nature will suffer perhaps a fatal blow.
If proletariat wages remain low, then why has the stock market reacted negatively to what would otherwise be considered most excellent news? We can only guess that equity traders, who at times are clairvoyant to their own detriment, look around at the plethora of good news and smell a Fed rate hike on the horizon.
They are correct, of course. However, we believe that the Fed learned its lesson back in 2008. The blind 0.25 per month basis hikes that were implemented to cool off the sizzling post 9/11 economy were blunt and oversized for the sheer breadth of the Fed’s economic sphere of influence. It is doubtful we will see such blunt and misguided policy from the current Fed.
Instead, we see baby steps, increases of 0.01 basis points emitted over time so that the economy can absorb the shocks in a manageable way, rather than taking them square on the kisser as it did in 2008.
Will it work? Only time will tell, but for the moment the US economy looks like it’s running full speed ahead, and nobody at the Fed is interested in being the next Ben Bernanke.
Stay tuned and Trust Jesus.
Key Indicators for June 6, 2015
Copper Price per Lb: $2.69
Oil Price per Barrel: $59.13
Corn Price per Bushel: $3.60
10 Yr US Treasury Bond: 2.40%
Bitcoin price in US: $227.55
FED Target Rate: 0.13%
Gold Price Per Ounce: $1,172
MINT Perceived Target Rate*: 0.25%
Unemployment Rate: 5.5%
Inflation Rate (CPI): 0.1%
Dow Jones Industrial Average: 17,849
M1 Monetary Base: $3,029,600,000,000
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