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Five Things You Need to Know: Federal Reserve's Joy Division; (I Just Wanna) Testify; Shiller Delivers a Chill to Politicians; Late Mortgage Payments; Price Freeze

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What you need to know (and what it means)!

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Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Federal Reserve's Joy Division

She's lost control... again... she's lost control.

  • Before today the overwhelming majority of those who either observe or participate in financial markets presumed the Federal Reserve retained some sort of control over price stability, financial markets and, to a degree, even certain asset prices.
  • Let that myth now be shattered.
  • DOLLAR FALLS TO RECORD LOW AGAINST EURO - (BN)
  • CANADIAN DOLLAR RISES TO $1 FOR FIRST TIME SINCE 1976 - (BN)
  • GOLD RISES TO 1980 HIGH AS DOLLAR FALLS - (BN)
  • CORN RISES 3% IN CHICAGO - (BN)
  • WHEAT RISES 1.8% ON CBOT - (BN)
  • SOYBEANS RISE 1.6% - (BN)
  • TREASURY YIELD GAP WIDEST SINCE MAY 2005 - (BN)
  • These are important moves because each of these instruments - dollar, gold, Treasuries, commodities - relate directly to price stability. Directly.
  • Meanwhile, we just wanted to point out this fancy, well-designed quote from the Fed's Overview at their website:

    - from Overview of the Federal Reserve System, Federal Reserve Board
  • "Over the years, its role in banking and the economy has expanded."
  • Indeed. Just take a look:
    Today the Federal Reserve's "duties" include:
    - conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
    - supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
    - maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
    - providing financial services to depository institutions, the U.S. government,
    and foreign official institutions, including playing a major role in operating the nation's payments system
  • Honestly, what isn't the Fed responsible for?
  • Anyway, the illusion of control was nice while it lasted.


2. (I Just Wanna) Testify

Meanwhile, the Co-Mythmakers-in-Chief themselves are appearing on Capitol Hill today to propagate still more misinformation and partial truths while answering impossible to either make up or answer questions from politicians posturing in front of television cameras.

  • How else can one explain comments like this from Treasury Secretary Henry Paulson: "The Fed's action "helped to stabilize financial markets,'' Paulson told the House Financial Services Committee."
  • Really? Did the US Treasury Secretary and former head of Goldman Sachs (GS) not have access to a Bloomberg terminal prior to his speech?
  • DOLLAR FALLS TO RECORD LOW AGAINST EURO - (BN)
    CANADIAN DOLLAR RISES TO $1 FOR FIRST TIME SINCE 1976 - (BN)
    GOLD RISES TO 1980 HIGH AS DOLLAR FALLS - (BN)
    CORN RISES 3% IN CHICAGO - (BN)
    WHEAT RISES 1.8% ON CBOT - (BN)
    SOYBEANS RISE 1.6% - (BN)
    TREASURY YIELD GAP WIDEST SINCE MAY 2005 - (BN)
  • Perhaps by "helped to stabilize financial markets" he meant "helped to stabilize the price of Goldman Sachs stock," which is currently up 1.7% today. We're just "speculating."
  • Meanwhile, Federal Reserve Chairman Ben Bernanke in his House testimony noted, helpfully, that "Markets do tend to self-correct."
  • Self correct? That's odd.
  • Why, "self correct" almost implies that markets operate independently, without the hand of intervention from the Federal Reserve, which the Treasury Secretary praised in his testimony for acting to "help stabilize financial markets"... to stop them from self correcting!
  • Anyway, it doesn't matter. Really it doesn't.
  • And that's the point markets are making today.
  • DOLLAR FALLS TO RECORD LOW AGAINST EURO - (BN)
    CANADIAN DOLLAR RISES TO $1 FOR FIRST TIME SINCE 1976 - (BN)
    GOLD RISES TO 1980 HIGH AS DOLLAR FALLS - (BN)
    CORN RISES 3% IN CHICAGO - (BN)
    WHEAT RISES 1.8% ON CBOT - (BN)
    SOYBEANS RISE 1.6% - (BN)
    TREASURY YIELD GAP WIDEST SINCE MAY 2005 - (BN)


3. Shiller Delivers a Chill to Politicians

Meanwhile, in the real world, Robert Shiller, a Yale University economist, told a separate U.S. panel of politicians yesterday that he feared "the collapse of home prices might turn out to be the most severe since the Great Depression."

  • "The decline in house prices stands to create future dislocations, like the credit crisis we have just seen," he told the Senate's joint economic committee, the Financial Times reported.
  • "A year ago it was common to say that while house prices would periodically fall on a regional basis, they could not on a national basis," Alex Pollock, a fellow at the American Enterprise Institute, said. "Well, now house prices are falling on a national basis.
  • Shiller acknowledged that the Fed would take aggressive action to "mitigate" its severity, but noted that "if home price deflation persists or intensifies, they may discover that the Achilles' heel of this resilient economy is the evaporation of confidence that can accompany the end-of-boom psychology."


4. Late Mortgage Payments

Also happening in "reality," new data from Equifax and Moody's Economy.com shows mortgage delinquencies jumped again in August.

  • Nationwide, 3.56% of mortgages were at least 30 days past due last month, up 0.31 percentage points from July, according to the Wall Street Journal.
  • Noteworthy, and chilling news for the Federal Reserve, is that delinquencies have climbed year-over-year in all 50 states.
  • Ten states posted an increase of more than one percentage point, the Journal said.


5. Price Freeze

China said it plans to enforce a freeze on all government-controlled prices due to rising public anger over inflation, now at its highest rate in more than a decade.

  • The order from Beijing effectively freezes prices still under the control of the government in China; prices ranging from oil, electricity and water to the cost of parking and park entrance fees.
  • The Government directly controls the prices of utilities, including water and electricity, and of fuels including petrol and diesel.
  • Still, the vast majority of prices are outside government control in China, so the move is a somewhat symbolic measure designed to combat government fears of rising social unrest and instability.
  • Rapid rises in food prices have triggered protests including demonstrations in some areas.
  • China would very much like the opening of the ruling Communist Party's five-yearly congress on Oct. 15 to be free of social unrest.
No positions in stocks mentioned.

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