Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Fed front=ended this Market
Old 01-08-2016, 09:21 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Jul 2002
Posts: 1,037
Fed front=ended this Market

Very interesting article about the market rally of last few years and possible ramifications

Quote in part"
Summary

Richard W. Fisher's appearance on CNBC this week offered remarkable insight into why voting members on the FOMC embraced zero percent rate policy as well as QE for so many years.
One of the world's most influential people in any room acknowledged that the Fed wanted to push stocks higher to make participants feel wealthier.
However, there have been several problems with the Fed's wealth effect ambitions.


Richard W. Fisher served as the President of the Federal Reserve Bank of Dallas for more than a decade (2005-2015). His appearance on CNBC this week offered remarkable insight into why voting members on the Federal Reserve Open Market Committee (FOMC) embraced zero percent rate policy as well as quantitative easing (QE) for so many years.
One of the most controversial statements? Fisher candidly admitted, "What the Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect."


Article is at: 'We Front-Loaded An Enormous Stock Market Rally' | Seeking Alpha
__________________

__________________
RE2Boys is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-08-2016, 09:42 AM   #2
gone traveling
 
Join Date: Jun 2015
Location: seattle/dahlonega
Posts: 77
really
__________________

__________________
hurricane harry is offline   Reply With Quote
Old 01-08-2016, 10:30 AM   #3
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 1,714
This is certainly relevant. I also think that in the last year market weakness is tied to the low price of oil. That reduces earnings from the oil patch along with the economic activity associated with searching for and extracting oil and gas. I think that most of the low cost comes from Saudi Arabia deliberately keeping supply high to hurt their various opponents, but the market is concerned about how much of the price is on the demand side. Lower demand is equated with less economic activity and lower corporate earnings, so lower stock values.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 01-08-2016, 04:07 PM   #4
Full time employment: Posting here.
 
Join Date: Aug 2009
Posts: 522
In line with those who think the future is a low return environment. He said that we borrowed future returns to goose the wealth effect.


Sent from my iPad using Early Retirement Forum
__________________
bmcgonig is offline   Reply With Quote
Old 01-08-2016, 04:33 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Quote:
Originally Posted by DrRoy View Post
Lower demand [for oil] is equated with less economic activity and lower corporate earnings, so lower stock values.
So I can only conclude from the recent jobs numbers that we have full employment and the Wealth Effect allowed everybody who wanted to retire to retire … as long as they don't create any economic activity.
__________________
LOL! is offline   Reply With Quote
Old 01-08-2016, 06:24 PM   #6
Full time employment: Posting here.
 
Join Date: Sep 2013
Posts: 511
My simplistic understanding of the Fed's job is to use monetary policy to control inflation and employment. When inflation is low they reduce interest rates to encourage borrowing and, through that, spending and eventually growth and increased inflation. Part of this increase in spending comes from increased equity values encouraging the equity holders to spend - aka the wealth effect.

As far as I know this has ALWAYS been part of the calculus when the Fed lowers interest rates. The only thing different this time around was the severity of the deflationary threat and the extent of measures taken to combat it. I believe awareness of (and use of) the wealth effect by the Fed has been going on as long as any of us on this forum have been alive. (My apologies if I've left out a few lurking centenarians who antedate the Fed).
__________________
stepford is offline   Reply With Quote
Old 01-08-2016, 07:23 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
I don't know that the Fed deliberately engineered the effect of higher asset prices, but I do tend to believe that their accommodative economic policy programs had the effect of raising asset prices and I attribute much of the 2013 stock market rally to that.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 01-08-2016, 07:31 PM   #8
Full time employment: Posting here.
 
Join Date: Sep 2013
Posts: 511
Quote:
Originally Posted by audreyh1 View Post
I don't know that the Fed deliberately engineered the effect of higher asset prices, but I do tend to believe that their accommodative economic policy programs had the effect of raising asset prices and I attribute much of the 2013 stock market rally to that.
Depends on what you mean by deliberate. Control of equity markets is not part of the Fed's "dual mandate" (controlling inflation and unemployment), but I am certain they are aware of the effect monetary policy has on markets. I agree that causing a market rally wasn't the end goal of their their monetary policy (and so perhaps in that sense wasn't deliberate), but they were certainly aware of the likely effect on markets when they implemented that policy.
__________________
stepford is offline   Reply With Quote
Old 01-08-2016, 08:41 PM   #9
Full time employment: Posting here.
 
Join Date: Aug 2009
Posts: 522
Quote:
Originally Posted by stepford View Post
Depends on what you mean by deliberate. Control of equity markets is not part of the Fed's "dual mandate" (controlling inflation and unemployment), but I am certain they are aware of the effect monetary policy has on markets. I agree that causing a market rally wasn't the end goal of their their monetary policy (and so perhaps in that sense wasn't deliberate), but they were certainly aware of the likely effect on markets when they implemented that policy.

If we read the quote again I'm not sure how we interpret it any way but that they deliberately targeted the stock market:

One of the most controversial statements? Fisher candidly admitted, "What the Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect."


Sent from my iPad using Early Retirement Forum
__________________
bmcgonig is offline   Reply With Quote
Old 01-08-2016, 09:24 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,457
I don't think the Fed could guarantee a stock market rise, just like they don't directly control long term interest rates even though they influence them. There are other factors, and there is also a global economy - how the US is doing relative to other countries.

That may be Fisher's opinion, but to me it smacks of hindsight being 20/20.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 01-08-2016, 09:42 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
HFWR's Avatar
 
Join Date: May 2005
Location: Lawn chair in Texas
Posts: 12,964
Quote:
Originally Posted by bmcgonig View Post
In line with those who think the future is a low return environment. He said that we borrowed future returns to goose the wealth effect.


Sent from my iPad using Early Retirement Forum

I think we've been doing that for quite some time: deficit spending by governments, high debt loads for consumers, low interest rates, deferred infrastructure maintenance...
__________________
Have Funds, Will Retire

...not doing anything of true substance...
HFWR is offline   Reply With Quote
Old 01-09-2016, 08:02 AM   #12
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
Easy come, easy go. I am anxious to see how the local real estate market responds to this correction. Housing construction in the past year in Marco Island is booming like never before.
__________________
Gatordoc50 is offline   Reply With Quote
Old 01-09-2016, 08:13 AM   #13
Full time employment: Posting here.
 
Join Date: May 2011
Location: Marco island
Posts: 813
Quote:
Originally Posted by HFWR View Post
I think we've been doing that for quite some time: deficit spending by governments, high debt loads for consumers, low interest rates, deferred infrastructure maintenance...

+1
We have spent the last fifty years borrowing money to increase our standard of living. At some point we have to pay that back either by lowering our standard of living substantially or increasing GDP substantially.
__________________

__________________
Gatordoc50 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Just ended 17 year relationship Tailgate FIRE and Money 8 01-23-2014 04:47 PM
My Part Time Job ended yesterday FreeAtLast Hi, I am... 8 09-22-2011 02:19 PM
For the last 10 years I have not ended up well. I thought cashflo2u2 FIRE and Money 7 03-12-2009 11:46 PM
How Boom of 2006 Ended - Article TromboneAl FIRE and Money 65 10-13-2005 12:56 PM

 

 
All times are GMT -6. The time now is 09:52 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.