“Wrong Every Time”

September 19, 2013

  • After his dead-on “no taper” call in July, Jim Rickards helps The 5 look ahead
  • If the Fed’s next move is “data dependent,” what do those data say?
  • The good drones: Unmanned aircraft for farmers on display in Ohio
  • After 3-D printing, the 3-D Internet… a plea for skepticism… readers who wish they were justified… and more!

  Here’s your central-banker buzzword of the day: “data dependent.”

We do our level best here at The 5 to spare you the jargon that infests the language used by “policymakers” and often spreads into the financial media. But if you’re looking for a cue about what the Federal Reserve will do next, you might want to familiarize yourself with this particular ugly phrase.

First we should back up a bit: As you’ve no doubt heard by now, the Federal Reserve “surprised” the markets yesterday by opting not to “taper” its $85 billion a month in bond purchases.

We promise, it’s the last time we beat a dead tapir for a cheap laugh (for a while)…

You, however, were not surprised, because Currency Wars author Jim Rickards said all along it wouldn’t happen. “They’re not going to taper,” he told us the first week in July, for an interview published first in Apogee Advisory and then excerpted here in The 5.

He stuck with that forecast all the way. After the decision yesterday, he elaborated in this tweet…


  “Silly to speculate on December taper,” Rickards added later. That’s because now, as before, Fed action will be — here’s that ugly phrase — “data dependent.”

“In fresh quarterly forecasts,” Reuters reports, “the Fed cut its forecast for 2013 economic growth to a 2.0-2.3% range from a June estimate of 2.3-2.6%. The downgrade for 2014 was even sharper.”

Gee, the numbers won’t be as good as first thought. Imagine that!

“The Fed thinks the economy is better than it actually is,” Mr. Rickards told us in July, “and it’s in awful shape.

“The Fed has one of the worst forecasting records out there,” he went on. “When you look at the Fed’s forecasts for the last four years, they were wrong every time, and they were wrong by a lot — meaning why should we believe the forecast now? In fact, we shouldn’t. Based on their track record, we should assume growth will be very different from what the Fed’s forecasting.”

So the Fed will look at the numbers before choosing whether to taper before year’s end. From the turgid prose of its statement yesterday: “In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective.”

 As it happens, there’s no shortage of new “data” the Fed can “depend” on this morning. Let’s dive in…

  • Philly Fed survey: This index of mid-Atlantic manufacturing delivered a big surprise to the upside. Zero is the dividing line between expansion and contraction with this number, and at 22.3, it’s the most robust in 2½ years. But it doesn’t jibe with the Fed’s Empire State survey earlier this week, which notched a sluggish 6.3
  • Leading economic indicators: Up 0.7% in August, according to the Conference Board. The manufacturing and jobs numbers look especially solid. That said, the overall number has barely recovered to mid-2008 levels…

  • Existing home sales: Up 1.7% in August to a “post-recovery” high, according to the National Association of Realtors. But even the NAR’s perpetual optimists acknowledge these numbers could be a “last hurrah” of buyers acting before interest rates rise any further
  • First-time unemployment claims: Impossible to tell. There’s been a backlog the last two weeks in California and Nevada, throwing the number into a cocked hat. Officially, the number is 309,000.

Gee, that gives us a lot of clarity, huh?

  On Wall Street, traders reacted to the no-taper like junkies turning from straight-up heroin to speedballs.

The Dow and the S&P logged record-high closes yesterday. This morning, traders are coming down from their fix, and the indexes have retreated slightly — at last check, the Dow to 15,646 and the S&P to 1,724.

No asset class was left unaffected…

  • Treasuries are rallying. The yield on a 10-year note is below 2.75% for the first time in more than a month
  • Gold leaped $55 — the biggest one-day dollar gain ever, by one account we’ve seen. And it’s up about $5 more this morning, to $1,370
  • The dollar index slipped to a seven-month low, barely above 80. This morning, it’s bouncing slightly, to 80.3.

  “It’s remarkable that the Fed has any credibility left,” says Dan Amoss.

“Ben Bernanke spent the past five months painstakingly building a framework for tapering QE. He spoke of targets, thresholds and sophisticated (yet untested) tools to unwind stimulus. He set expectations for an end of QE by mid-2014.

“And in a single afternoon, he burned it to the ground.

“It would be funny if it weren’t so tragic. The Fed is toying with an economy that only exists in an academic’s imagination. Capital markets have been transformed into a grotesque casino, rising and falling on punctuation changes in Fed statements. Companies will continue sitting on their hands, wondering if the next ‘tapering guidance’ episode will wreck the bond market yet again. And foreign creditors will continue tiptoeing away from the Treasury market, as they have been doing in recent months.”

Awareness is seeping into the mainstream, however dimly: “U.S. stocks are trading based on stimulus and not on fundamental value,” Jack Ablin of BMO Private Bank tells The Wall Street Journal. “I was hoping that we would slowly get a transition from the liquidity backstop and toward a more tangible source of support, like corporate earnings or revenues.”

Earnings? Revenues? Surely, you jest, Mr. Ablin. As we noted yesterday, the earnings outlook has been spiraling downward all year, even as prices have climbed up a Fed-built wall.

If you’re of a speculative bent, Dan Amoss has an idea for PRO-level readers to profit directly from QEternity — scroll down. If you haven’t gone PRO yet, you can do so here.

  “I see amazing things that we can do in agriculture with UAVs,” says Chuck Gamble of the Farm Science Review.

Yes, this is as hard a right turn as we’ve ever made in The 5. If stocks in general are overpriced, there’s no better time to look at the technologies of the future that remain largely undiscovered, and likely underpriced.

This week, London, Ohio, is hosting the annual Farm Science Review, a trade show that draws upward of 140,000 visitors. Among the leading attractions are the aforementioned UAVs: unmanned aerial vehicles.

Or as you more likely know them, drones. These are the good drones. Unarmed.

We sat up and took notice of the Ohio event because agriculture was one of the prime uses for drones cited by Chris Anderson — apostle of the Maker movement, author of Makers and manufacturer of drones through his firm 3D Robotics.

The field of agriculture “is just sort of recognizing how little farmers know about their crops and how important it would be to get a kind of daily aerial shot. You’d use less chemicals, adjust water, harvest at the right time, spot outbreaks, reduce outbreaks more quickly.”

The good drones…

Cue the Farm Science Review’s Mr. Gamble: “The UAVs can be used to provide useful local site-specific data, including crop scouting and geo-referencing to allow growers to monitor pesticide dispersion and fertilizer usage, and to monitor crop health parameters, including soil moisture.

“They’re an important tool in our toolbox that farmers will have accessibility to that will allow them to have access to real-time data of what is going on in their fields.”

  Enter another one of Chris Anderson’s fascinations, alongside Yahoo Japan’s latest creation…

“The Internet is visual and auditory. What if the sense of touch became possible?” the company asks.

Leave the “what ifs” for the birds. Touching the Net is now possible in the “Hands on Search” machine Yahoo describes as “future for the Internet.”

What does the future look like? A voice-activated 3-D printer attached to an Internet search engine… in the form of a 4-foot-tall… uhh… cloud-like… thing.

Ever wanted to touch the Internet? Here’s your chance…

How it works is simple: The user calls out a name of a product. The search engine scours the Internet, piecing together information wherever it can find it to create intricate palm-sized replicas of the item within a few minutes.

The machine is being beta-tested at the Special Needs Education School for the Visually Impaired, part of the University of Tsukuba, roughly an hour drive north of Tokyo.

If you’re hankering for one of these in your home office, unfortunately, the company has no solid plans for commercializing — we checked.


  Meanwhile in the commercial space, 3-D-printable houses are closer than ever…

As we last mentioned in our digital leaves mid-August, the machines already exist, and researchers predict they’ll soon be used to construct entire buildings in only a day.

“As outrageous as it sounds,” tech blog Computerworld writes, “such machines can already extrude concrete walls with internal reinforcement fast enough to complete the shell of a 2,000-square-foot house in under 20 hours.”

Demonstrated this week at the Inside 3-D Printing Conference and Expo in San Jose, the method, called Contour Crafting, is similar to what smaller 3-D printers use and allows for real-time customization as it builds.

“The machines can also,” Computerworld goes on, “automatically embed all the conduits for electrical, plumbing and air-conditioning, as well as place electronic sensors to monitor the building’s temperature and health over time.”

Behrokh Khoshnevis, a professor of industrial and systems engineering at USC, is leading the construction tech team and says he expects Contour Crafting will be commercially viable within two years.

The benefits of Contour Crafting, according to the project’s website, are as follows:

  • The costs of construction are one-fifth of conventional means
  • Eliminates waste of construction materials
  • Aforementioned acceleration: A 2,000-square-foot house can be constructed in less than 24 hours
  • Construction could become a consumer market, where a house or other structure could be designed and built by the family that will occupy it.

“Imagine,” the website invites, “a Contour Crafting machine for lease at your local Home Depot.”

[Ed. Note: While many 3-D printing efforts are years away from commercialization, others are right on the cusp — in that sweet spot where you can grab a substantial piece of an $8.4 billion and growing industry. The key is to act early: Our tech expert Ray Blanco shows you how, right here.]

  “The newly center-justified email,” a reader writes, “is harder to read than the formerly left-justified. To me, anyway.”

“Very difficult to read,” adds another. “I expect that kind of formatting in poetry. The information is really helpful, but today’s format is strange.”

The 5: Believe us, that’s not the plan!

As you’ve no doubt noticed, the daily 5 email got a facelift this week to go along with the snazzy new AgoraFinancial.com website. The centered-text problem does not appear to be widespread, but that doesn’t make it any easier if you’re one of the unlucky recipients. Rest assured our production team has been on the case; with any luck, it’s been fixed in the issue you’re reading right now.

  “Those partisan responders ranting about the evil Republicans and their involvement in the dismantling of Glass-Steagall are outstanding examples of the politically naive dialogue that has infested the country,” writes a reader as we try wind down a debate that’s gone on too long.

“Far too many folks spend their time getting worked into a frenzy in their efforts to assign problems to the Democrats or Republicans. All the while, they don’t seem to grasp the idea that they are having the ultimate con pulled on them by both wings of the Big Government crime family.

“It has become a daily farce played out across television, talk radio and the WWW — party loyalists yelling about the evils of politicians — at least those across the aisle — while somehow being gullible enough to believe that their group of carnival barkers have been sent from the heavens to bless the planet and to heal all that ails humanity.

“Thanks for The 5, and for letting these people speak their mind, as it shows that there is much work to be done in the fight to eliminate the scourge that is the current two-party system.”

  “Always a blame game,” writes one of our regulars from Malaysia. “Blame the GOP… blame the Dems… blame this person then that person for this crisis or that crisis.

“Am I missing something here?

“As I see it (from afar), the blame does not lie with a certain political party, but it lies with the party in power… whomever that may be.

“So maybe time to revamp and rethink Washington… completely.”

The 5: Amen. We also take heart that while our readers are divided on who’s to blame, they’re united that repeal of Glass-Steagall was an awful idea, even if done in the name of “deregulation.”

“The rapidity and severity of changes in economic conditions can affect prospects for individual institutions more greatly than that of the overall economy,” Ron Paul said at the time in a prophetic speech on the House floor.

“The Long-Term Capital Management hedge fund [which failed the year before] is a prime example. New companies start and others fail every day. What is troubling with the hedge fund bailout was the governmental response and the increase in moral hazard.

“This increased indication of the government’s eagerness to bail out highly leveraged, risky and largely unregulated financial institutions bodes ill for the… future as far as limiting taxpayer liability is concerned.”


Dave Gonigam
The 5 Min. Forecast

P.S. Note for Reserve members: It’s come to our attention that email gremlins afflicted many people who tried to respond to our “save the date” announcement for the next Chill Weekend at Rancho Santana, Nov. 9-13.

You should receive your formal invitation in your inbox later today. But if you want to beat the crowd — and we have only eight spots available — you might want to drop a line right away to our man on the scene, Marc Brown. Here’s where to reach him.


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