Regarding the recent Central Bank coordinated intervention, the key take-away point is that the ECB and US Federal Reserve attempted “shock and awe” tactics with their latest announcements by throwing out words such as “unlimited” and “open-ended.”
The implication here was that the Central Banks would do everything they could to prop up the financial markets. However, as has been the case with every Central Bank intervention, there are unintended consequences.
The first unintended consequence concerns the fact that both programs are essentially a form of “intervention to infinite.” The problem with this is that the primary driver of stock prices over the last three years has been the anticipation of more monetary stimulus from Central Banks.
Indeed, the New York Fed itself has openly admitted that were it to remove the market moves that occurred around Fed FOMC meetings (the times when the Fed announced new programs or hinted at doing so), the S&P 500 would be at 600 today:
So, by announcing programs that will be on going in nature, both the ECB and the Fed have removed the anticipation of future Central Bank intervention from investors’ psychologies. This could become highly problematic, especially if these latest announcements turn out to be duds.
Speaking of which…
Spain’s ten-year bond yield has broken back above 6%. To see Spain’s sovereign bond yields rising like this after the ECB announced it would essentially provide “unlimited” buying as support is simply stunning. And it indicates in plain terms that the ECB’s program was in fact a dud.
This is just one example of the slew of Unintended Consequences we’re going to be facing as a result of the Central Bank’s actions. There will be others… none of them good.
On that note, the time to start preparing is now. The printers are running. The Great Currency Debasement has begun. Some folks will walk out of this mess winners. Most will walk out as losers.
At Phoenix Capital Research, we’re taking steps to insure our clients are among the winners. We have a host of FREE Special Reports devoted to helping readers prepare for the coming Debt Implosions in both the US and Europe.
We also feature a special report devoted to inflation as well as which investments will perform best during periods of high inflation (periods like the one we’re entering).
All of this is available 100% FREE at www.gainspainscapital.com
Phoenix Capital Research