After the market’s close on Friday, Jon Hilsenrath at the Wall Street Journal
released an article implying that the Fed might remove or reduce its QE programs before the year end.
The reason this matters is because Hilsenrath is thought to be an unofficial mouthpiece for the Fed. Time and again he’s released articles hinting at the Fed’s future policies in advance. And many believe senior Fed officials such as Bernanke will personally leak ideas to him to test the public’s response to said ideas in advance.
So many believe that Hilsenrath’s Friday article was indeed the Fed preparing the markets for a tapering or removal of QE before the year end. Given that the entire US market is moving lockstep with Fed activity (the Fed’s balance sheet has literally reflated the NYSE tick for tick post 2009) this is a huge deal.
This supports our view that the Fed is aware stocks are in a bubble and is attempting to prep the market in advance for less liquidity.
Since QE 2, the negative effects of QE (higher costs of living) have outweighed the positive effects (higher stock prices) by a wide margin. Only 52% of US households own stocks… but everyone is paying for higher food and higher energy prices.
On a deeper level, QE is a drug for the market. There is no evidence in history that QE creates jobs or growth Both Japan and the UK have launched QE equal to over 20% of their GDP, neither have experienced a significant pickup in jobs or GDP growth as a result.
So QE was always about one thing only: pushing the market higher. But now the market is completely detached from economic realities. There is a word for this… it’s “bubble.”
The Fed knows this and is now trying to prepare the market for withdrawal. But the market is on total life support from the Fed. Take away the Fed punchbowl and the party stops.
Between this, rampant insider selling (makes you wonder if the people running the companies know something about the economy the Fed is ignoring), the downturn in economic data in the US, and the ongoing disaster that is the US jobs market, the market is priced for a total collapse.
For more market commentary and investment insights www.gainspainscapital.com