This page has been archived and commenting is disabled.
There is No Such Thing as a Smooth Fed Exit
The primary theme driving US stock markets, is that of whether the Fed will taper or not.
The mere fact that this is the single most important theme for the markets goes a long way towards explaining how busted our financial system has become. Before 2007, the talk concerned whether the Fed would change interest rates. Today we talk about whether scaling back from $85 billion in asset purchases per month represents tightening.”
At the end of the day, the fact is that the Fed can never exit its strategies. I realize there are a lot of smart people with smart explanations for why the Fed can exit, but they are missing a critical component: human nature.
We saw this in real-time back in May 2013 when the Fed first floated the idea of tapering its QE programs. The Fed had hoped it could float this idea and let the markets get used to it, instead interest rates spiked with rates on the 10-year moving up from 1.5% to nearly 3% in a matter of weeks.
At the time, the financial media began to write articles about the market’s “taper tantrum” as though metaphorically aligning the capital markets with s spoiled brat explained the reaction.
The Fed then did a 180 despite all but promising it would taper QE. Bernanke even went so far as to negate the call for a taper in his July Q&A.
Why did he do this? It’s simple. He like the rest of the Fed saw in simple terms that there is no such thing as a smooth exit. The market rebelled at the mere hint of tapering at a time when the Fed is buying $85 billion per month. If the Fed were to actually go ahead and taper what would rates do?
Moreover, with the financial system now even more leveraged than it was going into 2007… what would happen if interest rates moved back to their historical averages of 4% on the ten year Treasury?
Ka-Boom.
So now, there is talk of the Fed tapering in December. Maybe it will, maybe it won’t. I have no idea. No one does. If we were going to try to analyze the Fed’s moves via logic or economic fundamentals, we would have tapered months if not years ago.
Instead we’ll get more of the same: talk of taper to talk the markets down, then a surprise decision to not taper so market take off again. The Fed is now managing expectations more than anything. The Fed has acted in 90+% of the months since the Crisis began. This tells us precisely what the game plan is going forward.
At some point, and I cannot say when, this whole mess will come unhinged. When it does 2008 will look like a joke.
If you have not taken steps to prepare for a market collapse, we have a FREE Special Report that outlines how to prepare your portfolio. To pick up a copy, swing by:
http://phoenixcapitalmarketing.com/special-reports.html
Best Regards
Phoenix Capital Research
- advertisements -
this whole fucking mess is coming unglued
ACA
TEN YEAR
TOO MUCH FIAT CHOKED DOWN INTO A SYSTEM THAT
HAS NO SAFE PLAY
GOLD FUCKED(TEMP STATUS)
gOV WONK GONE POWER HUNGRY
OVER REGULATION
FOOD GONE BAD
WATER SHORTAGE
TOO MANY PEOPLE
INCOME DISPARITY
POLICE TRAINED TO MILITAY STANDARDS
CONSTITUTION TRASHED
GUN GRAB NEXT VIA UN BACKDOOR
didi i miss anything gram.
and you worrying about a little central banker misstep...
Well......................
http://captiongenerator.com/9908/Hitler-not-pleased-with-Bitcoin
What I've heard numerous times is look no further than news from derivatives. If they're suddenly having trouble, the end of these false bubbles is nigh, and who knows just how bad it could get. And then what does the Fed do? The whole 08 sub-prime disaster seems to have had a lot of knock on effects with an echo rippling through the economy.
If I had been prez in 08, I'd let the too big to fail banks and AIG fail, fall by the wayside. Either it's capitalism or it isn't and if it is they should have failed, take the medicine and watch other companies, hopefully smaller ones take their place. But oh no, we had to go into hawk trillions in debt and QE to save a bunch of greedy bastards and now we will all pay a much bigger price.
From my own article on zero hedge back in September:
The conventional wisdom is that the Fed will begin to taper when growth picks up. This is a complete misreading of what is actually happening. The Fed made a monumental mistake, and does not really know how to get out of the trap it had set upon itself.
The Fed embarked on a “we know best” policy of QE3 in the fall, and induced a market bubble in the spring. The S&P 500 gained 12 percent from January to June 2013 while growth remained subdued. The Fed realized its mistake, and now wants to get out. The problem is that in economics, as with most things in life, it’s much easier to get into trouble than out of it. The FED wants to take away the punch bowl, but knows that interest rates will rise, the stock market will crash, and the economy will tank. The longer it waits, the greater will be the inevitable adjustment.
"fear the boom, not the bust"
The Fed can't taper, ever. Even with the trade deficit decreasing monthly, the Fed must monetize the budget deficit (+$1T/yr), and at any hint that the flow of cash to the cartel, which is being used to support the stock market, would be reduced, the market will crash. So the Fed blew this bubble, and they must keep putting more inflation into it forever, because the moment they stop inflating, massive deflation begins with a bang. Further, the Fed is committed to a long-term strategy to devalue the 'strong dollar,' so as to pay off our creditors with monopoly (literally) money, so the Fed has to inflate their total liabilities balance faster than the competing currencies (euro, pound, yen, yaun, swissie, loonie, etc). So there is no taper coming, now or later; the final scenario: inflate or die.
Fishhawk
the only currency that is truly competing with the dollar there is the RMB. all the other currencies are completely controlled by the owners of the bank of international settlements, who in turn own the CBs that issue each currency you mentioned.
otherwise you're absolutely right. inflate or die, until we're dead.
Well said Fishhawk....inflate or die....no more needs to be said.
I'd ove to have insight into what havoc in the derivatives market was caused when the 10 year went to 3%.
That picture would likely tell us a lot about how this will end. Were major banks helped out? Did the Fed have to save one or more?
hey vegas; recently all the bankster met in dc to discuss(not what was said) about the time the ten yr spiked. hmmmmm.(golden jackass for more insight,if you believe his angle). anyways, suddenly
the ten year abated with the majic of thetbtf's buying power with freashly digitized fed fiat...
majic show curtesy of central bank money express to extend and pretend all is fine...
there was real panic at the highest levels as the money changers started to loose control!
"Maybe it will, maybe it won’t. I have no idea. No one does."
I do. They won't. They can't. The day after they announce that they're even thinking about it. CalPers unfunded liabilities will double from 600 billion dollars to 1.2 trillion dollars.
And what'll they cut when they have to. Obamaphones?
Give me a break. Maybe you haven't noticed, but even giving a certain parasite class EVERYTHING, there's already trouble in River City.
Give me a break.