Central Banks Have a New Trick Up Their Sleeves… Will the Markets Buy It?

Phoenix Capital Research's picture

The global Central Banks are relying increasing on verbal intervention.

 

The reasoning here is very simple: actual monetary policy is proving to have marginal effects. In the US, every new wave of QE has had less and less impact on the stocks.

 

I mention stocks specifically because it is now obvious even to the most ignorant commentator that QE was designed to aid Wall Street and few others (see recent admissions by both former and current Fed officials that QE was a “backdoor Wall Street bailout” and “gift intended to boost wealth.”

 

These admissions are creating a secondary issue, namely that QE is proving to become increasingly toxic from a political perspective. Indeed, even the mainstream media has picked up this theme.

 

This is not to say that QE will suddenly be dropped entirely (note that the Fed is tapering its programs gradually, the act of tapering simply reducing the pace of asset purchases rather than ceasing them altogether).

 

However, the point remains, that if promises of QE can produce the desired effects (higher asset prices) without eliciting the same level of political consequences, why bother even launching it?

 

The EU seems to have learned this lesson better than the US. European Central Bank (ECB) President Mario Draghi managed to pull its entire financial system from the brink of collapse in 2012 simply by promising to do “whatever it takes.”

 

The European markets erupted higher and haven’t looked back. The fact that the ECB would face a tangled web of politics and legal issues to actually back this claim up was irrelevant, investors knew the ECB wanted to act and so poured into the markets.

 

Two years later, Europe’s economy remains excruciatingly weak. Bank lending is virtually non-existent and the human cost is becoming outright horrific (over 25% of Europeans are now living in poverty).

 

What does the ECB do? It cannot force EU banks to lend. And it cannot force EU consumers to take out loans (or trust bankers for that matter). So the ECB leaks that it has “modeled” a €1 trillion QE campaign.

 

After all, verbal intervention worked well before. Why wouldn’t it now? If the goal is to lower yields further and boost asset prices, it’s a lot easier (and less legally problematic) to simply hint at something than to actually do it.

 

You can see the Yellen Fed playing off of this as well. Yellen’s first FOMC meeting saw her not only proving more hawkish than Wall Street expected… she actually went so far as to even hint at raising interest rates in the future.

 

The markets balked and Yellen did an about face, stating within a few weeks that the economy would need “extraordinary commitment… for some time” and that she believes that “view is widely shared” by her fellow policy makers.

 

Again, if the promise of help and liquidity can have the intended impact, why bother even announcing a new program?

 

Look for this theme to increase going forward both in Europe and elsewhere. Central Bankers are aware that their monetary efforts are failing to produce the allegedly intended results. Moreover, they know that these efforts are becoming increasingly unpopular with citizens.

 

So Central Bankers will be increasingly relying on verbal intervention. At least until the next asset price collapse occurs.

 

This concludes this article, swing by www.gainspainscapital.com for a number of FREE investment reports including Protect Your Portfolio, How to Buy Gold at $273 per Ounce, and What Europe’s Crisis Means For You and Your Savings.

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

 

 

 

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whidbey-2's picture

Ever vote for a comment and see a negative vote immediately balance it off?  Is Zero Hedge some kind of a joke or maybe a mind trick: I voted no and both no and Yes scored votes. I know, Obama thing is now score keeping nights?? Or, ZH management screwed again?

AdvancingTime's picture

I contend that never before has mankind diverted such a large percentage of wealth into intangible products or goods and this is the primary reason that inflation has not raised its ugly head or become a major economic issue in recent years.

Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.  If money suddenly flows into tangible goods seeking a safe haven inflation could soar even as debts go unpaid and promises are left unfilled. The article below gives more insight.

http://brucewilds.blogspot.com/2014/03/few-people-really-understand-econ...

I Write Code's picture

Words of easing, so quantitative,
Won't win a girl's heart anymore.
If you love her,then you must print her
Somewhere like a trillion dollars a year.
Worn out phrases and longing gazes
Won't get you where you want to go. (No!)
Words of easing, quantitative
Won't win her...

You oughta know by now (you oughta know by now).
You oughta know (you oughta know);
You oughta know by now - (you oughta know by now)
Words of easing, quantitative,
Won't win her anymore.

RaceToTheBottom's picture

I am hearby leaking that I have purchased "many, many" Monopoly games and will be releasing the currency into the mainstream.

I await your response.

cifo's picture

"new trick up their sleeves"?

How about "new trick up their ass"?

no more banksters's picture

Banksters and speculators order markets to retreat

Neoliberal dictatorship in Greece ready to end the experiment

http://failedevolution.blogspot.gr/2014/04/banksters-and-speculators-ord...

rsnoble's picture

Unpopular is an understatement. 

Emergency Ward's picture

Fistfuls of bank notes up the ass are losing their effectiveness, so a little oral will get it going?

toys for tits's picture

A monetary blumpkin ... I like it.

Yellen is just the man for the job.

kurt's picture

Hmm. A psuedo governmental body saying one thing and doing another? I believe this is a solid long-term solution. I elect Phoenix Capital to the IMF.

So, if I invest with you, what did you SAY you would do for me because I know you will do what you SAY and I have no reason to doubt that.

blindman's picture

when forward guidance fails they will
move back to forward misguidance, that
should work for a while at which point they
will either print more and steal it or arrange
for another central bank to do just that.
i'm not sure what the term is, the term being plastic
and variable, but that is what is happening.
.
luv the fed.

cynicalskeptic's picture

They've been doibg this for ages - MOPE - MANAGEMENT OF PERSPECTIVE ECONOMICS - e.g. manipulation of people's expectations (and behavior). 

Why try to actually improve things when you can simply say 'All is well' and provide bogus statistics to back up your claims?  It's all about telling people what you want them to believe.  Reality has nothing to do with it. It's all about MANIPULATION.It's all about getting people to SPEND now that we don't actually MAKE anything in the US.  

Tell people  that things are great,  that housing is recovering and get them to spend and you have a better economy.  

What the Fed fails to realize is that with 24% REAL unemployment and real incomes dropping for 99.9% of the population, nobody has money to spend.  A good part of the population has NOTHING 'extra' to spend - they're maxed out spending what they have on food and shelter.  Food Stamps and all that aid going to actual people are keeping them off bread lines and streetcorners selling apples - nothing more.  It's part of the manipulation - keep the growing number of hungry and unemployed invisible.  That's why you never see reports of food banks running out of food.  How many news reports show 3000 people on line applying for 30 minimum wage jobs?   But you are hearing endless reports of how great the housing market is, how well Wall Street is doing...... 

None of the trillions given out for free to banks and Wall Street has filtered down to the masses so they can't even borrow money to spend now.  

You can only lie about reality for so long...... Potemkin Villages abound but are fooling nobody these days.  The Hollywood set economy is at real risk of being blown over by a good wind.  Friends still on Wall Street are fatlistic about things.... grab while you can because it IS going to blow up again and blow up WORSE than before.  Better to have more than less because it gives you a better chance at surviving the coming shitstorm. 

Conax's picture

They can't print jobs and they can't shit silver bricks, but they can provide puhlenty of hot air.  And it seems to work.

For now.

Kreditanstalt's picture

The "Open Mouth Committee" someone called it...

Iam_Silverman's picture

You know, this one statement:

"This is not to say that QE will suddenly be dropped entirely (note that the Fed is tapering its programs gradually, the act of tapering simply reducing the pace of asset purchases rather than ceasing them altogether)."

kinda makes me wonder what level of idiot these newsletters are aimed at?  Did anyone here really think that when the Federal Reserve announced that they'd be tapering their asset purchases that they would really stop ALL asset purchases, or just (appear to) purchase smaller amounts going forward?

Of course we did have the discussion of Taper vs. Tapir...

Buck Johnson's picture

It's the Titanic and no matter how much we beg and plead it's sinking.  So the smart money is getting out and hording and keeping a low profile in places that their govt. can't get to them.

RaiZH's picture

It's a psychological game... whatever - I'm stacking gold to the moon while I can. 

Comte d'herblay's picture

".....failing to produce the allegedly intended results".

"Moreover, they know that these efforts are becoming increasingly unpopular with citizens".

 

This, the CBs don't give one good shit about.

merchantratereview's picture

Real interventions are a sexy thing.

BandGap's picture

Not gerbal interventions.

Ask Richard Gere.