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The Race For The Door
Submitted by Lance Roberts of Street Talk Live blog,
Clues To Watch For The End Of QE "Infinity"
So, apparently, according to Jon Hilsenrath, "QE to Infinity" is actually "finite" after all. With Ben Bernanke set to "exit stage left" in 2014 the question of who replaces him at the helm of the massive USS "Federal Reserve" will be important as to the future of the current course of monetary policy. One of the top contenders for that job is Janet Yellen. However, according to the variety of erudite speakers at the recent Strategic Investment Conference, there are many hurdles ahead for her and she may be just too "dovish" to actually land the job.
However, according to Hilsenrath, the Federal Reserve has already mapped out a strategy for winding down the unprecedented $85 billion monthly bond buying program meant to spur the economy.
"Officials say they plan to reduce the amount of bonds they buy in careful and potentially halting steps, varying their purchases as their confidence about the job market and inflation evolves. The timing on when to start is still being debated.
The Fed's strategy for how and when to wind down the program is of intense interest in financial markets. While the strategy being debated leaves the Fed plenty of flexibility, it might not be the clear and steady path markets expect based on past experience.
Officials are focusing on clarifying the strategy so markets don't overreact about their next moves. For example, officials want to avoid creating expectations that their retreat will be a steady, uniform process like their approach from 2003 to 2006, when they raised short-term interest rates in a series of quarter-percentage-point increments over 17 straight policy meetings."
The stock market has rallied sharply in direct correlation to the expansion of the Fed's balance sheet yet economic growth has floundered much to the dismay of the Federal Reserve. As I discussed recently:
"The increases in excess reserves, which the banks can borrow for effectively zero, have been funneled directly into risky assets in order to create returns. This is why there is such a high correlation, roughly 85%, between the increase in the Fed's balance sheet and the return of the stock market."
The question for investors becomes "What will be the sign posts that QE has come to an end?"
Fortunately, while the magnitude of the current monetary experiment is unprecedented, what happens when to the financial markets, and economy, when one of the program cycles ends - is not. When the first round of Large Scale Asset Purchase programs (LSAP), or more commonly referred to as "Quantitative Easing (QE)", was launched it was scheduled to end in June of 2010. Similarly, when the second program was launched in fall of 2010 it was similarly scheduled to end in the summer of 2011. In both cases there were finite start and end dates to the programs around which the financial markets could plan.
This is the key difference between the two earlier programs and the current QE program which has no definitive scope in size or end date but was, for the first time, targeted to specific economic variables of inflation and unemployment rates. This key difference leaves much room for speculation by Wall Street as to where the limits of the program actually lay as well as how far the Federal Reserve will push those limits.
However, there are some key areas that we can watch, as investors, that should tell us that the Fed has indeed embarked upon a process to wind down the current QE program.
Sign Post 1: The US Dollar
One of the areas directly influenced by QE programs is the U.S. dollar. Other countries store their excess reserves in the U.S. dollar when they feel that the U.S. economy strong, or at least stronger, than other countries. The inflows into the dollar for "safety" causes the U.S. dollar to rise relative to other currencies. This is why you have often heard the term that the "U.S. dollar is the cleanest - dirty shirt." While the U.S. economy is not strong on any measure - it is stronger than most other economies in general.
The chart below shows the impact of past QE programs on the dollar.
As you can see when QE programs have been in full swing that dollar has declined against other currencies as the "short US Dollar - long dollar denominated assets" carry trade was engaged. However, when these programs came to an end the dollar rose as "risk" was unwound. However, during QE 3 the dollar has risen as the Japanese Yen has been the target of the "carry trade" with Japan's QE program dwarfing, on a relative basis, the size of that in the U.S.
We will want to watch for a decline in the dollar as QE3 begins to slow down and the support against a very weak economic state is removed. Increases in economic weakness will act as a headwind against the rise of the dollar.
However, one scenario that could drive the dollar substantially higher in the near term is a failure of Abe-nomics in Japan. If Kyle Bass turns out to be correct, and their current monetary experiment fails, the flight of capital out of Japan into the U.S. for safety could lead to a sharp rise in the dollar. However, such an event will be bad economically for the U.S. as exports will become to expensive too quickly and will likely push the U.S. into a recession.
Sign Post 2: Gold & Commodities
Gold is not behaving under the current QE program as it has during the previous two. Gold spiked sharply during the two previous programs as the fears of hyperinflation and economic ruin fueled speculative gold buying. However, gold has plunged sharply during QE 3 as concerns of "deflation" have continued to show prevalence in recent economic reports.
However, it is likely that we could see gold rise in the months ahead if economic weakness continues to perforate the data. The chart below shows commodities during the same QE programs. Like gold, commodities rose as economies recovered. However, commodities are clearly signaling that deflation, and economic weakness, is ripping through the world economies and, without the monetary support from the Federal Reserve, the U.S. economy would likely be exhibiting far more weakness than it is currently.
Investors should be watching for a continued decline in commodities as economic erosion gains traction. However, as the underlying economic weakness surfaces the reversion of money flows out of the "risk-on equity trade" into "safety" will push gold higher.
Sign Post 3: Same For Bonds
The same goes for bonds. During QE programs interest rates have risen as the "risk" trade pushed money flows into stocks. However, the opposite occurred at the end of programs as money fled from stocks and into the perceived "safety" of bonds.
Despite calls for the end of the "bond bubble" the reality is that with the demographic shift in the country leading to a need for "yield" coupled with the Fed suppressing interest rates to historically low levels - the money flows will continue to push into bonds for the foreseeable future. This will particularly be the case when QE 3 ends and the inevitable reversion in stock prices occurs.
Interest rates have already been declining as economic data has weakened. However, the reversion of the "risk trade" into the "safety trade" will likely drive interest rates to our long term target of 1% or potentially lower.
Sign Post 4: The Stock Market Reversion
When something is perceived that it cannot end, it will, and likely sooner than you think.
That is the way that it is with the stock market currently. The belief is that the current trajectory of stocks will continue indefinitely, however, that is subject to how much further that the Federal Reserve is willing to inflation their balance sheet. The reality is, as shown in the chart below, is that when the Federal Reserve begins to stabilize, and or reduce, their balance sheet it will be reflected in the stock market.
During each program there was a belief that the current trend would not be broken. Yet in each case the result was the same as the corrections in the markets, following the end of QE programs, have progressively become more severe.
The reason that each correction has gained more severity is due to the extension of prices relative to the underlying fundamentals. During the first two programs economic and market fundamentals were improving. That is no longer the case and the unwinding of QE 3 is likely to leave a rather large vacuum below current asset prices. Investors need to watch corrections in market prices for signals that the current bullish trend is being violated.
Sign Post 5: The VIX Will Lead The Way
The volatility index (VIX) has been muted ever since the Fed started hinting at QE 3 last summer. With the Fed "in play" market participants have "no fear" of taking on additional risk. It becomes an even bigger issue when the "lack of fear" is coupled with "leverage" as witnessed by the levels of margin debt now reaching levels seen at the peak of the markets in 2008.
What the chart above shows is that "WHEN" the eventual reversion in the stock market occurs the volatility index will begin to spike sharply higher. investors should watch the VIX closely as it will begin to push higher as the correction begins. When price supports are broken, and ultimately the bullish upward trend, the VIX will begin to spike sharply higher as stock prices fall. This will be your signal that it is time to leave the casino.
The Race For The Door
There is no doubt that the Federal Reserve will do everything in its power to try and "talk" the markets down and "signal" policy changes well in advance of actual action. However, that is unlikely to matter.
The problem with the financial markets today is the speed at which things occur. High frequency trading, algorithmic programs, program trading combined with market participant's "herd mentality" is not influenced by actions but rather by perception.
As stated above, with margin debt at historically high levels when the "herd" begins to turn it will not be a slow and methodical process but rather a stampede with little regard to valuation or fundamental measures. As prices decline it will trigger margin calls which will induce more indiscriminate selling. The vicious cycle will repeat until margin levels are cleared and selling is exhausted.
The reality is that the stock market is extremely vulnerable to a sharp correction. Currently, complacency is near record levels and no one sees a severe market retracement as a possibility. The common belief is that there is "no bubble" in assets and the Federal Reserve has everything under control.
Of course, that is what we heard at the peak of the markets in 2000 and 2008 just before the "race for the door" led to fingers being pointed, blame laid and calls for more regulation occurred. The outrage that follows market reversions is symbolic only of the willful blindness by investors caused by greed. Someday we will learn the simple truth that, despite our best efforts, market and economic cycles can only be momentarily manipulated and not repealed and the end result will always be the same. This time will be no different.
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The FEDs gonna shit in its hat and pull it over its ears.
They are crooks, traitors, criminals and need to be locked up. The only thing you can be sure about the FED is that they are going to steal your money.
Front-running the Fed works both ways.
http://www.zerohedge.com/article/how-front-run-fed-best-em
The Fed will be shitting in everyone elses hat but it won't be shitting in it's own hat that's for sure. Whether it comes in a hat or through a fan, it will be on us and not them.
There was a nano-flash-crash on SPY today. Did anybody else see it at 12:51 PM?
Bullish for houses prices when POMO ends, right?
Ouch!
What's this? Now Tylers believe that the Fed will 'talk down' the markets before they draw down their monetization actions? Thats fucking ridiculous....like thinking the kidnappers actually like you. I'll guarantee you I'm not betting on this theory, at all...they'll scalp the shit out of you that's what's going to happen!
Sheep this is from Lance. He is a market guy. He can't concieve there not being one.
I knew this day was coming. The end of QE. Wow it's finally here. I am getting all misty eyed.
QE1...not enough
QE2...need Moar
Operation twist...just a coffee break
QE3....who could have guessed it?
QE4....stock market crack
But that's it. That's where it ends. Shirley they won't do QE5.
see how many ya get, Fonz: don't evah call me Shirley again
Don't call me Shirley.
Airplane and Zero Hour Mashup
http://www.youtube.com/watch?v=dO90hdkeKrs&hd=1
From the video's description on YouTube:
"Airplane!" is the greatest comedy film ever made, and was conceived after the writers caught the movie "Zero Hour!" on late night television.
"Airplane!"'s producers bought the rights to the 1957 film and used the same screenplay to create the basis for the spoof.
Airplane contains references to disaster films in general, with specific jokes aimed at the Airport series of films and Saturday Night Fever.
But the film pokes fun at Zero Hour the most, by using the same scripted lines, using a Basketball player to be the co-pilot, and even adding an exclamation mark to the title.
Basically, Airplane IS Zero Hour, and this video shows you some of the similarities. If you like this video, please consider buying either or both movies - they are available on Amazon for hardly any money at all, and both are great to watch. If you know Airplane well, Zero Hour is almost as funny. When they say the fog's getting thicker, you can't help buy say "And Leon's getting laaaaaarger!!!"
Flash crashes will be like popping popcorn in a pan over and open flame. (For the kiddos - we use to have to pop popcorn in a pan over an open flame, 4Realz we did)
Sorry but the exit doors are locked up tighter than a nightclub in Rhode Island.
But how high will the DOW go before the grand pyrotechnic finale? That is the ten trillion $ question that us greedy investors want to know. I'll bet on at least 36000.
You can always exit early. But don't try to get out even one millisecond late.
hft. the computers have a clock like door. or a door like
clock.
.
the door . what is clock speed?
.
"Clock speed is a measure of how quickly a computer completes basic computations and operations. It is measured as a frequency in hertz (Hz), and most commonly refers to the speed of the computer's Central Processing Unit (CPU). While computer developers and users can refer to this term regarding CPU performance, this has fallen out of favor as CPUs have become more complex. The easiest ways to boost clock speed in a computer include upgrading components and "overclocking" a piece of hardware.
What Clock Speeds Measure
There is a small quartz crystal inside of a CPU that vibrates at a particular oscillation or frequency. This frequency sets the "speed" of processes in the computer and is usually very high; they are typically measured in megahertz (MHz) and gigahertz (GHz). A megahertz is one-million cycles per second, while a gigahertz is one-billion cycles per second. So a computer with a clock speed of 800MHz is running 800,000,000 cycles per second, while a 2.4GHz computer is running 2,400,000,000 cycles per second.
These cycles set the speed for all processes within a computer. This ensures that all components and memory are working together at a rate that remains harmonious. Different components and processes can also run as a fraction of the primary CPU speed, which allows each element of a computer to work on its own and still function with the primary frequency of the CPU.
"
.
http://www.wisegeek.org/what-is-clock-speed.htm
.
"..at a rate that remains harmonious".
good luck finding the door.
"..this was no boating accident". r.d. (jaws)
Real inflation is about 10%. The government debt is $17T. We are thus inflating away $1.7T. The U.S. can thus spend $1.7T more than it takes in indefinitely. Where's the problem?
You do not do the grocery shopping obviously.
In many cases the inflation rate on the basic of FOOD is 33% and hidden in repackaging and downsizing of portions.
Gradual upswing on prices combined with a down-sizing of pack sizes...
Go figure that.
Yeah, but iPad 3 has more features than iPad 2 so thats a huge deflationary force affecting everyone in the land
Buy some chickens, a few five gallon value packs of rice, a rototiller, a .357 mag, six months wages in PM's, a case of Jack Daniels, and a lawn chair and enjoy what's left of the American Dream........
Yea pretty much.
no porn?
I'd love to have lunatic for a neighbor. He sounds fun.
I thought those things were the American dream. Except swap out the chickens and rice for hot dogs and burgers.
I' like to nominate for #1; the monthly POMO release that shows any reduction in largesse.
When the correction occurs it will be an instantaneous crash, the markets will halt and remain closed - the notion that you can watch VIX and still have time to get out is laughable.
I think your comment is spot on. Like you, I believe they will close the markets and freeze everyone out hoping they can figure out what to do which they won't be able.
I just put in an order for 1000 shares of MSFT at nine cents, so I'm ready.
The HFT's are going to be running just a tad faster than VIX.
I visualize the HFT's as moving so quickly they create a cavitation bubble (vacuum) which then implodes.For an interesting view of this phenomina, Google pistol shrimp.
Hey Hilsenrath, FU! We know your full of BS.
It's best to ignore Hilsenrath. The Fed cannot quit QE. In fact the Fed may even increase QE/month.
Hilsenrath, we know Bubble Bernanke, Evans, Dudley and Yellen are about the only ones buying US debt, so they cannot stop.
So you can exhaust all the hot air you want. Your irrelevant now.
well, ive wasted 2 years plus of my life here................ learning all about how printing is bad, and fiscal responsibility is good, and how this will all end badly.....stocking up on canned goods and toiletries and bullets and band aids......and .....then....he hints about pulling qe.....and nothing happens...all of those supposed algos that run the markets do nothing.....night sets in......with daylight following......im not sure whether to laugh or cry.........im going back to cnbc............
2 years plus and you let Lance take you down?
hahah....im getting depressed......really................i cant sleep anymore.............its getting bad.............
I have not slept in 2 weeks. I have been glued to this place. I walk my dog a bit less, so I can get back here and check in. I'm not depressed. Just convinced something is about to break. Everyone I speak to feels the same way. I have a good group of close friends. We get lunch a few days a week. It becomes a bitchfest. Everyone logging complaints about how things are. Everyone knows a reset will be god awful and yet everyone is almost looking forward to it. Just so that you get that vindication in knowing you were not nuts.
It used to be the market could stay irrational longer than you can stay solvent. Now it's the market can stay irrational longer than you can stay sane.
I need a break from this place so bad, but yet this place has become the only semblance of reality that I know. Fucked up man....
it is very serious. the world can remain evil and
disgusting longer than you can stay alive. a person
does need to have the discipline to walk away, prioritize
their time and energy in a sustainable way or ...
get sick and die from internalizing the global "muck"
and debris that is brought to you at the speed of light
from every perspective on the planet. the mind of man
or any sentient being was not designed to integrate this
many perspectives this fast. it is unsustainable and for your
own survival you have to learn your limits before the
violation of them destroys you.
peace.
exercise and quiet meditation everyday for some time is
something to seriously contemplate.
thanks for the wise words blindman......you are sooo right............
trooth!
listen
John Trudell , I'm crazy ?
http://www.youtube.com/watch?v=ctUecTdPEO0
.
"they mine the energy of the human." j.t.
Hey man, get your life back. What will happen will happen. This thing will go on for a lot longer than any of us think. Maybe that's a good thing; not sure. Whatever happens, trust that there are more good people in this country than bad. We still have a political system that can recover with citizen anger but more importantly citizen action. Get some sleep.
Miker thanks, for whatever reason, I never got sleep. My whole life I have fought with it. I am all good. I still keep the seperation and more importantly my sense of humor. What makes me very nervous is to see the people around me come unglued. Short tempers...short fuses. They know something is wrong.
Kito you are local. Say the word and I buy you a beer. It would be my pleasure.
we may have to douse our uneasiness in some suds.........will keep that invitation open......francis would be so pleased............
weve gone mad...........nothing will break until 2015....count on it.......im sure of it...............
That is seriously bad news for the glaziers of the world and therefore Dr Krugman.
With new Google Glass you can walk the dog, check Zerohedge, and look like like a colossal asshole all at the same time.
You will really be in bad shape in another month.
"I cannot teach him. The boy has no patience" Yoda
hujel
ZH, and all of the internet in general, is a huge mirror, an echo chamber, a Chinese room with 90% non-signal where you feed it your own emotions, desires and dreams to complete the information feedback and it spits back what you require.
That's its dark secret, and why it works so well.
If you have learnt nothing, then.....................................................................................................................The fault lies within.
It's an addiction. You know a new article will be out in 20 minutes....and this one wiill be the one that snaps the cord.
Oh, sweety.
Yes, that's ZH's hook, it's not how the internet works though. That's why I've linked to TED talks on information bubbles, and in my more Chthonic moments linked you to dark places, to break said bubbles (to the algos, just having a link in your space is enough to chip the walls).
Effigies
Indulgences
Anarchist
Violence
Chthonic
Intimidation
Vampyric
Pantheon
Succubus
Hostage
Transference
Identity
Mauer
Interface
Flitting
Isolation
Revenge
Osmosis
Crusade
Tyrant
Domination
Indifference
Miasma
Pressgang
Displaced
Flight
Resettlement
Funereal
Glide
Trace
Balkan
Burial
Reverse
Manipulate
Origin
Text
Traitor
Urban
Comeuppance
Tragic
Nerve
Mystification
David Bowie ~ hi there Mr Star Man. Don't see any others doing the Scientific Journalism though, nor the multi-layered link mimetic referencing. And to think I chose the rankest pound out there, was it by chance? Or was it because it was the only place that would tolerate it in these odd times?
Chtonic Comeuppance. Just as Marc Faber said.
Oh, there's a club all right.
Splunge
That's Bowie Splunge to you.
Worth it.
You don't get it. It's all staged. The article and the markets not tanking. That is what they want the perception to be; that the stock market it not hinged to QE. Also, talk of ending QE sets up more downward pressure on PMs; expect more selling.
I think I get it...that's why I said it...
Sweety?
Yeah, you're gonna want to look that one up.
And Francis even gets to latch onto the hidden meaning: A fruit that is a crossbreed between a grapefruit and a pomelo, originating in Israel.
(No, I just meant option #1)
the people on this site are awesome.
...and a grapefruit is a cross of an orange and a pomelo.
I KNEW THE JEWS WERE DOING SOMETHING UNNATURAL.
BREEDING A FRUIT WITH A FRUIT THAT'S ACTUALLY THE SAME FRUIT.
INCEST!
Isn't "winding down" going to be alot like getting a camel through the eye of a needle?!
I am going to so enjoy watching this. hujel
When this ends you won't need graphs.
Or, everyone could end up in a Soviet type dystopia where we're all waiting on the end of the post-Capitalist dream watching Dancing with the Stars while the lucky few blow their minds on the dream of eternal youth while the waves of climate catastrophe roll in. That's not much fun though.
This or That?
I find the lack of original thought disturbing.
My UBS Money Manager is assuring me no more than a 5% correction. Now I'm going to sleep. btw - I went shopping this weekend, spent $250 at BJ's for toilet paper and other family necessities and $75 to fll-up my volvo. Fuck You Bernanke!
Seriously: get a bidet.
what if the water supply gets cut off??
Rainwater collection?
If his water supply gets cut off in a high density urban setting, a shitty bum is the least of his worries. Ask all the homeless people you see around about it. The switch to providing purely scalding hot water in public conveniences was a direct attack on them btw, not to mention the loss of public water fountains (championed in Victorian times, and don't give me the health angle, it's easy to coat them with a silver-nano coating these days).
Sounds refreshing!
Let's just say... your first time is a shocker, especially if you aim wrong!
(But it's actually cleaner, more sanitary (use soap, obviously) and better for you. No more raspy ass. Talk to any sophisticated Indonesian or Malaysian - they find the use of paper barbaric, for good reason).
I'll keep an ice pack nearby just in case.
If you have a partner, it's probably worth recording it just for them.
Comedy Gold, they'll love you forever.
I rid myself of the nasty raspy ass after I had kids and started using their baby wipes.
Very bad for your bum. Don't ask why I know this, but the use of baby wipes is mostly an American thing, and not good for nappy rash or your own bottom. CF over-use of anti-bacterials and the spread of MSRA and allergies through over-sanitized environments. People thrive on dirt, that's why Dogs as pets are so great for your health. Kids should be rolling in dirt, unless you live in Miami or >Most other post-industrialized countries< where the heavy metal pollution and so on makes it unwise.
Water, water, everywhere, and not a drop to drink.
ZH - serious financial news, and the microbiology of your anus. Covering ALL angles!
'3 strikes and you're out' apparently even applies to the Maniacal Monetizers.
Bernanke will not end QE before he leaves. They will talk alot about it but not end it. That is so they can brainwash the public into believing that stocks are not tied to QE. Also so they can continue to smack down PM's.
Look the ecomony is weaking. Layoffs are incrasing from The Sequestration and tax increases. And that's only about 50B this year. The deficit is down some this year but I fully expect it will still be over a Trillion by end of September. Trust me though. They will do everything in their power to have it come in below 1 Trillion for the psychological effect.
The economy will never recover until we rebalance our society. We have way too high a cost structure in most areas for the wealth (or lack thereof) that we can now generate as a society. Until we figure that out and start knocking down all those puffed up industries/crony businesses and crony entitlements, we will continue to subsidize these unproductive parts of our economy.
Well said. The deflationary spiral is here. Perhaps not as much nominally, but definitely in real dollars. The FED has no power to stop this.
LIQUIDITY. TRAP.
Is a liquidity trap good for a 10 point selloff in the S&P?
Both CBOE tail hedge index and VIX short & roll kicking the ball out of the park at the moment. Nasdaq circa Feb 2000 style. Surely very healthy and sustainable.
The US Dollar rises (spot daily below) as the US indexes climb sharply too. Something will give.
http://bullandbearmash.com/chart/dollar-continues-climb-euro-pound-conti...
What supports the US Dollar? A weak Euro, Yen, Pound and CDN (commodity economy - CRB is sliding).
What supports the indexes? Flat / missed revenue on rising EPS (massive share buy backs).
Is it the USD or US Indexes that will rise? Hmmmmm.
Doubtful that the Fed will stop QEx. One thing consistent about these people is the big disconnect between talk and action. If mere rumours bring down the markets more than expected during the traditional "Go away in May" wind down this summer, why that will be just the excuse for more QE in the autumn.
I was reading a Reuters article (by Sarah Lynch) on the fact that HFT traders have increased donations to lawmakers by 635% during the 2008-2012 election cycle. Algos are here to stay and they love to flash crash, so that vulnerability in the markets to extreme price corrections and volatility in the markets will likely be amplified when the "perceptions" or sniff of fear start its death spiral.
My take on the whole Hilsenrath tapering leak is that just because a shit tapers thin does not mean it isn't still connected to the infinite supply of shit that may dilate to a big fat arse tearing log later on. All indicators point towards a systemic crash if the flow ever stops, and the fact that QE3 was a different animal to QE1&2 showed to me that investors started buying the rainbows and unicorns stories from the Fed about the recovery - what's not to like when you can ride the index without fear of loss? Couple that complacency with kamikaze Japan making them run to the "safety" of the USD, and suddenly the complete debt laden mess that is the US economy seems normal. If Bernanke starts to believe his own delusions and really does cut off QE, expect the event we've all been waiting for - a complete collapse. But I believe it will carry on crapping QE for some time to come while promising/threatening to taper off every now and then to manipulate the markets.
And also, Congress recently overturned last year's much publicized law that made it illegal for government employees to profit from insider knowledge, so I expect them to lie their faces off to get rich from the volatility in the markets.
Shouldn't any chart about QE3 include the 8ish (?) months of telegraphing of open ended manipulation by the fed and the Hilsenrath minion? Only people who did not frontrun QE3 are the hopelessly prudent or the clueless. I fall into one of these categories.
Because tapering off of heroin in the face of an unlimited supply is a viable strategy.
http://www.safehaven.com/article/29800/bubbles-inflating-faster-than-gdp
Global central banks have clearly demonstrated the ability to re-inflate stock and real estate bubbles. Global stock markets are roaring ahead of their economies and real estate prices are quickly rebounding from their recent collapse. However, rock-bottom interest rates and massive money printing have yet to show an aptitude for creating sustainable GDP growth.
There has been a lot of talk about a rebound in the equity and real estate markets helped along by the Fed's free money. That much is for sure the truth; but the evidence of a viable and sustainable recovery built on free-market forces just isn't there.
For example, the percentage of consumers who own their own home continued to fall during the first quarter of 2013, dropping to a national level that hasn't been seen since the fall of 1995. The Census Bureau reported that the nation's homeownership rate slipped to 65% in Q1 2013, a decline from 65.4% posted in the last quarter of 2012. The rate of home ownership now stands at a 17-year low!
But if the housing market was gaining ground on stable footing then why is it that first-time home buyers and owner occupiers aren't participating. Instead, it has been hedge funds and speculators that are sopping up all the foreclosures. One has to wonder if these "investors" will hold onto their rental properties if the economy tanks once again and home prices take another steep drop.
In addition, the labor market isn't rebounding as the Fed had hoped and projected it would. Last month's NFP report showed that despite $85 billion per month of QE, 9k goods-producing jobs were lost. And even though you here the MSM talk about resurgence in the manufacturing sector, there were zero manufacturing jobs created in April. What's even worse is that aggregate hours worked fell by 0.4% in April over March. Therefore, despite the fact that the Labor Department says that 165k net new jobs were created, the actual total number of labor hours worked was in decline.
There is a reason why the Fed and other central banks have been unable to achieve a healthy and viable economy even after five years of trying to manufacture one from a printing press. The truth is an economy that is soaked in debt just doesn't grow because it is always marked by at least one, if not all three, of the following growth-killing conditions; high interest rates, rampant inflation and onerous tax rates.
Any country with outstanding debt that is equal to or greater than its GDP is forced into sucking an exorbitant amount of capital out of the private sector due to burdensome rollovers and interest payments on that debt. In addition, rising tax rates act as a disincentive to increase productivity and whatever money that is taken from the private sector is always redeployed in an inefficient, GDP-destroying manner. Rising interest costs also discourage borrowing and lead to capital shortages. And finally, inflation destroys the purchasing power of the middle class by eroding the value of the currency and leaving consumers with an inability to make discretionary purchases.
But central bankers don't acknowledge this truth and are instead seeking to increase their efforts in pursuit of ever-increasing money supply growth. Of course we are all familiar with the counterfeiting undertakings of the Fed and BOJ. Now Australia's central bank is joining the crowd of inflation lovers and cut its key interest rate by 25 basis points on Tuesday, to a record low of 2.75%.
The market may break from a political shock. The press may turn on obama and the scandals may increase in number and exposure. If that happens the democrats may lose control of the senate. As things stand obama can not be impeached because no democrat would vote to impeach no matter how deserved. Some things that have been done are criminal and could be prosecuted without the DOJ. Once people start to face jail time they will bargain testimony for lenience or immunity and the dam will break. The market might lose all direction with our govt. in turmoil. The way things are going the last few weeks, i do not see obama sailing through to 2016 unscathed. A return to law and order with republican control will be a rough ride for everyone. Obama has lost control of all overseas events and things there are escalating while we have no leader that commands respect abroad.
There is no difference between Dem and Repubs', they're the same party.