Market Madness

Tyler Durden's picture

Originally posted at Monty Pelerin's World blog,

It’s summer. Markets are supposed to be in the doldrums. But, that characterization hardly fits thus far this summer.

What is different this year? We are nearing a possible inflection point in terms of Fed actions. The mere suggestion from the Fed that something is going to change is enough to supercharge markets, either up or down. If anyone was not convinced of market dependence on liquidity (and not fundamentals), the last thirty or so days should have clued them in. John Mauldin summed it up nicely in yesterday’s “Out of the Box” newsletter:

US investors might not have noticed, but there is carnage scattered here and there on the world’s markets, and not just the equity markets. The central banks of the world, in their furious attempts to promote stability through easy-money policies, have cooked up a witches’ brew of instability of unknown quantity and contents. There is no set formula for this concoction; they are making it up as they go along. Anything that seems to calm the storm momentarily becomes the order of the day.


Bernanke hints at the mere possibility of less easing (not tightening, God forbid!), something that we all know must happen at some point, and the market throws up and half a dozen Fed governors go on the air to say “Not really … maybe … we are going to be cautious … we’ll go slow … no one wants to do anything rash” – etc.


It was almost comical.

It is hard to continue an economic policy based on smoke and mirrors. But that is all the Fed has to work with. What they do and how well they do it will determine how high or low markets go. Nothing they do, however, has anything to do with healing the economy.

The Fed’s charter never included keeping markets levitating beyond where they should be. Now, at least de facto,  it does. The Fed surrendered whatever independence it supposedly had. It is now just another tool of the political class. Like all government agencies, it exists to benefit the political class. Its ability to effect positive change in the economy is over. Its role now is to keep financial markets levitating so as make some believe the economy is recovery.

It is not and there is nothing that the Fed can do to alter that fact. Nor can they stop liquidity infusions without financial markets collapsing. Oh yes, there is another rather important reason they cannot stop — government checks would stop going out. The Federal government has no means of financing its spending levels without resorting to its own captive counterfeiter.

Will markets go to 20,000 or to 5,000? That depends upon the Fed and how much they debauch the currency. Nor can it be known which ending will buy you more goods and services.

Stay tuned, this story has hardly begun.

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LawsofPhysics's picture

"Nor can it be known which ending will buy you more goods and services." -  Bullshit, if they "debauch the currency", the paper becomes worth less and eventually worthless.

Please, no society/currency has ever collapsed/died because their purchasing power was too strong.

Popo's picture

Don't kid yourself into thinking that there aren't plenty of ways that they can screw you and enrich themselves through deflation too.

First they create massive amounts of cheap debt (done already).  Then they contract liquidity and ensnare debtors into serfdom.   Thomas Jefferson didn't predict the scenario of "first by inflation, then by deflation" in THAT SPECIFIC ORDER for no reason.    It's a very old game.  

The question of who buys more goods and services is far less relevant than "which scenario creates better slaves".

LawsofPhysics's picture

the pendulum swings, blah, blah, blah.  Stay ahead of it and profit.

The bottom line is the liabitlites continue to grow along with all the paper bullshit.  That which cannot be suatained, won't be, hedge accordingly.  It's all you can do anyway.

qqqqtrader's picture

I don't care about the markets anymore, just want to know if we can still get pizza!

kralizec's picture

Don't import, don't buy finished goods...make your own from the ingredients up!

NidStyles's picture

Except Jefferson never actually said that, and there has never been a real deflationary event in monetarist history.

LawsofPhysics's picture

precisely my point.  Deflation is a myth.  It's bad for banks/bankers and probably why there has never been such an event.

knukles's picture

Oh, come on now, everybody.  Let's not get too carried away, here.
Every black cloud has a lining.  Or at least a skid-mark.
Look, let's not get ridiculous, after all, just until the Chinese let it be known (for all those who'd not yet figured it out) that the data was suscpect/copoked/made up, China was heralded as the growth engine of the universe.  Universe.  Yes, even more so than the Annanukian's who've come to reclaim all the left over gold. 
How do we know that?
Well, nobody talked about the Annanukians of late now, have they?
See nobody even thinks its out of the ordinary anymore.
And Europe.
Why just the other day soembodyorotherIdontknownorcareanymore said that Portugal was fixed.  And lemme tell you, if you can fix just one Portuguese woman, that's "a big fucking deal" to quote Joe Biden.  Who, by the way just this morning said publicly, that China (God, we get back there again, must be like Chinese food, stop talking about them and all of a sudden you want to talk about 'em all over again.) has got to quite cyber spying on the USofA.  Fucking awesome!
But back to the Portuguese women.  Well, whoever it was said that they'd fixed the whole fucking country.  So Europe's all OK.
For the moment.
And of course, the Arab Spring, Summer Winter and Falls go well, I hear, Smedley.
So what the fuck, no?
Everything's fine, earnings are taking off... er, but then again this morning it appears that everybody figured out the foreign exchange translation drag on earnings is real, all of a sudden.  How easily we forget the little shit, eh?
And in any case, America is the driver of the world and is not influenced by anything negative in the whole universe, so none of this shit matters.
Because somebody will figure up some more totally incomprehensible crap to justify whatever they want justified.

So turn on CNBS and Buy The Fucking Dip!

Now, did I cover all the excuses, or have I missed something?

sgorem's picture

just read this continuation from Monty Python's World blog, and totaly agree with your summation(as usual) although blushed a smidgen reading "Fucking awesome", and "So what the fuck, no?", or " just buy the fucking dip"....don't see that coming from your keyboard very often, take care, sgorem, ex-sailor, (as in cuss like a sailor:). 

Dr. Engali's picture

I think that Monte forgets the fact that the fed is an unconstitutional entity ushered in under the cover of darkness, and it should be abolished.

thismarketisrigged's picture

i love the people in the media who say the economy is growing and that is why stocks are going up, and have room to go higher.


these fuckers do not seem to understand that the market is on life support, and when the plug is pulled, this game is over for good.

Bear's picture

5000 or 20000 ... Kind of a sideways market

Doubleguns's picture

You would have to know the value of that dollar but yes that range could be very sideways. 

Doubleguns's picture

Stocks through the roof when the dollar collapses.......hmmm, are we there yet. 

yogibear's picture

THe Fed is the market. The market wants more QE. The Fed is the pusher and Wall Street is the junkie. No QE withdrawals in sight. 

Greshams Law's picture

True, but everybody feels better about themselves if we talk about going into Rehab, someday soon.

akak's picture

When does the madness finally stop?

kralizec's picture

When bodies hit the floor.

Now, for something really more pics of Asian babes!  Woo hoo!

jmcadg's picture

It is hard to continue an economic policy based on smoke and mirrors.

They've been doing a pretty good job for 5 years now.

LawsofPhysics's picture

"They've been doing a pretty good job for OVER 100 years now." - FIXED.

starman's picture

I am bullish on bullshit!

OneTinSoldier66's picture

If ya can't beat 'em, ya might as well join 'em!

Cursive's picture

Has no law firm looked into class action against the FRB?  The merits of the case would be to show lack of due diligence of the purchase prgrams with no corresponding pick up in the economy.  I'm offering myself as an expert witness.

mvsjcl's picture

The Bankers are tools of the politicians? Who's spewing this narrative?

gjp's picture

yes, that's nonsense, the bankers are no-one's tools.  politicians and bankers are one big kleptocratic class, with the bankers being the bigger thieves by degree ...

the tools are the rest of us

Dre4dwolf's picture

The minute the fed stops pumping, the balloon will deflate and everything will come crashing down.

So I am betting that they will not let that happen and the next Fed Chairmen will pump twice as hard as the last.

thismarketisrigged's picture

what a boring day so far. i hate fed days because everything is flat until 2.


they should just open the market at 2 on fed days, no point of opening it earlier.

OneTinSoldier66's picture

It's what we should tell our bosses.


"Hey boss, I'm not doing anything at all until I know what the Fed's doing first! I can't do anything until I know what the Fed's doing first."


EDIT: It's now 2, and I see green lights across the board. Wait, don't tell me! Everything's going up because Bernanke just ended QE and stopped monetizing the debt. /s

Kirk2NCC1701's picture

"US Investors might not have noticed"

"US Investors are clueless, MSM-drinking suckers".  There!  Fixed it for you.

Mr. Hudson's picture

In February of 1929, Montagu Norman, Governor of the Bank of England, traveled to New York and had a secret meeting with the heads of the Fed and certain Wall Street bankers. He told them to get out of the stock market and buy treasuries. He warned them that the stock market would collapse when interest rates were raised. In March of 1929, the Fed raised rates, and panic broke out. A few days later, the Fed, under pressure, lowered rates, and the stock market took off like never before. They Fed kept reassuring the public all through the summer that everything was fine. Then in August, without warning, the rates shot up, which resulted in the stock market collapse. History has the habit of repeating itself.


JR's picture

Excellent article. And for the statement that the Fed “is now just another tool of the political class,” there is another way of saying that: The political class is just another tool of the Fed.

After all, it isn’t the political class that owns and manufactures the money, deciding in secret who gets it, who doesn’t, all the while helping itself to as much money as the keyboard can express... Until today, it turns out that the owners of the New York Federal Reserve Bank, because of this magic keyboard, now are the “owners” of America.

The politicians are not America’s god; it is the private central bank.

falak pema's picture

its the oligarchy that is on both sides of the divide : captial and political power, a seamless juggernaut with corridors of power leading from one system to the other. No separation of powers totally incestuous empowerment. 

Mamon is their god and the greenback their money line prophet.