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The Fed's Hands Are Tied Unless the Market Crashes
The markets have a major problem.
That problem, simply put, is that QE ends this month.
QE has been the driving force for the stock market since 2008. This factor, more than anything else in the world, is responsible for stocks rallying to new all-time highs surpassing even the 2007 peak.
To be clear QE 1 and QE 2 were widely accepted in the business community because of their context: QE 1 was a reaction to the 2008 meltdown, with QE 2 considered to be needed because QE 1 didn’t quite “get the job done.”
However, QE 3 and QE 4 were both game changers. The first two QE programs had fixed deadlines which emphasized notion that eventually the Fed would end its QE efforts and risk would be permitted to move back to more market-based levels.
However, this all changed in the period from September 2012- December 2012 when the Fed announced QE 3 and QE 4: two “open-ended” programs without fixed deadlines.
The message was now clear: risk would be mispriced ad infinitum until something breaks.
It is not coincidental that the market staged its largest, most bubblish move during these programs.
Which brings us to today. QE 3 and QE 4 are ending in a little over a week. And the Fed has made it clear than a stock market correction will not goad it into engaging another QE program anytime soon.
Indeed, in many ways the Fed’s hands are tied. Politically it is becoming more and more evident that the Fed will be blamed for the US economy (note the recent emphasis on income inequality in Fed speeches). Having just engaged in QE for TWO SOLID YEARS STRAIGHT the Fed would totally destroy any and all credibility in its monetary policies to engage in QE anytime within the next three to six months.
Which means… the markets are losing their most critical prop: the Fed’s money pumps. Sure, verbal interventions will trigger short-covering rallies like the one we’ve seen in the last week… but the money won’t be coming…
Prepare now, the next round of the crisis beckons.
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Best Regards
Phoenix Capital Research
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the 'money' is already gone
all that is left are Federal Reserve notes
backed by debt ..
See - we didn't need any more QE! 0;-)
reality is for the weak,just eat these mushrooms and you'll see the magic....
QE
I asked 2 professional friends if they knew what it was....nope...the country is screwed because so few understand what is happening.
"I asked 2 professional friends if they knew what it was....nope...the country is screwed because so few understand what is happening."
And what's more is that it isn't that hard to explain to the average Joe:
Imagine a family that lives entirely off of credit cards that have super low interest rates.
Each month, that family spends the max, and only pays off the interest.
Each month, that family gets the maximum amount that they can spend increased.
What could go wrong?
Unfortunately, the average Joe doesn't care -- not as long as his 401K is not adversley affected. Screw the next generations, I'm doing fine. There will only be "blood in the streets" when pain is experienced by the sheeple.
It's coming.
QE exist's to prop up the balance sheets of the "right" people. Unfortunately it only works for awhile and its effect are less and less and you only need to examine corps like IBM to see that things are hitting the wall. The next QE might just have the opposite effect of what they want.
1. The Fed prints money out of thin air and buys mortgages from their primary dealer banks via QE program. Hence, freeing up liquidity for the banks to lend.
2. The primary dealer banks allow for 1% interest on stock buybacks to well connected companies.
3. Stock buy backs are OFF BALANCE SHEET TRANSACTIONS that do not show up on Non-GAAP quarterly reports
4. The company's balance sheet looks good and stock prices jump.
5. The illusion of a healthy economy lures in more sucker investors and "expert" economists like Steve Liesman at CNBC
off the coast
of Fukushime
at low tide
I'd like to see the Feds hands tied, their feet in cement shoes, and pushed off a boat in the middle of the Hudson.
So would I! Damn it!
Just don't dump 'em near where I stashed (oops, lost) my booty....
;-D
Criminals