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SocGen Asks The $4.5 Trillion Question
Call it the $4.5 trillion (the size of the Fed's balance sheet) question: in a report released overnight, titled "Reducing Risk in an Expensive World", SocGen strategists ask what is perhaps the most important question right now: "Will the Fed allow Irrational Exuberance, Season 2?" and point out that based on CAPE valuations, the US equity market now has two choices: it will either proceed to another round of irrational exuberance, or it will correct sharpy and dramatically.
Then again, perhaps this question should have been asked back in March 2009 when instead of doing the right thing and letting bloated, overindebted companies fail, the Fed decided to fix a record debt problem with even more debt, in the hopes of ultimately spurring just enough inflation to wipe away this massive debt overhang, in the process making equity holders richer than they have ever been, and leading such "establishment" thinkers as Guggenheim's Scott Minerd to declare "The long-term consequences of global QE are likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity."
SocGen then tries to answer its own question by pointing out that the future of the market, driven entirely by trillions in excess liquidity, does not look very hot when extrapolating the S&P based on the size of the Fed's balance sheet.
The key assumption above, of course, is that the Fed's balance sheet will contract, which may be a bold assumption: recall that the Climate Contingent Fed may simply opt to do QE during "harsh winters" and then hike rates to 4% in the summer.
Of course, for the full answer we look forward to Ben Bernanke's next blog post. Then again, those impatient for an answer right now, are urged to simply #AskBen.
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Nope, gotta keep the 1% happy.
Chess pieces are being moved into place globally. This means that the game is moving into high gear. Asking "To QE, or not to QE" is a bit one dimensional in this situation. There are many more variables at this point.
I read (but did not check other sources to verify) that Armenia is siding with Iran. Moves like this are important, vs obsessive speculation about the Fed.
Correct. At the end of the day, it's all about trade, period. Should global trade stop, people start killing each other in earnest....
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The more appropriate question is will the trade partners of the U.S. continue to accept FRNs should the Fed print more...
how many years after 1929 did it take for War to break out....
Like the NeoCons, and Greenspam, Bernanke is trying to REWRITE HISTORY. FUCK HIM!
It's hard to pick a really bad idea when they have so many to chhose from......
Look at these hidden histories:
http://www.showrealhist.com/RD_RJShomes_PSav.html
https://www.youtube.com/watch?v=1NvgLkuEtkA
The Chart of Fed B/S and SP500 is "Money", and suggests that if the Fed has decided that QE is not working (does anybody really think that they are normalizing rates because they believe the Unemployment Rate data?) then SP500 will have a very hard time cracking that 2100-ISH area.
And of couse when (if) SP500 ever corrects, I'm sure it will follow a gentle dotted line trajectory, just like the Fed's holdings (just like when there is a nightclub fire, all the patrons line up single-file and politely file out the exit).
"Will the Fed allow Irrational Exuberance, Season 2?"
You mean: "fuel" not "allow" (and Season 9 BTW).
...neither of which is actually the Fed's job.
Because "earnings" are a complete fabrication at this point, I'd say we are already there.
Exactly, since Fall 2011 when DC and the FED last conspired to float markets indefinitely.
The Fed not only allows it, it's promoting it.
why aren't the triangles trackign the future path of the balance sheet? or can Soc Gen not be too realistic in their assumptions? chart looks highly correlated to the balance sheet level, so not really sure why the SP500 will not follow it down
The Fed is the latest to become a market maker.
Yellen will be announcing its first every underwriting of an IPO later this week.
This is just a trial run as Yellen will be buying the NYSE and NASDAQ and will make JPM and GS a division of the Fed to help with filling out SEC IPO forms (the SEC will soon be another division of the Fed too).