Two big events have occurred/ are occurring.
- Charles Evans who is one of the biggest pushers for QE, stated that the Fed has “the appropriate monetary policy in place” and that the economy is “improving quite a lot.”
- The Bank of Japan is beginning a two-day policy meeting today.
Regarding #1, Evans has been one of the biggest pushers for more QE. Throughout 2011 and 2012, every time he appeared on TV he stated that the Fed should do more.
So for Evans to suddenly change his tune and state that the Fed’s current policy is “appropriate,” indicates a significant shift in tone. This goes along with the Fed’s recent hint at tapering QE, which we’ve noted before on these pages. It’s now becoming more and more clear that the Fed is planning on tapering QE in the coming months and is trying to manage down investor expectations.
Which means that stocks are going to be losing some (not all) of their life support.
Regarding #2, Japan is beginning a two-day monetary policy today. As noted yesterday, Japan is Ground Zero for the great QE experiment. For decades now, Bernanke and his pals have claimed that the biggest problem with the Fed’s actions during the Great Depression was that it didn’t do enough.
Japan, which has now engaged in NINE QE efforts, has finally hit the “enough” stage by announcing a record $1.2 trillion QE plan. To put this in perspective, Japan’s economy is $5.86 trillion, so this single QE effort is equal to 20% of their GDP.
If this plan fails to bring about economic growth in Japan, or worse still fails to bring about growth and unleashes inflation, then it’s GAME OVER for Central Bankers. Their one great claim “we’re not doing enough QE” will have been proven to be total bunk.
At that point there is literally nothing they can do.
We’re keeping an eye on the meeting in Japan for hints that QE isn’t working or that the Bank of Japan may attempt to taper it. If this proves to be the case, then we’re in for a truly rough time in the markets.
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Best Regards,
Graham Summers