Fed's Asset Bubbles Now At The Mercy Of The Rest Of The World's Central Bankers

"Like watching paint dry," is how The Fed describes the beginning of the end of its experiment with massively inflating its balance sheet to save the world. As former fund manager Richard Breslow notes, however, Yellen's decision today means the risk-suppression boot is on the other foot (or feet) of The SNB, The ECB, and The BoJ; as he writes, "have no fear, The SNB knows what it's doing."

As we reported previously, In the second quarter of the year, one in which unlike in Q1 fund flows showed a persistent and perplexing outflow from US stocks, a trading desk rumor emerged that even as institutional traders dumped stocks and retail investors piled into ETFs, a "mystery" central bank was quietly bidding up risk assets by aggressively buying stocks.

The answer was revealed this morning when the hedge fund known as the "Swiss National Bank" posted its latest 13-F holdings. What it showed is that, as rumored, the Swiss National Bank had gone on another aggressive buying spree in the second quarter, and following its record purchases in the first quarter, the central bank boosted its total equity holdings to an all time high $84.3 billion, up 5% or $4.1 billion from the $80.4 billion at the end of the first quarter.


Via Bloomberg,

So here we go with the latest installment of the Fed’s will they or won’t they show. It seems from reading all the insights that we’re meant to expect a dovishly spun hawkish move.

We get the balance sheet announcement, tempered by a Summary of Economic Projections that acknowledges what inflation hasn’t been up to. And maybe a small decrease in the slope of the dot plot curve showing the longer-term rate hike path. Presto chango, everyone is happy. Any frayed nerves out there will be soothed. The market is expected to take it well, the FOMC can tick off the box of another “normalization” milestone and we’ll see what happens between now and December.

Now that we know what they’re expected to do, here’s what they should do -- not let up one iota about that third 2017 rate hike and each one being promised for next year. The domestic economy can handle it and looking around at the rest of the world, so can they. Central bankers, the world over, are feeling chuffed and not hesitant to say so, even if they stick in the boilerplate about geopolitical risks. Tellingly, at the end not the beginning of their talks.


Just today, in a speech that could have been made by any number of policy-makers, the RBA’s Luci Ellis said that the global economy had “turned” and bankers run the risk of falling behind the curve. When was the last time that was emerging as the prevailing view? It’s really quite ironic, that it seems the most downbeat commentators are the ones describing the U.S. economy. Which is absurd. But everyone is entitled to their own macro view.


There’s another reason that the Fed should feel empowered to keep looking for opportunities to hike. It’s not data and event dependence, which always provides a credible out if needed. The balance sheet run-off is more limited than even they are willing to admit. Sure the amounts will be small and well telegraphed. But that’s just looking at the plain vanilla stuff that Congress explicitly authorized them to buy.


What has made QE the magic elixir extolled by its proponents has been the added oomph of the relentless purchases of U.S. equities by other, friendly central banks. We like to pretend that our version is pure and therefore easy to undo. Which is true, but only if you pretend it’s really all been just liquid fixed income. In truth, the economy will continue to be stoked by ongoing QE that we don’t even own up to and therefore the trade-off between balance sheet and official rates is less than currently imagined.

As Breslow concludes, rates can go up, down or nowhere. Balance sheet run-off can be done at most any speed. But as long as U.S. equities remain the AAPL of sovereign wealth funds’ eyes, the Fed has a lot more room to maneuver than we think and they should take advantage of that fact.


Simply put - for now - nothing else matters...


Blankfuck Wed, 09/20/2017 - 10:35 Permalink


Ghordius Quivering Lip Wed, 09/20/2017 - 11:10 Permalink

"There is only ONE western central bank"it's a strong simplification. and... you would have to add the People's Bank of China to that list, nowadaysreality's cracks to this simplification are called "Currency Wars", btwif you don't agree, then explain to me what happened at Bretton Woods Conference in 1944, or why French warships were collecting gold in exchange for gold from the NY-FED, shortly before Nixon reneged on all thatsimplifications are handy. problem is... they are not always so

In reply to by Quivering Lip

Rabid Bear Wed, 09/20/2017 - 10:48 Permalink

I want to see black Senators ask Janet Yellen again "What will the Federal Reserve do for black folks?" It was by far the best question I've ever seen asked to Janet Yellen during a public meeting....caught off guard by the sophistication of the question it took her a few minutes to gather her thoughts enough to be able to give an appropriate response. My only hope is that the African American community continues to fire those lethal torpedos. 

ParkAveFlasher Wed, 09/20/2017 - 10:42 Permalink

Headline contradicts blurb.The Fed is at no one's whim as long as it's denominating the US economy. As long as the US economy produces and produces mightily, there would be no rein over it. 

wisebastard Wed, 09/20/2017 - 10:44 Permalink

holy fuck look at the euro...that shit looks like max keiser and his cia buddies have rigged the fuck out of it to target one trader they want ot have sex with

Overleveraged_… Wed, 09/20/2017 - 10:50 Permalink

Folks this market is not hard at all. Sometimes I see frustration on this website and I wonder why. The fact of the matter is that since 2008 all financial powers have come together with one goal in mind: Keep asset levels raised. This is a good thing. It's now very easy to make money simply by buying stocks. It used to be you'd have to do all sorts of analysis, research and risk taking. Now everything is very simple that even normal people can make money.I think this website gives the false impression that a crash may be coming soon. This will not happen. Unlike any time in history, we now have coordinated money creation across all world wide central banks and this newly created money is going directly into the stock market.You might have seen some charts that show the SNBs holdings of AAPL and other US Equities. Ok, so knowing they hold that much do you think they are going to sell? The SNB will not sell it's AAPL holdings so it's Impossible for it to go down. If I owned 50% of Apple stocks and did not hit the sell button, the value would simply not go down.If Central Banks own all the assets, all they have to do is not sell them. It's quite a simple process.It baffles me why so many readers on this site are still expecting some big crash as if that's the next "normal" thing to happen because that's what happened in 00 and 08. This is a whole new world and a whole new market. In 08 we did not have the SNB and ECB and BOJ buying US Equities in coordination. Neither was that the case in 2000. Normal people were buying stocks back then which is why it crashed.Now in 2017 all the normal people are expecting a crash and going short, while all world central banks are creating money to BUY stocks which they do not plan on selling.S&P 500 is at about 2500 now, up from 2000 since election night. It has weathered every single bad news event. It has not dropped more than 3%. What, exactly, is going to make these markets crash? I've thought about this a lot and there is nothing. Even if NK nuked us (which they wont) the markets would go up based on the broken window fallacy.All skies are clear. I don't see anything more than a 2.5% pullback before we hit S&P 500 3000 print.

skbull44 Overleveraged_… Wed, 09/20/2017 - 11:41 Permalink

Your prognostication for the markets may be correct. Or, it may not be. No one can predict the future with any accuracy whatsoever. No one.This being said, it does seem that keeping control of a complex system--with an almost infinite number of feedback loops and unknown emergent phenomena that always arise--is impossible. Not to dwell on the fact that the infinite growth such a system depends upon is impossible on a finite world. Only time will tell which analysis is correct...https://olduvai.ca

In reply to by Overleveraged_…

small axe Wed, 09/20/2017 - 10:48 Permalink

when they own all they can stuff into their fat faces, that's when they offer the little people a taste, right before they puke.never did like their fucking cheese 

Hume Wed, 09/20/2017 - 10:48 Permalink

Really, the Fed is starting to look like the adult in the room.  If the other banks are going to keep assets elevated, it makes their job much easier. They might just pull this off.

ebworthen Wed, 09/20/2017 - 11:05 Permalink

"Now that we know what they’re expected to do, here’s what they should do -- not let up one iota about that third 2017 rate hike and each one being promised for next year. The domestic economy can handle it and looking around at the rest of the world, so can they."That's some funny shit right there.Sure, raise rates now that consumer credit card and student loan debt are at record levels, home-equity and house-flipping loans are roaring again, and "healthcare" is un-affordable.A majority of main-street real people are not even in the Ponzi markets, but are rather Serfs to the rate markets.Go ahead and raise rates and unwind the balance sheet FED, I double dog dare you.

Blankfuck Wed, 09/20/2017 - 11:19 Permalink

All earnings-company profits high or low, housing gains or losses, oil, gold, any  commodity prices, of who gets rich or poorer- IS ALL BASED ON THE FED FUCKER RESERVE CARTEL AND THE PONZI THEY CREATE! Many bankers, politicians, ceos,  became very weathy from the ponzi that was printed. Bagholders are the american workers  for the trillions of ponzi which they inceased their own personal wealth. 

Miss Informed Wed, 09/20/2017 - 12:21 Permalink

The Swiss National Bank's investment in Netflix and Facebook should pay off handsomely in event of a global financial crunch. It's hard to imagine more solid collateral (S)

rex-lacrymarum Wed, 09/20/2017 - 17:12 Permalink

In a word, nonsense. The SNB buying a grand total of $4 billion in stock in an entire quarter is supposed to be holding up the US stock market? Seriously? AAPL alone has a market cap of almost $900 billion. As John Hussman once showed, you can draw that correlation chart using the price of beer in Iceland, and it will show an even better fit. Interest rate and money supply manipulation by central banks is indeed the most important fundamental driver of asset prices, but no foreign central bank can influence the dollar money supply. Recently there were several articles proclaiming this type of capitulation (i.e., no matter what, it's all under "perfect control"). This is a major warning sign all by itself, you see this kind of unreflected defeatism only near major turning points. Almost as good as the late 1970s "the death of equities" Newsweek cover story, or Irving Fisher's "permanent plateau" proclamation two weeks before the crash. 

gcjohns1971 Wed, 09/20/2017 - 19:06 Permalink

The economy is solid?Has global real production expanded by same percentage, in aggregate, as Central Bank balance sheets?No?Alternatively, has that new cash driven up prices generally such that the monetary creation has permeated the economy?No?Well, how much is the overhang of CB base money plus commercial bank paper - bonds - relative to the aggregate total increase in production?That's the degree that the world is in an unrepayable bubble of funny-money.The problem is that the Central Bankster cargo-cult holds two mutually-exclusive goals simultaneously.   They want wealth-by-decree.  They want money to have real value in terms of material things.The degree to which they do the former, (QE) the material economy shrinks the value of their funny-money.   Because the inputs to production then are not paid for.   Because for one person to get something-for-nothing another must get nothing-for-something.The degree to which they do the latter, they can't decree wealth.