It appears the investment world is starting to wake up to a message that we have been screaming from rooftops for more than 10 years : the Fed has boxed itself into the largest asset bubble in history.
And there's no obvious way out.
Since 2009 we have been raising critical questions about how long the Fed would be able to kick the can down the road with its monetary policy, but even we could have never predicted the size and scope that QE would eventually mutate into.
With our Central Bank just casually doubling its balance sheet (and nearly the money supply) in the course of under two years, all markets - housing, bonds, stocks, consumer pricing - have screamed to new highs with no signs of stopping.
As each day goes by, it'll slowly become more apparent to the public, the investment world and yes, even the rocket surgeons at the Fed, that the notion of bringing the economy in for a "soft landing" from this bubble is going to be far more difficult than ever imagined (assuming the Fed actually ever pondered the situation, which it likely hasn't). That is to say, it could even be downright impossible.
The Fed is not about to make a policy mistake.— Sven Henrich (@NorthmanTrader) August 26, 2021
It has already made a policy mistake.
And now they're faced with the largest asset bubble in history and are desperate to engineer a soft landing.
Now that at least one Fed governor is starting to get serious about the idea of tapering, and now that a discussion is starting to take place, many analysts and investors are making the "common sense" case that the Fed could have been tapering earlier.
In fact, that message is even starting to bleed into the mainstream media. Take, for instance this interview with Blackrock's Rick Rieder, who makes the case with some urgency that the Fed should get moving with its taper.
"The Fed could have started tapering months ago," says @BlackRock's Rick Rieder. "We're talking about $10B-$15B a month of treasuries. It's just time to go. The liquidity is too big." pic.twitter.com/ag6YF48w20— Squawk Box (@SquawkCNBC) August 26, 2021
"I think the Fed could have started tapering months ago. The whole discussion is moot at this point," Rieder matter-of-factly says.
"We're talking about $10B-$15B a month of treasuries. It's just time to go. The liquidity is too big," he continued.
"You've got an incredibly strong economy. If you start waiting to taper until 2023, that's when the economy isn't going to have this push to it," Rider says, making the case that the Fed is "missing its window" to taper.
Recall, we noted this morning that Jim Bullard told CNBC that the Fed should "get going" on the taper and that he expects it to end its bond purchase scheme by Q1 2022.
Bullard also added that "getting taper done early gives The Fed options on raising rates."
We noted it was interesting that Bullard raised the fact that inflation hits the poorest in the country first and the Fed's "inclusive employment" mandate means they should do more to control it.
Finally, Bullard warned that "financial stability concerns are a good reason to taper." Stocks didn't like that...
And while it's nice that everybody is now apparently going to be adopting the attitude that its all of a sudden time to hurry up and taper, while we have been sitting around twiddling our thumbs over the last 12 months watching a market rip to new highs every day, it won't be enough.
Therein lies the folly of the arrogance of this type of monetary policy, where we think we can ignore and control "mysteries" like inflation.
Hindsight may be great, but once you're looking back saying "we should have done something a long time ago", it's likely already too late.