Twelve Days Of Christmas Fed’s QE Gave To Me – by Michael Carino, Greenwich Endeavors

On the 12th day of Christmas Fed’s QE Gave To Me:

TWELVE Fed Districts Dancing

ELEVEN Bubbles Bubbling - (11 – Crypto Currencies like the recently famous soon to infamous Bitcoin, Bonds (every one of them), Stocks, Intra-day leverage from high volume trading, Emerging Markets, Short Volatility Trades in a temporarily suppressed volatility environment, Liquidity Risk from enormous Alternative Funds – LTCM was only 4bl, a fraction of the current day behemoths, Spread Products, Farm Land, Commercial Real Estate, Residential Real estate, Yellen’s Champagne Flute)

TEN th Year US Economy Expanding - (longest expansion ever!?!)

NINE Trillion Treasuries Issued – (only 5 Trillion existed in 2008, now 14 Trillion!!!)

EIGHT High Frequency Treasury Trading Hedge Funds – (In 2015 BrokerTec published a list of interdealer market Treasury trading volumes showing 8 of top ten traders by volume were hedge funds, not dealers. This represented up to 70% of Treasuries traded.  In a market that can have daily volumes of 1 Trillion when incorporating cash and futures markets – dictated by high volume traders that manipulate prices –– yet somehow the world believes yields reflect a consensus outlook for growth and inflation instead of the will of 8 traders – is no different from the Hunt Brothers cornering the silver market.  This ended catastrophically for the Hunt brothers and the silver market.  High volume strategies by a few are currently cornering the Treasury market and therefor the global bond market.  As the strong economic fundamentals make current low yield levels look comical and cash rates rise high enough to encourage rotation away from bonds, this manipulation will collapse and along with it bond prices.)

SEVEN Hundred Billion Federal Budget Deficit (potentially going to 1 Trillion in 2018 with the new tax reductions passed)

SIX Central Banks Pursued QE (US, UK, Switzerland, EU, Japan and China all pursued quantitative easing programs in order to monetize debt, competitively depreciate their currency for trade advantages and fund at subsidized rates ever expanding government deficits that normally lead to soaring interest rates)

FIVE Fed Funds rate hikes (at this pace there will be five more years of hikes and one heck of a bubble to burst –if the monetary policy insanity lasts five more years, the global financial and economic system will be imperiled)

FOUR Trillion Bonds on the Fed’s Balance Sheet (was only appx. 700 billion in 2008, now 4.4 trillion!)

THREE Egg Nogs for Big Ben (Academics love to party and Fed Chairman Bernanke, as the father of excessive and highly impaired QE policies, had all the Fed members over-imbibing)

TWO Dissenting Doves – (Fed Presidents Evans – Chicago and Kashkari – Minneapolis both want to revel into the new year and voted not to raise rates and continue to normalize Fed policy at the recent December 17 Federal Reserve meeting. It was rumored they were overheard calling Yellen a Grinch!)

AND A Powell In the Fed’s chair seat – (Jerome Powell will replace Fed Chair Yellen February 3, 2018. A prior article I wrote, will Trump dance or be a dunce is looking like he has his dancing shoes on. Let’s stay in the holiday spirit and dance the night away with a new Fed Chairman that will stick with the status quo and keep the party going!  Chairman Greenspan decided to keep the party going at all costs and let the music stop on someone else’s watch.  This practice has been followed by Chairman Bernenke and Chairman Yellen.  Chairman Powell now seems prepared to practice what everyone else preached. Let’s do whatever it takes, regardless of future economic costs (and these costs will be catastrophic) and let this monetary policy experiment end with a thundering boom on the next person’s watch!



by Michael Carino, Greenwich Endeavors, 12/23/17

Michael Carino is the CEO of Greenwich Endeavors and has been a fund manager and owner for more than 20 years.  He has positions that benefit from a normalized bond market and higher yields.