Hello Fed, How’s Your QE Asset Taper Trial Balloon Doing?
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14 Comments
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2 years ago
its coming to the USA and we aint ready
Shenzhen airport closed along with a Chinese ports amid new COVID cases link to zerohedge.com
2 years ago
Who does the Fed think it is kidding? At this point it is completely screwed. Their ill advised massive QE has done nothing more than prop up zombie companies that should have been allowed to fail in the aftermath of the 2008 financial crisis; build a massive overhang of private debt; and further feather the nests of the rich and famous. Their last attempt at raising interest rates and tapering QE back in 2018 didn’t exactly work out and that was at a time when the economy was in better shape. The Fed can jawbone all they want and it may work for a while but the bottom line is you can’t fool all of the people all of the time. Sooner or later the markets will call their bluff.
2 years ago
Test?
2 years ago
It’s in the interest of central banks to consistently depreciate their currencies. Looked at another way,,,
Currency Devaluation = “Inflation.”
That said, instead of fighting the Fed, it makes more sense to join them and trade their intentionally depreciating fiat for things that don’t depreciate over time.
Sounds simple enough, but we wouldn’t want to deprive all the pundits of those valuable mouse clicks now, would we?
So I guess we’ll just let the “for profit” soothsayers continue to complicate the above intimation with all sorts of color glossy charts and analysis, and keep those clicks right-on-a-coming. 😉
2 years ago
It seems the market is taking the Fed at it’s word this time and believe that they will raise interest rates to counteract inflation. Pull out your history books and study the precursor conditions to the 1970’s inflation notably heavy deficits bought on by the Vietnam Wat, Johnson’s Great Society programs and an accommodating Fed that kept interest rates low for too long. At the time there was not a China to outsource to so inflation in goods came in earlier than what we are seeing today. What if the Fed is serious this time around about raising rates? Eventually they will have to so why not soon as they say?
2 years ago
The DOW is still up 19% since Trump lost.
2 years ago
….yeah Mish, doom and gloom again, the same goes for your video with Lacalle… We are heading for disaster, that much is obvious, BIG questions remaining WHAT is going to trigger the final demise When will it happen and WHAT is one supposed to do when heavily invested in bonds and stocks ? Should we sell everything now and wind up with intrinsically worthless paper? The american $ will be worthless just like the Euro, for according to you the EU is a unsustainable project. Should we buy into ridiculously overpriced RE? Personally I own ‘healthier’ currencies like the Aussie and the Kiwi, Norwegian Krone, even a considerable position in russian Rouble with Russia being a practically debtless(and nuclear) country and supranational AAA bonds in Rouble yielding 6%. You say gold again ? Could its possession be made illegal by the desperate authorities at one desperate point ? I guess all these questions are unanswerable so all we can do in fact is surrendering to dystopian pessimism….not very healthy if you ask me…
2 years ago
All part of the plan. Let me lay out a possible scenario that makes sense to me, at least.
First they took out a hit on the metals by selling the Euro to drive up the USD, which in turn caused a mini-crash in gold. This makes gold and silver temporarily unattractive as a possible rotation from stocks.
Then, when “the dots” weren’t enough to tank stocks, they used Bullard to make more hawkish noises, just when the S&P was sagging a bit, and it broke the trend line to the downside, triggering a lot more selling.
So they “cooled off” an overheated equities market and kept gold from breaking out…..which was probably just about to happen.
Tonight they can have their cocktails and dinner parties and relax, knowing their awesome power is intact, and the world is still their oyster.
2 years ago
An interesting theory Eddie but I have some questions.
Why does the Fed want to make Gold & Silver unattractive as a rotation from stocks. If they wanted the price of Gold to fall couldn’t they just sell some of their vast Gold holdings? Doesn’t a lower Gold & Silver Price make them a more attractive alternative to stocks?
They’ve never shown any interest in cooling off an overheated equity market before, why start now? They’ve done the opposite if anything.
In order to support the dollar they’d have to raise Euros, would they borrow them or sell from reserves? After the recent rate hike talk the dollar was well supported anyway, they had no need to physically buy them in the market.
2 years ago
Well, my conspiracy theory assumes collusion between the Fed and the ECB and probably the Treasury here with the President’s “plunge protection team” and whatever the equivalent government sanctioned market manipulators are in Europe.
Let’s look at what happened this week and apply the question of “cui bono”…..who benefits?
The Europeans (especially the Germans) benefit from a weaker Euro….and the Euro has been very strong lately…..it just topped conspicuously after the Fed announcement on Wednesday……I’m pretty sure the ECB can do a massive naked short on the Euro anytime they please. Would you agree, or not?
Okay. This de facto devaluation of the Euro (assuming it was engineered) caused the dollar to spike instantly. We talk all the time about how all the major fiat currencies are in a race to the bottom. This is just one mechanism that facilitates that. The dollar fell all spring. Now the Euro will fall, probably for some time…..it has a cycle. I don’t follow the Euro cycle because I don’t trade currencies.
You could look really hard and not find a move that big, that fast, at any time this year. I’ve been following the dollar closely since January, and I can assure you it was an anomaly. And the pundits are blaming it on the Fed announcement. Why on earth would a very mild bit of jawboning about possibly raising rates two years hence cause that? I don’t buy it for a minute. It was merely cover.
Gold has moved like the anti-dollar all this year, in real time, up every time the dollar faded, and vice versa.
In general the Fed has to worry a lot about gold all the time, because gold is the only asset with no counterparty risk….which is not true for bitcoin or the dollar or any other asset. Gold is gold is gold…..and gold is hard money….even if it’s no longer the coin of the realm. Therefore gold is ALWAYS a potential threat to the banking cartel. My belief is that they mainly try to temper its movements. Not control it with an iron fist…..but they do what they can to keep it from getting red hot…..and they can do a lot. There have been huge anomalous moves in the overnight markets for years that aren’t well explained. I’m sure you know that.
If you’ve watched markets for a long time, and I think you have, then you know that at times gold seems to get taken down out of the blue, and this is hardly the first time it’s happened in conjunction with a Fed announcement.
For months now, gold has moved against the DXY in real time like it was the anti-dollar. And until Wednesday the dollar was looking like a sick puppy….just barely hanging above the January low and threatening to break down….literally for weeks and weeks. Gold was technically looking ready to break out, and it was in the right timing band to make a daily cycle low and swing back up….in fact rather overdue. The miners gave buy signal last week if you’re a believer in cycles.
The reason someone might have been tempted to rotate into gold was that it was the asset that was all the way down to it’s 200 day moving average and technically looking quite good. Gold price was very decent compared to other risk assets. Stocks were far above their moving averages. I don’t follow oil closely, but I think oil is pretty stretched, yes?
I think the Fed is acutely aware that this is the second most overheated equity market in history….and the only one more overheated ended in the dot com crash. They know good writers like Mish ( and many others) are raking them over the coals daily for stoking the inflation of assets. They know markets crash, even if they never seem to admit we might be on the verge. Why wouldn’t they make some small manips to see if they can cool things down……because they can.
2 years ago
I made a long reply and once again it went poof during an edit. It always says that its under moderation when that happens, so perhaps it will show up later. If not I will reply again tomorrow. I think I have reasonable answers to your questions.
2 years ago
I see the one I wrote this morning never showed up…so briefly I’ll repeat ……
The ECB wanted a weaker Euro so they naked shorted the Euro in whatever fashion they can carry that out. Why would they do that at the precise timing of the Fed announcement? Dunno, maybe camouflage. But the timing, at least, suggests there might also be some kind of collusion.
The dollar has been weak as a kitten and threatening to break lower for weeks. But now it broke out to the upside…..because the Fed threatened to consider raising rates in two years time? Come on!
There hasn’t been a move like that in the dollar all year, I don’t think.
Gold has been the anti-dollar in recent months. So gold took a hit. Predictable.
A trader might have been considering a rotation to gold because gold had corrected a lot and looked great technically for a second leg up. Gold was down to the 200 day moving average before the smackdown….much more reasonable priced than stocks or oil. But now gold is a falling knife. Most will wait.
Why would the Fed try to cool stocks? Because they know that this market is the second most overvalued market in history, and the other time with numero uno did not end well…we call that the dot com crash.
I think the Fed tries to TEMPER gold price…while trying to support equites…but they don’t want speculation to get completely out of control. Why not see if jawboning can cool an overheating market? It’s just words….but it seems to work.
2 years ago
I just think it was short covering that sent the dollar soaring as a result of the change in sentiment following the Fed’s statement.
They’d been a lot of bullish talk about Gold recently so talk of rate rises was a shock which sent it lower and it might not have been helped by perhaps some margin calls as stocks fell.
Once it settles down you have to wonder, is a possible 0.1% to 0.5% rise in rates 1 or 2 years out going to do much to prevent inflation if it continues to take off? Is such a rate rise enough to warrant swapping Gold for depreciating dollars (now at a worse exchange rate)? What do you do with the dollars if you do decide to swap Gold for dollars? Buy Bonds or stocks? I don’t think so. What else? If the economy slows and inflation is only transitory as Mish suggests, there won’t even be any rate rises.
I’d now expect ongoing statements from the Fed about taper talk so as not to suddenly surprise the bond market, which will cause increased market volatility in the near term.
2 years ago
I think it was this that caused gold to fall $130 in a week. link to mishtalk.com