by Mike Burnick
A recent Wall Street Journal article caused a stir in
financial markets this week. "Fed Maps Exit From Stimulus"
proclaimed the headline written by
reporter Jon Hilsenrath, who many believe has the inside scoop on Federal Reserve policy.
Indeed the Fed's foray into quantitative easing ... now in
its fourth installment (QEIV) since the depths of the financial crisis in 2008,
has been widely credited with elevating
stock prices. With the Dow Jones Industrials surging above the 15,000 mark, it
makes sense why investors might be concerned about the Fed removing the punch
bowl and spoiling the easy money bull market.
The stock market's rally since
the 2009 lows has tracked nearly in lock-step with
the Fed's unprecedented
monetary expansion. And it's not just the
Fed; this
monetary parlor-game is global ...
The Bank of Japan (BOJ) has
launched yet another asset purchase program to
boost its ailing economy
and stock market. There have been so
many stimulus
plans from the BOJ leading to so many false-starts in Japan over
the past two
lost decades that I've lost count.
Perhaps this time it's different.
If the Fed is too quick to curtail QEIV, it certainly
has the potential to disrupt stock
and bond markets.
Even the normally stoic
European Central Bank threw in the towel recently and
cut benchmark
interest rates in hopes of stimulating
its way out of a deepening
recession. In fact, after recent interest rate reductions by South
Korea, Australia,
and Poland, the total
number of global central bank rate cuts now stands at 510
worldwide
since 2007... and counting!
The world is awash in a sea of easy money, so much that it's
hard to imagine stocks continuing to rally without this stimulus. Naturally,
the Fed's eventual exit strategy
is a matter of intense interest, not only to
U.S. investors, but to markets around the
world, which often take their cues
from U.S. policy.
But this epidemic of anxiety about the end of easy money may
be much ado about
nothing.
Fed Bound to Keep the Money Flowing
Several Fed officials
have recently made public comments about a potential exit
strategy, and
have openly spoken about "dialing
back" the Fed's current $85 billion
per month in asset purchases, perhaps
as soon as later this year. Not wanting to
abruptly spoil the party, Richard
Fisher, President of the Federal Reserve Bank of
Dallas clarified by saying: "I don't want to go
from wild turkey to cold turkey."
If the Fed is too quick
to curtail QEIV, it certainly has the potential to disrupt
financial
markets, causing gyrations in stocks and bonds.
Should the Fed wait too long however, the inflation genie
could slip out of the
bottle, and the Fed will find itself hopelessly behind
the curve in combating
expectations of higher prices.
If the choice is between the Fed acting too soon, or too
late, my money is on the
punchbowl staying put for awhile.
The Fed is closely watching two flawed government data sets
to determine
monetary policy:
* The unemployment rate — now at 7.5 percent and declining,
but it's clear the
Fed would be more
comfortable with a lower jobless rate
* The rate of inflation — currently 1.5 percent, which is
well below the Fed's 2
percent comfort
zone.
The Fed's Next Assault on Your Wealth!
The Fed has quietly been engineering a whole separate
financial catastrophe ...
A scheme that
will allow them to plunder your bank accounts while funneling your
hard-won wealth into the coffers of the
financial elite.
In the process, they are giving Washington the power to
render the Constitution n
ull and void ... and re-forging it however they see
fit.
But this isn't in the far future ... it's happening now, as
we speak. New controversial
video reveals full details ...(see Source below
In other words, judging from the Fed's preferred monetary
policy indicators, flawed
as they are, it seems clear they are bound to err on
the side of easy money.
The outcome of the Fed's
next monetary policy meeting in June may be watched
more closely than
usual, but I doubt the Fed will call an
early end to QEIV anytime
soon. My bet is the Fed will indeed end up well
behind the curve.
Interviewed on CNBC yesterday, hedge fund manager David
Tepper, who correctly
turned ultra bullish on stocks when the Fed launched QEIV
last year, believes
concerns about an end
to stimulus is overblown.
He explained that fears the Fed will end easy money is
"a backwards argument."
In fact, he hopes the Fed does begin to curtail its bond buying
sooner rather than
later, because that
would mean the private sector is healthy enough to drive the
economy on its own, without need of artificial stimulus
from the Fed.
Surely the Treasury Department can find better ways to
invest taxpayers' money
than buying Treasury bonds at or near record low yields
... and record high prices.
Source: Money and Markets, Thursday, May 16, 2013, excerpts from
"Is the Fed's Punchbowl Running on Empty ?" by Mike Burnick
Comments:
U.S. Unemployment is driven by excessive legal immigration
and hapless handling
of illegal immigration. This has been going on for
decades. Real unemployment is
about 25%.
Real inflation is about 10%. The floor of the real economy is about 30%
lower than we are experiencing now in GDP. As we approach the real floor, we
should prepare to move into our Mom's basement for a while.
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