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It’s
common belief that Bernanke and the Fed are printing $85 billion per month
($40 billion to buy Mortgage Backed Securities and $45 billion to buy
Treasuries). After all, these are the policies that the Fed announced in
September and December 2012, respectively.
The
only issue with this is that the Fed lied.
Today,
the Fed’s balance sheet is $1.3 billion smaller than it was at this time last year. Last week it was $19
billion smaller. The largest year over year growth the Fed balance sheet has
shown since QE 3 was announced occurred on November 23, 2012 when the Fed
balance sheet was a mere $48 billion larger than it was at the same point in
2011.
Since
that time the Fed balance sheet has shrunken
year over year.
The
implications of this are severe. If the Fed is indeed not employing the policies it announces but is simply engaging in
verbal intervention (stating it will do something just so the markets react),
then it has lost total credibility
as a monetary authority and is nothing more than a market manipulator.
Consider
the above chart… the S&P 500 today is 14% higher than it was this
time last year. Over the same time period, the Fed’s balance sheet has shrunken. This is proof positive that
stocks have not only disconnected from economic fundamentals… but are
now disconnected from the Fed’s actual actions.
Put
another way, stock investors are now bullish based on their belief that the
Fed is pumping $85 billion in the system every month and nothing more.
Not
every asset class is this mindless. Consider Gold’s recent action:
Considering
that the Fed announced QE 3 in September and QE 4 in December, Gold should be
soaring. Instead it peaked right around the time QE 3 was announced and has
since fallen. Year over year it’s barely higher.
All
of this adds yet more evidence that the Fed is in fact running out of ammo.
We already knew that the Fed believed in verbal intervention as a tool for
dealing with the markets. But now it’s clear that this is the primary tool for the Fed. This hardly bodes
well for the financial
system.
Graham Summers
For
more insights as well as a FREE Special Report outlining how inflation will
tear through the financial system... visit us at:
http://gainspainscapital.com/gpc-inflation/
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