In the last three months, I’ve read the following from Ben Bernanke and
his Fed governors:
We will continue asset purchases at the rate of $85 billion per month
until the employment picture improves to pre-2009 levels;
We will taper asset purchases in the months to come, eventually ending
them in 2014;
We will increase asset purchases if continued weakness in the economy
justifies it;
We may taper asset purchases in the near future;
We may not taper asset purchases in the near future;
We will taper asset purchases soon;
We won’t begin tapering asset purchases until 2014.
Now I’m not entirely certain, but sometimes my hearing is a little
sketchy, and for all I know, I’m hearing “paper asset purchases” as opposed
to “taper”.
Essentially, the Fed can now do anything it wants with its asset purchase
program, and will be able to say with a straight face, that this is exactly
what was planned back in 2013.
In other words, the Fed has lost all credibility. Unapologetically
populist (how else could you define the Fed Chairman’s targeting of stock
market index closes by kiting cheques to the U.S. Treasury et al for various
derivative securities and bonds of dubious value?), we know from experience
that the Fed will dash off reliably in whatever direction the performance of
the market dictates.
To listen to the interpretation of mainstream American financial press,
the U.S. Treasury Bond is the world’s bulletproof, sacrosanct, safest
investment. And the world, consisting for the most part of incredibly
ignorant and conformist thinkers, supports that delusion by buying the bonds,
despite a yield of less than 2%.
If past performance is any indication of future strategy, we should all be
ignoring such multi-faceted sophistry, cognizant of the reality that the Fed
will do whatever it takes to perpetuate the illusion of prosperity through
market subsidies in the form of “asset purchases”. Pretending they have an
option to slow down the juggernaut of dollar fabrication that has been
fuelling the stock market’s wonderful returns of late is confirmation that
the kool-aid of mutual delusion is broadly consumed among Fed governors.
What is sure to happen is that capital flight will continue apace as long
as there is the slightest risk that this collection of nincompoops seriously
intend to cut the flow of capital into the only thing in the U.S. that
permits the government and the media to pretend that there is an economic
recovery. The artificial risk appetite induced by the stimulus and low
interest rates is exactly the same as that engendered by offering junkies
free dope. Of course they’re going to accept, but as soon as you cut them
off, the party gets edgy, and soon the room is empty as the shooters go
looking to score elsewhere.
This has been the case in all the world’s major indices. The threat of
tapering, first espoused by in May, has sent markets tumbling ever so effusively
across the globe.
As Bill Gross points out in a recent interview on Yahoo Finance, the Fed
will have to slow down its bond purchases just because they are the only
buyers, and so there is no market. Bill, who clearly receives his own monthly
allotment of the aforementioned Kool-aid, goes on to mention 6.5%
unemployment and sub-1% inflation as reasons why the Fed should curtail asset
purchases. He needs to head over to ShadowStats.com to readjust his set.
Anyways, the point is this: The Fed is no more in control of its own
destiny since shoving the QE3 into the ocean, and the massive capital
allocation distortions that are driving up the prices of everything from
gasoline to salmon in the last six months are only going to intensify, now
that Japan is also flooding the market with its own baffed out currency.
Watch what happens when the markets swoon to pre 2012 levels as the threat
of taper penetrates deeper and deeper into the collective investor psyche.
QE4, I guess is next to set sail.
