Every once in a while the truth shines through and we got a few doses of it today. Recently critics who suggested that the Fed’s QE policies artificially elevate asset prices were dismissed as QE conspiracists, but the truth is that central bank policies are directly responsible for the asset price levitations since early 2019 and well before then of course as well.
Loose money policies by central banks are goosing up asset prices. I’ve said it for a long time, others have as well despite constant pushback by apologists and deniers: No, no, asset prices are a reflection of a growing economy and earnings or so we were told.
All of this was revealed to be hogwash last year when asset prices soared to new record highs on flat to negative earnings growth and this farce continues to this day as the coronavirus is the new trigger for reductions in growth estimates yet asset prices continue to ascent to record highs following the Fed’s record liquidity injections:
But now the truth is officially out and can no longer be denied.
Here’s new ECB president Largard stating it plainly:
Kudos to @Lagarde for stating the obvious:
“European Central Bank President Christine Lagarde said her institution’s loose monetary policy is hitting savers and stoking asset prices”https://t.co/wzc22vYEV1
— Sven Henrich (@NorthmanTrader) February 11, 2020
But it’s not only Lagarde.
Even President Trump implicitly lays it all out as he’s apparently watching every tick on the $DJIA:
It’s almost as if the Fed is graded on stock market performance. https://t.co/cDRY4QKGwW
— Sven Henrich (@NorthmanTrader) February 11, 2020
In his eyes: The Fed’s job is to goose the stock market for political purposes which he needs to have done to win re-election. It’s part of the tick box.
And don’t think that this is not exactly how we views the Fed’s role. He already told you before:
QE3, a political favor for Obama, will cause record inflation on food and fuel. This hits low income families the hardest. Big mistake.
— Donald J. Trump (@realDonaldTrump) September 19, 2012
Using market prices as a political tool is in my view of course the antithesis of capitalism and free markets. It’s reckless, it distorts everything and of course makes a mockery of price discovery and the recent jam rally to new highs in the face of deteriorating conditions has been such a farce it makes some wonder out aloud if there’s even more to it than just the Fed:
Is The Treasury buying S&P futures? @realmoney
— Douglas Kass (@DougKass) February 11, 2020
We can’t know of course, but someone’s goosing futures price night after night.
Still the sheer admission of “stoked asset prices” as a result of central banks policies is an enormous admission. It again reflects that none of the prices we are seeing now reflect any fundamentals reality, a point Mohammed El-Erian made so poignantly this week:
.@elerianm nails it:
“Markets have been conditioned to trust central banks to fomo buy every dip.
These things are so deeply conditioned in the markets that we have disconnected quite a bit from fundamentals”.
*And hence we have a CB created bubble.https://t.co/0vbZV9YtOb
— Sven Henrich (@NorthmanTrader) February 10, 2020
And it is exactly the result. A massive asset bubble disconnected from fundamentals.
Central bank intervention exacerbating wealth inequality ever further:
Where this all end? We can’t know, but someone already told you it won’t end well:
The Fed’s reckless monetary policies will cause problems in the years to come. The Fed has to be reined in or we will soon be Greece.
— Donald J. Trump (@realDonaldTrump) December 28, 2011
When he’s right he’s right. And now the truth is out and can no longer be denied. So investors beware: You are invested in asset prices artificially disconnected from fundamental reality. A market bubble. Choose wisely.
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I’m putting everything on red…..
To give Trump a break, it’s a lot easier to want the punch bowl taken away when someone else is in charge (than to want it taken away while you are in charge).
I think Sven that you’ve said the Fed injected $5 trillion in 2016 (or maybe that was the amount all central banks infused) which incidentally would have propped the economy up for Obama’s last year in office (giving Hillary a helping hand). This was alongside 0% interest rates.
If the Fed is consistent they’ll be major interventionists again this election year to again prop things up. (Not a guarantee that they’ll be consistent, but I’m guessing their pride is on the line is their biggest single concern which would promote everlasting propping.)
The first chart in the Bloomberg article above seems to imply that the higher the stock market rises, the higher the odds that Trump gets elected again.
I know the fed can not legally bump the mini-futures, yet I know of no laws in which the government can not hint that they would love the primary dealers purchased stock futures in exchange for unlimited, 1.55% repo loans, you know, to give the peasants three minimum wage jobs each and all that other feel good political mumbo jumbo to ensure the top 1% get even more pathetically wealthy. There are hundreds of ways to legally juice the markets, and it is probable that the ex-goldman government officials know exactly how to make personal millions on side hustles while keeping the economy from collapsing before November 2020, so win-win actually (This game, although immoral, is likely better than the reality if not played). If they are creative enough to float printing a trillion dollar platinum coin to solve the 2009 crisis, they are capable of any possible schemes. And to be honest, the coin might have worked, so maybe not the worst bad idea ever. I think once the time is right the “fed put” will magically evaporate, stocks will crash, and then the feds can deploy even more crazy ideas to get the markets up 500% over the next 10 years after a 40% crash. Dow 20,000 to Dow 100,000….why not? First the system needs to be crashed without anyone of importance getting blamed, and then any bat shit crazy idea be allowed as Cramer once again screams “They know nothing” on CNBC.