We’ve enjoyed a wonderful runaway market the past decade, as well as a wide divergence between those able to buy stocks or not. If not for the assistance of central banks around the world, everything you see around you might very possibly have been burnt to a golden red cinder. Alas, our heroes at the Fed have answered our prayers each and every night, thru more than 50 rates cuts and $4 trillion in balance sheet expansion.
The ECB faced their crisis in 2012 and looked Greece into their beady black eyes and said “whatever it takes”, then expanding their balance sheet by $2.5 trillion. Bonds for all.
The Japanese, still reeling from their 1990s blowup, went hogwild, putting an end to their currency implosion and expanded their balance sheet by $4.5 trillion.
All in all, central banks have placed $11 trillion into capital markets and they’re not done yet. The US tried to liquidate and even hike rates, but that quickly dissipated and now we’re cutting and doing QE again.
“The central banks were sucked into a world they never wanted to be in,” said Ethan Harris, head of global economic research at Bank of America Merrill Lynch. “Then, central banks figured out this is the new world we’re in and we have to find new tools to promote growth. They went from reluctant participants in international policy to eagerly embracing it.”
I suspect we’re cross the rubicon line, the point of no return, which will continue thru the new roaring 20s — giving way to a most horrendous crash in ’29 and depression throughout the 30’s. Maybe we’ll get bailed out by some spectacular war by ’38 to stem the tide. In the meantime, prepare for good times, faggot parties, and lots and lots of celebratory champagne.
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Very tight intraday inverse relation between bonds and stocks of late. But it seems to be braking now.
apparently a physical addiction has developed, the slightest liquidity withdrawal resulted in spasms behind the scenes.
if liquidity has to be withdrawn due to inflation will it even be possible?
Undoubtedly, no. CBs are fighting a losing battle vs demographics.
The real question is will inflation become a problem?
The thing to remember is that if you have a lot of assets, infaltion is a features, not a bug. In fact, the FED has now stated several times for the record, that they aren’t going to do anything even if inflation goes above their 2% target. If you think the populist movement is strong now, wait until inflation gets above 2.5% and the FED says nothing’s wrong.
this all distinctly out of my realm but I shall blurt it out anyway; the fed expanded it’s balance sheet post crisis (TARP etc) with the intention of owning assets (bonds) and letting them run off at maturity. suppose some of the shitolia on the balance sheet from back then might create liquidity problems for the original issuers? whom might not be much better off now than then (DB for eg.).
This Central Bank orgy ends when inflation goes rampant (which it will eventually). Only then will you see rates rise and QE efforts ended. Then the markets get absolutely crushed.
Anyone care to explain the details of a faggot party?
Why are you so interested?
Great post. The thing with the Fed and the other Central Banks–none of them have the stones to be the “bad guy” and pull the rug out on their watch. The political pressure will be immense to keep the party going for fear of being publicly tarred and feathered the way poor Jerome has by Trump.
If things start to sour, they will in fact DOUBLE and TRIPLE-DOWN the moment these policies lose their efficacy. They’ve introduced the patient to crack-cocaine, and now they simply can’t take it away.
Normally a central bank varies liquidity via interest rates, not normally via the balance sheet. The Fed stepped into a new realm by expanding its balance sheet massively. The Fed bought assets from banks who needed liquidity in the crisis, and those assets contained mortgage-backed securities. The intention was for that to run off to maturity and the Fed wouldn’t sell before such time. Now some is expiring off the balance sheet after ten years, only to land back in the hands of the seller in return for cash. Hence, the squeeze is to be seen exactly where it is landing; big banks in NYC and their operations including the repo market.
There it’s off my chest, and could be wrong also but I doubt too far off.