$85 Billion a Month Boils Down to $118 Million Hour, $1,966,666 Per Minute

“$118 Million Dollars An Hour

That is how much money the Federal Reserve Bank of the United States is creating as you wake, work or sleep. That is $85 billion a month and the stuff must go somewhere. It pours out like sugar upon the markets, each market, every market and it is no wonder that the American stock markets are hitting new highs. The spice must flow.

In the bond markets it is low interest rates and compression, a vice closing in progress, as each sector of the Fixed Income markets grinds closer and closer to Treasuries. It is real, it is not an avarice, but it is also the most manipulated market in the history of our country and something that could not be accomplished in other responses to Recessions because the world’s central banks had never worked in this kind of collective action before. It is not earnings and it is not technicals; it is just money and vast quantities of it that come pouring out of Washington each day. The United States found manna from Heaven.

The initial call had been for Inflation, even Hyper-Inflation from some well-known thinkers. It has not happened and the reason, I postulate, isbecause the underlying economy is in far worse shape than the numbers indicate or most think. The earnings at corporations also rely upon this injection of capital and so the whole boats floats but the underpinnings are shaky, risky and fraught with danger. Any hint of curtailment by the Fed throws out tremors as everyone wonders for how long this will go on and will the rising tide turn to a flood and upset the American boat. It is a very good question. The other possibility is an “Event;” some shattering moment that punctures the hull and sends the whole enterprise into a waterspout where the boat is sucked up into a vortex that will certainly not be Oz.

I play the game. The Rule is to win and not to be eventually right and lose your capital during the process. The compression in bonds has been an absolutely winning hand and in many cases a better bet than equities have been. One of the interesting reasons for this has been the structure of bonds as compared with equities or preferred stocks. Bonds accrue interest every day while dividends are paid quarterly with no accrual. Consequently if you are trading bonds and taking advantage of what you can the accrual part of the equation can add to your winnings in a substantial fashion when interest rates are this low….”

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