Same Story Different Decade
Long live QE
There used to be a time in financial markets when things were a lot less rigged. Yea the real players always knew that the central bankers colluded to prop up markets. Call it the Presidents Working Group, call it the Greenspan, Bernanke et. al. PUT, call it anything but capitalism. Despite the real players always knowing this invisible hand, that never stopped the excitement of a jobs report Friday or a FOMC policy Wednesday. Today however the markets are very different, its as if nobody even believes a word that these so called “monetary” policy makers say. The overall markets call their bluff each and every time. Case and point is this weeks FOMC meeting where they announced a so called taper of bond purchases. Yea ok so they are planning on knocking off a few billion, does it even matter anymore??? They have expanded global central bank balance sheets to the point where real players know, that is really all that matters!
So let’s get to the main points of the FEDs no future direction taper:
Maintain the interest rate paid on reserve balances at 0.15 percent
Increase the SOMA holdings of Treasury securities by $70 billion and of agency MBS by $35 billion, during the monthly purchase period beginning in mid-November
Increase the SOMA holdings of Treasury securities by $60 billion and of agency MBS by $30 billion, during the monthly purchase period beginning in mid-December
On the first point this is still QE and still a function of a desperate attempt to curve speculation and limit banking loan creation where the real money multiplier exists. To the second and third points, let’s put this into perspective shall we…the FED is still in QE mode to the tune of $90 billion PER MONTH!
Those of us old enough to remember back in the late 90s when too big too fail LTCM and their $3 billion fund were going to take down the global financial markets…ahh the days when a billion meant something…today we print that everyday!
Magnelibra would also like to point out that the FED has zero intention on raising rates, yea the markets look like a JULY 22 hike probability, but what does that mean if we are still in QE mode #Nothing
Is it any wonder the equity markets continue to press on with the QE mode asset expansion, nope its not and until QE is gone, hint NEVER then nothing will ever change so don’t expect it too.
As far as some charts, Yardeni Research put a few out that we want to highlight here, the first is the inflation expectations, there is a lot of talk today about runaway inflation. This chart pretty much puts the past into perspective to where we are at today, seems pretty average to the highs that have existed for two decades to me:
The next chart we liked was this one in regards to all this taper talk and how we know here at Magnelibra Econemotions that when one central bank talks about cut backs, well the other one across the sea just picks up the baton and keeps things status quo. In this case and point, rates are still negative in ECB land:
Every Austrian economist out there knows ultimately that these QE policies are long term deflationary, because this is all nothing more than debt wealth, and when central banks become sterilized and the monetary spigot of wealth gets so concentrated, the commoner will revolt and the house of debt cards comes crashing down. As long as there is QE well then the masses will be none the wiser.
As for the futures, let’s look at the Nasdaq, which since we highlighted the 15483 line in the sand for the bulls, its never looked back. However we have the .382 Extension level here at 16223 and we would look for this area to be breached and then closed below for a sign of exhaustion:
We also wanted to update you on the US Govt 5s30 curve where we highlighted last week the significance of the 72 basis points spread level. Since then we have rallied 13 basis points in a nice steepening of the curve:
Alright, that’s all for today, we don’t think much more to report right now, its steady as she goes in QE land and remember despite all the taper rhetoric, $90 billion a month is still being monetized and levered! So don’t expect anything to change anytime soon…till next time.
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-Magnelibra Econemotions
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