Today of course is as CNBC calls it “Fed magic day”. Will they or won’t they ease with more QE? They do have a small problem however, the markets are not down enough and there seems to be no fear running about. Were the Dow 1,000+ points lower, then today would be a no brainer because the Fed could justify further QE by telling us they have done their “magic” again and saved us. Even though the economy looks to be again contracting, does the Fed have room to really move? I personally don’t think so but apparently 70% of analysts disagree and believe that more QE is on it’s way, today.
In their favor is the fact that oil and commodities in general are down and Gold has been well contained but conversely financial assets have rallied and are floating on “hope” (the vestige of fools). But one must ask and I am sure the Fed itself is factoring this into their decision, what if they were to announce more QE and investors actually sold the markets off? They essentially would have used what little ammo they have left and it turned out to be worse than a “blank”. Then what?
The better course of action and what I think they will do is probably leave the “threat” of further giant sized QE on the table and promise to use it “if necessary”. This way the markets may sell off a only little bit in disappointment and they can keep the little bit of dry powder (credibility) that they have left. I am sure that the Fed would love for the economy to have reacted with more correlation to their past QE’s, they know that it hasn’t worked but the economy is not their primary concern, the banks, are though they will tell you differently.
I have said all along and as far back as 2007 that THE day would come where the Fed eases yet the markets respond negatively. This happened to some extent in 2008 and 2009 but the “easing” was so massive and so much liquidity was added that the markets were able to right themselves. Here we are 3 years later at 0% with $ Trillions already injected into the markets (yes I know, supposedly the economy) and the problems are still here, only bigger, MUCH bigger. Interest rates cannot go negative (I know, they already are in Switzerland) and stay there on a systemic basis because the wherewithal does not exist for this to happen. Think about it, this would mean that the more money a government borrowed, the faster their debt would be paid down as they “get paid” to borrow. The financial system NEEDS capital and cash flow, negative rates would effectively drain cash from the system as investors would “pay” to lend money.
Maybe I am completely wrong but I don’t see the Fed easing more until they are forced to…by the markets themselves. It is as if the markets rallying over the last few weeks has thrown a monkey wrench into the equation. Playing devil’s advocate on my own thought process, it is possible that something really has broken in the derivatives chain, we do get massive QE and the plan is to ramp the equity markets in a last “haymaker” effort to create “confidence”. This of course would only buy some time because if it’s broke (and it truly is), mathematically, long term, it cannot be fixed in fiat system. It all goes back to the “money”, in a system that uses fake money, printing more fake money doesn’t, won’t and can’t make assets that are valueless…valuable.
So… I guess I talked myself into “it doesn’t matter” didn’t I? Ease, don’t ease, whatever, it makes no difference. The end of the road ends in new currencies being issued that have some sort of real backing, how we get there doesn’t really matter. But, but, but the timing you ask (as in will more QE prolong the final date?), does it really matter? No, the final outcome is so easy that caveman understands it! As long as you don’t trade yourself out of position and understand that your net worth will be calculated in ounces controlled, you will be fine. Stocks go up, stocks go down, same with bonds and everything else that is “counted” in Dollars, this is the way the “road winds”. The end of the road, the final destination will be a counting of the ounces, whether the Fed eases or not only determines the “road” to an outcome that we know, mathematically, comes to an end. As long as you know “where” the road ends, be a “caveman”, hold on to your ounces (physical and mining stocks), go into your cave and pull a rock over the opening!
So…will the Fed do more QE? Of course they will, they mathematically have to. Will they ease today? Tomorrow? Next month? WHO CARES! By the time they are “done” easing, your “ounces” will be worth some ridiculous numbers of Dollars, Euros, Yen or Pounds. What will then matter is how many Amero’s, Nordic Euro’s, Yuan, South Amero’s and whatever other currencies have been newly created, will be required to purchase your “ounces”. Today’s Fed meeting doesn’t matter, the road they choose doesn’t matter, nothing matters. The only thing that DOES MATTER is whether or not you have enough “ounces” to carry you past “the end of the fiat road”!