I had planned to write a piece about what happens next time…you know, when the economy is again in a decline that is so severe that fudged and massaged numbers can’t hide it? Instead, the Fed has finally “pulled the trigger” and decided to “taper” QE to the tune of $10 billion less per month. First off, this $10 billion is a “whopping” 12% or so of the total monthly print age. This amount is a pittance but it is at least something. Of course one could ask silly questions like “how do we know that $85 billion was the “real” original amount in the first place? Or, how do we know that this $10 billion so called taper doesn’t sneak in the back door along with another $20 billion extra for good measure. The answer of course is “we don’t, I guess we’ll just have to trust them.” Sort of like the $15 trillion (with a “T”) extra in loans (the majority to overseas banks) that the Fed lent out in 2008 and ’09…that we didn’t know about until 2 years or more after the fact. But they lent the money out because it was “imperative” to save the system.
Don’t get me wrong, $10 billion on its own each month is not enough to tank the system but…it is enough to put more than a fender bender in confidence which is enough to destroy everything. The problem as I now see it is the “front running syndrome.” Will there be a movement to exit the party while it’s still going? Will the movement be enough to “move” markets in a perceptible manner as to disturb the rest of herd at all? These are all good questions and ones not “answered” by today’s record setting action. I say “not answered” because think of this, if you wanted (hoped for) a specific result, wouldn’t you ramp the market in your desired direction during and after your announcement? We had some very strange action BEFORE the announcement; the “algos” were unleashed in a false start fashion.
Let me ask you this, do you really believe that big money, smart money, hedge fund money, dumb money, any money, was actually waiting with sweaty palms to BUY on the news that the Fed would provide “less money” for the Ponzi scheme? Did a $10 billion taper scare the shorts into soiling their pants and covering? Or did this wonderful news of taper and the $100 billion back loaded “savings” on our farcical budget change foreigners minds into believing that the dollar is as “good as gold” (or apparently even better)? I could go into a long tirade on whether “dollars” are as “good as gold” but what’s the point? Anyone who doesn’t understand that anything that is “free” to create and create in unlimited quantities cannot have value…won’t get it no matter how much I write.
So do you want to know what I really think? I think that “the gold” has almost run out and China will soon be advised of this. I think that as Jan. 1st arrives and Obamacare goes live and into full “kill the economy mode,” hiding the slide will be impossible. I also think that the Volcker rules which will supposedly force banks to mark their derivatives and junky portfolios to market will act as a receding tide where we may finally get to see who was actually bathing “raw.” I suspect that “REO’s” (bank real estate owned) may start to hit the market after a 2 year magic trick hiatus and the real estate collapse will re commence as this “withheld” supply begins being released. I think that “front running” sales of treasury bonds will bleed into other markets as foreigners vote with their capital. I firmly believe that this so called “tapering” is merely for show by Ben Bernanke. “For show” as in “look, I left everything in good shape, it wasn’t my fault, we were already tapering when I left.” I also think it is only a matter of time before another, bigger round of QE is announced to “save the day” again.
All of which leads me back to what I wanted to write about in the first place, “what happens the next time?” What happens when markets are diving? When the economy is crumbling so badly that even the deaf, dumb, and blind know it? What “ammo” is left? Fiscal policy? Nope, that’s already spent and balance sheets are destroyed. Monetary policy? Uh, yeah, another round of QE that’s “not really printing money,” that’ll work right? Selling the family jewels? Done that already too. Bail outs? By who? As I began to write in 2008, 2009 and 2010, there are no more “White Knights.” If this wasn’t so serious I would suggest grabbing some popcorn, sitting back and enjoying the show. The problem is we are ALL going to be part of this show.