Sunday, September 22, 2013


"Financial Conditions"

"As someone who places “Financial Conditions” at the heart of market and economic analysis, I felt Bernanke had opened a real can of worms on the policy and communications front.

From Wednesday’s FOMC statement: “The committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market. The committee recognizes that inflation persistently below its 2% objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.”

Have Financial Conditions really tightened in recent months? Stock prices have surged to all-time record highs. The S&P500 has gained 7.7% in three months, with Nasdaq up 12.4%. The small cap Russell 2000 has surged 11.3% in three months. The Nasdaq Biotech index has jumped 24.8%, increasing its 2013 gain to 53.3% (2-yr gain of 116%). Internet stocks enjoy a three-month gain of 12.6%. The average stock (Value Line Arithmetic) is up 11.2% in three months. Stock prices indicate the opposite of tightening."

The mere mention of a SLOWING in QE by the FED had sent the markets into a tizzy. Prior to the recent FED meeting, it was widely anticipated that the FED would begin to lightenup the pace of their QE injections from current $85 B amonth to something slighly less. INSTEAD we got NO change to policy because of "tightening financial conditions". Was this mostly the back up of mortgage borrowing costs?

Re-INFLATING a burst bubble will only cause a new bubble to form of even greter proportions. The markets now will not tollerate even the mere mention of a change to the status quo, every month that passes and the staggering growth of the FED balance sheet makes any extracation from this to be less likely where it would not cause a gross reaction. The adjusted Monetary BAse has grown by nearly $1 Trillion from just the start of this historic amount judged against anything in history before it.

Yet 5 years of such actions have not YET brought us to a point where we can begin to see some unwinding, even a slowing of the CRISIS managment of our economy and money??

I think the FED and Central bankers have painted themselves into a corner, the further they went, the further they realized they would have to go. I do not think they know where this goes from here, this is a gross experiement, and we are the Guninee Pigs.

You cannot print your way to prosperity and an economy that can sustain itself, for now I guess we will have to make do with what we have. Not willing to deal with the withdrawl symptoms, the CRACK ADDICT ECONOMY will be continuously fed more drugs.....making the dependency greater, the withdrawl worse....when it comes.



Anonymous said...

And yet the market goes up and up and up.

Good luck to you.

Marc R said...

Is there really any mystery as to why that is?