Analysis by Dan Celia: It didnt take long for the Federal Reserve to go into panic mode- scared to death the market would continue to tumble and they would be blamed. And the blame does lie squarely on their shoulders. The Federal Reserves panic mode is driving them to take on a Knight in Shining Armor role and rescue the markets so people will think the economy is better than it is. They are simply charging in on their white horse and once again postponing the reality of the market. Their hero antics will only postpone the fact that the economy is still staggering along (at best). How? By making sure the false positives they have created in the markets will continue a bit longer. In fact, James Bullard, President of the St. Louis Fed, said, If market is right and it is portraying something more serious for the U.S. economy, then the committee would have the option of ramping up quantitative easing. Well, I dont have to tell you what that statement did to the markets. They made a U-Turn as we again saw more volatility. Things were looking weak last week when it appeared the Fed was actually going to let the chips fall where they will. But deep down inside, they know the economy is far worse than the markets might indicate. I am sure, as James Bullard indicated, inflation below 2 percent could provide another reason to pause the quantitative easing or the bond buying the Fed is trying to finish up in just another couple of weeks. Boston Fed President Eric Rosengren said later that day that QE3 (which is really QE4) could end next week, but he could easily imagine not raising rates until 2016. Postponing the economic disaster for another day. Will traders buy it? We will see. Will the average mom and pop investor buy it? I hope not. Translation to all of this? Dont fight the Fed. If we want stocks to go up, they will go up. Of course, investors love all this. But look around with eyes willing to face reality. What do we see? Apparent unconcern about the inevitable European recession. Lack of productivity throughout the Eurozone. An increasing double-digit unemployment rate. Asias productivity down and continuing to go down. The IMF indicating the developed nations will likely see slower growth as we head into 2015. But all of this continues to be irrelevant to most Americans right now because they - and the Federal Reserve - care only about the markets. And they panic when they see the markets declining, knowing there has not been any real recovery. To them, it does not matter that we have more people unemployed with a smaller workforce than we have seen since 1978. It is irrelevant that wages continue to decline and we are now at 1982 levels when we factor in inflation. It is immaterial that food prices have continued to go up and the only bright side of the economy is declining oil prices (and who knows how long that will last). Surely the Fed could not be thinking that to repeat the actions of QE1, QE2, QE3 (which they called Operation Twist), and QE4 would this time lead to different results. Doing the same things and expecting different results. Yes, that is the definition of insanity! But the Feds will continue striving to keep the markets high. They want people to think they have more money than they have ever had and the real economy will begin to turn around. Not likely. Think about what is happening around the world with other countries economic growth. It is lunacy to think this will not impact the U.S. at some point. I believe what the Federal Reserve is contemplating doing now is more shameful than anything theyve done in the past. We have an opportunity to see a real correction - a correction that could put us back on the path of reality as far as the economy goes - if we let the chips fall where they will. But they insist that we never experienced that . . . which will only exacerbate the correction when it does happen. Here are my questions: Will the market take on a mind of its own? Will things start to decline regardless of what the Fed is doing? Will traders, insiders, and the average mom and pop investor begin to recognize the truth? Will they understand that no matter what the Feds manipulations are doing to the markets, they are accomplishing nothing more than temporarily shoring up a false economy? They are doing nothing more than postponing an inevitable fall that will be worse than ever as we continue to see the Feds add to their $4.2 trillion worth of debt already in the books. By the way, has anyone asked the Feds about their exit strategy with all this? I dont believe they have an exit strategy because they believe in their heart of hearts that exiting will be impossible, and they will simply allow this debt to continue to roll over year after year. I hope you have not joined others who believe the last six trading days mean that suddenly the bad economy we were all talking about two weeks ago has magically improved. Or that the worries of the Eurozone have taken flight. That all things are good now since we see the Dow and the S&P beginning to rise again. How many will once again be sucked into the false positives in the market? Certainly, in all their brilliance, the Feds are acting more like politicians than a private entity. They have been sucked into their own sense of power as they revel in manipulating and controlling the markets. After all if you keep telling yourself the same lie eventually you will start believing that it is truth and, worse yet, you make decisions as if it is reality.
Posted on: Sat, 01 Nov 2014 15:48:19 +0000
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