took Ben Bernanke sixty minutes of mumbling about tools,
word-twisting, and data-manipulating to kinda-sorta admit - that in fact
he is lost; Ron Paul eloquently expresses in 25 seconds in this
Bloomberg TV clip. Noting that "we are creating money out of thin air," Paul sums up Bernanke's position perfectly "We've Lost Control!" From mal-investment to Bernanke's frustration and the unintended consequences, the full 5-minute interview is a must-watch.
What happens next...
Earlier we explained why Bernanke's actions today mean that the Fed Balance Sheet will likely grow to over $4 trillion by the end of 2013. Critically this flood of liquidity will raise the nominal price of every asset (from whimsical pieces of stockholder paper to barbarous relics and black gold). Some of these assets, like stock prices and high-yield credit spreads do have point-in-time 'value limits' to their price - though at times it seems a dream that fundamentals would ever matter again; but some have less of a binding constraint - such as gold. Should the Fed proceed, as seems likely, and do its worst/best to blow its balance sheet wad then we estimate Gold will be priced at least $2250 per ounce by the end of 2013 (of course higher if the Fed sees no evidence of recovery). Meanwhile, deeper underground, the world's mainstay source of energy, WTI Crude oil, could jump to record highs over $150 per barrel (which just happens to coincide with the 'pegged' value of oil in gold). It will be interesting indeed to see how the world's socio-economic infrastructure hangs together should that occur - can't happen? Different this time? Indeed it is, now that Ben hit the big red 'panic' button.
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Oaktree's Howard Marks is mildly more positive than normal - due mainly to his belief that most people are not uber-bullish (though perhaps less so after today) - but his latest letter expounds in succinct detail on all the risks that await us (notwithstanding nominal price eruptions courtesy of QuEnfinity). Critically, he notes:
Summing up: "The world seems more uncertain today than at any other time in my life."These days we hear little about anything other than macro considerations. Thus investors believe more than ever [as security movements are highly correlated] that the route to investment success lies in correct judgments about the macro future - giving rise to 'risk-on, risk-off' investing.
Playing the market in the short-term based on macro forecasts is one of the many things in investing that could add greatly to results if it could be done right... but it can't, certainly not consistently!
In case you missed it. Markets soared on the back of possibly the darkest day in central-planning banking largesse. Gold and Silver were the biggest winners, though stocks will get all the attention we are sure. Treasuries initially sold off on the news that this was an MBS program (and mortgage spreads collapsed from already record tights) but by the close, Treasury yields had almost round-tripped to pre-FOMC levels. For the first hour or so after the news, all assets moved in sync and correlations soared across risk-assets, but as the afternoon wore on, FX carry consolidated, Treasuries retreated (and 2s10s30s fell), dragging risk lower leaving stocks up near their highs in a world of unicorns and free-money. Notably, it appeared that stocks caught up to high-yield credits' recent exuberance and then found little ability to push ahead. HYG (the high-yield bond ETF) remains notably rich to real bond prices. VIX tumbled under 14% (down almost 2 vols) but notably the term structure of vol collapsed even more - as it seemed the QuEnfinity prompted longer-term hedges to be lifted. A remarkable day in many ways as the S&P crosses over 14x P/E and AAPL over 20% of the Nasdaq-100.
The Punchline In His Own Words: Bernanke Advocates Blowing Asset Bubbles As The Antidote To Depression
If there was one absolutely must see moment exposing everything that is broken with the Fed's brand new policy of QE-nfinity, it was this exchange between Reuters' Pedro da Costa and the Chairman. It explains, beyond a reasonable doubt, that the only goal the Fed now has is to reflate the stock market bubble to previously unseen levels, to focus on generating jobs although not for everyone but only for Wall Street, consequences be damned, because by the time the consequences arrive, and they will (just recall that subprime is contained) they will be some other Fed chairman's problem. Bernake's term mercifully runs out in January 2014.
- *FED OFFICIALS SAY GROWTH WILL IMPROVE FASTER THAN JUNE OUTLOOK
- *FED: 2012 GROWTH OF 1.7%-2.0% VS 1.9%-2.4% IN JUNE
- *FED: JOBLESS END OF 2012 AT 8.0%-8.2% UNCHANGED FROM JUNE
- *FED: JOBLESS END OF 2013 AT 7.6%-7.9% VS 7.5%-8.0% IN JUNE
Throw Me A Bone...
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