October 13th Update – The Fed ramps up QE more quickly than expected; Prepare for the inevitable as stocks are already near all-time highs

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-The Fed “surprises” by announcing $60 billion/mo. in new Treasury purchases, while rolling over maturing portfolio. This was higher than my $50 billion/mo. prediction by the end of the year.
-The latest domestic inflation numbers and fading PMI data give the Fed cover to run massive QE operations. This past week, the PPI and CPI were weaker and the PMI data looks poor around the globe.
-By concentrating the buying on short-term durations, the Fed is addressing the Repo problems, while buying up new Treasuries to keep the United States, Inc. in business.
-The fact that the Fed reacted so quickly to the short-term funding problems shows that it will do whatever it needs to keep things moving forward.
-Longer-dated Treasuries sold off as it was expected later in the year that the Fed would begin to buy bonds. As of now, they have not announced any large scale long-dated purchases. This is temporary and the drops in yields will commence again.
-Commodities futures could get a further lift as China lifts tariffs on Soybeans and Hogs.
-The other central banks will ramp up large QE programs as their inflation numbers look even lower than here in the U.S. Massive asset inflation will result
-In an over-indebted world, tariffs can actually be deflationary, because the tariffs work to undermine economic growth, and as the economy rolls over, demand fades and manufacturing data drops. Think of the global ISM and PMI data. With everyone in massive debt, trade problems can be deflationary.
-Be prepared for higher asset prices. The S&P 500 is only a couple percent below all-time highs. Global real estate and dollar-based assets are going to rise.
-Higher asset prices are not the primary objective of the Fed, but rather, a result of keeping the U.S. government in business.

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