“Wolfgang” posted on the Jim Sinclair website the following in regard to markets, the Fed, QE, bonds etc. I think he summarized it nicely.
“You have to understand one thing… in the past, all markets were, generally and as a rule, based on supply and demand driven by investors (both institutional and retail).
Today the Fed is involved in all markets hoping to keep prosperity alive (a ridiculous notion that every capitalist and Austrian economist believes is nothing more than voodoo economics).
Therefore now, more than ever before, all markets are interconnected when it comes to pricing.
The Fed is monitoring and toying (manipulating) with the dollar, interest rates, stocks, bonds, oil, etc.
But, if you know their plan, their objective, it can be beneficial in making investment decisions. Below you can see how interrelated everything has become. The Fed doesn’t know how to get out of the corner they painted themselves into.”
“Gold: Not so good an investment until the Fed loses control (dollar collapses, inflation roars upward, bond market collapses, etc.)”
“Dollar: Shouldn’t rally much more or else US multinational corporations lose too much money. Also, the ensuing deflation will overcome our economy.”
“Oil: Although many claim oil can drop to single digits, if the Fed were to allow that to happen, the NAT GAS and OIL fracking companies would go bust and default on trillions of bank loans, causing a global financial crisis.”
“Bonds: Fed has been the main buyer of all newly issued treasury bonds. If the bond market collapses, who will buy from all the sellers if the Fed doesn’t print more money to take up the slack.”
“Interest rates: If the Fed wants to raise interest rates significantly to stop any upcoming inflationary spiral, they risk increasing the rates on all Treasury Bond issuance! This means they’ll have to pay more interest on their debt, putting them even deeper in the hole. We already have $18+ trillion in debt. Just figure out what each 1% means in terms of increased interest expense for the Treasury!”
“Derivatives: A quadrillion in outstanding derivatives today. Much of that based on interest rates. If interest rates were to rise significantly, there would be massive defaults causing another global financial crisis.”
“Stocks: The Fed is trying to keep the stock market up for the benefit of the public (really the benefit of the rich) and create a feeling of optimism among the public. All the QE over the past few years has gone into the stock market and bond market and keeping interest rates low. If they take it away, those markets will crash. Therefore it appears they must keep printing.”
The Fed, and other central banks, MUST keep “printing” … but if they DON’T keep “printing” … what could happen?
- Global economies descend into stagflation or a depression.
- Global economies become erratic and volatile.
- Debt overwhelms most western economies.
- Most people live through difficult times.
- Wall Street will beg for more QE, more “money printing,” and another “helicopter drop” of central bank fiat currencies.
- Desperate businesses and individuals will act accordingly.
- Most people will be unprepared as many paper assets crash and burn.
Like soldiers running for cover under enemy fire, some investors will seek protection in gold and silver.
To maintain confidence and the illusion of growth central banks must continue to inflate the bond, equities, and currencies bubbles. Expect more debt – lots more debt as central banks feed monetary heroin into their economies. The inevitable result of too much debt is a crash or reset.
From Bob Moriarty of www.321gold.com
“Complex systems always fail catastrophically.”
From Bill Gross:
“Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment super cycle may be exhausted.”
“Their ‘New Normal’ [normalization of 2% growth and 2% inflation] as I reaffirmed most recently at a Grant’s Interest Rate Observer quarterly conference in NYC, depends on the less than commonsensical notion that a global debt crisis can be cured with more and more debt.”
“When does our credit based financial system sputter/break down? When investable assets pose too much risk for too little return.”
“Hogwash. This is all ending.”
Read: Secular Investor Negative Interest Rates: Financial Black Hole
Andy Hoffman De-fiatization
Bill Holter: The Money Has To Go Somewhere
My thought: It is unwise to scramble in front of an oncoming steam-roller in search of dollar bills when real money, gold and silver, is still available at “bargain” prices.
The Deviant Investor