No surprise to the Fed decision today – they didn’t make one. Yak, yak, yak.
There are a couple of reasons why – one is the little ugly about the Federal Budget deficit which is still a big cloud hanging over everything. Think about it: We have 18.5 to 19 –trillion in debt out there. Ever pencil out what a 1/4% rise in the rates will cost there alone?
Moreover, what should follow (and this is the “George-aquences” part: The market should decline a bit – and then go roaring upward as the smart money comes out of the bond market in the coming month, or two and moves back into stocks.
Don’t get me wrong – bonds are beautiful – but only so long as the prevailing rate of interest is coming down. The Fed is scream they want it to be, but kinda hard to wake up from the nightmare on Wall St.
We unloaded our bonds almost a year ago.
The big economic question to be resolved is “To what extent, after an initial pullback, will the market bounce skyward as a big shift from bonds to the equities ratchets up?
Given the market has already blown off 100 points from the day’s high, I would look for the balance of this week to be bearish in tone. This is to be expected and it will give the big commercials a chance to buy up stocks ahead of the big rush out of bonds by the dead pools of capital.
A number of people I know in the fixed incomes think this is hogwash – and that when push comes to it, the Fed will just try another quantitative easing.
As we discussed in Peoplenomics this morning, that is possible, but here’s the thing: A QE is kick coke. The first time you use it, the tiniest little bit has an effect. By the time you’ve burned your nose out, you’ve got an addiction no one could afford. QE’s are kind of like that. Or heroin – choose your drug of choice.
When all’s said and done, money is a drug, cheap money is addictive, and the Fed move today is just another lame attempt to push the market into rehab.
What I EXPECT the Fed to find is the Markets will not go quietly into rehab – only an interest rate increase – or more free money, lots more, will work, and even then, it will be several rises and then a collapse yet to come.