All of the news in recent days has been either worrying or harrowing. First there was the story of the banker suicides, with three influential banking executives ending up dead in the span of one week. We've seen equities markets across the board in freefall, with the Dow falling by triple figures on a daily basis and indexes around the world following suit.
The week after the Fed decided to taper again, the rails have started coming off of the over-inflated markets. The taper decision was announced at last week's FOMC meeting, the last meeting to be presided over by Chairman Ben before Chairman Janet takes his place.
Even by the Fed's own admission, the decision to cut QE3 by a further $10 billion (bringing the total amount being injected into mortgage-backed securities to $30 billion and long-term Treasuries to $35 billion) was based not on stellar economic performance, but marginal gains made since the program was started:
According to the Fed's press release: “Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.”
It must be kept in mind that all of the figures and stats being used in this calculation are manipulated and rigged either directly (by redefining the word “unemployment” for example) or indirectly (by artificially propping up the housing market through MBS purchases). In other words, the Fed is now taking away the crutches from the American economy based on their own phony data. But there is a reason that equities markets have been moving up in lock step with the various QE programs over the past five years, and that's exactly why we're seeing markets starting to plummet this week.
All of the news in recent days has been either worrying or harrowing. First there was the story of the banker suicides, with three influential banking executives ending up dead in the span of one week. Then there was Harvard economist Terry Burnham's bizarre warning to America that he was withdrawing $1,000,000 from his checking account from BoA, potentially causing a bank run. We've seen equities markets across the board in freefall, with the Dow falling by triple figures on a daily basis and indexes around the world from the S&P to the FTSE to the Nikkei following suit.
Then the USDJPY rate fell below the important 102 level, causing much consternation among those who are watching out for a yen carry unwind. Now Treasury Bill yields are spiking, gold is surging in a flight-to-safety trade and markets are still trying to digest the bad economic news coming out of China (manufacturing down), Japan (stocks plummeting), Brazil and Turkey (currencies sinking), Greece (third bailout needed).
Whatever is developing in the markets right now, this does not bode well for the all-important changeover of power at the Fed. As observers have noted, the last few Fed chairs have been greeted by a major crisis within months of taking the reins. Could Yellen's crisis be just around the corner, and if so, is there anything left in the Fed's arsenal now that QEInfinity seems to be sputtering? I don't think we'll have to wait long to find out.