The Fed’s pumping will now pick up from the reduced pace of the past two holiday weeks. That will coincide with another Treasury paydown this Thursday that will add even more cash to the system. New notes settling on January 18 will absorb some of that, but for the coming week conditions will be favorable for both stock and bond prices to increase.
An additional bullish factor is that both the commercial banks and foreign central banks appear to be entering the upside of their buying cycle. A normal cyclical uptrend in those forces at this point could be bullish influences for a month or two. At the same time, individuals appear to have stopped their run on stock mutual funds for the time being. All of that creates a bullish brew for stocks.
The issue is whether it will be sustainable. I have my doubts. Bernanke’s printing press seems to be adding about 10 cents a gallon per month to the price of gasoline. Food prices are also rising. The negative feedback mechanism of Fed pumping is running full blast. It is boosting economic activity thanks to government deficit spending but it is primarily stimulating non core food and energy inflation—the kind of inflation that the Fed pays no attention to. Bernanke’s policies are decimating the middle class thanks to soaring prices for necessities, and sending senior citizens to the poorhouse by the millions thanks to zero interest rates.
This Fed policy is beyond just stupid. On top of being doomed to massive failure, it is a crime against humanity. While impoverishing the middle class and the elderly, the policy is enriching the oil barons, speculators, and Wall Street financiers. When criminals are rewarded instead of punished what you get is more criminals and more criminal behavior. The system rots until it collapses completely. A house built on fraud cannot long stand.
As more millions are forced to rely on government handouts to feed themselves, economic growth will again stall. The top 1% cannot carry the increasing load of those falling out of the economic system. The total number of employed persons fell by 250,000-300,000 in December, bringing the decline in the total employed to nearly 1 million since July according to the BLS household survey.
The Fed began printing money in August with the QL1.5 program, which was designed to keep its balance sheet from shrinking when its MBS holdings were paid off. When the Fed was printing money from November 2008 to March 2010 in QE1, the economy lost 6.6 million jobs. So naturally Bernanke’s solution to the employment problem was to print more money. Doing more and more of what doesn’t work is a sign of insanity. So Bernanke is clearly insane and his cohorts at the Fed are sycophants and fools.
Meanwhile, as the foundations of the economy crumble, the printed cash flows through Wall Street and the markets levitate. The conditions look favorable for more of that in the weeks ahead but we’ll keep a close watch on the foreign central banks, the banks, and fund flows for any sign that the gig is up. An early stall in these cyclical buying patterns would be the signal that the Fed’s con is failing. Keep an eye on those gas prices too. When you cringe at the pump, that’s a sign. The Fed may be forced to stop pumping sooner than we think.
This article is an excerpt from the Wall Street Examiner Professional Edition Fed Report, available to subscribers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.