I don't blog much on this subject, but I couldn't resist today.
SO the Fed chairman decided to keep the pedal to the metal and continue pumping money into the pockets of sellers of "bond substitutes" today. Yes, they may actually be buying treasuries and MBS, but the net effect is the money that would have been absorbed by these markets has to find another home. Some of that money finds its way into "lower quality" debt but the smart money is going to find a home that has more inflation protection.
Recently I posted a note about an "art bubble" forming because very wealthy people like JayZ are paying obscene (what about JayZ isn't obscene after all) amounts of money for some pretty trashy art and very expensive collectible cars. My comment:
This is just another example of where all the QE money is going. Can't buy bonds, stocks are risky; let's buy collectibles! It's not inflation till it hits the other 99%.
To which I got these replies:
The QE money is sitting in bank reserves, not chasing goods, services ... not art.
QE money is not going to buy art. What the hell are you smoking?
If he is smoking anything, I'm sure that he needs several moments to figure out that he should light the end furthest from his face.
It is true that JayZ probably didn't decide to go buy Bugatti's and Jean-Michel Basquiat art work because bond rates weren't high enough, but there are other bidders out there who are using art and other limited-supply investments to shelter their assets from inflation.
The inflation is limited to the "bond-substitute" market for now because these people don't shop at Wal-Mart and don't eat at McDonald's, and they probably don't need any more food even if they did. So they continue to buy stocks, junk bonds, and yes even collectibles and that is how all that QE money leaks into the economy.
What I have to wonder today is why the Fed chairman didn't "taper" their bond purchases. It was widely expected and would have been accepted without much fanfare, but instead the Fed chose to "laissez le bons temps rouler" (let the good times roll) another quarter. Something tells me a gran mal headache is waiting around the corner.
Does anybody still think I'm smoking something?