The fed may never raise rates again:
I hope he’s right. The bad jobs number last week increases the odds rates will remain low, and the fed has no pressing reason to raise rates, anyway. The bond market isn’t signaling inflation and neither is the economic data. There’s still insatiable demand for low yielding US debt from foreign countries and institutions. The race to the bottom and global flight to safety is keeping inflation low, even as US economic growth is steady and profits & earnings and consumer spending keeps rising. There’s no immutable law that says the fed must raise rates, or that if the fed does raise rates that they must raise them all the way to 3%-5. They could stop after a single rate quarter point.
Idiot of the day: Druckenmiller: This could end ‘very badly’
Cry me a river…Since 2009, I’ve been reading the same doom and gloom crap about how the fed has ‘painted itself into a corner’…and yet the fed always finds a way to defy the doomsayers, and stocks and bonds keep going up. If you bet against the smart policy makers, the US consumer, high-IQ, technology, and web 2.0, you will fail. That’s a guarantee. You may make money briefly, like in 2001 or in 2008, but the market always comes roaring back. Bonds fall a bit and the left calls hyperinflation, and then all of a sudden at the drop of a hat bonds rip higher, leaving the left dazed and confused as to what just happened. There was supposed to be a inflation crisis and bond crisis – how did the bond market market just rally so hard and so quick? Because you bet against the best and the brightest, and you failed – predictably so. You bet against America and you lost, again. In 2009, the left bet against America, anticipating that the financial problem would user a ‘post-America’ era and a permanent ‘downshift’ in wealth creation, technological innovation and wealth creation – similar to what happened to Japan in the 90’s.
It’s time to hold these libs accountable for being wrong all the time. We went after Rolling Stone, and justly so, and now let’s focus our attention to the charlatans who keep predicting the same doom and gloom crap and being wrong all the time, trying to scare people into selling their stocks too soon and buying bad investments like foreign currencies. In 2010, the human bullhorn Peter Schiff said to buy the Euro because the dollar would collapse. LOL what an idiot, and I don’t think he ever repudiated this position despite being so obviously wrong.
So could it end badly? Theoretically, anything is possible. But if history is any guide, no.
The left said in 2013 that the end of QE would cause inflation and a bond & market market crash. Nope. The exact opposite happened.
So why was the left so wrong? Because they don’t understand economics, nor do they understand how markets react to news. If the market were worried about the end QE hurting growth, it would be reflected in the stock market in the form of lower prices, but the S&P 500 has rallied 30% since the taper was announced, rendering such fears unfounded.
I explain in detail here
See, no fed conspiracies; just strong fundamentals. Yes, QE did help to some degree, but it’s hardly the only cause. QE isn’t the reason why Apple made $18 billion profit in a single a quarter, or why Facebook went from just another social network to the 2nd biggest internet property in the world, second only to Google. The PE ratio of the S&P 500 is still just 17. For valuations to rise to the levels last seen during the peak in 2007, the S&P 500 could rise as high as 2,500 – and that is assuming earnings are flat; if earnings rise, stock prices can rise much higher.
Profit and stock prices rising together: eveidence that it’s fundamentals that are driving this bull market, not QE.
I sometimes get into debates with conspiracy nuts, well-intentioned but misinformed people who believe the fed’s QE program is the only reason for stocks going up. This is countered by the fact that despite the fed tapering almost 2 years ago and finally ending QE a year ago, stocks have actually risen 30%, which shouldn’t have happened if QE were entirely the cause of this rally. The left wants it both ways – they want to call QE a failure, but also predict it will cause hyperinflation. QE was a success by boosting confidence and asset prices, and that is good enough for me. Libs who wanted more job creation: too bad. Stocks are surging because the fundamentals of the US economy as measured by exports, consumer spending, profits & earnings keep being better than ever. Large cap tech companies like Apple, Microsoft, Google and Facebook are flooded with cash. The banks are sitting on the QE money due to individuals and businesses not borrowing, so QE isn’t even inflating the economy anyway. Treasury yields are still rock bottom despite the unending doom and gloom predictions of high inflation, and the dollar is rallying to multi-year highs. Yes, to some extent QE contributed to the bull market, but it’s hardly the only cause.
In the sceme of things, QE is just an asset transfer. It’s not this magical elixir that the economy is somehow dependent on, which is how the left interprets QE. In reality, it’s like a last ditch effort after everything else has been done, that at best is a small stimulant.