Thursday, October 16, 2014

Growing fears about the US economy sparked a global stock market sell-off, with shares in London, Europe and the US falling sharply following poor data from America.... As the dollar falls so the value of companies rise as they are valued in widgets, so as the dollars rises so the value of companies fall, also if you have a large deficit that can not be paid for with tax then you create perpetual bonds at zero percent interest to the value of the difference, now both the UK and US are doing this, they call it QE, but no where can I find this in this paper or its comments, is every commenter here a troll typing a from a script? I live in a world of either robots or crazy people...The QE addicted stock markets are suffering cold turkey. They expect their next fix soon. The Fed dealer will comply to keep his customers happy. Sadly they still don't realise the QE fix makes the addict sicker.  I'm looking forward to the November Gold Referendum in Switzerland when the people will vote for ensuring the Swiss franc is actually backed up by something more than a promise of more funny money.  A further nail in the coffin for this absurd charade... QE means that the Fed has lots of US bonds. This kept interest rates low. Why doesn't the Fed start selling these bonds as there is now a demand for a safe haven in US dollars? The will prevent interest rates on the bonds falling lower and get the Fed out of the real economy.
OK what is wrong with this idea?   High rates increase the debt repayments for all debtors, the largest of which is the USGovt. An entity which has, as it happens, dramatically increased the proportion of its debt that is short-term, a move designed to lower interest costs. This also exposes the US to huge rate-risk as they must roll this short-term debt frequently. They cannot risk higher rates, possibly ever.  What they would ideally like is high inflation combined with low rates, to inflate away the value of all those trillions in debt while keeping interest payments down...  My sense is that the belief that Central Bank policy can insulate investors from any and all risk is now wearing thin. Finally. After a very long wait for those of us who always knew it would. If true, this has profound implications that will quickly become apparent.  As long as traders believed that the CBs would always be willing and able to save the day in case of any market pullbacks, why not leverage up and go all-in? It's been nearly impossible to lose money in the stock/bond/property markets over the past 5 years. Many/most traders know that the CB's have been blowing a massive asset bubble over the past few years but they also believe that they're smarter than everyone else and will be able to sell before the crowd when the bubble starts to pop - so why not, as former Citigroup CEO Chuck Prince memorably put it, 'Dance as long as the music is playing'?

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