Unlimited QE and a reminder of discontinued series

Just when you thought it couldn’t get crazier, the Fed has announced that it will buy unlimited sizes of treasuries, mortgage-backed securities and corporate bonds. Recall our comments in 2018 when the Fed discontinued its reporting of assets. We noted that the Fed discontinued M3 money stock in 2006, two years before the GFC. Coincidence?

We were always struck by former Fed Chair Janet Yellen’s comments in 2016:

Monetary and fiscal policy is far better prepared for large positive shocks than negative ones

and 2017:

Don’t expect another financial crisis in our lifetime

The only thing left is to buy equities outright which would require an act of Congress. Such moves once again only highlight just how bad the situation has become. The Bank of Japan can hardly be credited with success over its ETF based equity purchases. It has now lost $30bn in this recent market rout. We should mention that the BoJ is a top 10 shareholder in almost 50% of listed stocks, creating an overhang of epic proportions should it ever announce it wants to reduce holdings. It now owns $300bn and due to be $400bn by year-end.

Trouble with (being behind) the curve


I’ve been bearish for a long time. With good reason. In July of last year I articulated the awful state of affairs driven by reckless group thinking central banks who have seen money velocity evaporate before their eyes yet continue to throw more fuel on the fire. At a lunch the other week some bankers were telling me (a former banker) that things were fantastic and I was wrong to be bearish. I replied, “have you hired or fired more people in the last 12 months and why?” Stunned silence. Group think prevails like always. Let us not forget that history has at times proven not to be on the side of conventional wisdom, or the consensus view, but on the side of those who dissented from them. More significantly, the media and financial community failed by not being rigorous and questioning enough, resulting in many anomalies taking too long to be discovered. We have seen so often that the time of greatest certainty is, in fact, the time to be most sceptical. “If we spent more time on biopsies in journalism”, as Adrianna Huffington suggested, “there would be far fewer autopsies.”

Please find this interesting summation on ZeroHedge which runs through 12 reasons why this Fed rate hike is madness. I agree. After running out of ammo they are reloading the cartridges with rock salt.