Is the FED the stock market cancer?

Posted: December 19, 2018 in Uncategorized

I was thinking about cancer as usually is treated with chemotherapy that technically kills the patient to save him/her from cancer.

The Fed embarked in this interest rate rising exercise even without any spike of inflation (the main mandate of the Fed is to prevent inflation becoming a problem) and decreasing aggressively Quantitative Easing (from October (ops- the start of the crisis) USD50 billion per month).

Why?

Most probably as, after QE, they are without ammunition in case of crisis (cannot lower interest rates from zero, cannot stimulate a balance sheet when they have it already overblown it). But in doing so I think they are creating the crisis itself.

This is compounded by machine trading (Treasury Secretary Mnuchin agrees) that flood the market with orders when there is no liquidity (due to the Fed liquidity withdrawal). 500 points swings of the DJ are NOT normal.

I don’t think that the FED has to act to the vagaries of the share market (it is not its mandate), but a lot of indicators point to a relaxing of the pace of US growth (even EPS forecast decreased from beyond 20% to around 10% and a lot of indicators point down since November).

Even without much data point, one knows that most of the spike in data in early 2018 was due to the tax cut …and now is an headwind.

So, they should stick to their business – act only if inflation is running away.

Unfortunately the FED has a tradition of keeping on hiking until something cracks. Operation successful, patient (bull market), dead.

Hopefully tonight they will surprise me (FOMC release).

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