Its Halloween today, one of my son's favorite days (he is Sherlock Holmes today), so I had to look up the origin of the day and it turns out as usual there is much debate on this topic. What is agreed upon is that it initiates the triduum of Allhallowtide which is the time in the liturgical year dedicated to remembering the dead. As spooky and scary is the theme of most Halloween parties I find it amusing that the scariest game in town right now are the global markets and by markets I am not just referring to the stock market I am including the commodity markets as well.
As of this moment the S&P 500 is breaking to new all-time highs, gold and silver are down 5.7% and 8.0% respectively in three days, oil has fallen more than 20% this year (a bear market) as have corn and soybeans, housing after an initial rally has seen its luster fade; all this while interest rates hover at multi-year lows. Fortunately I am completely agnostic to market movements so while I continue to prosper I can feel the workings of something larger than what appears on the surface lurking around.
Certainly with the price of oil and the grains falling it should relieve some of the stress on the consumer. I have to say that I am rather enjoying gasoline at $3.40 a gallon down from almost $5.00 a gallon a year or so ago. Business also seems to be picking up in most of the sectors that I am invested and overall 2014 is turning out to be a fairly good year for me so I am not complaining in the least. The Federal Reserve ended its quantitative easing this month and the stock market, rather than implode, is making new highs. Conventional wisdom it seems is out of the window as $4 trillion of stimulus has not produced inflation (in fact there is even talk of global deflation), the dollar continues to strengthen daily and interest rates are still exceedingly low. How is this even possible or are we at a dead man's party?
Never in the history of the globe has such a large amount of financial stimulus been tried and I am certain that the Federal Reserve officials are patting themselves on their backs right now. History seems to have been defeated and a new era of economic prosperity is upon us, or so they would have us all believe. What I will say is that for now it does seem to be working but while they have said that quantitative easing is over they are still stimulating the economy to the tune of $40 billion a month (roughly) in that they are not letting their balance sheet shrink. As they have a $4 trillion investment portfolio of debt roughly $40 billion is maturing each and every month and for now this is being reinvested.
With Europe still extremely weak, Japan in trouble and China
slowing down it is no wonder that the dollar is charging. This is more a
factor of external global weakness than a celebration of the economic policies
of the Federal Reserve. It once again appears that there is time to
reduce their $4 trillion portfolio and to me they should take this opportunity.
The reason that they will not is that the labor market is still weak and
there are fears that the rest of the world will export deflation. While I
can understand these concerns I believe that it is more important to take the
opportunity to put some powder back in the barrel for another time as it will
come and then it would be nice to have something to fall back on. For now
though let the dead man's party roll on, what do you say my dear Watson?
No comments:
Post a Comment