Folks, I had to pause a fly-fishing trip to make this video, here, begging you to take action despite all my cynicism for these markets.
Simple: The money printing is back and so bears be damned—go ahead and start buying stocks.
Despite every effort by the Fed to deny it, quantitative easing (QE) is back BIG TIME – $60 billion per month of big time.
What does this mean for your money? Should you be bullish or bearish?
Well, in the “new abnormal” of what is now a Fed-rigged Twilight Zone market, it’s frankly a toss-up. Bulls and bears alike have reason to smirk.
Here’s my advice on how to approach all of this…
A Bullish Smile
In the near-term, one should expect the bullish steroid-effect of $720 billion in annual printed money to be a meaningful tailwind for Wall Street.
The Fed is using this money to purchase Treasury Bills, so that’s a fairly clear signal that T-Bills will go artificially up in value and yields at the short end of the curve should come down a bit.
Low yields mean low rates, and hence yet another green light for corporate America to extend its record-breaking borrowing binge to even greater highs.
This means (1) more stock buybacks for companies like Apple; (2) more Wall Street carry trade/cheap leverage for the hedge fund class; and (3) a nice artificial boost for an S&P 500 Index, already past any metric of natural price discovery.
This Ain’t Capitalism’s Finest Moment…
Yep, the Fed is once again to the rescue of Wall Street and the stock market, which they have now officially confused with the real economy.
Of course, Wall Street and corporate America love this. Since TARP (the “Troubled Asset Relief Program”) and the first dose of QE1 back in 2009, never has so much support been given to a less-deserving class.
The ironies do abound. When the Fed bails out Wall Street and the markets, we call it “capitalism,” but if $60 billion per month were printed to bail out Main Street, we’d call that “socialism.”
In any case, YOU know better.
The Fed is fooling no one. This most recent return to the money printer (last seen in November of 2014) is little more than socialism for the top 1%.
The bulls have every reason to celebrate. The bears, who have been right on the macros for years, will have to retreat to their caves for a bit longer, as the Fed is now tossing the last of its magical fairy dust on what is otherwise a Frankenstein’s monster market whose only lifeblood comes from the mad doctors that run the Fed.
Bullish Moves and a Dishonest Fed
The official word from Powell is that more money printing was needed to “extend the business cycle.”
Hmmm. Fed steroids have already given us the longest business cycle in U.S. history. Is “extension” the real goal here?
Nah. We are way past business cycle thinking. Since the Great Financial Crisis of 2008, business cycles have been replaced by central bank “liquidity cycles.”
That is, rather than run on normal metrics, today’s markets run exclusively on “liquidity” – otherwise known as record-breaking levels of printed money and low-rate, cheap debt.
But with rates nearing zero and trillions of fiat dollars already printed since 2008, these “liquidity cycles” are running out of both punch and ammunition.
In other words, the Fed is nearing the end of its own rope. The monster market they created will be their own demise. Again with the ironies…
With their 2019 rate-cutting moves, the recent repo bailout and now at $720 billion annual money printing agenda, our central bank is firing its last bullets, much like a beleaguered George Custer at Little Big Horn.
Meanwhile, Powell is hoping words will replace math, telling the media that “the economy is in a good place.”
Again, if this were true, why the need for another $60 billion in monthly money printing? But we all know that what the Fed says has nothing to do with candor.
Powell is desperate. He’s buying retail investor faith with adjectives rather than facts. This is nothing new. Dishonesty works… at least until it doesn’t, and the sunlight shines through.
Unfortunately, we have no critical tool or signal to measure the expiration of markets driven by a dishonest Fed.
This latest round of QE (to monetize our own debt) will last as long as investors buy the delusion that a nation can solve a debt problem by taking on more debt.
So, when will the delusion end?
The markets will tell us, not Powell. That’s why we track the former and critique the latter.
A Bearish Last Laugh
Despite this latest QE “stimulus,” the battle between Fed intervention and macroeconomic reality will eventually end, just as all debt-driven market bubbles eventually end: badly.
History, however, has never seen such coordinated levels of intense central bank intervention, and as a result, the crazy can continue longer than prior bubbles.
What makes the bears smile today, however, is the equally obvious realization that by throwing the kitchen sink at yet another problem (an illiquid T-Bill market on top of an illiquid repo market), the Fed is, alas, running out of bullets.
How high (and for how long) will markets rise this time around to QE? Again, the key signal investors should be watching now is therefore the market itself. Just take a glance below at the S&P 500 Index so far this year.
Stocks have been getting toppy. This year’s three bull-runs (in green) have been successively running out of steam… getting very choppy.
Overhead resistance (those nasty red lines) has been building. That’s what a Twilight Zone looks like.
Bears have always known that market fundamentals left the building years ago and that the Fed is the only real driver behind this most hated bull market in history.
Most bears also learned that it’s dangerous to fight the Fed, regardless of how distortive or absurd its policies, and despite the fact the Fed will eventually be its own worst enemy.
Bears have always known that at some point Fed intervention will slowly lose its punch and credibility.
When the markets stop getting the same “buzz” from the Fed’s old steroids, the end will come fast and hard.
With this latest QE move, the Fed is thus moving one step closer to its last hurrah.
Sure, there will likely be some bullish “buzz” to follow, but in the backdrop of record debt, declining earnings, a stalled “China deal,” a swampy D.C., and an exhausted business cycle, it’s safe to assume that this bullish “buzz” will be increasingly less impactful.
We are thus watching the market’s reaction to this latest QE boost with great attention.
When the tape no longer salutes to centralized intervention, the party’s over.
And that’s when the bear will roar, and roar with a vengeance, for it has been biding its time while the Fed has pretended to be all-powerful.
Once the Fed falls, the house of cards, debt, and dishonesty it has built for over a decade will fall with it.
That’s why informed investors need to be wary of the bullish tailwinds that will likely follow this latest round of money printing. Don’t be lulled into false overconfidence.
What to do? For now, we broadly recommend keeping large amounts of cash to the side, as per our Storm Tracker, and putting the rest in diversified stocks, short-duration Treasuries and about 10% in gold and silver.
Why so much cash in the face of a likely tailwind?
The bottom line is this: The real money is made at market bottoms – not at the completely broken, distorted, desperate and nervous tops we are currently witnessing.
By being informed, you don’t have to worry about the bear’s roar nor the seductive charms of a bogus bull…
And in the end, you will be the one smiling last.
6 responses to “Quantitative Easing Is Back – Here’s My Advice”
- Gregory Oleansays:
When the bubble bursts, would you think it will take about 12 to 18 months for equities to reach a bottom or a bottoming phase? I have been reading that even after a bottom has been reached, we may not see the typical V or U shaped recovery. Any thoughts here?
- Gregory Oleansays:
With the pendulum swinging so for into the extreme of equity valuations, I am expecting a test of the 2009 lows in the DOW/S & P 500 after the burst. I know many may think that is extreme but it would be a good equaling factor to what we are seeing now. Thoughts here? It may give your readers something to think about as to how large this world debt predicament really is.
Brilliant synopsis. It depresses me to see how much the government and mainstream media lie about all this. Millions of people will be ruined when the bottom falls out. Those who benefitted least from the fed bubbles will suffer the most when hyperinflation kicks in.
- David Newman says:
Thanks. Excellent article. I will follow your advice.
- don gray says:
Hi Matt, first time I’ve listened to you and I just want to say thank you for being direct, keeping it simple and giving us what I heard as heartfelt advice. Thank you
- jay says:
I do understand,so my goal is to ride the wave down to obscene profits.
lets be like “Joe”,Joe Kennedy that is. Top 3 shorts?? What brokerage is safe and will pay up on my short positions,to say nothing of Government confiscation,I’d like to avoid that as well..