The cash generated by the ECB’s second big LTRO operation hit the US banking system last week. At the same time the Fed is still pumping cash into Primary Dealer trading accounts, and it just completed a big mid month cash infusion. This was all part of the master manipulators’ master plan, of which they have made no secret, and which we have followed with keen interest. But now the consequences which they did not intend are beginning to loom a little larger.
With Treasuries over-owned and sentiment finally beginning to shift against them, any cash freed up by the Fed and ECB operations has flowed toward stocks and commodities. There appears to be no reason for that pattern to reverse in the short run. Rising commodity prices will force the central banks to keep their hands in their pockets, and at some point, probably a month or two down the road, that will begin to put downward pressure on stock prices.
But we’re not there yet. Because the Fed follows the slowest and least sensitive inflation measure, the core PCE, which ignores food and energy inflation, and is only calculated quarterly with a lag, Bernanke and Co. will be the last to know that inflation has gotten out of control. So they are not likely to tighten policy any time soon, and by the time they do, it will be too late. Fed policy is always reactive in response to what has already happened, never proactive in preparation for what is likely, because the FOMC has no clue as to what is happening concurrently, let alone what is likely. It is only capable of reacting to crises that have already occurred as a result of the unintended consequences of its past policy mistakes. So by the time the Fed reacts again to the unintended consequences of its latest policy blunder, those consequences will have already taken their toll. If you understand that simple dynamic, you are one step ahead of the Fed and the market.
Click here to download complete report in pdf format (Professional Edition Subscribers) including 19 pages of charts and clear, cutting edge analysis that you can use to gain an edge in the market. Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. 30 day risk free trial for new subscribers. Click here for more information.
Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, along with regular updates of the US housing market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!
Enter your email address in the form to receive email notification when Professional Edition reports are posted.