Wall Street loves a good Republican victory, and yesterday the financial press said that the market was up in anticipation of the Republicans taking the House. Today the story was that a market reached a new high after the Federal Reserve decided to buy up $600 billion in Treasury securities.
Deborah at Wall Street Weather called this last week in her “Trick or Treat edition” and explained why it won’t work:
Halloween is all about all kinds of terrifying creatures, ghosts and zombies (the living dead) roaming around. And what’s truly “unbelievably terrifying” to quote GMO’s Jeremy Grantham’s “Night of the Living Fed” is that every voting member of the FOMC has become a zombie except Thomas Hoenig.
The Fed acts like zombies because they continue to do the same thing over and over again. Fed Chairman Bernanke’s mentor is “Chief Zombie” Alan Greenspan who taught him that when one bubble bursts, another one needs to be conjured to create the “wealth effect.” In addition to promising near zero interest rates for an “extended period,” the Fed talks of the treats of QE2 and inflation targeting, so that all that debt (Scorpio/Pluto) left over from when the last bubble burst just over one Mars cycle (2 years) ago becomes cheaper to service.
The Fed wants investors to become zombies like them, under the illusion that reflating asset prices makes investors feel wealthier so they’re more likely to spend and employers are more likely to hire and grow their businesses. As PIMCO’s Bill Gross writes in his latest Investment Outlook: “The Fed, on Wednesday, however, will decide that it is better to keep the patient on life support with an adrenaline injection and a following morphine drip than […]