An Intervention — Thirteen years.
Thirteen years: the amount of time that all of you degens have been getting high off the Fed’s supply.
What, you ask, was this supply? Well, quantitative easing and those sweet, sweet near-zero interest rates.
When the Fed buys long-term securities, including mortgage bonds and treasuries, it helps boost the economy. This essentially increases the money supply and introduces downward pressure on interest rates.
In turn, it makes it easier for banks to lend and for consumers to borrow. Then boom, consumption and increased velocity of money.
When it works, it’s a beautiful thing. You can see smashing growth over time and both a strong main street and a strong Wall Street economy.
But when things get out of hand, you can end up in the position we are in today: too much money chasing too few goods. If you’re late in recognizing this (transitory, I promise), the greatest tax will start to take money out of consumers’ pockets.
Apparently, our thoughts on Wednesday’s rally were incorrect; Thursday showed us that the markets aren’t necessarily convinced that the Fed is that serious about inflation.
Worst case scenario: asset prices, aka your precious yolo’d Robinhood accounts, trend lower and in a hurry, AND the CPI keeps going up because inflation keeps burnin’ like Sean Paul.
At the same time, it makes me wonder how far out of the money the Fed put is these days. I’ve heard all sorts of opinions about it, and everyone has a different one about how little Daddy JPow cares about stonks.
The consensus, in our book, is that he doesn’t give a flying f*ck about asset prices. Sorry, Apes, the Fed isn’t going to stop-loss the markets for you.
Is this an intervention? After more than a decade of Fed-induced degeneracy, is it finally time for a long hard look in the mirror?
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