With the stock market tumbling and the US dollar rallying, we are setting up for market earthquakes.
It is perfect that a Videogame company has revealed how this has all become one big Videogame. — Paranoid Bull
FOMC
January 27 (King World News) – Peter Boockvar: The FOMC statement was pretty much identical to the one written in December. The change though was on their assessment of the economy. In December they said:
“Economic activity and employment have continued to recover”
with the caveat
“but remain well below their levels at the beginning of the year.”
Today:
“The pace of the recovery in economic activity and employment has moderated in recent months, with weakness concentrated in the sectors most adversely affected by the pandemic.”
With the selective winter shutdowns, they are really stating the obvious.
I find the Fed’s continuous use of the wording that the Treasury and MBS “asset purchases help foster smooth market functioning…” when market disfunction happened back in March. We also wonder what Powell thinks about the market functioning in GameStop and the others. Lastly with this statement, I’ll say again, with home prices rising almost 10% year-over-year, why in the heck is the Fed buying $40b of MBS on average every month?…
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GameStop’s Stock Has Skyrocketed From
$2.57 To A High Of $380!
GameStop And The Fed
On GameStop and the Fed, some thoughts you’ve heard me echo a lot in the past but I’ll say again in this context:
We have to understand that the purpose of essentially free money via zero rates and QE is to encourage risk taking. It is meant to scare money out of a savings account, a CD and/or T-bill and into riskier assets. It thus encourages riskier behavior on purpose. Now the Fed certainly didn’t imagine that epic short squeezes would be a consequence of its policy but it inevitably is. Free money gets people drunk on credit, drunk on speculation and when these market participants then get into a car, it seems fun for a time but there is usually a car accident at some point.
Market Earthquakes
The search for yield, the search for some return ALWAYS results in this type of action because human nature never changes and zero rates and a $7+ Trillion balance sheet just eggs it on. The Fed says it focuses on financial stability but that only seems to extend to the banks after 2008-2009. However, what we have now is tremendous financial instability and fragility in the markets and we’re watching it writ large this week. I just don’t see any instance where the Fed can ever reverse its easing without causing market earthquakes.
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