Will this chicanery of the Federal Reserve end badly? They are doing what they used to tell banana republics not to do — trying to dig yourself out of a financial hole by printing money. It worked 10 years ago, but will it work this time, on a much bigger scale? If the markets ever begin to doubt it, then all hell breaks loose. It’s a credibility game. Belief can crumble quickly — virtually overnight. One day you have total faith in them, the next none.
So the issue now is really can the Federal Reserve just not allow recessions to happen by printing a blizzard of money? Notice the obvious severe dichotomy that is taking place. The US economy and to a large extent the world economy are almost totally shut down, but stock markets are going back to all-time highs.
The negative side to all the various bale outs by the Federal Reserve and the government: more crony capitalism where weak companies that should fail and just disappear are kept alive. Why there has been such poor growth in the last 10 years — all these zombie companies that are unproductive. Bale out nation — that’s how you undermine capitalism. Assets are spent on unproductive companies.
Pretty blatant market control by the Federal Reserve. Will be interesting to see if their market manipulation works and prevents a collapse. Their 2.3 trillion this morning reversed the futures from negative to strong positive. 2787 is a 50% retracement from the lows. If it gets as far as 2850, the bullish case takes over. Otherwise, it’s a bear trap. If it starts to fall again, the next leg down is going to be truly terrible, as this rally is all based on funny money from the Federal Reserve — it worked in 2008/9, will it work again? Earnings start on Tuesday with JPM. Not surprising the Fed sprang another 2.3 trillion this morning as unemployment went up another 6.6 million people in just a week. It’s really no long about coronavirus, as the plateaus are in for the virus — it’s about the economic devastation that it will bring now and for the next 5 months minimum. The unemployment rate may get to 20%. That’s what the Fed is reacting to.
Will the Federal Reserve and the Treasury just paper over this financial crisis with tons of dollars like they did in 2008 so there is no collapse or will the collapse happen anyway? That’s the question.
If the Fed has a dovish tone in their December meeting, the market will take off. Might have a blow off top. That would be a good time to sell and take a more defensive position.