"You live in a world of illusion. Where everything's peaches and cream. We all face a scarlet conclusion. But we spend our time in a dream....."
Government Dependance...........the Fed bubble
The Last Time The Dow Was Here...
Tyler Durden on 03/05/2013 09:36 -0500
October 11th 2007, the last time stocks were here...
•Dow Jones Industrial Average: Then 14164.5; Now 14164.5
•Regular Gas Price: Then $2.75; Now $3.73
•GDP Growth: Then +2.5%; Now +1.6%
•Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
•Americans On Food Stamps: Then 26.9 million; Now 47.69 million
•Size of Fed's Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
•US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
•US Deficit (LTM): Then $97 billion; Now $975.6 billion
•Total US Debt Oustanding: Then $9.008 trillion; Now $16.43 trillion
•US Household Debt: Then $13.5 trillion; Now 12.87 trillion
•Labor Force Particpation Rate: Then 65.8%; Now 63.6%•Consumer Confidence: Then 99.5; Now 69.6
•S&P Rating of the US: Then AAA; Now AA+
•VIX: Then 17.5%; Now 14%
•10 Year Treasury Yield: Then 4.64%; Now 1.89%
•USDJPY: Then 117; Now 93•EURUSD: Then 1.4145; Now 1.3050
•Gold: Then $748; Now $1583
•NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares
Dow Jones high on Fed steroids
On Monday, billionaire superinvestor Berkshire Hathaway CEO Warren Buffett told CNBC that
markets are on a "hair trigger" waiting for signs of change from the Fed. The market is "hooked on the drug" of easy money, Dallas Fed President Richard Fisher told Reuters.
Fisher's comparison of Fed policies to a drug is apt. Markets might not like the idea of the drug being withdrawn now, when
the Fed holds a portfolio of $3 trillion. But the withdrawal symptoms will be a lot worse once the portfolio grows to $4 trillion, or more.
No one has a clear idea how the Fed plans to unload such staggering sums. As it sells off its hoard, the value of all bonds could plunge, more than wiping out the small returns bond investors are getting. But holding onto the bonds as the economy stabilizes would set off inflation, which the Fed is required to combat.
That's a good reason to start thinking about an endgame sooner rather than later.
The longer the Fed's easy-money policies go on, the greater the risk they will distort markets, create new bubbles and set the economy up for another fall.
Fed Chairman Ben Bernanke has taken many bold and important actions, quantitative easing included, that averted a depression and propped up the economy during difficult times. He should be congratulated.
But he's now left searching for a Goldilocks moment to reverse course, and such things are hard to divine.
Dow Jones high on Fed steroids: Our view
The recovery is remarkable because the American housing market remains weak, Europe still has moments of severe instability, and fiscal battles drag on in Washington.
Using other yardsticks, however, the performance of the blue-chip Dow does not look quite as impressive.
The much broader Standard & Poor’s 500-stock index, the benchmark favored by investment professionals, was slightly below its 2007 high even after it climbed 14.59 points on Tuesday, nearly 1 percent, to 1,539.79. And when adjusted for inflation, both the Dow and the S.& P. 500 were well below their levels at the start of the last decade.
The Nasdaq composite index also surged Tuesday, rising 42.10 points, or 1.3 percent, to 3,224.13, but it remains well below its 2000 high, when it topped 5,000.
Previous highs occurred when investors believed the economy could keep growing without any extraordinary assistance.
By contrast, this rally has occurred on the back of enormous monetary stimulus by the Fed and the world’s other central banks.
The looming question is what will happen when the Fed stops its stimulus. Mr. Rosenberg said that after the crisis the stock market declined sharply on two occasions when the Fed signaled that it might temper its monetary easing.
http://www.nytimes.com/2013/03/06/bu...-activity.html
Under the Fed's plan for 2013, the central bank will purchase $40 billion a month of mortgage-backed securities and $45 billion a month of long-term Treasury securities. That puts it on course to purchase $540 billion worth of Treasury securities if the policy is continued all year and $480 billion worth of mortgage bonds.
It has been buying those amounts since September, but it altered the strategy this week. The Treasury buying program, known as Operation Twist, involved selling $45 billion a month of short-term Treasurys to fund the long-term purchases.
The Fed will no longer be selling the short-term Treasurys because its stockpile of these securities has run down. Instead, it will be funding its purchases by adding reserves to the banking system, which essentially means it will be printing money to buy more bonds. The money-printing worries people concerned about inflation, but Fed officials say they can manage the reserves in a way that prevents inflation.
http://online.wsj.com/article/SB1000...999853652.html
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