As noted several times the entire industrialized world is or has experimented with QE. China, which is the second largest global economy, lowered interest rates for the first time since 2012 on Friday.
Friday I quoted one of the greatest super heroes of all time—Buzz Light Year—“To QE Infinity and Beyond” to describe current global monetary policy, further commenting this massive central bank intervention could end badly.
The global central banks have taken a role I think the elected governments have abandoned for political purposes…passing legislation that induces economic and job creation. In my view government regulation and suicidal politics is killing global growth.
I rhetorically ask I wish it was just this easy to print money with impunity to pay for bonds [national debt owed to society] issued by the treasury to spur economic activity. Talk about the ultimate pyramid scheme.
I think I can argue based upon America’s experimentation with QE, the real economic impact of QE is not as some had expected but did inflate the value of certain asset prices. But is this not the ultimate goal of the ECB and its QE policy—inflation.
The accepted genesis of today’s weak environment is housing, housing which imploded in the US because of political policy whose aim was to increase home ownership. Washington asked Wall Street to create mortgage products to meet this objective, an objective accomplished via securitization.
Securitizing of bonds went nuclear where risk became so inordinately diversified the investor did not know what they had actually owned therefore the bonds became extremely risky. Yes the bonds might have been backed by pieces parts of a gazillion mortgages, but no one knew what mortgages were good or bad.
As indicated above, too much of a good thing is bad. Homeownership surged to 70% partially because of government policies that encouraged reckless homeownership via massive funding programs created by Wall Street and then the bottomed dropped out
Will the bottom drop out because of the global experimentation with QE where trillions have been spent via borrowed money paid for by newly printed dollars?
The only quasi example of QE ended miserably about 90 years ago, a juncture that ushered in the Third Reich.
As stated above, investors Friday cheered the ECB and PBOC announcements and sent equity prices higher. The 10-year was up 8/32. Will this week be a continuation?
The economic calendar is moderate in this holiday shorten trading week. Data consists of a revision of third quarter GDP, several housing indices, a regional manufacturing index, confidence survey and durable good orders.
How will the data influence psychology?
Last night the foreign markets were up. London was down 0.12%, Paris up 0.81% and Frankfurt up 0.66%. Japan was up 0.33% and Hang Sang up 1.95%.
The Dow should open nominally higher as the data is clearly suggesting the economy is on the verge of attaining the elusive escape momentum inflection point. The 10-year is off 6/32 to yield 2.33%.