Notes From Underground: Looking Back to December 24, 2014

There is now rampant talk about a revived FED QE4 program, most powerfully talked about by Bridgewater’s Ray Dalio and Larry Summers (from the genetically powered economics family of Samuelson and Arrow). On December 24, Santelli and I considered the possibility of QE4 (see clip below). I posed this question to all investors: How would the equity markets react if the FED had to reignite its large asset purchases?

Yra on CNBC December 24, 2014

Again, will the stock market rally on such a move by the FED? In my opinion the market would initially rally but the rally would be short-lived as investors would become fearful that the FED was signalling some impending dire economic news. The FED‘s new efforts at improving its communications policy has been less successful than CRYSTAL PEPSI. There are so many kibbitzers confusing investors and analysts that the bottom line is hyper-sensitive to whichever FOMC member is in front of a microphone.

***The Reserve Bank of Australia (RBA) held rates at 2%. The statement was very cautious and it seems that Governor Glenn Stevens is content to rely on the accommodative  policies of the other central banks. Stevens seems to be fearful of dropping rates too low and falling into the zero interest rate trap. Ultra low rates have led to a portfolio balance channel effect but economic outcomes have been tepid.

***A reader sent me a note that bears are passing on. Zero hedge noted the fall of South Korean exports by 14.7%. While China is all the rage, the rest of Asia is also facing headwinds. For China and South Korea the biggest headwinds may be the impact of the YEN‘s depreciation since July 2012 when the YEN dropped more than 50% against the Korean won and the Chinese yuan.

This is similar to 1998 when the YEN was devaluing against the YUAN and WON. Last Monday I raised the issue that Japan would be hard-pressed not to embark on a new round of QQE to counter China’s insignificant depreciation of the YEN. G-20 Finance Ministers meet on September 4-5 in Ankara, Turkey and China will raise concerns about the devaluations of many countries currencies against the YUAN. Pay attention to YEN resistance levels for possible accelerated price rises as China places the issue before the G-20 finance ministers.

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3 Responses to “Notes From Underground: Looking Back to December 24, 2014”

  1. arthur Says:

    “It’s kind of hard to fight money, you know. Don’t fight the Fed. Now you’ve got four Feds. Don’t fight four Feds.” David Tepper of Appaloosa Management

  2. Joe Stoutenburgh Says:

    Ignore those pathetic souls, offering advice for which they will not be held to account and desperate to be perceived as relevant (e.g. Larry Summers, Christine Lagarde). As usual the Fed has delayed too long already and now is dithering like a confused 4 year old, afraid to be criticized, holding out for the moment where there will be consequences to act – waiting for a time that will never come.

    Friggin’ get on with it. Raise 25 basis pts in September another 25 points in a February March and then pause. Then check if the world has come to an end.

  3. Chicken Says:

    The boat is filling with water?

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