Like everyone else, breakfast is part of my morning routine. After getting up way too early and working out, I settle in with two newspapers and a meal of two eggs and toast, complemented with honey or jam. Add in a few cups of coffee and I’m set for the day.
Sometimes I get adventurous and add in some veggies or meat from the night before, but that always leaves a question mark: How will I feel later in the day? If the meal doesn’t agree with me, then I could find myself cranky, short on patience, and with a profound lack of interest in attending the problems that arise.
It would not affect how I deal with routine tasks because, obviously, they’re routine. But for those new problems, or the ones that are always hanging around without a defined solution, my iffy mood could be an issue… which raises the question:
What did Ben Bernanke have for breakfast?
The reason I ask is because the reverse Robin Hood and his merry men – who steal from the poor and give to the rich, all in the name of helping – are eight months into a program that has no defined limits or boundaries.
Each time they meet, the world is on edge to see what might happen, because we simply don’t know how they’ll make the decision to keep QEternity going or to kill it.
It could all come down to what Ben had for breakfast, and how he’s feeling on the day of the Fed meeting… which happens to start today. Unfortunately, this decision is THE factor that has been driving the markets lately, and for good reason.
The last several years have been nothing short of amazing for the financial markets. While there have been times of unease, the mostly consistent rise in equities and the continuing drop in bond yields (with rising prices) seemingly put us on a one way track to fabulous riches.
There’s just one problem. Everyone knows that the main driver of this wealth creation is the Federal Reserve and its money printing scheme.
It doesn’t matter which QE, QE lite, or other Fed program you look at, when the money was promised, the markets starting marching up. As the money flowed, so did the gains. When the money ran dry, the markets rolled over.
The relationship between money printing and market gains is clear.
Every previous Fed program had defined parameters. There was a set amount of funding to be created, and a set time frame in which the program would run. This clarity allowed market participants, for better or worse, to plan out their approach to investing. All of this ended with QEternity.
The latest round of money printing has only one definition – the amount to be printed will be $85 billion per month… and that is only at the beginning of the program. It can change.
How long will the program last? That’s a surprise.
Will the mix between Treasuries and mortgage-backed securities change? Maybe.
Will the eventual decline in volume happen quickly or slowly? They’ll get back to us on that.
The markets hate surprises. And Ben is just full of them.
The minutes from the last Fed meeting showed that several voting members were interested in slowing the current money printing program, starting as soon as June. When those minutes were released, the markets went into a tizzy. It was a surprise, and not a good one. The economy is not near the 6.5% unemployment benchmark that the Fed set for itself (subject to change, of course), so what would cause a change now?
We’re back to what these people had for breakfast.
In the weeks since those minutes were released, there has been endless speculation about what the Fed will do at its next meeting, today and tomorrow.
This speculation has been fueled by each new economic release, and led to a dramatic increase in market volatility. If the Fed slows its printing, the markets will presumably fall and bond prices will drop as well. If it decides to continue printing at the same pace, then everything should be right with the world.
The near-term future of the markets basically rests in the hands of these few people, and depends on how they “feel” about things, since there are no clear parameters for making decisions about when and how much money to print.
It’s like we all had Mexican food for breakfast, and we’re sitting around to see if anyone feels bad. I don’t know what the Fed will decide at their meeting, but I know I’m feeling queasy already.
Ahead of the Curve with Adam O’Dell
First, it’s a victim of its own success.