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Obfuscations about Quantitative Tightening Blows up Bubble (aka Market)

MEME: ZubuBrothers

‘What a bizarre world it now is where a Fed Funds rate of only 1% blows up the market!’ — Albert Edwards

Investors have seen this movie enough times before to know how it ends.

The first and perhaps most notorious instance of “quantitative tightening,” or QT, was in 2008. The Fed decided in late 2007 that it would be a good idea to start selling off its Treasury holdings, and it accelerated those sales in early 2008. Bear Stearns blew up in March 2008. This economic tanking, in turn, facilitated a massive wealth transfer to kleptocrats and banksters.

When the Fed ended QE1 in late 2009, it merely stopped buying Treasuries and did not start selling them. And they kept on buying mortgage-backed securities (MBS) for a few months. But that cessation of buying Treasuries was still enough of a shock that the stock market suffered the May 6-7, 2010 “Flash Crash.”

The Fed responded to the boom-bust illiquidity it had created by starting QE2 in August 2010, and magically everything was great again for the stock market — that is until the Fed suddenly ended QE2 in June 2011, and the stock market underwent a 19% drop in July 2011. Once again, this was the result of just a cessation of Fed buying and not any actual drawdown of their assets.

By 2017,  Trump took office and immediately pushed through stimulative tax cuts for plutocrats. That gave the Fed some cover to start QT2, reducing its balance sheet by around $30 billion a month. But this pull back of priming brought on the collapse of the short VIX trade in January 2018, and a very ugly but temporary market decline in the fourth quarter of 2018. The Fed quickly reversed QT, facilitating yet another blowup of bubbles and distortions.

Today, after an enormous portfolio expansion during the Scamdemic, the Fed has not reduced its $9 trillion gigantic balance sheet one iota. Interest rates are still within shouting range of zero.

Merely suggesting token rate increases and a QT portfolio reduction of $47.5 billion/month (starting June 1) has reduced the Nasdaq bubble 30.5% — the worst decline since the March 2020 lockdown. FAANG stock index is down 40%. NASDAQ has lost $7.6 trillion dollars in market cap.

The “market” is currently pricing 2.58% fed funds by year end. In my honest opinion, this isn’t going to happen. More likely, there will be credit downgrades of the U.S. Treasury and important global corporations, which will blowout rates without participation from the Fed.

The S&P 500 is down 19%, but this is misleading as energy- and inflation-sensitive material stocks, part of the index, have been advancing or are stable.

Houses?

The Venture Capital index already declined by 52%.

Unprofitable tech companies have completely roundtripped the scamdemic QE bubble

#cryptocrash

  • Bitcoin value drops by 50% since November peak
  • Ethereum, the second largest coin by value, has lost 20% of its value in 24 hours.
  • And the combined market value of all crypto-currencies is now reportedly $1.12 trillion, about a third of its November value, with more than 35% of that loss coming this week.
  • The Terra Luna token fell from a high of $118 (£96) last month to $0.09 on Thursday.

Got gold?

Source: Stewart Thomson

2 Comments on Obfuscations about Quantitative Tightening Blows up Bubble (aka Market)

  1. Recent market declines are very small compared to the huge gains since the start of the COVID ‘pandemic’ in early 2020, which allegedly devastated the economy (rather a paradox) — so concerns and comments about this decline show how expectations of a permanently high, constantly rising market are now normal — without the artificial ‘wealth effect’ achieved via dollar hegemony (which largely still exists), leading to rampant speculation, money creation, and practically unlimited deficit spending, where would the US actually be economically?

    • If I am making $15 an hour and without a 401k I would be much better off which is where most of middle America is. Inflation would be manageable and if we had people that cared in D.C. taxes would be cut and China would be treated as as an economic enemy rather than stealing our country and jobs.

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