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Party on!

February 21, 2013

Wall Street slides as Fed minutes spark concern

This was the headline from Reuters news service today. It seems to support my theory that Wall Street’s addiction to liquidity is the most important “fundamental” in the world of finance (as distinguished from the economy) these days. The point is, our financial markets are not reflective of what is actually going on in our economy.

I would like to introduce as evidence the following quote from the article:

What Wall Street wants to hear is an absolute sign that the Fed will continue with QE [quantitative easing, otherwise known as printing money and adding it to the economy] for the indefinite future.

It is worth noting that when the Fed even remotely mentions that their liquidity campaign may need to end at some point, it is cause for the market to stall on its recent meteoric rise. The article further explains:

The Fed has used quantitative easing, or QE, since 2008 as it aims to stimulate the economy. The policy, which involves expanding the Fed’s balance sheet to buy bonds, has been credited with pushing money into the stock market and its withdrawal is a wild card for markets.

I rest my case.

The equity market’s impressive rise is a product of the Federal Reserve’s monetary policy and not a product of sound economic fundamentals. What we need to determine is whether the “patient” must go through painful withdrawals (the DTs) when our drug dealer stops providing the “drug” (liquidity) —  free of charge of course — or is he, the dealer, willing to continue the party until all financial assets die from an overdose?

Wall Street is trying to send the drug dealer — oops, I mean the Fed — a clear message: “Party on dude; don’t be such a downer!”

Party On


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