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Wally’s Newsletter: The Fed Is the Prime Mover

Wally’s Newsletter: The recent US stock market highs have been breaking records and setting new ones. It seems as if the bull market advances are unstoppable, and FOMO (Fear Of Missing Out) has been pushing investors to buy anything that can be bought on the stock market. …

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Dr. Walter Snyder –

The mood is euphoric while volatility is extremely low and not at all like January 2018.  Even cautious advisors speak of a possible correction that might reach 5% but hardly any more.

The reason for such complacency and confidence is the belief that the Fed will intervene to prevent any serious downturn by buying stock just like the SNB and the BoJ.

The Fed is currently buying up $60 billion of T-bills monthly in order to finance the Treasury and help it to manage the $ 1 trillion deficit that is foreseen. There is then the problem of managing the $ 23 trillion debt. Monetizing the debt is the easy solution, and this is what the Fed is doing.

At the same time investors should be aware of the indebtedness of corporations, which is at extremely high levels, and due to the massive share buyback programs excogitated by CFOs to reward shareholders and make executives rich.

By keeping interest rates low, and the current Fed rate is at 1.50% to 1.75%, the Fed has helped zombie companies to survive longer and has enticed corporations to make debts in order to finance share buyback programs. At the same time pension funds are under pressure to produce more profits from investments since most of them are extremely underfunded. The result is that they take greater risks than they should.

If one adds to that that many US personal pension funds are heavily invested in the stock market, any downturn means that personal pension funds will suffer horrible losses and cannot guarantee a decent retirement for millions of workers. The Fed will have to buoy up the stock markets.

So the Fed has to insure that the stock markets do not suffer any severe downturn while at the same time keeping interest rates low. Thus the Fed has to continue to supply liquidity to the system without any viable exit strategy available. At a certain point inflation is going to rear its ugly head and further impoverish the masses already struggling to make ends meet.


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