We take the Way Back machine to a time of normalcy and plenty, in the 50’s when the stock market did okay but savers were paid (through T Bill yields) to do the most prudent thing people in a natural economy can do… save. Ever since 1980 the theme has been for the nation to eat its seed corn, with asset owners getting increasingly more portly in the process and savers nudged ever further out to the margin. The S&P 500 has sure got no complaints these days. It’s in lockstep with policy.
The 10 year view shows savers have been erased from the picture. ‘Screw them’ is the implication as the brave new world of finance follows one rule, ‘asset appreciation or bust!’ In service to asset appreciation has been the duel input of ZIRP (zero rate policy) and a rising money supply, much of which we’d presume was instigated by QE’s money printing and Treasury and MBS asset purchases. S&P 500? Still not complaining.
Now we dial it in further to a 5 year view. Monetary Base is still rising but since the last market correction in 2011 the S&P 500 has out paced the MB.
The Fed began tapering its asset purchases at the beginning of the year. Here is the S&P 500 vs. the Monetary Base over the last 6 months.
Conclusion you ask? The Fed created this bubble in asset propping policy and it’s got to figure out a way to undo it. Right? Surely they will undo it. I mean, it would be very abnormal in a gainful economy to keep right on punishing the act of saving. After all, in a normal economy saving today begets investment tomorrow. Right?
Whether they introduce some language in today’s release that indicates a coming interest rate hike (I have my doubts) or they roll over yet again, it’s all for show. Referring back to chart #1, there is no doubt that the combo platter of ZIRP and QE’s 1-3 have sustained this bull market. So all those hand wringers out there are right to be concerned.
I suspect that they might hint tough about interest rates (why, that .10% hike in mid-2015 is gonna be a hell of a strong statement isn’t it?) going forward but in the end probably do another QE (with the USD gun loading again as we all can see) with the justification of a wobbling economy, which I think the strong dollar can help usher in.
Hey, it’s the ‘100 tops spinning on a table’ market and the above is just one among 99 other scenarios twirling around out there.
Charts from our premium account at SlopeCharts.