Yes, I suspect that too. Personally I think the Fed is trapped
at this point. All they can do is set short-term rates and print.
If they inject more liquidity, we'll see more inflation,
lower dollar, which could snowball into foreigners selling
treasuries and agencies. If they drain and raise, well, that
could pop one of the bubbles of their creation. I think they
will continue to do securities lending and pass $ under the
table to prop various bubbles they created, while talking about
fighting inflation. However, pretty soon a critical point
should arrive, when it's not enough to just talk. I think we
are there, but I may be wrong. They won't let it go without
a big fight, one that's going on right now. So far they managed
to keep foreigners from selling by just talking, although they
are not buying much now either. They did not do 50bp, as some
feared (expected) after the tough talk, which could hurt their
credibility with the foreign bond buyers.They flip from
tough to easy talk all the time, which also hurts credibility.
Confidence is the main thing in bubble markets. I think
the markets are in the process of losing confidence in the Fed.
They drained today so far, but we'll see what
they do at lunchtime. Short term it's the earnings season, so
that's what will drive the markets. I think earnings could still
be pretty good. |
