I agree with you that Powell is acting according to what Trump wants, which is lower for longer and QE4 "not QE". No question about it. The facts speak for themselves.
The reason why my rantings against the Fed are important is that we need to think about the long term impact of Fed largess. It is absolutely ruinous to the long term future of this country's economy and to our currency's reserve status. Low interest rates and money printing, as well as debt monetization all do one simple thing: bring demand forward into the present. That means that future demand will be lower and future growth will be lower. That makes us feel great today, but that's at the expense of the future. In addition, easy monetary policy for 10 years means we have thousands of walking dead zombie companies that should have already shuttered due to going concern issues, but instead they are able to get loans, load up on debt, and continue to operate as banks and private lenders, as well as private equity and junk bond markets give them good money after bad. That means massive misallocation of capital from productive uses to non-productive ones that return less on invested capital. That will also serve to lower future growth rates. In addition, all the excess capacity that has been forced on markets through easy money means persistent deflation in some areas of the economy, but then massive inflation in other areas like health care and college costs, due to massive government interventions in those areas.
The long and the short of macro policies means stocks and bonds are massively overvalued. Stocks now have asymmetrical risk reward profiles, with risk dominating and reward guaranteed to be minimal. Bonds are also massively risky with 1/3 to 1/2 of Investment Grade bonds now estimated to actually be at junk parameters and in need of rerating. When either the markets or the agencies rerate that debt to junk, yields will spike and principal investments will lose a lot of value. So both stocks and bonds are risky places to be. So gold again becomes an important vehicle to safeguard assets. In times like these, again I say, it's important not to lose money as a priority over making money. |
