Words Are Important. That's not just a headline, it's reality.
Draghi says the ECB will ‘do what it must’ on asset buying to lift inflation -- not ‘what it thinks would be best for the European economy’, not ‘choose the path of least resistance to recovery’, but that the ECB will DO WHAT IT MUST.
As I have written til I’m blue in the face for the last 10 years, we are in the age of ‘Inflation onDemand‘©, 24/7 and 365. “…do what it must”… let that sink in for a moment.
Japan is trying to kill the yen, China is dropping interest rates and the world over we have a rolling inflationary operation that is little more than a game of Whack-a-Mole. First the BoJ popped up a couple weeks ago and now this.
The U.S. Situation
Transitioning to the country and policy-making establishment that has truly shown ‘em how it’s done over the last 6 years, we view the S&P 500 with its eternal attendant ZIRP and add a view of the CPI as well. One message that can be interpreted from this chart is that stock markets have been used (controlled) as a mechanism for asset owners to keep up with the reported effects of inflation (CPI). Savings have been disallowed, legislated by policy right out of the equation.
Everybody into the pool -- IF you’ve got the bankroll.
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Straw Man
We have maintained since the post-2012 liftoff of the most intense phase of the inflated bull market that there is no bubble in stocks (though they have become overvalued* even by traditional metrics) but rather a massive and ongoing bubble in global policy making.
First Alan Greenspan laid the groundwork and the initial blueprint (asset inflation), then his inflation operation was liquidated with extreme decisiveness and now from the ashes we have a new global asset inflationary operation born not of good intention or rationally sound strategy. It is pure and simple desperation. The ECB will “do what it must”. The U.S. Federal Reserve did “what it had to” since instituting ZIRP nearly 6 full years ago guiding us through QE’s 1-3.
Just Another Straw Man?
It sure looks like the whole debate about 2015’s coming interest-rate hikes are another Straw Man propped up to manage market expectations (see Deflationary Straw Man), leading us to believe that Policy Central is still in control and that it has big decisions to make.
Guess what? There is no decision, folks. The inflationary operation, now gone global, is an all-in, all-or-nothing proposition.
Greenspan’s inflation wound up being less than nothing. It was resolved in a sea of debits that assigned negative value to the system. The ongoing effects of inflation feel good to some people now (especially those who get to lap up the silver spoon’s gifts that keep on giving first and foremost as opposed to those savers and paycheck-to-paycheckers who just get to suck on ZIRP-eternity). But we know that inflation is not a benefactor that likes to stick around. It is a subtractor over the years and decades as savings and productivity are replaced by money printing.
I'll end it here and go on managing the market as always, taking what it gives, managing against what will one day take while keeping an eye on the big picture at ALL times. That view? Quite simply that 6 years on from the U.S. financial crisis (ongoing, though that is an unpopular notion at this time) a global cadre of policy makers is still playing its transparent game of Whack-a-Mole, trying to one-up each other until the whole thing flushes once again.
* Although it is worth asking the question ‘what is value today, anyway?’ when considering the constant inputs and distortions inflicted by policy makers. Anyone care to take a guess on that one?