To show you how perverted and misguided things have gotten.
Suppose you told someone that the government would remove significant amounts of income from the economy over the next two years. You could even call it a tax. Do you think that person would run out and buy stocks and other risk assets?
Absolutely not. They'd probably take whatever cash they had and hang on to it, real tight, out of fear that the economic future was about to become very bleak.
But that was the opposite of how investors reacted to today in response to the Fed's statement.
Here's what the Fed said:
|“low rates of resource utilization and a subdued outlook for inflation over the medium run are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”|
That was the surprise in the statement today. The Fed EXTENDED the length of time that they would hold interest rates at zero for more than a year. (They originally said, mid-2013.)
But we know that this policy removes income from the economy. Case in point: over the last four years the Fed has removed $400 bln in interest income from the economy. That's HUGE. That's the equivalent of almost 3% of GDP. And we're only growing at 1.8%!!
Yet when investors hear this today they bought stocks...and gold and commodities and other risk assets. And they sold the dollar even though this is all hugely deflationary.
It's QE Redux. Haven't we been through this before? Everyone piles in on the false belief that this is inflationary. They push up stocks, gold, commodities and foreign currencies and then it all comes tumbling down when the buying stops.
Same, exact thing will happen this time.