The markets continue to operate based on complete delusions.
The single biggest driver of stock prices has been the Fed’s QE programs. QE has accomplished nothing other than a higher stock market. EVERY-time that the Fed was not engaged in QE, the markets have fallen as the below chart shows.
QE is over. It just ended. And the Fed will not be launching it anytime soon. The media is finally catching on that QE increases wealth concentration (note the slew of stories recently pointing this out in mainstream media outlets).
Between this and the statements on income inequality from various Fed officials, it is clear that the political climate has changed regarding QE as a monetary policy. Barring an absolute stock collapse, QE is off the table for now.
Beyond this, the market is rallying based on hopes of… QE… from the ECB. This is impossible. The ECB cannot and will not engage in QE based on the current legal framework of the EU. It can corporate bonds and other securities, but NOT EU sovereign bonds.
The reason is simple: Germany will not stand for it. Germans still remember the hyperinflation that buying sovereign bonds induced in the past. Any attempt by the ECB to buy sovereign bonds will be political fuel for the anti-Euro party in Germany… which could give Angela Merkel real trouble.
Politics drives everything in Europe. Without Germany’s approval that suggestion is dead in the water. So the market is misguided there too.
Be warned…
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