The Biggest Sell the News Event
in Stock Market History
Submitted by Mike Krieger of KAM LP
Guest Post on Zero Hedge
The end game is accelerating toward us at an a frantic pace as we approach the midterm elections, the launch of QE2 and the complete collapse of the global monetary order as we now know it. Time itself seems to be experiencing a quickening as the quantity of major changes becomes increasingly compressed into shorter periods of human experience. The markets are now set up for complete and total chaos unlike anything we have seen since 2008. While I have many times before stated that the next crisis will make 2008 seem like a picnic it has been a waiting game…until now.
The U.S. Federal Reserve, which is in charge of the world’s reserve currency has gone completely and totally insane. Every time the stock market is down 2 points some maniac academic with a printing press delivers a speech about how much money they are going to print, basically daring anyone to short or sell the market. No one is smart enough to know how much QE is priced into the market, is it $500B? $1 trillion? $3 trillion? No one knows, but what we all do know is that the Fed through its non-stop yapping has now set up the ultimate moral hazard in financial markets. It doesn’t matter if all of the economic data miraculously comes in extraordinarily bullish over the next three weeks. The markets have put the Fed into the biggest box they have ever been in. They must do QE2 at this point and they probably have to do it big. The problem is, with the equity market up at the levels it is I don’t think ANY amount of QE2 will cause a rally. In fact, this might be the biggest “sell the news” event in the history of the stock market. If you are smart you will take appropriate actions while you can and sell to someone with less of a clue (believe me there are plenty out there).
QE1 Was a Failure and QE2 Will be a DisasterThe fact that so many people believe that stocks can’t go down because the Fed can print infinite sums of money is a reason in itself to sell them but there is more. Much more. There is this notion that QE1 was successful. Let’s take a step back and look at the facts. Yes, the economy had a phony sugar-high bounce from the lows but think about all of the other “stimulus” that occurred concurrently to QE1. There was the $787 billion stimulus package. There was “cash for clunkers.” There was the first-time homebuyers tax credit, which basically marked the return of 0% down home purchases.
Then there was the inventory build associated with all of these artificial demand stimuli. This time the powers that be have one tool and one tool only. The printing press. Why do you think they are talking endlessly about QE2. It is because it is all they have got and I will tell you a little secret. It will not work. Wall Street has now been transformed from merely a chronic user of painkillers to a full-fledged crack head. When QE2 is ultimately announced it cannot possibly be good enough no matter how large it is. Wall Street will then whine to its pusher with a sell-off in an attempt to access more crack. The process that the Fed has started can never end. It is exactly what Rudolf Havenstein, president of the Reichsbank in Weimar Germany experienced. Once you go down this path you can never get off. The big difference here is that it has happened to the country with the reserve currency. It is the currency in which the supposed “wealth” of the world is stored. What do you think people will buy when they realize this? Physical gold or a round lot of Home Depot? QE2 will be more like the Titanic.
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