Today’s FOMC meeting was a surprise to the markets. The Federal Reserve has been saying that it will raise interest rates for months, but nobody really believes them because, as everyone knows, the economy is not as strong as the Fed says. For the last 6 years, the Fed and the markets have been playing a little game, and it goes like this:
FED: “We see the overall economy gaining strength, but the underlying fundamentals that we want to see for us to remove QE are not yet in place.”
Market: “Wink, wink, I have FED, more QE is coming…”
In reality, however, the market knows very well that the economy is not gaining strength, but that the Fed needs to keep up the appearance that its QE is working, but hasn’t fixed the economy yet, therefore there will be more QE in the foreseeable future. . For this reason, the market has concluded that the Fed will stimulate forever or for a long time.
Even though the Fed said flatly that they would end QE, the market didn’t buy it, so the Fed ended QE. Now the FED has said that it will raise interest rates, but the market denies it, as before. Why? Because the market knows that raising interest rates would be a cataclysm for the economy and the market. Therefore, they assume that the Fed would never do that. The market is wrong, and today it found out how wrong it is.
Many market participants not only do not believe there will be rate hikes, they believe there will be QE4. Why? For the same reason they didn’t believe the Fed would do away with QE, the markets and the economy couldn’t stand on their own without it. So now we’re seeing increased volatility, fear of entering the markets, and investor confusion. However, the Fed has stated very clearly what it would do from the beginning.
Investors are confused because they misunderstand the Fed’s mandate. They mistakenly believe that the Fed’s purpose is to stabilize the markets and the economy, when in fact the Fed’s mandate is to protect the interests of its owners, the big banks. The Fed was formed 100 years ago by the heads of the big banks, the Fed is NOT a government agency, nor does it answer to the government. The Fed’s board of directors is a who’s who of the top management of the largest banks in the US. The Fed’s policy is dictated by them, not the Fed’s board.
When you understand this, everything suddenly makes sense. Explains the volatile markets since the Fed’s inception, explains the Fed’s irrational decisions over decades, and why the Fed’s top priority in a crisis is to bail out banks, but give nothing to investors who have lost everything. . He also explains why the Fed’s QE, which is nothing more than printed money, ends up in the hands of the world’s richest people, not the people who desperately need it.
Once you understand this, consider that banks are the largest institutional traders in the world and therefore a large part of their profits come from trading the markets. They profit from the ups and downs of the market. So it is in their best interest to make the market go up and then go down, both of which make them money and since they can see all the trading accounts they manage as well as bid and sell orders they have a huge advantage over everyone. the rest. This could explain why JP Morgan’s trading desk hasn’t lost money on a single day for years.
Once the big banks have inflated the market as much as possible, and determine that more money can be made by tearing it down, it will crash. And that’s where we are now, the Fed has signaled that it will no longer support the market, and those who understand the true mandate of the Fed now know that the market is going to crash. Those who mistakenly believe that the Fed will do whatever it takes to hold the market, will lose most of their investments.
That is why there will be no QE4. QE4 would further boost markets, but since everyone is already in the market, there is little to be gained in profit for the banks by doing this. They can make trillions by crashing the markets now, and they probably already have their short positions. Not only this, but the FED will be able to say, “I told you so,” and they did, they told the market a year ago what they were going to do, it’s the market’s fault for not believing them.
