How the Fed is fueling the stock market … and feeding Obama’s spending.

First, a couple of disclaimers …

1) At heart, I relish conspiracy theories.

2) You probably know this already

But … the obvious has suddenly became clear to me.

Ben is in cahoots with Barack.

image

Here’s how and why it matters.

As loyal readers know, I’m bearish on the stock market.

Most companies have done a monumental job deleveraging and boosting profits by restructuring … i.e. jettisoning under-performing assets and employees.

Add QE1, QE2, QE3 … and you’ve got yourself a stock market rally.

What perplexed me  is why Obama would tolerate monetary policy that makes the rich richer (way richer) and keeps the poor poor.

Didn’t make sense to me.

Until the light bulb finally illuminated.

Here’s what’s going on …

  1. The Fed infuses massive amounts of money into the economy
  2. The bulk of added liquidity flows to the stock market … Dow soars
  3. The rich get richer … mostly via capital gains
  4. Obama targets the rich to pay higher taxes … mostly on capital gains
  5. The higher taxes fund Obama’s spending initiatives.

It’s as simple as that … it’s a multi-step process, but the dough is going exactly where Obama wants it to go.

Begs another question, though …

What happens when the Fed slows the flow of money into the economy?

It will happen you know … only excitement is not knowing when.

When the Fed backs off, here’s what’ll happen:

  1. Stock market crumbles
  2. Rich get poorer
  3. Higher tax rates are in place
  4. Obama’s spending initiatives are in place
  5. Game over … BHO wins.

It’s as simple as that …

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2 Responses to “How the Fed is fueling the stock market … and feeding Obama’s spending.”

  1. Frank Says:

    For various reasons, I think deficit spending to goose the economy doesn’t work well.

    But what fiscal policy should we be pursuing? Interest rates are telling us we’re in a liquidity trap… the price of money is cheap cause no one wants it. Boosting asset prices provides a wealth effect. Anecdotal: I think the velocity of money is picking up in the wealthier top half of the economy.

    I mean, I guess we could accept a Japan like stasis- but even three years of 6% inflation is probably better than locking in a “lost generation”

    If you’re not for printing money, what are you for? The status quo? Less liquidity? You can argue QE is bad- but the other two options are worse.

  2. Scott Says:

    “The price of money is cheap because no one wants it” isn’t a fair characterization. If long-term interest rates are pegged and the Fed is controlling the shape of the entire yield curve, then there’s no free market economy. I don’t know how anyone can make an intelligent, informed decision about the stock market when government intervention is as pervasive and powerful as it is now. The only thing I know for certain is that holding a 10-year Treasury to maturity at 2% is insane, so in the search for yield, everything else including stocks appears very, very good by comparison.

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