Perspectives

TSP & Vanguard Smart Investor Posts

Doug Noland: Rejoicing Central Banker Capitulation

A crisis-period experiment in QE came with profound repercussions. The Fed’s 2011 “exit strategy” was supplanted the following year by Draghi’s “whatever it takes” – and there’s been no turning back. The prospect of Whatever and Whenever It Takes QE as essential to the global central banker toolkit has Changed Everything.

TSP charts: 7 June

If bad economic news sending the stock market soaring does NOT make sense to you, then you are trying to think rationally. It makes perfect sense when you consider how distorted our monetary and fiscal policies are.

Doug Noland: So Much for the Trump Put

This is where the analysis turns absolutely fascinating – and becomes as important as it is chilling. The PBOC is at increasing risk of confronting the same predicament that other emerging central banks faced when their Bubbles succumbed: in the event of a mounting crisis of confidence in the stability of the financial system and the local currency, large central bank injections work to fan market fears while generating additional liquidity available to flow out of the system. “Everyone has a plan until they get punched in the mouth.”

Doug Noland: The Ignore Them, Then Panic Dynamic

Healthy markets would adjust and correct to reflect heightened uncertainties and deteriorating prospects. Speculative markets instead promote excess and the ongoing accumulation of imbalances, maladjustment and impairment. There’s no operable release valve. Pressure builds and builds – risks accumulate in all the wrong places – Then Panic.