Will the Money Printing Ever End?
Will the Fed keep printing money?
That was the question on everyone’s mind yesterday, as the markets stayed relatively flat all day.
Investors weren’t sure what to make of the Fed Minutes that were released. In those minutes, the Fed openly debated extending the money printing program. It’s interesting that the debate is even around at this point in our so-called recovery.
After all, the Fed has already stopped buying back Treasuries. And it makes a point to tell investors that many of its emergency programs would wind down early this year. Up to this point, it seemed that the Fed was worried about not tightening soon enough.
But the minutes released today showed that this worry wasn’t the consensus. Some of the Fed governors are worried about tightening too soon.
I say rightfully so. Up to this point the “recovery” we’ve seen was led by stimulus and an inventory rebuild. For this recovery to be genuine, consumers need to start spending.
But with consumers drowning in debt, I don’t see consumer spending picking up.
So the economy will drag during the second half of the year. And if the Fed starts tightening right now, it risks pushing the economy into a double-dip recession.
Of course, the temptation to tighten will always be there.
For instance, the Bureau of Labor Statistics’ December Employment Report is expected to show a gain when it gets released on Friday. The Fed might read too much into it… maybe even forget that it was the stimulus and inventory rebuild that helped create these temporary jobs… and decide to quickly tighten rates in order to avoid an inflationary onslaught of epic proportions.
Of course, we in a deflationary time. Debt deflation is still running rampant. Credit is tight. And banks are still going bankrupt everyday.
This isn’t an inflationary environment.
Too bad everyday investors don’t ever think of that stuff. If employment surprises to the upside on Friday, this market could easily make new highs. Dow could hit 11,000 +.
Take your risk money and buy some calls.
Take care,
Charlie
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