Tags: Stockman | Fed | central banks | market

David Stockman: Central Banks Are Sick, With Their Backs Against the Wall

By    |   Wednesday, 22 October 2014 01:47 PM

Wall Street is "one sick puppy," but the world's major central banks are even sicker as they throw impossible mountains of money at intractable problems, according to David Stockman, director of the Office of Management and Budget in the Reagan White House.

The outspoken Stockman said a stock market correction appeared to have taken hold last week until the Federal Reserve deliberately stopped it with some hints about a possible extension of quantitative easing (QE).

The comment from St. Louis Fed president James Bullard (who Stockman dubbed "Dullard") promptly caused Wall Street to buy the dip, and stocks came roaring back.

"And it's no different anywhere else in the central bank besotted financial markets around the world. Everywhere state action, not business enterprise, is believed to be the source of wealth creation — at least the stock market's paper wealth version and even if for just a few more hours or days," Stockman asserted on his Contra Corner blog.

He noted the Japanese stock market recovered recently after Japan's central bank suggested the heavily indebted government there would buy more equities, and European bourses this week came roaring back on a report the European Central Bank might start buying corporate bonds.

"The thing is, however, the last injection is never enough in today's stimulus addicted casinos," Stockman wrote.

"Indeed, if the European bourse were actually discounting the real world future they would have panicked long ago. And not just because Europe is heading for a triple dip or because the German export machine is faltering owing to the swoon in its heretofore bloated and unsustainable export markets in Russian and China.

"In fact, Europe is stuck in a deep rut of socialist tax and debt burdens, economic dirigisme and excessive financialization, and has been so for most of this century."

Stockman noted that the U.S. also remains in precarious shape, thanks to ultra-easy monetary policies by the Fed. He said Bullard's suggestion that the Fed could put the end of QE on hold shows Bullard has been "drinking the central bank cool aid."

"Never mind that the Fed has pinned the money market rate at zero for 71 months and unleashed the greatest carry trade gambling spree in recorded history; or that $3.5 trillion of debt monetization during that period has deeply deformed yields and pricing in the entire fixed-income market," he stated.

"No, the job of the monetary politburo is apparently to sift noise out of the in-coming data noise — even when it is a feedback loop from the Fed’s own manipulation and interventions. So the stock market rallies strenuously because an incoherent central banker starts randomly gumming about self-evident financial noise."

Some vivid opinions about the Fed came from two famous investors at the Robin Hood Investor Conference in New York this week.

David Einhorn, the billionaire founder of Greenlight Capital, was not exactly supportive of Fed policy.

"I think they're behind the curve in terms of helping the economy. It's like too much of a good thing. They're actually, I think, slowing down the economy, even though they don't realize that they're doing that," he told CNBC.

"I don't really concern myself that much with the exit because first of all, if they did raise rates I think it might be bad for Wall Street, but I think it would be good for the real economy and every day, normal people out in the world, and, ultimately, you'd have faster GDP that would come from that," Einhorn predicted.

Billionaire activist investor Carl Icahn also had some skeptical words about the Fed from the same conference, Zero Hedge reported.

"The Fed is really holding the market up. . . . The Fed turned this market around here because it let it be known that the Fed funds rate isn't going to be raised in March. I am concerned about the high-yield market, I think that's in a major bubble, but nobody knows when it's gonna burst," Icahn said, according to Zero Hedge.

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Wall Street is "one sick puppy," but the world's major central banks are even sicker as they throw impossible mountains of money at intractable problems, according to David Stockman, director of the Office of Management and Budget in the Reagan White House.
Stockman, Fed, central banks, market
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2014-47-22
Wednesday, 22 October 2014 01:47 PM
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