Nowhere to go but down:
While central bank policy is supposed to be focused solely on maintaining full employment and price stability, boosting the equity market has been a furtive goal of monetary policy—generally not part of Open Market Committee discussions but never far from mind.
That surreptitious relationship came further into the open at the April 30-May 1 meeting, when Fed members discussed Wall Street expectations for the historically high level of central bank easing.
“A few members expressed concerns that investor expectations of the cumulative size of the asset purchase program appeared to have increased somewhat,” the meeting minutes stated, noting further that those expectations have come even though the unemployment has dropped.
In other words, this big rally we’ve been enjoying isn’t due to any expectation of real growth. Wall Street is hooked on stimulus, and needs ever-increasing doses to keep going.
Reminds me of what a friend told me cocaine is like. (I’ve honestly never touched the stuff; scares the crap out of me.)
Imagine your baseline of ordinary happiness. On an average day, you feel X amount of happy. We’ll baseline that at zero. You snort some coke, and you shoot up to ten points above the baseline. Nice. When you come down, however, you drop two points below your baseline. So you do a little more blow. This time it only boosts you up nine points — but, hey, that’s still seven above the zero mark. Then you drop down to negative three, and the next snort only takes you up eight, to plus five. It’s not long before you need to do massive amounts of coke just to try and reach up to zero.
Wall Street is on that third snort — still above water, and not likely to drop too far down. But it’s counting on an endless supply of cocaine from Ben Bernanke.
Oops. I mean money.
No, I mean cocaine.