Monetary Ease Spawns Euphoria, Reality Awaits

By: Doug French

“It’s time to stop calling this a recovery, and start calling it a boom,” writes Noah Smith for Bloomberg.The Elliott Wave Financial Forecast (EWFF) reports, The National Federation of Independent Business index of small business owners “Now Is a Good Time Expand” rose to its highest level in the 45-year history of the survey. “Main Street is roaring,” says the NFIB’s president.

EWFF points out that it feels like the year 2000 all over again.

There are many parallels to the top year of 2000, but two key ones stand out. The Conference Board’s Consumer Confidence Index hit 130.8 last month, its highest level since November 2000. Meanwhile, one of the most widely followed measures of economic performance, the U.S. unemployment rate, fell to 4.1% in January, its lowest level since December 2000.

The housing market is so hot, buyers are bidding up properties, sight unseen. Bloomberg reports,

Thirty-five percent of homebuyers in the U.S. aren’t even visiting the property before they put in a bid, amid torrid competition in a tight market, according to the latest survey by Redfin Corp.

Katia Dmitrieva writes for Bloomberg, “the biggest share of households since 1998 said their finances had improved over the past year and expected continued gains in the year ahead.”


No wonder there is euphoria, “This is the everything bubble generated by seven years of zero interest rates and negative interest rates overseas and massive amounts of money printing. It shows up in the asset price inflation in many different places,” Peter Boockvar told CNBC.

However, the easy money chickens are ready to come home to roost. Zero Hedge reports, “legendary trader Paul Tudor Jones (PTJ) argues that US inflation is set to accelerate sharply, making bonds a very poor investment, and that the Fed must act swiftly to tackle financial bubbles created by prolonged monetary easing.”

Jones doesn’t believe the current positive mood is sustainable.

Sitting where we are today, this grand experiment with negative real rates might seem successful: We have the strongest economy in 40 years, at full employment. The mood is euphoric. But it is unsustainable and comes with costs such as bubbles in stocks and credit. Navigating these bubbles will be one of the most difficult jobs any Fed chair has ever faced.

Will Main Street roar with the ten-year rate of 3.75% that PTJ is projecting? Jones doesn’t seem to think so. He doesn’t even want to buy stocks, let alone expand a small business. He says he ready to hunker down owning only commodities, hard assets, and cash, while everyone else believes they can continue to ride the Fed’s bubble.

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