Fed knew that this current "recovery" is not normal one, and is largely driven by the asset appreciation, such that once the asset appreciation stops or reverses, the whole scheme will collapse.
While Fed keeps promising the market participants that they will maintain the $4+ trillion balancesheet, they tried to give the market an impression of withdrawing monetary stimulus by tapering the bond buying programs. Why?
Because Federal Reserve tried to convince the market that this "recovery" is a real one and will eventually lead to 3-4% sustainable GDP growth. Such psychological manipulation is necessary because if most of the market participants had expected the growth to falter once the asset appreciation stops, then they will act in way to fulfill that rational expectation. In essence, Fed tried to make you think about reality in a way which is not true so that it would hopefully reduce the chance for the unwanted reality to be true. ;-))))))
The 10yr TNote Yield is falling again and again, means that market professional such as PIMCO do not believe this recovery is real. If the asset appreciation in stock market stops, we might see flat or negative GDP growth.
Unless, Obama EOs the immigration reform, and later annex the entire Mexico, in order to add to the total base of US GDP. ;-)))
One obvious answer is that such move will trick global unsophisticated investors to buy into "pay fixed" side of Interest Rate Swap contracts, and will lose money to the global banks once the GDP growth falters and deflationary pressure re intensify.
There is no doubt there will some kind rebound in GDP for Q2 due to the extreme weather effect in Q1. But the growth will not last, as even the Federal Reserve itself has downgrade, in the recent FOMC release, the GDP forecast to 2% for 2014.
Walmart came today saying that the rise in consumer spending statistics did not translate into same store sale growth for Walmart. Maybe the risk in spending come out mostly from well-to-doers who own the stocks.
Look for Obama to EO (Executive Order) the immigration reform before the labor day, in order to pump up the GDP growth figure for 2005. They are really desperate and the recent flood of news of border tension are simply laying out the ground for the EO action later this year.
Undocumented workers have been crossing the southern border every year. Why suddenly do they receive so much attention? Because EO on immigration is coming. It is needed to pump up the GDP growth figure in 2015.
Without growth, given the sovereign debt load and other liabilities, the US Dollar will collapse.
2008 Financial crisis is not a random event, if you examine the flow of events carefully.
The economy and the financial market again are set up for some volatility this time around. Though the exact timing is hard to predict, we all know that it is coming. Nobody is sure what the aftermath will look like.
Obama said yesterday that he will executive-order the immigration reform so that all the 16-20 million undocumented immigrants can start receive federal and state level welfare assistance, and hence boost the near-term GDP growth by spending.
It is add into the budget deficit and total US debt load. But the trick is that the multiplier effect makes the extra spending boost growth more than the debt load.
Ask yourself, why suddenly the legalization of undocumented immigrants become such a pressing issue? Ten of thousands of people crosses border every year, why suddenly the news media decide to take on this BIG issue?
I think that, in order to boost US GDP growth, they can no longer wait for the Congress to pass the comprehensive immigration reform. They need Obama to issue some Executive Order to make the people eligible for Federal/State benefit programs now so that they can help to boost the faltering GDP growth.
So they need to create a sense of urgency.
With the fed fund rate at zero and $4+ trillion balancesheet, the Federal Reserve can only use non traditional tools such as hypnosis -- to dump the market into a trance state in order to believe that the currency "recovery" is a normal one and will be sustainable without asset appreciation -- and wizardry -- to continue to pump the market -- using fund recycled from OPEC due to higher oil prices?
So in order for the stock market to continue to be bullish, they need higher oil prices. ;-))