I'm not overlooking them, it's just that I know the market will overlook them.
You're getting ahead of yourself. What you speak of happens somewhere down the road once people have racked up more debt than they can handle the payments for.
Right now, they're just starting to feel good enough to splurge here and there. Because they believe the economy is getting better.
Seems to me we're at that point in the repeating cycle, where banks lend to the underqualified, who are using credit to keep up with this "non-inflation", which is really inflation.
The no pulse mortgage is back in vogue. It's only after a year or two of this, when the defaults kick in, and the banks holding all the bad debt get burned, that the next house of cards falls down.
But for now, we're at the smelling rosey stage.
I'm not looking at the junk bond market, I'm more interested in consumer credit.
Consumers are starting to use credit again. We have a fractional reserve monetary system.
Long story short, the money on banks balance sheets will undergo a "multiplying" effect, which is inflationary. In the long run it could be the cause of the next crisis, but in the near term, I would expect upward pressure from all that money sitting in the pipeline.
Banks still have 2.8 trillion cash sitting on the balance sheets. Interest rates will remain low, even after they've edged up a bit they'll still be historically low.
Employment is getting better. Next you'll see improvements in the credit markets. When credit is used, it has a multiplying effect on the currency in circulation.
This can actually cause an explosion to the upside without any further QE program.
This is what the FED will use to determine when rates need to start going up, to prevent the explosion in the credit markets leading to run away inflation.
I think the key is the consumer. Unemployment rate and credit markets are the thing to watch.
The rate at which the credit market grows will determine how fast that 2.8 trillion of reserves makes its way into the economy.
Also, the 2.8 trillion is subject to the multiplying effect that happens when credit is used by consumers...so also watch home sales and car sales, as well as durable goods...anything people tend to finance.
That 2.8 trillion could explode.
I wouldn't say my faith in them is firm. I'd say my hopes are high, for all our sakes.
Mechanically, there is nothing special about QE. The FED normally buys treasury bonds. It's part of the Fractional Reserve system. It's the Quantity of bonds that they buy that make it QE....QE is nothing more than the fractional reserve system on steroids.
We've stuffed the pipelines with trillions of dollars. The job market is getting better. As more and more people buy things on credit, those dollars in the pipeline are effectively multiplied. This is why a boom in the credit markets could trigger an inflationary explosion.
They're creating the same situation that caused the problems, that led to the sell off of 08.
Only this time there's a backstop. We'll never hear about any huge issues again, everything will be "made better" behind the scenes.
As critical as I've been for over a year now, I have to admit that local business where I live seems to be rather strong. This comes from boots on the ground (namely mine) research. And where I live tends to be one of the tougher economic climates relative to the rest of the country.
And as critical as I've been of the FED, the challenge they now face, is to get the timing of exit from QE absolutely correct. They could leave early and come back, and that's one thing. But if they over do QE, and there's a credit boom all of a sudden, we're going to see an explosion.....
An inflationary explosion that will destroy all the progress that was made.
"If you like your 9/11 conspiracy theories, you can keep your 911 conspiracy theories."
Is if it crashes UP, not down.
Problem with the banks? They'll take care of it behind the scenes, and we'll never hear about it.
The only thing that can go seriously wrong, is the dollar getting dumped as the world's reserve currency, which would send anything denominated in USD higher, in a parabolic fashion.
Ebola becoming a pandemic is a wild card that could bring the market down, but not likely. Of the few cases that appeared in the US, those treated early lived, and it's likely that Ebola never becomes a pandemic.
The recent deflation of oil and other physical assets is a gift. Any dip should be bought. Any sign of recession in the US, or globally, will result in more QE.
We're faced with another no brainer. There will be pull backs along the way, just plug your nose and buy into them.
Two things puzzle me about ebola.
1.) It's just now showing up here?
2.) We've known about it for so long, and still we're not prepared to deal with it?
I'm not talking about my perspective, I'm talking about the market in general. They're going to look at last nights numbers out of China, and the Cat earnings.
I think China numbers were manipulated, and Cat did well because of buybacks.
But see the market's reaction.