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How The Federal Reserve's Monetary Policies Are Driving Up Stocks

federal reserve drives up stocks
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EDITOR'S NOTE: You’ve heard this all before. The Warren Buffett Indicator signaled “overheating” levels years ago. The Shiller CAPE Ratio also indicated for a number of years that the market’s a bit out of whack. Yet the stock market prevailed. Granted, the equity market’s advance isn’t proof that the indicators were erroneous or irrelevant. Perhaps it demonstrates the overwhelming power of Fed intervention into the natural ebb and flow of economic supply and demand. If the author is correct, this means that the blood flowing through the market’s veins is contaminated with “noxious” liquidity. What might happen, the author asks, when the Fed discontinues the infusion drip?

The Federal Reserve Open Market Committee meeting should have a Lawrence Welk bubble machine operating, particularly for their announcements.

When we look at the Buffett Indicator, we can see how The Federal Reserve’s loose monetary policies (or follycies) are driving up stocks to unsustainable levels that may not survive without The Fed’s “Do Ho Big Bubble Policies.”

Photo: Confounded Interest

How about the Shiller CAPE (Cyclically-adjusted Price/Earnings) ratio? While not up to dot.com levels yet, the Shiller CAPE ratio is climbing with the assistance of The Fed and their insane money printing.

Photo: Confounded Interest

How about house prices? The Case-Shiller National home price index is far above the level last scene during the housing bubble of 2005-2007. Again, with a little help from The Federal Reserve.

federal reserve

Photo: Confounded Interest

I can’t wait to see how the equity market and housing market reacts IF The Fed actually follows through with reducing monetary stimulus. Probably not just adding more stimulus, just reinvesting the Treasury and MBS proceeds (aka, not shrinking the balance sheet).

federal reserve

Photo: Confounded Interest

Speaking of Lawrence Welk and his Champagne Music Makers, watch the blazing-hot electric guitar work worthy of Steve Morse or Jimmy Page in this video.

Here is the new logo for The Federal Reserve.

federal reserve

Photo: Confounded Interest

Originally posted on Confounded Interest.

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