They both excel with the help of performance enhancing drugs. The NYSE is approaching an all time high even as the Europe falls into recession and America’s economic fundamentals are weak. It is high as a kite. As in the case of Armstrong, however, the equity markets can’t dope forever.
The best indication that the Fed’s bond-buying purchases are pushing stocks up artificially is that investors run for cover whenever there is a hint that the Fed might change course, as happened recently. On Monday, billionaire superinvestor Berkshire Hathaway CEO Warren Buffett told CNBC that markets are on a “hair trigger” waiting for signs of change from the Fed. The market is “hooked on the drug” of easy money, Dallas Fed President Richard Fisher told Reuters.
Fisher’s comparison of Fed policies to a drug is apt. Markets might not like the idea of the drug being withdrawn now, when the Fed holds a portfolio of $3 trillion. But the withdrawal symptoms will be a lot worse once the portfolio grows to $4 trillion, or more.
Withdrawal is going to be painful.Share