Wednesday, November 20, 2013

Stocks Fall After October Fed Minutes Released; Deflation Commences

Just in case anyone forgot that the only thing that matters in this market is Federal Reserve policy, the message was forcefully driven home precisely at 2:00 pm ET, when the minutes from the last FOMC meeting were released.

Within those arcane discussions of all things monetary were warnings from more than a few members that tapering bond purchases by the Fed might begin sooner rather than later. Accepted thinking had been that the Fed would not taper until March, though after today, analysts are suggesting that December - just two weeks away - might mark the beginning of the end of the Fed's bond-buying spree.

While the cutback in bond purchases monthly may only be a decrease of $10 to $15 billion of the current $85 billion, Wall Street money-grubbers were spooked as usual at the suggestion that money would be anything other than nearly free to borrow.

Today's action in stocks shows just how fragile the 4 1/2-year-plus market rally is and how quickly paper profits may vanish if the Fed doesn't keep the money-printing machine going pedal to the metal.

It's a ridiculous market made up of ridiculous valuations and propositions, that, without Herculean-like support from the central bank, could fall apart in days or weeks.

The Fed will no doubt taper, the only remaining questions are when and by how much. Whatever the decision shall be, markets will not like it one bit, and the general economy may suffer even more than it already has as Wall Street will no doubt throw a massive hissy fit.

When it's all done with, when the Fed stops buying bonds altogether (when will that be, 2065?), either stocks or the US dollar (and maybe both) will be worth a lot less than they are today.

Lunatic policies by the Fed will be followed in time by equally hilarious conclusions to those misguided policies. The results will be a catastrophe financial markets have never seen before.

What is either amusing or distressing is the reaction in precious metal markets, which fell in concert with stocks and bonds. If the markets are correct, Fed tapering will be a deflationary event with magnificent outcomes ahead.

In the long term, the Fed cannot taper back on bond purchases because they have succeeded in crowding out the few remaining participants over the past four years. Deflations and defaults will be the most likely results, though emerging markets will feel the pain much sooner and to a much greater degree than established economies, though no nation will be spared the death spiral of deflation.

Dow 15,900.82, -66.21 (0.41%)
Nasdaq 3,921.27, -10.28 (0.26%)
S&P 500 1,781.37, -6.50 (0.36%)
10-Yr Bond 2.79%, +0.08
NYSE Volume 3,094,246,250
Nasdaq Volume 1,686,541,875
Combined NYSE & NASDAQ Advance - Decline: 2180-3428
Combined NYSE & NASDAQ New highs - New lows: 162-98
WTI crude oil: 93.33, -0.01
Gold: 1,258.00, -15.50
Silver: 20.06, 0.276
Corn: 425.25, -1.00

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