Wednesday, November 11, 2009
How Long Can the Fed Prop Up Equities?
That's an overlay showing the relationship between the weakening USD and the strengthening S&P 500.
Looks nice, if you hold equities-----for the time being.
...Even an increase of short-term rates to 2% would stop the carry and restore balance. But the longer the "zero rate" policy goes on the harder it gets to do it, and the more-severe the damage. If The Fed waits too long it will become literally impossible to raise interest rates and withdraw liquidity given the outstanding amount of Federal Debt without causing an immediate failure of The Federal Government...
IOW, at some point in time, trashing the USD will no longer push equities upward. Elliott (Kondratieff) has already called for a dive in DJ/S&P........