728x90 AdSpace

Latest News
March 2, 2015

Charting Central Banks Monetary Madness

A Short Parable On The Drama Of Current Monetary Policies
"Madness In Great Ones Must Not Unwatch'd Go." (Hamlet, act III, scene I)

When old grandpa Demographus entered the room and started speaking of the changing trends in business, with a growing number of workers retiring and his best clients spending less, attention was dispersed. Distraction and entertainment were provided by granny Yellen. The white-haired and mild-mannered lady galvanized all the attention with her prodigal fairy tales. The stories took place in a land once outlined by mountains and valleys, until two mighty wizards exercised their magic powers. One was trusted to watch over the east and the rising sun, while the other watched over the west and the setting sun.

Together, BOJ and FED used their magic to fill up the valleys that supported their kingdoms. By doing so, they had lifted those lowlands onto an enchanted plateau! When some skeptics questioned what lies in wait at the end of the plateau, wizards and followers replied in a rehearsed chorus that another rising slope should eventually lead to higher and more fertile grounds. Many were mystically appeased by that seductive idea. 

But, amidst those marveled ones and a crowd chronically distracted by ignorance or indifference, a stubborn bunch insisted on some incredulous and preposterous petulance: "Yet, at the end of such higher fields, wouldn't there be any precipice? Aren't the valleys a real and necessary part of the landscape? Don't lowlands become more fertile too, since precipitation gathers nutrients that allow for more robust growth and better harvests in the future? Or would the sky be the ultimate boundary from now on? With ever higher altitudes, at what level would the sunshine provide no further warmth or nourishment to villagers?" Many seemed to ignore the increasingly fragile state of the vegetation, with fewer and shorter roots in those higher and drier grounds. The thinning air of such heights had already affected whatever judgment and ability to reason was left in the kingdom of Dowjonesy...

The original scenery of my parable could have looked like this:

(the relationship exposed in the chart above was brought to our attention by Harry S. Dent Jr.)
But, while the monetary magic (involved in vanishing costs of credit and money being pulled out of hats) may continue to entertain the economy, any due valleys and troughs will be postponed in favor of ever frothier altitudes... The green line in the chart below shows all assets accumulated by the FED through the money-printing of quantitative easing and the similar trajectory of the S&P500.

"And that I see, in passages of proof, (...) a kind of wick or snuff that will abate it;
(...) for goodness, growing to a plurisy, dies in his own too much."
(Hamlet, act IV, scene VII)

Reproduction of this article, in parts or in the whole, without reference to the author is prohibited.
Copyright © Sebastião Buck Tocalino - De Olho Na Bolsa (www.DeOlhoNaBolsa.com). All rights reserved.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

© EconMatters All Rights Reserved | Facebook | Twitter | Email Subscribe | Kindle

AUTHOR DISCLAIMER: Any opinions expressed by the author may be personal and controversial. This is not an investment recommendation! 

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by De Olho Na Bolsa in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter.
All data used and shown here were gathered from accredited sources that we believe to be trustworthy, reputable and accessible to market participants. 

De Olho Na Bolsa expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. INVESTMENT DECISIONS INVOLVE RISKS! For your safety we suggest you should seek the professional advice and guidance of a reputable brokerage firm and portfolio manager.
  • Blogger Comments
  • Facebook Comments
Item Reviewed: Charting Central Banks Monetary Madness Rating: 5 Reviewed By: EconMatters