Last month, the Federal Reserve began seizing short-term Treasury debt of up to $ 60 billion per month in response to the repo chaos that sent a chill through Wall Street back in September.
Although it might sound like another round of quantitative easing, Fed Chair Jerome Powell wants to clarify: No. "Nobody knows this QE," he said.
Charles Hugh Smith, the writer behind the "Of Two Minds" blog, didn't buy it. In a recent post, he recounted a puzzle that Abraham Lincoln apparently once said: "If I were to call a sheep's tail as a leg, how many legs?" – five! – "No, only four; because I called tail, the leg won't work. "
Smith uses this chart to help convey his point:
"Calling non-QE QE doesn't make it different from QE," Smith wrote. "The level of panic of the Fed is noteworthy, as transparency is absurd from attempts at ridiculousness to hide its panic."
And with that panic, Smith believes that the recent pop to new highs in the stock market could finally mark that blowoff top is hard to understand.
"The financial media strongly states that the current top blowoff in stocks is not a top blowoff," he said. "The delicious irony here is that this rejection is a reliable marker of the peak of the blowoff: the harder the rejection is, the more likely it is that this is actually the peak of the explosion that many experts have hoped for some time, but always in the future."
Smith pointed out that the media denied it in the fourth quarter of 1999, and then did it again in the housing market in 2006. Even long before that, experts clearly did not expect the market rally in 1929 to turn into what it did. .
That's the thing about blowoff tops, they are much easier to see behind.
Smith, however, believes that he might be able to see it now, and he largely bases his opinion on the false impression that the "omnipotence and omniscience" of the Federal Reserve will keep this bull market going on.
Which brings us back to the chart above.
"If everything is very good in global banking and the U.S. economy, why is the sudden outflow of $ 300 billion in financial cocaine into a collapsing financial system?" Asked Smith. "Can $ 300 billion, or $ 600 billion, or even $ 1 trillion continue to sustain an increasingly risky, fragile global bubble, $ 330 trillion in assets that are overvalued? Just like the problem of scale, the answer is 'impossible.' "
DJIA, + 0.80%
ended last week at altitude, closing above 28,000 for the first time. Nasdaq
COMP, + 0.73%
SPX, + 0.95%
also strengthened well. We will see how long this level lasts, considering that futures look rather weak towards Monday trading session.