Next Fed & ECB sugar bombs

The Fed and ECB will get the most bank (sorry, I mean bang) for their buck if they wait until after the BEA’s overestimated GDP report on January 29, and the BLS overestimated January jobs report on February 5th.

If I were pulling the levers, I’d have the ECB announce a 30B euro/month increase in QE in the second week of February.  This might buy 2-3 months of global stock market crash reprieve (wealth effect slamming into reverse).  Here’s your problem, ECB — you’ve already telegraphed you’re going to increase QE by 20B/mo or so.  So you’re going to have to “beat” that expectation to win a 2-3 month stay of execution.  Presumably you’re busy trying to coerce the Bundesbank to allow you to do this now. If you merely raise QE by 20B/mo I fear you’ll only get 1-2 weeks of reprieve.  Or worse. You may experience the dreaded Fed QE3 v1.0 damp squib –>> only only a few hours of crash reprieve. This is as much new runway as you can buy.

Fed, you’re up next.  Wait for the ECB to make their last move (and this will be their last move).  When things are about to collapse again, begin leaking that you will not raise interest rates until some arcane and fudge-able macroeconomic threshold is met. (Call me. I’ll tell you when the Greedometers say things are going to roll over with speed again. But you’ll owe me a beer. ) Beware: you’re going to be tempted to go full Kocherlakota/Krugman and threaten a new QE program.  Resist this natural and now ingrained tendency/urge. Threatening another Fed QE program may blow up in your face because Fed QE is no longer mystical. Too many people now understand it won’t solve the problem and that it only sets up a larger crash while the bottom 90-95% of income earners continue to be slowly squeezed.

 

Sorry there’s no happy ending. But you already knew this.