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Targeting Asset Prices...


The Fed wants/needs investors to keep taking risk.

Along with their pretty words, the NY Fed supplied the market with whatever it needed yesterday and today to "party on dude": They added $21 billion yesterday and another $3 billion today.

The Fed knows that if stocks don't go up the party is over: with personal income stagnant and the ATM machine from mortgages out of cash, investors need capital gains to feel wealthy enough to consume.

But that supply of money (egregious levels of 8% growth in the U.S. and Europe while Asia is even higher) seems now to be only going to the most speculative investors, those willing to take even more risk than the average guy.

High debt is worrying the more conservative of investors, so they are not now taking that free money (even though the cost of money via interest rates is rising, inflation is keeping up so the real cost of money is still very low) to speculate. They might even be doing the word most dreaded by the Fed..."saving."

The Fed wants/needs investors to keep taking risk. They are doing everything they can to keep the uninformed buying stocks and houses.

People say "don't fight the Fed." And that is true when only a few try it. But when everyone all at once says enough is enough, the Fed loses what little power they have left. That is when people all at the same time try to reduce risk instead of obeying the Fed and taking on more (like credit risk).

You saw a taste of what that can do the last few weeks. Just a taste.
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