Since the game of converting real estate wealth into cash is over, the idea of stimulating prices of various assets so they might be able to be converted to cash is now in play. The announcement by the Fed yesterday of its intention to purchase treasuries along the yield curve to inject further stimulus into the economy is explained as another way to drive down rates but is really aimed at the only play the Fed has left, pumping asset prices. As stated before in posts here at BaseOp2, the Fed is using the Dow Jones Industrial Index as one of their key guides to gauge economic stability. The problem of course is that this particular strategy has its limitations as far as direct economic stimulus and has and will become more of a generator of a speculative play for assets. A sort of Greenanke boom bust event. Let the race begin.
The great thing about real estate and a housing market boom is that it employs so many people and the resulting growth creates a wonderful cycle of lending and transacting. This direct impact on economic growth is without peer, but without it, what possibly can have the same impact. Well, nothing. Certainly not speculating on gold. But the choices are limited to the Fed and now they are forced to stimulate assets such as equities which makeup a dramatically smaller portion of American household wealth.
When one looks back at the great inflation battles of the past, it is interesting to see just how nervous the Fed is about the black hole deflationary possibilities facing the US and world economies. This is an indirect job stimulus plan by the Fed since the recent election has all but ended any future stimulus by the elected ones. But asset plays being stimulated by the Fed also reflect the an odd balancing act by market players since they know that plays such as these are always a kind of musical chair pump and dump opportunity game where timing is everything.
There is an old saying on the trading floor. You get one good look at a bad trade. Meaning, the market gives you one chance to get out of a bad trade. The Fed may be giving asset players that chance.
