The Fed’s ongoing policy to trash the dollar has had the effect of inflating prices of things priced in dollars. This policy has most notably sent the equities markets through the roof. But remember that actual economic growth is “priced” in real terms. A factory that increases productivity by 2% a year can not “put it on margin” to turn that into a 4%-10% annual gain. Indeed, we are suffering the aftermath of an economy whose growth over more than a generation was increasingly driven by borrowing, borrowing, borrowing.
It appears that the Fed really believes it is helping the economy by guaranteeing that the prices of mortgage-backed bonds remain unrealistically high – and using our money to do so. What is really going on is that asset prices are diverging from fundamental asset values, to the extent that markets risk becoming completely untethered from reality. Into this morass treads Janet Yellen, who looks set to launch a new round of aggressive doveishness. We think this risks trashing what’s left of the dollar.
Maybe shutting down the government wasn’t such a bad idea.
This is an excerpt from a Forbes op-ed written by Hedgeye Managing Director Moshe Silver. Click here to read it in its entirety.