If you’re wondering what happens if The Fed abandons QE2, the following should put it in stark relief:
Monthly net TIC flows were $39.0 billion. Of this, net foreign private flows were $79.8 billion, and net foreign official flows were negative $40.8 billion.
Here’s the problem – this entire ramp job [in the stock market] is nothing other than monetization [buying back our own debt]. And while this feels “real good”, the question is always sustainability.
Anyone who believes that The Fed will be able to continue to monetize forever, and that prices will thus rise forever, and will not decline back to their actual risk-adjusted return and price once that buying stops, either by choice or force….. well….. you’re rather deluded.
Foreign governments have got it figured out, and they’re slowly slinking through the door, hoping you don’t notice.
Who’s the sucker again?