Earlier today, El-Erian in the Financial Times released a short and apt note on the limits of the central bank put. It’s richly ironic that an aggressive promoter of unbridled capitalism, Ayn Rand acolyte Alan Greenspan, spawned the innovation that is the biggest market intervention of all time: the Greenspan put, which gave way to the Bernanke puts of the crisis and its aftermath, and have been emulated by apt students at the ECB, in the form of its Securities Markets Program, which has been tweaked, rebranded, and relaunched as the Outright Monetary Transactions, or OMT.
Yet as much as Rule Number One of investors is “don’t fight the Fed,” it’s hard not to notice that the effectiveness of central bank interventions is waning. Admittedly, the half life of pretty much any Eurocrat initiative seems to have collapsed, but even so, the initial celebration of the announcement of the OMT fizzled quickly. Similarly, after months of eager anticipation, the launch of QE3 produced a mere one day stock market rally, and key commodities and Treasuries gave up much of their initial move with surprising speed.
....read more HERE at NakedCapitalism.com
- From the Financial Times Article below:
Beware the ‘central bank put’ bubble
by Mohamed El-Erian
"Essentially, the Fed is inserting a sizeable policy wedge between market values and underlying fundamentals. And investors in virtually every market segment – including bonds, commodities, equities, foreign exchange and volatility – have benefited handsomely. In the process, many asset prices have been taken close to what would normally be regarded as bubble territory, with some already there.
Central bank action, both real and perceived, rules the investment day, and will continue to do so for now. This is also the case in Europe."
....read more HERE (Ed Note: you'll have to sign up for free at a minimum, to read the the other 15 paragraphs above & below this article)