The FOMC Talks and the Markets Shriek
The FedÂ held its monthly meeting to determine the course of the world over the past two days wherein it was decided that the current QE program would continue indefinitely. But, the rhetoric surrounding said indefinite time frame was apparently hawkish enough to send everyone scrambling for cash.Â In the wake of the press conference and statement pretty much everything that was not the US Dollar or the Chinese Yuan was sold with impunity.Â The yuan not selling off, at first blush, may seem strange but not until you look at SHIBOR rates and note the turmoil in the Chinese interbank markets.
China is attempting to break the back of its shadow banking system at the same time as the Fed is still desperately trying (and failing) to prop up the one in the U.S.Â So, in light of the Fed continuing with its $85 billion per month QE program and a macroeconomic picture that looks awful Bernanke is sitting up on the hill trying to talk his way out of the corner that he and the rest of the central banks have painted themselves into.
And they’ve used paint laced with contact explosives to do it.
The 10 year yield has exploded to the upside to 2.34%.Â I’m waiting for the Southeast Asian markets to open tonight and if those yields follow then expect the beginning of a real liquidity nightmare to unfold there in the next few weeks which could crater the economies of Thailand, Malaysia and Singapore in about an hour and a half or so.Â Good thing most of the banks there have low NPLs and high Tier 1 Capital ratios.Â By the time Bernanke is done with them they will need every penny.