Target Practice

We all should be happy to know that we now can become familiar, and concurrently sick to death of, a new Fed related term: Forward Guidance. A recent Fed sponsored study showed that there might be some potential benefit to tapering current  bond purchases while extending the end date of said purchases to coincide with a new lower target unemployment figure ( possibly 5.5%). This change in targeting coincides with shifting targets across a number of other Central Banks, particularly the ECB where lower than expected recent inflation figures have prompted some officials to, once again, suggest the possibility of imposing negative nominal rates of interest. While this entire Central Bank  lab experiment might have started out with un-conventional methods, designed to meet somewhat specific goals, we are now faced with un-coventional methods designed to meet goals that seem to be shifting by the week. One might think that such a scattershot approach would elicit a broad sense of concern across all capital markets, however concern seems to be in short supply as of late. The question we now must ask as proactive investors is: Where does the liquidity flow, now that Financial Assets of all stripes have been sufficiently bid up? The problem with un-conventional and untested methods should be self evident, but when these methods involve massive inflows of liquidity into global asset markets,  one has to wonder what the secondary beneficiaries of this massive influx of liquidity might be. The recent Economist cover should provide some clues (  it is generally the perfect contra-indicator) as it is titled: The Perils of Falling Inflation.  Buy Stuff.

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