MoMo Meets NoKnow

We pointed out recently the Capital Markets affinity for risk assets, particularly in light of a relatively undefined level of QE. The performance of financial assets vis a vis hard assets over the past 12 months is evidence of such a mindset. However, recent comments by Fed Governor William Dudley would suggest that while the Fed is more than happy to sustain their balance sheet management, they are expressly unsure as to the transmission mechanism of said micro-management. Governor Dudley stated ” We don’t understand fully how large-scale asset purchase programs work to ease financial market conditions”.  Thus, if the Fed is unsure how QE works, but is steadfastly supportive of its continuation, what exactly is giving buyers of risk assets such comfort? We maintain that todays comfort level stems from every momentum buyers mantra: Tomorrow will look much like today, only better. Juxtapose this benign attitude towards risk with a Central Bank that promises to stay the course, even if they have no idea where that course may lead. Take the Central Bankers at their word: Sell certainty Buy Stuff

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