Get Rich or Die Trying
- Joshua M Brown
- September 14th, 2012
Stop reading "Nine Takeaways from the Fed's blah blah blah" articles, they are a waste of time.
There is only one takeaway: The Fed wants you to feel rich.
The game plan is the mother of all Wealth Effect Hail Mary passes and you're in the end zone receiving along with the rest of us. And this time, they're not playing games. That's the only real takeaway you need.
They're dumping $85 billion worth of kerosene on the risk assets, housing, 401(k) bonfire per month for the next three months and then $40 billion a month thereafter as far as the eye can see. The Fed wants your portfolio to go higher and your stomach to be tied into knots for not being invested. The Fed wants your home to go up in value, too. It wants you to look at these improvements in your life and to start feeling confident again. It wants you to feel richer than you have in years. Because when people feel rich, they buy shit. They hire new workers and raise the wages of existing workers. This in turn makes the workers feel rich(er) and they spend more too.
At least that's the theory.
It hasn't worked so far because it was up against a decades-in-the-making deleveraging cycle, the kind that you expect in a balance sheet recession where everyone checks themselves works down debt. But we're almost 5 years into that and maybe enough time has passed that the wealth effect will work this time. We need more than stocks going up - we need a transmission of that into the actual daily lives of the regular folks, most of whom do not participate in a meaningful way in the markets. The wealth effect from home prices is something like 10X that of a rising stock market wealth effect say the experts. Can the Fed buying up more than half of all new agency MBS issuance make that happen?
The bottom line is the Fed just told us they want to get us rich or die trying. Y'all ready for that?
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.