Fed policy “makes no sense from a risk/reward perspective” and it will “end badly.” –Stan Druckenmiller

Druckenmiller went on to say, “every ounce of intuition in my body is that the potential costs have crossed the potential benefits in Fed policies.” I think what he is referring to here is that the tools available to the Fed are not precision tools. They are blunt instruments that are not very effective in their mission and their use comes with all sorts of side effects and consequences. I wrote a bit about this yesterday. We’re seeing the majority of the effects ZIRP and QE appear in stock and bond prices rather than in employment and wages. But so what?

“We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost.” –Raghuram Rajan

When you push up asset prices in an effort to stimulate the economy you also subject the economy and financial markets to the risk of asset bubbles – which, when they eventually pop (as they all do sooner or later), can undo all the work the policies or tools did in the first place. Anyone remember the financial crisis? We were well on our way to the Great Depression, part deux, as the Fed would have us believe. But have we reached “bubble” levels yet?

“Yellen’s comments suggest, and I agree, that we are in an asset bubble.” –Carl Icahn

Carl sure thinks so and evidently believes the Fed is doing it consciously. But how can we determine if we’re in a bubble?

Corporate bonds and junk bonds “have never been more over-valued in history.” –Jeff Gundlach

Oh, that’s how. Junk bonds valuations are sky high (not to mention other asset classes like stocks, farmland or office towers)…

“It is worrisome that covenant-lite lending has continued its meteoric revival and has even surpassed its 2007 highs.” –Richard Fisher

…and the riskiest sort of bonds are being issued at a record pace. Didn’t we learn our lesson after the financial crisis? That this sort of thing is not a fix at all but just exacerbates the problem? Will we ever learn?

Maybe somebody ought to teach the Fed Albert Einstein’s definition of insanity: ‘doing the same thing over and over again and expecting different results.’