"By now, it’s an all-too-familiar drill. After an extended period of extraordinary monetary accommodation, the US Federal Reserve has begun the long march back to normalization. A majority of financial market participants applaud this strategy. In fact, it is a dangerous mistake."
“To the intelligent man or woman, life appears infinitely mysterious, but the stupid have an answer for everything.” ~Edward Abbey
“While Fed did a great job in reacting to global financial crisis, it played an equal role in setting markets up for the crisis by running uber-accommodative monetary policy.”
When a central bank tells you it’s a “one-off” event you may as well take that as a green light!
Having gazed ominously at the extreme monetary policy smoke-and-mirrors intervention in bond markets, and previously explained that "the stock market is to important to leave to the vagaries of an actual market." While the rest of the world's central banks' direct (BoJ) and indirect (Fed, ECB) manipulation of equity markets, nobody bats an eyelid; but when PBOC steps on market volatility's throat (like a bull in a China bear store), people start complaining... finally. There is no difference - none! And no lesser Asian expert than Stephen Roach warns that we should be afraid, very afraid as he states, the great irony of manipulation, he explains, is that "the more we depend on markets, the less we trust them."
We warned previously that when (not if) the market crashes next, The Fed is going to need a scapegoat (other than British traders living at home with their parents) and judging by The Fed's Lael Brainard's comments today, high-frequency-traders (HFT) are in the crosshairs. Crucially, Brainard warns that HFT "may amplify market shocks," and The Fed is "studying possible changes in liquidity resilience."
History has not been kind to major trade blunders. Just as the Smoot-Hawley Tariff Act of 1930 sparked a global trade war that may well have put the “great” in the Great Depression, Congressional enactment of enforceable currency rules today could spark retaliatory actions that might devastate the free flow of trade that a sluggish global economy desperately needs.
The world economy is in the grips of a dangerous delusion. As the great boom that began in the 1990s gave way to an even greater bust, policymakers resorted to the timeworn tricks of financial engineering in an effort to recapture the magic. In doing so, they turned an unbalanced global economy into the Petri dish of the greatest experiment in the modern history of economic policy. They were convinced that it was a controlled experiment. Nothing could be further from the truth.
In the QE era, monetary policy has lost any semblance of discipline and coherence. As Draghi attempts to deliver on his nearly two-and-a-half-year-old commitment, the limits of his promise – like comparable assurances by the Fed and the BOJ – could become glaringly apparent. Like lemmings at the cliff’s edge, central banks seem steeped in denial of the risks they face.
Having previously warned that The Fed's "fixation with the markets has created a deadly trap," and recently noted that "Central Banking has lost its way," Stephen Roach unleashed a few minutes of painfully honest truthiness on an unsuspecting Kelly Evans at CNBC. The brief interview reiterates Roach's previous comments, as Tim Iacono notes, that "it didn't have to be this way." The Fed "is in total denial," Roach rants, adding that it "hasn't learned the lessons of what it put the world through a decade ago."
A Fool’s paradise is what the once great “land of opportunity” is in real danger of becoming if the adults don’t stop acting like children and actually care about what’s beneath the headlines or between the book covers. Rather than the headlines of who’s between the covers with who. Today far too many are only taking in the “headlines” along with what’s known as “headline numbers.” This is an abject lesson in Tom Foolery.
"The Fed Is Heading For Another Catastrophe... Central Banking Has Lost Its Way" Stephen Roach WarnsSubmitted by Tyler Durden on 12/24/2014 10:17 -0500
America’s Federal Reserve is headed down a familiar — and highly dangerous — path. Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-2009. The consequences could be similarly catastrophic. The Fed’s incrementalism of 2004-2006 was a policy blunder of epic proportions. The Fed seems poised to make a similar — and possibly even more serious — misstep in the current environment. In these days of froth, the persistence of extraordinary policy accommodation in a financial system flooded with liquidity poses a great danger.
Despite the authorities' best efforts to keep everything orderly, we know how this global Game of Geopolitical Tetris ends: "Players lose a typical game of Tetris when they can no longer keep up with the increasing speed, and the Tetriminos stack up to the top of the playing field. This is commonly referred to as topping out."
"I’m tired of being outraged!"
The Fed remains fixated on financial-market feedback – and thus ensnared in a potentially deadly trap. Fearful of market disruptions, the Fed has embraced a slow-motion exit from QE. By splitting hairs over the meaning of the words “considerable time” in describing the expected timeline for policy normalization, Fed Chair Janet Yellen is falling into the same trap. Such a fruitless debate borrows a page from the Bernanke-Greenspan incremental normalization script of 2004-2006. Sadly, we know all too well how that story ended.
This week's "Things To Ponder" is focused on things that, in my opinion, far too many individuals are ignoring. Bob Farrell once wrote that "when all experts and forecasts agree; something else is bound to happen." Today, that is the case as much as it ever was. Despite rising geopolitical risks, weak economic data, deteriorating fundamentals and softer internals - the overwhelming belief is "equities are the only game in town." Of course, we have seen this mentality many times in past history whether it was 1929, 1987, 2000 or 2007. While every market peak was different, there were all the same.