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Welcome To The "Policy-By-Whim" Environment
Via Mike O'Rourke of Jones Trading,
Sometimes you see something that is from a credible source and you are so dumbfounded you don’t know what to think. Late in the trading day, the WSJ’s Jon Hilsenrath published a story about the approach the Fed will take coming out of next week’s FOMC meeting. The first few sentences say it all. “Federal Reserve officials have been trying to convince investors for weeks not to overreact when the central bank starts pulling back on its $85 billion-per-month bond-buying program. An adjustment in the program won’t mean that it will end all at once, officials say, and even more importantly it won’t mean that the Fed is anywhere near raising short-term interest rates.” The program end all at once? (It is more like will it ever end?) Anywhere near raising short term interest rates? Really, if there is anyone out there who is legitimately worried about a Fed rate hike in the near term, please let us know (we are serious).
First, if the Fed believes the market is worried about a rate hike, it would be downright terrifying how out of touch the Central Bank. Second, the fact that the equity market rallied 50 basis points and the 10 year yield dropped 5 basis points in reaction to a premise that makes no sense to most people making investing decisions adds additional concern. For sanity’s sake, we will chalk it up to this being a shoot first business and the story broke 20 minutes before the close.
Hilsenrath highlighted the number of short term fixed income markets pricing a tighter Fed Funds rate in 18 months and explained that this distresses the Fed. As it stands now, the Fed controls fixed income spot markets. At the short end, it controls the Fed Funds rate and at the long end, it is buying Treasuries. The Fed is now upset because markets are determining the future. Rates it doesn’t control are pricing in the future in a way that is not aligned with the Fed’s view.
When there is a housing bubble or an equity bubble, the Fed will be the first to say, “who are we to disagree with a market comprised of participants far more informed than the Central Bank?” Such statements are the Fed’s way of avoiding tough decisions because if there is anything the past 13 years have proven, it is that markets often misprice assets. It is just another sign of the Fed’s intellectually inconsistent practices that result in policy by whim. The FOMC has a remarkable degree of hubris to expect markets to conform to its policy promises 18 months out, especially when it has given little clue as to how policy over the next 6 months will look and Chairman is expected to retire in 7 months.
Hilsenrath cited three possible explanations for the move in short rates.
1. Money markets are out of whack for technical reasons.
2. The market is pricing in a stronger economy, which it in turn expects to prompt Fed rate increases.
3. Investors are starting to doubt the Fed’s commitment to keep short-term rates down.
The Federal Reserve is actively manipulating markets more than ever, but it could be technical reasons? The market pricing in a stronger economy is called the Fed being “behind the curve.” That happens continually and is not new. Ironically, investors doubting the Fed’s commitment to keep rates down would be the opposite of being behind the curve. There is almost nobody involved in these financial markets who doubts the Fed’s commitment to keep short term rates low. If anything, it is the market questions the Fed’s ability.
Here is our explanation for the move in short rates - the loss of confidence in the Central Bank and its policy making process. The Fed’s balance sheet and Quantitative Easing program has become a Frankenstein monster over which the Central Bank is losing control. QE1 started during a crisis and was either incredibly successful or well-timed. It is often forgotten that the S&P 500 dropped another 22% in the first 3 months of QE1. QE1 had an Exit Strategy, a plan, a time frame and a reason. QE3 has no Exit Strategy, no plan, time frame, no expected level of job creation and no known end. As such, forecasting is nearly impossible in a policy by whim environment, especially when the key decision maker is likely to leave.
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The Grapes of HilsenWrath.....
How long have you been waiting to use that line?
...and here we have a member of congress demonstrating his desire to defend liberty and free speech by calling for the arrest of a journalist he claims (but provides no evidence of) of exposing CIA agents (and I presume not the one in the blond wig a few weeks ago)
http://liberalconspiracy.org/2013/06/12/watch-us-congressman-calls-for-glenn-greenwalds-arrest/
The whole thing stinks to high heaven.
The Fed, Bernanke are not manipulating, they are making stuff up, disrupting markets and mostly pretending. Unfortunately they have a following (like runners with Forest Gump) that think there is a grand plan. Well the grand plan is directing the peoples money to those they desire and the economy is a distraction.
They (Fed) is Oz behind the curtain and Judy (we) is looking in astonishment.
Washington exposed............more and more.
It's criminal cartel, that's all you need to know, it has no legitimacy in anything they do
Isn't this theft
GREENSPAN: "U.S. CAN JUST PRINT MONEY TO PAY IT'S DEBT"
https://www.youtube.com/watch?v=jB0lcX-GtOU
FUK U BERNANK!
So if this article is prophetic, what is the next rallying cry of the Bernanke haters.
DaddyO
"if the Fed believes the market is worried about a rate hike, it would be downright terrifying how out of touch the Central Bank."
Out of touch? They will jack the short rate sky high in a heart beat before they allow the last few bits of gold to be drained from their vaults. Out of touch are the bond and stock muppets that think they wouldnt dare.
The Fed is laundering keystrokes (economic drugs) for real money. How?
They keystroke money into existance, buy treasury's for the interest payments (real taxpayer money) to finance their 5 star lifestyle, pay fed members 6% divy and interest on reserves then return the leftovers back to the treasury as if they were good guys.
Reading MarketWatch articles, comments infer the majority still believe the fed knows what they are doing.
Sheeple.
You still read that site???????????????
There is no plan, no backup plan and no backup plan for the backup plan. The tails wag the central bank dogs...it's getting more obvious every day.
This article sums up why I stayed in cash and the gold and silver I bought back in 2002...I'm paralyzed as an investor.
The markets are very concerned about the Fed and all the Central Banks. They have been given this supposed dual mandate of low inflation and low unemployment. The problem is the inflation numbers for the majority of the population are gamed in calculation, so are artificially low for items that don't effect the majority; and left out of the calculation for items that are in the calculation. This allows the FED to keep rates below the risk levels that would be appropriate. As to employment; they cannot print jobs.
The real concern the markets are beginning to understand is with all of the printing by all of the Central Banks, a risk aversion is developing on the longer end of the global debt markets. Why would anyone want to own a piece of any sovereign debt with a maturity beyond 7 years, knowing the underlying currency will be devalued over time? This is becoming increasingly evident in the JGB bond market, and in other markets. It is not the growth concern or fear of inflation driving up rates on the longer end of the curve, but market participants risk aversion to a depreciated currency repayment. The largest holder of US debt, China, has been quietly shifting duration to shorter maturities. Perhaps they figured this one out first.
Since the Central Banks have no clue what they are doing (well perhaps they are lining the pockets of the inside few; Buffet, Goldman, Citi, et al). The gravest concern should be the risk exposed as the long end creeps higher in yield. This will expose the vast amount of leveraged trades via the repo market that will create a global liquidation event across all asset classes due to the ensuing margin calls.
If the "mandate" is inflation and employment then how can they say taper, whatever? Do they suspect lower unemployment and inflation at 2ish% in the near future or are they worried about yeilds/markets? If so, what happend to "mandates". What really drives the Fed?
"As such, forecasting is nearly impossible in a policy by whim environment, especially when the key decision maker is likely to leave".
It doesn't matter if the Bernank leaves. When he leaves we will more than likely be jellin with Yellen and she is an even bigger dove than the Bernank. The printing will continue and she will expand the balance sheet even moar.
The western financial system is the source of all evil. How did I get to this conclusion? Simply follow the money. And the buck stops there. Just mentioning that the market is jittery is enough for the Fed to soil its pants and the bankers know that. The freakin cat is out of the bag and he is not going back in. Our douchbag politicians in Washington don't have the cohones to put an end to these shenanigans. Wanna know why? Certain agencies have the dirly laundry on just about every single one and make it clear in no uncertain terms that questioning the system is not an option. Yes my friends if this all sound sinister its because it really is that sinister. The best part is when they label totally undemocratic (and probably unconstitutional) laws like the Patriot Act with really patriotic terms so that nobody would dare question them.
To say that these markets stink like Alec Baldwin's yoga pants, is the understatement of the year. Thanks to Gutfeld for the analogy.
As soon as any sign of weakness appears, the buying starts up again.
S&P500 daily from Wednesday -what happens Thursday? The second largest day move up of 2013.
http://bullandbearmash.com/chart/sp500-falls-13-points-closes-channel-su...
$85B per month - I place my index calls based on the Fed's schedule the day before the largest spend. So fucked.
But, but, but if I've heard it once, I've heard it a dozen times in the past few days in the MSM: Rates are rising in light of the economic recovery. Something like climbing out of doo-doo and smelling like a rose.
NOTE TO THE SELLOUT CORPORATE MEDIA: You have zero credibility remaining. Virtually no one believes what you print. Everyone knows you have sold out!
Thank God we have the Hedge!
The bond markets are a complicated mess. If you track back to the day this recent selling spree started it was the friday of the jobs report in May. The same day the S&P made the big breakthrough into 1600s. It seems the bond market was thinking (like I was) that a top was more likely going to happen, but when that breakout occurred they threw in the towel. Equities then ran as far away from 1600 as they could so a correction could presumably retest the breakout and hold. However, Bernanke did not reassure equities last month that the ponzi will continue forever, so the selling began on Bernanke Day. Over the last month it has formed the perfect topping pattern, but it has simultaneously formed a perfect consolidation pattern in that it held the backtest of 1600 (so far). The big money is lightening up their positions in front of the unknown to come on Wednesday. It will literally all come down to what comes out of the bearded wonder. But that's where it gets tricky for bonds. For equities it should be a no-brainer. Taper on = sell everything. Sell things you don't even own. Just sell. But for bonds does tapering mean the big buyer is now slowing down his purchases so we better start piling out? Or will there be a habitual, traditional flight to safety? I would think a flight to safety would happen first from equities, but it's bound to be temporary, no? In fact, if I was a big bond guy who was looking to exit I would sell into the flight to safety rally. When tapering starts whose to say it won't incrementally continue each meeting, despite Beranke's reassurance that he could always reverse again in the future and buy even more. Not to mention he might retire at the end of the year. It could easily pick up speed faster than all that money can find someone to sell to. And if the taper is off it's even more complicated for bonds. I would think that would mean equities take another leg up. So do bonds continue to sell based on the pattern that began in early May, essentially the hated great rotation? Personally, I have no idea what Bernanke is going to do. But big moves are brewing. I made a couple nice plays in this topping process but I'll wait to see what happens now. There should be plenty of continuation from whatever direction the market takes next Wednesday to jump on board.
The panic is going to be epic