This page has been archived and commenting is disabled.
The Fed Has Delivered Far More Than Just A Lump Of Coal This Time
If one meme has been constant these subsequent years since the great financial melt down of 2008 it’s been: BTFD (buy the dip) Not just some dips – but every dip. And why not? The Federal Reserve had all but assured Wall Street that since its first intervention into the markets and the resulting “risk on” behavior it produced resembling a Pavlovian experiment, it would indeed reincarnate the procedure every-time there seemed to be even the slightest hiccup in the markets. “Emergency monetary policy measures” would indeed be left in place for “an extended period.”
Wall Street didn’t need any secret decoder ring to read the hidden message that laid within. i.e., “The Fed’s got your back so buy, buy, buy!” And they did horns-over-hooves tripling the values of many of the major indexes sending them to never before seen in the history of mankind highs. Even the dot-com era highs were taken out. And all of it, and I do mean – all of it – on fairy-tale reporting of economic measurements. Need an example? 5% unemployment rate signals people are getting jobs. However, don’t pay any attention to the 94 million (and growing) that can’t and – are out of the workforce. All while the food stamp program and other government assistance program roles have swelled to historic levels. Because, other than that: “Everything is awesome!”
The problem with all of this is that it’s now becoming apparent to everyone. The amount of mal-investment along with just how intertwined all the subsequent carry trades and more is becoming frightfully obvious and can no longer be hidden from view. The real problem now facing the Fed. which I believe they themselves did not fully comprehend was the extent in which all of this was: so blatantly obvious. Again: to anyone who truly wanted to look.
Without the Fed’s interventionism – there is (and was) no market. And now with the raising of rates; no one will be able to miss or avoid that fact any longer. No matter how hard they try.
Another of the problems for the Fed. began to express itself when they seemingly became comfortable with this new paradigm and even appeared to relish this new-found fame and power as they took to any (and just about every) media source whenever needed and delivered either sedative policies or, soothing tones with near immediacy as to help quell any and all market fears. Over these ensuing years the frequency of appearance by Fed. speakers across the media has only been rivaled by the grueling tour of some where-are-they-now rock-band. I have a feeling they’re not going to relish this new limelight as they did the old.
This past Wednesday they unwittingly threw back their own curtain and implied, “See, we fixed it. Nothing to see here. The economy is just fine. So – we’re raising rates” to what appeared to be thunderous applause. However, what that motion truly revealed was not some blank or empty space. No, what they unknowingly revealed was a caged monster whose door just came unhinged. The resulting consequences began to bear its teeth Thursday and Friday. Yet, figuratively, that monster is still within the theater. The ensuing days is probably when this beast actually hits the streets, as in Wall Street. Then, all bets are off on exactly what mayhem we’ll see as a result. However, what we do know is this: It ain’t gonna be a present anyone wanted under their tree.
Suddenly we’re finding out (much like cockroaches) when you see one nasty issue – there’s many more just hidden from view. No where is this analogy more fitting then what is currently taking place in the High Yield space. e.g., junk bonds. First there were signs of stress just weeks ago. Then almost overnight (literally) many woke to the news that their “investments” were suddenly gated. Gated as in: Want your money? Sorry, maybe later, if not much later along with maybe not worth that much at all. Thanks for investing!
These are only the first warning shots being fired as to just how precarious, as well as onerous, this debt monster that the Fed. has unleashed might be along with the resulting chaos. For the tentacles of this beast combined with its destructive power is going to give the Kracken a run for its money in my estimation. What we’re not talking about is some monetary policy that can now be moved around with the frequency of some elf on a shelf. That’s fantasy land. This bane tale is currently becoming all too real.
I am now quite convinced that all of this was not only absolutely lost within the halls of the Eccles building rather, what might be even worse is that it seems it may have not even had been contemplated or, thought to be unfathomable by its very creators. I feel I can say this soundly by what I observed during the subsequent press conference given by the Fed. Chair Ms. Yellen on Wednesday.
What absolutely left me slack-jawed was her tone, tenor, and facial expressions during her opening remarks. Usually when one is delivering statements about monetary policy and other matters they tend to take on a tone of mundane, somber, expressionless, drawn out reading from prepared texts. It’s not like you’re going to see entertainment (well, maybe comedy come to think of it but I digress.) These are more or less information dispensing venues. Read the text. Answer any questions. Thanks, see you in a few months. This one was far, far different in what it revealed to my eye.
Ms. Yellen seemed to be almost giddy in her demeanor when delivering the news that the Fed. would indeed raise rates. It appeared as if the act of raising rates was some type of banner announcement where “Mission Accomplished” should be brought up in bright lights and champagne bottles uncorked. I implore anyone who thinks I’m exaggerating to find that conference in any search engine and watch for themselves with a more discerning eye. It truly was uncharacteristic by any Fed. Chair that I can recall. Yes these indications are subtle. Yet, to a trained or informed eye – they are there nonetheless. Noticing subtle variations such as these are required if one is serious about understanding Negotiations 101.
It may sound like something inconsequential however, what I would argue is it shows just how clueless the Fed. truly might have been. The only thing worse is it may show that they truly did believe their own press. e.g., That the economy really was as good as they said (or thought) it was. If that’s the case – then we really are in trouble. Big time!
This act of raising rates was not some seminal event as to mark the economy’s return to health. If one is truthful (although most continue to kid themselves) the Fed. raising rates on Wednesday was more or less an act of desperation as to “get off of zero.” Hopefully, without causing too much stress so that if and when the economy does show signs of stuttering (which it clearly is) the Fed. would then have some dry powder in reserve as to cut once again. Hopefully (once again) instilling the same Pavlovian reaction they’ve come to expect. That’s a far, far, far (did I say far?) cry from doing it because the economy is getting a clean bill of health. Or, “Mission Accomplished” sign off from extreme monetary measures.
Again, I must implore anyone: watch her opening remarks again and you’ll see it clearly. But you shouldn’t just stop there. What you should do is also watch the Q&A. For this too was also quite revealing.
When asked about the possible effects upcoming on bond yields and more some of the questions seemed to just confound the Fed. Chair appearing to catch her off guard like a deer in the headlights. So striking were some of the moments of silence even Tom Keene of Bloomberg™ commented during his show how he was taken aback. I believe the word he used was “stunning.” I have to agree with him. However, I myself was even more stunned on the non-answering answering composition of Fed. speak Ms. Yellen retorted at length. I mean, just how many ways can one use “transitory?” After a while I wished hearing transitory itself had been more transitory.
If we are in fact witnessing the first stages of a blatant, as well as avoidable policy error by the Fed. the resulting mayhem will be far worse than anyone ever expected. And I use the word “avoidable” precisely for that reason. For it has been clear to anyone without a Ph.D in economics; who has just a modicum of common sense; and acquired their education at the school of hard knocks; that this economy was not only far worse off than any of the reporting stated but – was being made that way with the consistent heavy hand of intervention being carried out by the Fed. itself. And this fact is coming to light brighter, and more plainly visible with each passing day. All to what I feel will be the Fed’s horror. Yet, it will be us that has to navigate the real life nightmare filled with debt leviathans and carry trade tentacles rivaling the Kracken for tenacity as well as fury.
This will probably go down as the first time Wall Street will have ever wished the Fed. had indeed left only a lump of coal in their bonus stockings rather, than the surprise they might wake to this holiday year-end. If you want to see a clue about just how much of a bloodbath is still possible in the once highly touted arena of fixed income – just look at Jefferies™.
It’s now self-evident: Winter is not coming... It’s all ready here.
And the Fed. is expecting you to be happy with their latest present. For by all indications expressed they thought long, hard, and decided this was exactly the right gift, at the right time. Just don’t look for any gift return receipt. The exchange window for returns to BTFD once again are currently closed. That’s an option I’m confident they also did not contemplate fully. For I’m sure they felt they knew exactly what they were doing – and the “markets” would be thrilled.
Ho, Ho, Ho?
»
- 40 reads
- Printer-friendly version
- Send to friend
- advertisements -
Actually it was obvious to everyone. Thus everyone bought the dip time after time. They were just waiting for the other shoe to drop....which it just did. Greed does funny things to people, including inducing selective blindness. It doesn't mean they couldn't see.
I give it less than a year, until it's MOAR "Bail-outs for Wall St.,& Balls-Deep for Main St.".
They boxed themselves into a corner, and no amount of chicanery is going to change reality forever.
Whatever buys more blow and hookers. Fed policy 101.
I don't believe the Fed is clueless. I believe they are defending the status quo with propaganda. Cluelessness retains moral high ground. Propaganda is subterfuge to illegitimately retain power.
I believe they were doing their part in executing on a plan to implode an exorbitant level of debt. Maybe Bix Weir is correct in that going back to a gold standard after running the economy full heat was the plan all along or, maybe it is the exodus from the dollar standard and a global recession that enables the entry into a global governance system of the NWO security state?
Does not matter a stitch which, what or why now. The debt is beyond comprehension and incomprehensibly linked with paper in multiples against collateral posted with plausible deniability as the "did not fully realize" excuse presents itself.
I call BullShit.... where's the lampposts?
There are two ways out of the corner the US finds itself in.
With the existence of nuclear weapons, civil war actually seems the more likely course. And the new government will have no debt. Trump might like to play a general someday.
Well I have been calling 'The Market" as "The Racket" for quite awhile.
Wall Street is a CASINO with loaded games in their favor as They ARE THE HOUSE.
iT IS OBVIOUS. IT HAS BEEN OBVIOUS.
But there are winning games to exploit in any CASINO....in Las Vegas...at Viejas in Alpine, California.
Hell I bet only $15 on a loaded Ultimate X Poker at Viejas Casino last week and walked away from it with $700 AFTER ONE HAND.
(Of course you do not continue to play the machine when the game is not in your advantage...That is how to win after all...ONLY PLAY when the odds are heavily in your favor. The Game tells you that information right on the screen.)
VIDEO:
RealCasinoHustles: How to Beat Slot Machines-Ultimate X Pokerhttps://www.youtube.com/watch?v=kkdBhDexIJ8
So, in order to win. you must shop for winning games.
Likewise you can win at the Wall Street Casino...when the Game is heavily in your favor. You just have to be clever enough to read the proper information from the game.
Now I will not participate in the Wall Street Casino because it is not an honest CASINO. But there are honest Casinos that tell you upfront that if you play for a long term that you will lose. In fact it is LAW in the state of California that they are prohibited from having any game that pays out over 100% long term.
At least Viejas and Barona are HONEST in that regard.
(I am amazed that people never go out hunting with me. The only person to ever show up was introduced to this a long time ago. We hunted for winning games.)
How big a factor will normalacy bias figure in next week's short schedule?
Myths take on a life unto themselves until reality pulls the plug- I think we are getting close to that realization- should be an interesting week one way or the other.
Rate hike? It's only a tiny little thin one. https://www.youtube.com/watch?v=HJZPzQESq_0
What's even more obvious is that the Fed is NOT that stupid. They know exactly what they're doing, and have been for over a hundred years. The problem is that it's not in the 99%'s benefit. Someone always wants someone else's cookies without going through the trouble of making it themselves. That's why they lie, steal and sometimes murder.
I'm showing a nasty-looking double top (a.k.a. "M" for murder) on the daily ES chart, which has had its neckline broken twice. IMHCO FWIW we had better hold support at the 1956, or if not there, at the 1795. Because if we don't, we'll be visiting the 1000s as sure as Lucifer irradiates little green apples. And if support fails to hold there, this year's high of 2134 will likely be the high of the century. We'll see...
Without the Fed’s interventionism – there is (and was) no market
True enough! I think the average ZH reader was more than fully aware of the manipulated, crony markets. What did amaze though, was the ability of financial media to run cover for the Fed and put out 24/7 news about recovery and genuine market rises due to real economic reasons. "people were investing based on a firm outlook and growth". The media across it's vast spectrum, minus the internet blogs, was all aboard the Fed Train! Talking heads on TV went on and on pumping for the fake government economic statistics.
Where we ended up in 2015 is an entire generation of investors who believe the Fed can and will manage to markets going forward, To them, there is no reason ever to return to price discovery. After all, what's the Fed for if not to ensure "wealth effect" economics.
By 2008, price discovery was out the window. You name it, Housing, energy, stocks, bonds etc. The Fed money printers juiced assets to the moon. Those who followed the Fed reaped a big return. BTFD was a no lose play.
Everything has been up. But the laws of physics indicate that there always is, somewhere, a counter action down. For now, the minus effects of the Fed have been hidden. But they exist inside the system, all this Up side was manipulated, not real, that means the down side is like a spring loaded with enormous potential energy, that energy wants to release and push stocks back to their Real Values, based on economic reality.
The Fed can't hold back the downside forever. When it releases, it will rip your face off on the way down back to realistic value based pricing. Get out of the way when the spring releases!
Stellar observations, great post. Thanks.
jack, your shit is the real deal-thanks!
Price discovery was doomed the moment a central bank was created, it merely took a lot of time to kill off market economics because it is so robust and resilient.
Dual Citizen 1: Hey, it's time to drive this thing off a cliff.
Dual Citizen 2: Hmm, then we better have a female yard gnome behind the wheel. It'll look better that way.
Dual Citizen 1: I agree, lets do this thing.
BTFD - buy the effin debt (covered by hard assets), when it's pennies on the dollar.
"If we are in fact witnessing the first stages of a blatant, as well as avoidable policy error by the Fed. the resulting mayhem will be far worse than anyone ever expected. "
Am I the only one who finds this both weird and hilarious. As if printing trillions of dollars of funny money and inflating all policy assets to the moon; and, pushing on a string over and over wasn't the true policy error?
Often a 'policy error' is in the eye of the beholder. It certainly wasn't an 'error' in the eyes of those who benefited the most. And those who most benefited will benefit again when they are able to buy suddenly deflated assets for pennies on the dollar....just in time for the next leg up in this ongoing 'policy error'.
When Bear Stearns and Lehman failed it set off a firestorm of asset repricing that almost collapsed the entire global financial system. The financial pundits - ALL of them - said "They never should have let Bear Stearns and Lehman fail".
The hard truth is that Bear Stearns and Lehman failed. Their business models were so leveraged and devoid of common sense that they were doomed to fail. Further, the entire financial system was stuffed full of grossly mispriced assets. It was all one giant FAIL.
Since then "they" have done everything in their power to return the world economy to the state it was in before the collapse. In other words, return to giant fail conditions. Brilliant!
Rest assured that whatever happens, the provincial Washington DC office of Goldman Sachs, often mistaken for the Fed, will assure the safety of its directors and shareholders.
smart money is short, simple stuff til the turn-moar stimulas, then another round of billions compounded off the "markets". cue japan's seemingly endless cycles. wall street ready, willing and able to "create" markets with first touch treasuries leveraged to simulate another btfd to dow 20K. mark your calenders-one year and counting...
and front run with algos to have a full year of daily profits plus being the market maker, ha...
don't fight the fed on the way up or down
Mark St Cyr, "mal-investment"?
ORLY?
The Fed bailed out their own...end of story. Who's the bag holder(s) again?
Trump has called it a bursting bubble http://www.bloomberg.com/politics/articles/2015-12-19/trump-predicts-u-s... . Who else among the candidates has done so?
He has also said it should occur during this administration not 2 months into the next. He's flagging the Fed's role and his willingness to call out the Fed if they try to repump to keep the crash out of Obama's time. Trump is not going to let them drop a mess in his lap as though he caused it.
Who cares? Trump builds things! He hires community organizers...
It is difficult to find someone who has benefitted more from the credit bubbles of the past few decades than Donald J. Trump.
Trump is global. What's your point?
You come to Zero Hedge because it's unequivocally, one of the finest financial sites...
I guarantee you,[ geo-macro] policy decisions are made based on the input of highly intelligent Zero Hedge contributors.
Point is, for the minority here who think Trump is going to shake things up if elected, think again.
Zerohedge got it wrong with the end of QE and all of the arguments of flow versus absolute magnitude. Zerohedge got it wrong with the magnitude of excess liquidity. Zerohedge is getting it wrong relative to the rate cut. Unless Junk bonds take this thing down, or a glencore type belly flopping this will niot be a steep sell off. Why the US is the best grapefruit in the dump. EEMs have shrugged off the rate hike the US market is having a bit of a tantrum.
Year end call for the S&P is 2050.... tomorrow likely down and then up and down till year end. Next year will not be a good year, and the grind will be more obvious, but this is not the collapse you are looking for. Its comming but this isnt it.
Well said.
Great article !!!
What would it take to completely eradicate The Federal Reserve?
If the author is saying that in January 2009 there was a better way to get our economy to where it is in December 2015 (obviously not great but looks okay to most of the middle class), let him tell us what he would have done.
And if he doesn't have a plan that involves the same lying, cheating and stealing that the Fed did, then I'm grateful I haven't had to scrape the insides of a dumpster with a spatula for the last 7 years to get a bite to eat.
It's better to pay rent with printed money than to get evicted. No?
bid the ...your fear of what might of happened is exaggerated and a product of MSM / fed/ .gov /wall st propaganda. BK happens we have 100 of yrs of legal ways to handle it..however the process usually removes those in upper management..is that the reason you fear the normal process of BK?
the root of evil is the love of money above all else. seems to describe those of bid's views
the elite and those in the FED and Wall st, love money. that fixation causes the evils of policy and corruption ..Crime is obvious, corruption of legal agencies (doj & sec right mr cox, mr holder?) obvious to everyone but those paid to ignore it: MSM.
if they did not fear the loss of honor and morals , more than the loss of wealth, the policy and actions of 2008 would have been justice for those who ran our economy and banks and investment houses ..they were at risk and they threw the ave citizen on the cross of QE. and bail outs . zirp, and bribes to our governments leadership.
Yes, the love of money is the root of all evil. And that has been my observation about money and evil since I graduated from college.
It certainly has not been my own modus vivendi.
Sadly, it is the driving force of most of the people on the planet.
I do not deceive myself that man will be able to step back from the brink where he now stands.
There will be either a tremendous world wide depression or a tremendous world wide war to accomplish that.
I don't look at it as my "fear of what might of happened", but rather my predisposition to dabble in 'worst case scenarios.'
As an old, single, childless man, I look at the world situation today as a opportunity to forever end the evil on this planet once and for all. To end the deaths of 90 million children under 12 every year. And to let the planet and the solar system get on with their business without the 1%, what ever that may be.
This is America, the Second Rome, and we have untold tricks up our sleeves to avoid bankruptcy that other countries can only dream about. The EU and NATO are our pet cockroaches that follow us around, buying our military weapons and our worthless subprime mortage CDOs because we tell them they are worth buying.
If there is any fear today, it is that the Fed won't be able to continue its perfidious ways and that inflation will devour our middle class faster than the Fed can, like Rumpelstiltskin, can spin its invisable straw assets into golden 401(k)s.