The Fed is now pre-occupied with an unanswerable and fanciful question, according to Jon Hilsenrath’s pre-meeting missive on the Fed’s current monetary policy “debate”. Figuratively estimating the number of angels which can dance on the head of a pin, Fed officials and economists suppose they can specify the the appropriate money market rate down to the decimal place for virtually all time to come... Of course, every one of these three magic numbers are perfectly arbitrary, academic and silly. Due to the structural failures of the US economy owing to decades of destructive Washington policies, the “unemployment rate” today is not remotely comparable to what was being measured in the 1950s and 1960s when today’s Keynesian theology with respect to the Phillips Curve, Okun’s Law and full-employment policy was being formulated.
Risk is no longer priced into anything. Volatility has gone to sleep. Uniformity of thought has taken over the stock market. Complacency has reached a point where even central banks have begun to worry about it: the idea that markets can only go up – once entrenched, which it is – leads to financial instability because no one is prepared when that theory suddenly snaps. But all this bullishness, this complacency is only skin deep. Beneath the layer of the largest stocks, volatility has taken over ruthlessly, the market is in turmoil, people are dumping stocks wholesale, and dreams and hopes are drowning in red ink.
It would appear the Fed, after being angry at itself for creating the "complacency" evident in the markets globally has reached the pinnacle of critically circular logic in its defense of policies that are aimed at financial stability (i.e. prices flat or rising but absolutely not falling). Fed's Williams, a la Greenspan's "a-ha" moment, appears to have realized that investors are not always 'rational' and "bull markets may cause investors to get ‘carried away’ over time and confuse what is a one-time, perhaps transitory, shift in fundamentals for a new paradigm of rising asset prices."
In a well-crafted 688 words published just 5 minutes after the minutes were exposed to the public, the Wall Street Journal's Jon Hilsenrath provides what bullish equity market believers might consider one of his more hawkish commentaries on what the Fed is really thinking. "Federal Reserve officials turned their attention to longer-run issues at their April policy meeting," he noted; adding that discussion of the Fed's "exit strategy" from low interest rates has heated up in recent weeks. His summation - lots of talk, no action... not what the bad-news-is-good-news crowd wants to hear.
The bells are ringing for the markets, but few are noticing.
The Wall Street Journal appears to be saving money by dispensing with journalists and using human drop boxes instead. Thus in the New York markets the “Hilsenramp” signal is already a well-known event which occurs at approximately 3pm on/during/after Fed meeting days, and is posted under the byline of “Jon Hilsenrath”. In simple packaged form it provides fast money speculators with a message from the B-Dud, otherwise known as William Dudley, President of the New York Fed, on why the Fed will back-up another run at still higher record highs. So today comes a drop box message with respect to ECB policy posted under the byline of “Brian Blackstone”.
Somehow, Fed head Bill Dudley has managed to encompass the entire "we must keep the foot to the floor" premise of the Fed in one mind-bending sentence:
- *DUDLEY SEES 'POSSIBILITY OF SOME UNFORESEEN SHOCK'
So - based on an "unforeseen" shock - which he "sees", and while there are "nascent signs the economy may be doing better", the Fed should remain as exceptionally easy just in case... (asteroid? alien invasion? West Coast quake?)
If indeed the administration had floated a trial balloon with Larry Summers' Fed Chairman candidacy, it appears to have been full of lead. Moments ago Fed mouthpiece Hilsenrath just undid the disturbance in the farce with an article that promptly crushes Larry's chances as Bernanke's replacement, instead putting Janet Yellen up as the "front-runner for the top fed post."
On the theory that you can milk a cow many times, but you can bleed it only once.
Recent comments by the Federal Reserve Chairman Ben Bernanke have shocked the world financial markets. Since the first allusion to tapering, volatility has been on the rise across the board (stocks, currencies and bonds). The chaotic reaction by market participants and the corresponding increase in yields now risks destabilizing this very fragile equilibrium. It is yet unclear whether or not the damage control from the other Fed Presidents will put a lid on yields and market volatility, or if the damage to the Fed’s (poorly executed) exit strategy is permanent.
Back in 2002 Warren Buffet famously proclaimed that derivatives were ‘financial weapons of mass destruction’ (FWMDs). Time has proven this view to be correct. As The Amphora Report's John Butler notes, it is difficult to imagine that the US housing and general global credit bubble of 2004-07 could have formed without the widespread use of collateralized debt obligations (CDOs) and various other products of early 21st century financial engineering. But to paraphrase those who oppose gun control, "FWMDs don’t cause crises, people do." But then who, exactly, does? And why? And can so-called 'liquidity regulation' prevent the next crisis? To answer these questions, John takes a closer look at proposed liquidity regulation as a response to the growing use of 'collateral transformation' (a topic often discussed here): the latest, greatest FWMD in the arsenal.
Gold has gone down Friday to under $1, 200 an ounce and that means it’s reached its lowest point for the past three years. Worse than that: it’s been the worst quarterly performance for gold for 45 years!
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