Here we go again.
By now everyone, including 2 year old E-trade babies and Atari algos know, that the only reason the market soared from the October 15 bottom, a move which we showed was entirely due to multiple expansion and thus nothing to do with earnings and everything to do with faith in even more free central-planning liquidity (something the PBOC was all too happy to provide overnight), was James Bullard's casual "QE4" hint on Bloomberg TV.
Since then Bullard has become the punchline of every financial joke, as it has become far too obvious that the Fed will never allow even a regular 10% correction (October 15 halted the closing market drop at just under 10%).
And now that the market is at ridiculous all time highs and trading above 19x GAAP PE, far above the level when in September the IMF, the G-20, the BIS and even the Fed all warned of assets bubbles, here is Bullard once again, with a fresh mea culpa and a new attempt to jawbone stocks, only this time back down, because as Dow Jones reports, "Bullard Says Markets Misread Him In October Bond-Buying Dustup."
According to a DJ report, markets were rattled by comments Mr. Bullard made in a Bloomberg interview just ahead of the late October Fed policy meeting. He said the central bank might want to consider extending a bond-buying stimulus that was almost universally expected to end that month.
Then, after the meeting, Mr. Bullard praised the Fed's decision to end the bond purchases, and again argued in favor of interest rate increases next spring, at a point earlier than many investors and officials expect. There was sense of whiplash: that Mr. Bullard had within a short period shifted gears on monetary policy.
In a Wall Street Journal interview Thursday, Mr. Bullard attributed some of the confusion to the fact that many market participants didn't listen closely enough to what he said. He allowed that monetary policy making has become far more complex and thus more challenging to communicate. But he underscored an underlying consistency to his view, noting what he said about the Fed's bond-buying program hadn't altered his long-running view that short-term interest rates should be lifted off their current near zero levels next spring.
"If you actually go look at the [Bloomberg] interview and go look at what I said, one of the things I actually said was I'm not backing off my interest rate, my March interest view," Mr. Bullard said.
The idea that it might be a good idea to press forward for a bit longer with bond-buying was rooted firmly in the ominous market conditions that prevailed ahead of the October Fed meeting, the official said.
"Global markets were saying there was going to be a global recession. And one way for the Fed to react to that would be to delay the end of [bond-buying] and get more information," Mr. Bullard said.
So according to the brain behind the St. Louis Fed, a 9% drop in the S&P is indicative of an imminent global recession? And, one wonders, what does the subsequent 15% jump "say" about the global economy? Oh wait, Mr. Bullard, is only attuned to the moves down in the S&P, which are due to the market being wrong. However, when the market surges on hopes of more liqufity, the market is said to be right about an economic recovery.
"Maybe global markets would have been right and maybe there would have been a global recession coming, in which case we would want to have plenty of leeway to react to that," he explained. It would have simply been a "low-cost" insurance policy to keep going with what was then $15 billion per month in bond purchases, get to the December Fed meeting, and see where things stood, he said.
But as it turned out, the market problems proved short-lived, recession fears abated quickly, so the factors facing Fed decision making changed, which in turn supported an end of bond-buying in October, as expected, Mr. Bullard said.
Then agan, this being Bullard, it is, sadly, all bullshit:
"I'm one that wants the committee to be nimble and be able to react to data that's coming in. So maybe it's more natural for me to say we can shade our position one way or another in response to macroeconomic developments" as they happen, Mr. Bullard said.
Sorry, James, have lost all credibility, but thanks to you all those others who have been correctly claiming that it is only the Fed that impacts asset prices were once and for all vindicated.
However, it appears that the FOMC comments have finally overriden Bullard, who will have zero leeway to comment the next time the market "plummets" by 9%. As a reminder, this is what the Fed explained about the next time there is a surge in volatility:
... members considered the advantages and disadvantages of adding language to the statement to acknowledge recent developments in financial markets. On the one hand, including a reference would show that the Committee was monitoring financial developments while also providing an opportunity to note that financial conditions remained highly supportive of growth. On the other hand, including a reference risked the possibility of suggesting greater concern on the part of the Committee than was actually the case, perhaps leading to the misimpression that monetary policy was likely to respond to increases in volatility. In the end, the Committee decided not to include such a reference.
Translation: Bullard had not been given the green light to comment and lead to the market surge which wiped out all mid-October losses. And now the Fed has explicitly warned that the next time the market swoons, nobody will be stepping in with casual, if snyde, QE X commentary.
Then again, we will believe it once we see it.