Breslow Slams Fed Confusion: "FOMC Charts Will Soon Need Virtual Reality Headsets"

Hawkish? Dovish? Balance sheet reductionist? Rate-hike limited? Worried about inflation or excited by the economic outlook? Or just plain old confused?

What and why did Yellen just say what she did, unleashing the latest market reaction to her supposedly "dovish" congressional testimony, and sending risk assets higher just two weeks after the same Janet Yellen warned about frothy market valuations?

It turns out, you are not the only one who can no longer make any sense of it. As Bloomberg's macro commentator Richard Brelsow notes, "we’re no longer just going to have doves and hawks to consider, but B/Sers and ratists. Charts about FOMC meeting outcomes will need virtual reality headsets to deal with the added dimensions. I’d settle for here’s what were going to do because it’s the right thing to do. And we’ll deal with what comes if necessary, that’s how we roll."

He than rages at the Fed which "has a plan. But in essence has no plan. They have a desire. And the justifications for it vary over time. As does its perceived imperativeness. It’s why they keep telling us all the permutations of the stop and go strategy they say will work. They love sounding smart to themselves. But it all comes out as we hope so. They are so obviously trying to convince themselves rather than the investing community of the efficacy of their actions. Quite the opposite of sounding resolute, they appear unsure. Not what you want in a doctor, fiduciary or central banker."

And then a disclaimer on disclaimers:

Disclaimers are there to insulate people when things go wrong. They aren’t really there as warnings. No one gets sued if everyone is getting rich. But the Fed is leading with the caution. And in the process opening wide the casino doors for harmful speculation and futile trading. When will they announce? How do we evaluate the trade-off between the balance sheet and rates? We’re all going to spend the next months, maybe years, arguing whether a number affects one or the other more. Speech after speech is going to further muddy the waters as they publicly debate the issue among themselves

He concludes with an ominous warning for the Fed: "I have news for you, when this chapter of financial history is written, the authors won’t spend a lot of time dwelling on the disclaimers then, either."

Then again, Breslow has had a rather "angry" period in the past few weeks; our advice: relax - the Fed confusion over how to put the genie which the Fed first released, back in the bottle, is only just starting.

His full note below:

The Fed’s Making Hawks or Doves a Quaint Concept

 

Have you ever actually read the tiny print on the lengthy warning insert included with even the most innocuous drug? Doubtful. The farthest you are likely to get is the list of side-effects designed to insulate the manufacturer and ensure you stop reading immediately. Put this gel on your cut finger to prevent infection. But discontinue use if you experience bleeding from your eye sockets for an extended period. You end up just taking it on faith that someone other than the product liability lawyer who wrote it has read it. Certainly the clerk who rings up the purchase doesn’t make you study it first. Hey, you opened the tube so it’s now all on you.

 

It’s even worse with fund offering memoranda. They begin by telling you that this opportunity is only to be made available to sophisticated investors. Stop right there. I’m sophisticated, so do I really need to focus on the details? I don’t want to look like a rube in front of these people. And if you’ve ever been to a pitch, no one spends even a nanosecond on those disclaimer paragraphs in the documents. Shall we quickly just flip to the past results graph and look at what we’re all sure will be replicated. Oh, and don’t get caught up in the language about side-pockets. Don’t think of it as style drift. More like, say, responding to exigent circumstances.

 

In both of these cases, the presumption is strongly skewed to making the leap of faith that nothing can go wrong. Trust me, I know best. So let’s focus on the good. Which is why I find the hand-wringing and introspection by the members of the FOMC over whether, when and how to begin balance sheet reduction along with further rate rises troubling as well as frustrating.

 

The market has so far accepted the premise that the experts know exactly the way those trillions of assets can be run-off with pain to no one. Why should it affect any of the assets that have been wildly distorted by building up the balance sheet to begin with? What does Jamie Dimon know about markets, anyway?

 

The Fed has a plan. But in essence has no plan. They have a desire. And the justifications for it vary over time. As does its perceived imperativeness. It’s why they keep telling us all the permutations of the stop and go strategy they say will work. They love sounding smart to themselves. But it all comes out as we hope so. They are so obviously trying to convince themselves rather than the investing community of the efficacy of their actions. Quite the opposite of sounding resolute, they appear unsure. Not what you want in a doctor, fiduciary or central banker.

 

Disclaimers are there to insulate people when things go wrong. They aren’t really there as warnings. No one gets sued if everyone is getting rich. But the Fed is leading with the caution. And in the process opening wide the casino doors for harmful speculation and futile trading. When will they announce? How do we evaluate the trade-off between the balance sheet and rates? We’re all going to spend the next months, maybe years, arguing whether a number affects one or the other more. Speech after speech is going to further muddy the waters as they publicly debate the issue among themselves.

 

We’re no longer just going to have doves and hawks to consider, but B/Sers and ratists. Charts about FOMC meeting outcomes will need virtual reality headsets to deal with the added dimensions. I’d settle for here’s what were going to do because it’s the right thing to do. And we’ll deal with what comes if necessary, that’s how we roll. I have news for you, when this chapter of financial history is written, the authors won’t spend a lot of time dwelling on the disclaimers then, either.

Comments

LawsofPhysics Wed, 07/12/2017 - 09:14 Permalink

LOL!! We the people can be reasonable here.  We will be happy to give all Fed board members past and present a pair of these, that way they will be relaxed when the guillotines start taking their fucking heads.

HalinCA (not verified) venturen Wed, 07/12/2017 - 10:54 Permalink

Rates cannot rise or governments will fall as they cut handouts to 'voters' so they can make interest paymnets on their national debt.And when markets begin to tank as a result, their CBs will create whatever amounts of cash needed and buy whatever the market is selling to prevent the derivitives from imploding.This will continue indefinitely.Any other questions?  

In reply to by venturen

rejected Wed, 07/12/2017 - 09:19 Permalink

Wealth expropriated one inflated digit at a time by a gaggle of thieves inside the DC beltway.And we're cheering them on.For the thieves, it doesn't  get any better then that.

Yen Cross Wed, 07/12/2017 - 09:24 Permalink

   I think I hear Ole Yeller talking when I flush my toilet<  Central banks have lost all credibility, and no amount of printing will bring it back.  The Black Swan is the BoJ and SNB.

HalinCA (not verified) mtl4 Wed, 07/12/2017 - 10:56 Permalink

All unexpected events will do is cause the fuses in markets to pop. During the time out the CBs will restock their cash reserves. Then the breakers will be reset and the CBs will buy whatever is being sold. End of problem. 

In reply to by mtl4

smacker Wed, 07/12/2017 - 09:25 Permalink

"Charts about FOMC meeting outcomes will need virtual reality headsets to deal with the added dimensions."Hilarious. I recommend that government supply a pair of headsets to all citizens to view ((all)) government statistics thru. Else nothing makes any sense when compared to reality.

Grandad Grumps Wed, 07/12/2017 - 09:32 Permalink

People just start out with the wrong assumptions.

If one wants to start out with the correct assumptions, one has to look at the larger picture and at specific things such as Macron claiming that he is a "god" (Google it if you have not seen it). Why would a sane person claim that he is a "god"?

1. He is a "god" (reincarnation) ... at least in the historical sense of what were perceived to be gods
2. He has been possessed by an unclean spirit that wants to be perceived as a god.
3. He is not a god or possessed by an unclean spirit, but wants us to believe that he is something more than a mere human as part of a parasitic elitist psy-op scam.

Ultimately they will reveal themselves to us and expect us to bow down to them because we "have no hope of deafeating the"... without divine intervention.

Honestly all of the explanations work for me, but I have had some add experiences in my life. The outcome though is that it makes one reconsider the nature of the world in which we live and all of those very comfortable assumptions we have had. But, then again, the bible said that it will all be revealed before the end (the end of what? this version of the world?).

So, if one ignores the micro-bullshit that makes it to the news and distracts us, then one can see behind to the machinations of the controllers.

moneybots Wed, 07/12/2017 - 09:39 Permalink

"we’re no longer just going to have doves and hawks to consider, but B/Sers and ratists.   What does he mean, no longer? I don't remember when the FED has not been a B/Ser.

chosen (not verified) Wed, 07/12/2017 - 12:25 Permalink

Charts are two dimensions, or two variables.  Virtual reality might get you three dimensions, or three variables.  The reason economics is so fucked up is that almost all human activity is a function of many more than three variables.   It is safe to assume we don't even know what the important variables are, even if we could measure them, in order to construct a model with some degree of accuracy.   I always thought that looking at charts (two variables) was pretty much a waste of time when trying to predict anything having to do with human behavior.

Gordon_Gekko Wed, 07/12/2017 - 13:03 Permalink

The thing is, they can't publicly say the CRIMES they have planned and are about to commit. Besides those CRIMES, there is nothing else they can do at this point, hence the apparent "confusion".