Nothing is more dangerous than a group of academics who cannot admit they MAY BE WRONG. More misery has been caused by theorists who treat the world as their laboratory. The Bernanke Fed cannot get themselves to admit they are flying blind; the computer has failed and now they have to NAVIGATE BY THE STARS, INSTRUMENTS AND INSTINCT. The FED may preach forward guidance but they have no respect for the messages that the MARKET sends to the FED. The FED‘s DUAL MANDATE has given cover to the FED to ever admit that their policies may just be … WRONG.
Today the market reacted to the FED‘s “failure to communicate” by selling the DOLLAR and buying hard assets. The FED GAVE NOTHING SO THE MARKETS TOOK EVERYTHING. As Ben Bernanke said in his press conference, even the Fed’s projections for 2016 are “stretching the bounds of credibility” (this is a direct quote from the Fed chairman). This was in response to a question by the Financial Times’s Robin Harding. The issue as of now is Fed credibility and as Keynes aptly said, “Sometimes the market is a voting machine and sometimes a weighing machine.” Today it was both. The EQUITY market held its initial thrust, an HFT rally, but on a relative basis was a dramatic underperformer to other assets. The precious metals and other commodities put on much more powerful rallies as the Fed’s credibility was called into question.
The best performing currency was the Brazilian real as Bernanke paid lip service to concern about the emerging markets. The FED chairman reiterated that the Fed’s mandate is toward U.S. monetary policy, directed at domestic needs, and, if the Fed gets it right it will ultimate benefit the emerging market economies. But the non-tapering and relief rally in the interest rate sector let the EMs breath a short-term sigh of relief. All in all the dual mandate means that the FED can never be wrong in its policies … until it is. When will that be? Only the SHADOW BANKERS know.