Everybody is talking at me and I can’t hear a word they’re saying, only the echoes of mismanaged policy. The academics are out and about, making the case as to why they are right and markets are WRONG, although Professor Summers gives much more credibility to the wisdom of markets than Bernanke or Fischer. The reason that this is important for traders and investors is that in the past six years, risk pricing has been based on the positive outcome of Fed policy.
Markets have followed the “green brick road” of the Greenspan and Bernanke PUTS in believing in the omniscience of Fed models and their overseers. THE MEDIA HAS SOLD THE WALL STREET CUSTOMERS ON THE IDEA THAT CONTEMPORARY ECONOMICS IS ROCKET SCIENCE. It is anything but and yesterday during a very solid interview by CNBC‘s Sara Eisen and Simon Hobbes, former Dallas Fed President Richard Fisher acknowledged that the present instability is due to the Fed being over-accommodative in its efforts to create a “wealth effect” and raising the value of various asset classes to stimulate demand and prevent a LIQUIDATION OF ASSETS.
Richard Fisher accepts his role in real-time policy experimentation (AGAIN, IT IS NOT ROCKET SCIENCE). The Fed may have fueled the explosion in risk but it has no idea of how it ends. Science is the ability to replicate and be share of the outcomes but as we hear everyday the OUTCOMES ARE UNCERTAIN. This is not science but DRAFT KINGS probability-based outcomes. The Fed has just informed investors that it is now up to you to sort out the outcomes.
Ben Bernanke posted another Brookings blog today, which I found frightening. He wrote, “Clearly, the Fed would not intentionally seek to destabilize financial markets, but if financial stability spillovers’ of U.S. monetary policy are in fact significant, they pose potential problems for both the U.S. and its trading partners.” Bernanke cites the work of French Economics Professor Hélène Rey in examining the concept of a global financial cycle, which in my terms is the acknowledgement of GLOBAL MACRO analysis and trading. The power of KAPITAL FLOWS around the globe have real impact, and in fact U.S. monetary policy may be one of the TRIGGERS that can affect investor sentiment.
The idea that the world’s reserve bank can immediately affect the world’s financial sentiment is new? Wow, mind-boggling. Bernanke is attempting to deflect any criticism from the Fed and cannot understand how the world does not just accept that the FED did all it could to prevent the onset of a major depression, similar to the 1930s. If there are negative collateral effects then the financial markets will just have to use its collective wisdom to sort through the problems. As Bernanke posts in his blog today: “In the international context, the stability of the U.S. economy is of great importance to the U.S. trading partners, and diverting Fed policy from that goal is really not in anybody’s interest. Likewise, emerging-market central banks that use monetary policy to target asset prices, say, give up a critical degree of freedom in managing domestic demand,output and inflation.”
The bottom line is that Bernanke’s blog is an assertion that international actors should stop blaming the Fed for any financial instability because it was the Fed’s “COURAGE TO ACT” that saved the entire financial global system and everybody should be happy with the outcome. Any negative fallout should be managed by the markets. The problem with Bernanke’s sense of markets is as Stanley Fischer warned today: The market’s are apt to get it wrong, as with its disagreement with the FED on the velocity of rate hikes. As Richard Fischer alluded to yesterday, the markets are losing confidence about the Fed’s omniscience and of course it will be pension funds and other savers that bear the cost of central bankers imitating the great minds at NASA. In the prescient wisdom of the balladeer Tom Lehrer:
Once the rockets are up, who cares where they come down
that’s not my department says Wehrner Von Braun
Some have harsh words for this man of renown,
But some think our attitude should be one of gratitude,
Like the widows and cripples in old London town
Who owe their large pensions to Wehrner Von Braun
Tags: Ben Bernanke, Fed, global macro, Richard Fisher, Stanley Fischer
January 6, 2016 at 10:19 pm |
“Science is the ability to replicate and be share of the outcomes but as we hear everyday the OUTCOMES ARE UNCERTAIN. This is not science but DRAFT KINGS probability-based outcomes.”
Science USED to be more predicable BUT since the lads of Solvay took a hand its probability all the way now. So we ALL roll the 12 sided dice and hope that our tenuous grasp of an increasingly interconnected AND randomly ( FB TWTR) reported world holds up. So today we see the butterfly’s wings fluttering over the dice in Beijing and we are the proud owners of a smidgen of a dip, who knows what is next BUT as an old boss of mine once said, “the best and brightest shun government roles for they have the same effect on intellect that cold water has on genitals.”
As to Von Braun his book was entitled
” I aim for the stars”
with a subtitle
“but sometimes I hit London”
I told that little one to my gran who was on fire watch during the blitz in London, I still have difficulty with the ear she belted 🙂
nice article Trotsky
January 6, 2016 at 10:27 pm |
Yra- I had to laugh when I saw Bernanke had called his book “Courage to Act”. .
It was the FED that was in charge of overseeing OTC derivatives such as the CDOs (in essence a Madoff Cubed) and the CDS on CDO tranches (that were designed to fail), that were the main cause of the financial crisis.
His book should have been called “What Me Worry?”.
January 7, 2016 at 1:27 am |
Wow! Ira, you nailed this one. If they had just let the market sort it out years ago along with all the pain it would have caused we would be miles ahead. It all started in 1987 when Greenspan thought he was a magician and dropped the interest rates after the crash. It would have also forced the Congress and Presidents to actually make hard choices. Finally, your comments re Steve L are right on. It has gotten so bad that when he comes on I either mute it or fast forward it. Also compliments to you re Sara and Hobbs. She is one of the smartest and quick business interviewers on TV. I have followed her for years, she was fantastic at Bloomberg. In fact wish she was still there, I assume money is better at CNBC, but for my money Bloomberg is head and shoulders above the fuzzy stuff they do on CNBC. If it wasn’t for Rick they might as well shut down CNBC.
January 7, 2016 at 3:21 am |
Enjoying the vol so far this year everyone?
The more these fools talk the more it adds to the mix.
But the more vol increases the more these fools will talk.
There’s no escape!
January 7, 2016 at 6:12 am |
from your mouth to the gods ears. Pour it on! judicious application of probabilities of success and a sensible selling strategy applied to premium together with the chatterboxes at Cnbc equals an exciting start to 2016.
January 7, 2016 at 3:44 am |
The Fed uses lackeys like Liesman (put a space after the S) and Hilsenrath to “comfort the afflicted”, a job more appropriate for a clergyman than a journalist where the attributes of a Diogenes is needed.
A Fed run by a student of the Austrian School instead of the Alchemist kindergarten would have seen much blood in the streets in 2009 but a shining sun in 2016. Short term palliatives for long term problems have made the painful disease possibly terminal. Herbert Hoover will be eclipsed by the Greenspan/Bernanke/Yellin trio in the annals the noble Capitalist experiment. Sic transit Gloria mundi.
R.I.P.
January 7, 2016 at 6:24 am |
The Fed’s courage is only forced upon it by circumstances.
Real courage would be to always take away that big booze filled punchbowl just as the party starts to rip.
But they’ll never do that because ultimately the markets have cuckholded them.
January 7, 2016 at 10:37 am |
“The power of KAPITAL FLOWS around the globe have real impact, and in fact U.S. monetary policy may be one of the TRIGGERS that can affect investor sentiment.”
Or the total lack of awareness since 2000 by the Greenspan-Bernanke-Yellen Fed that US monetary policy of the world’s reserve currency does effect the entire world economies and world Kapital flows.
January 7, 2016 at 11:08 am |
Despite all the talk of deflation, the BLS Index of Industrial Commodities has taken off to the upside.
Store of value or inflation?
January 7, 2016 at 2:37 pm |
Possibly a fake sucker move or someone betting on the FED might flinch?
January 7, 2016 at 2:23 pm |
Yes, this isn’t rocket science it’s all about transfer of wealth, socializing losses and privatizing gains.
January 7, 2016 at 2:24 pm |
It’s harvesting season.
January 7, 2016 at 3:21 pm |
Bill Fleckenstein has it right. Some of the things he says sound familiar. Does he read this blog?
http://kingworldnews.com/legend-warns-this-has-been-a-long-time-coming-there-is-no-saving-this-market-and-the-carnage-will-only-get-worse/
January 7, 2016 at 4:04 pm |
Yra, how to answer this question… Where the money is going? thanks.
January 7, 2016 at 7:45 pm |
kapital destruction
January 7, 2016 at 7:24 pm |
Wonder if Saudi Arabia might choose to devalue it’s currency? If so, would they import gold in preparation for this move?
January 8, 2016 at 6:51 am |
Chicken–don’t have to as they will monetize aramco and let goldman bring it public and they will sham the scam
January 8, 2016 at 11:11 am |
Yra – Makes sense, proving again your vision is superior to mine so thanks. Anyway, I guess you’re referring to aramco as a sinking rock, else bringing it public would be out of the question. FB, I guess was a positive surprise to keep us all engaged in the sham, gotta throw a piece of cheese into the maze occasionally.
IWM – Some are clinging onto the consolidation scenario, I’m not so sure about that!
I keep thinking about this, which “necessarily” requires contraction, not growth:
“Under my plan … electricity rates would necessarily skyrocket.”
January 8, 2016 at 11:59 am |
Oh I see, Saudis are discussing an aramco IPO… Doesn’t seem well timed, $100 oil would’ve been better?
Pretty confusing though, the plan doesn’t appear to be as described re:”TAX Cuts”?:
“Thatcherism has been described by Nigel Lawson, Thatcher’s Chancellor of the Exchequer from 1983 to 1989, as a political platform emphasising free markets with restrained government spending and tax cuts coupled with British nationalism both at home and abroad.”
“Saudi plans include gradually eliminating subsidies on electricity, water and housing; seeking private-sector provision in health care and education; introducing a 5% value-added tax on non-essential goods; and studying the complete or partial privatisation of over two dozen agencies, including the national airline and telecoms firm.”
January 8, 2016 at 1:35 pm |
Yra,
Happy new year! Any thoughts on a rebound in emerging markets or in energy stocks? Also have any thoughts on the currency markets? I know that’s one of your favorites.
January 8, 2016 at 3:04 pm |
I am concerned. If our Chinese chums have, to be confirmed, burnt through $500M in currency reserves over the last 8 months THEN how far from the bog should we stray? I have no clue how to play this in currency terms and echo Mike415’s excellent question to Yra. I am new to currency trading ( I just coded it I have no clue how it works!)
January 8, 2016 at 3:28 pm |
292k jobs…… High-Five at the FED, yet to be revised downward 5 years hence?
January 11, 2016 at 11:12 am |
Banking off of the NE winds, sailing on summer breeze… I won’t let you leave my love behind.