Notes From Underground: Consensus is the Last Refuge of Cowards (Michael Crichton)

Today the Fed delivered as expected, leaving rates unchanged and the market conjecturing about the sincerity of the FED’s data dependency (again). Some analysts and algo readers initially thought the FOMC statement was “hawkish” because the FED removed most of the rhetoric about the headwinds of international global and financial developments. I say most because the Fed left in “net exports have been soft.” This is either a concern about the lack of global growth and/or an overly strong U.S. dollar. It is MY OPINION that the Fed removed the language about international financial risks as an offering to the HAWKS as a way to get consensus.

The vote remained the same as March–nine-to-one–with Kansas City President Esther George the lone dissenting vote again. All the strident talk from Mester, Rosengren and Bullard seemed to be for naught, or was compromised by the removal of the concern about global events. Chair Yellen bought consensus but President George stood firm in and proved her words have meaning and merit. The one confusing item in the FOMC statement was the line, “… March indicates that labor markets conditions have improved further even as growth in economic activity appears to have slowed.” If employment is a lagging indicator what is the Fed telling us? That it expects growth to slow?

The bond futures initially sold off but rallied hard by the close, even as the equity markets found strength, especially after Facebook earnings were better than expected. The DOLLAR remained weak so the market sense is the Fed will be on hold for longer than the “baby hawks” suggest. If the Fed is data dependent, it is time for all the FOMC voters to silence themselves for as each speech renders itself meaningless since the votes are always the same. Consensus abhors independent thought.

***After the FOMC release, the Reserve Bank of New Zealand released its policy statement where it also left monetary policy unchanged with the overnight cash rate stuck at 2.25%. The KIWI DOLLAR rallied strongly against all currencies as some market participants presumed that the RBNZ might lower rates to soften the recently strong KIWI. Governor Graeme Wheeler said in the release: “The exchange rate remains higher than appropriate given N.Z.’s low commodity prices. A lower N.Z. dollar is desirable to boost tradable inflation and assist the tradables sector.”

This is a perplexing paragraph within the RBNZ official statement for it seems to go against the G-20 communique promising not to jawbone a nation’s currency lower. While New Zealand is not an official member of the G-20 it does attend the meetings as a guest and because of its close economic ties to Australia it is generally seen as a willing participant to G-20 policy advisories.

Following N.Z. the BOJ will reveal its plans for QQE, which conventional wisdom assumes will be an effort by Governor Kuroda to add stimulus into the Japanese economy via REIT and ETF purchases in the open equity markets. The RBNZ may skirt the rules and openly discuss its currency value but the BOJ will have to be more cautious. The world’s largest economies will be alert to Japan using any type of measures to “purposely ” drive the YEN lower. A key signal is the YUAN/YEN cross that has been discussed by John Brady of R.J. O’Brien in Baron’s and on the electronic financial media. The 200-week moving average in the CNY/JPY cross is 16.84 and we are currently trading at 17.16. The Chinese seem to be very alert to this cross and will not wish to see it climb back to the levels at the beginning of the year. Just something to help monitor the effectiveness if the Shanghai accord.

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11 Responses to “Notes From Underground: Consensus is the Last Refuge of Cowards (Michael Crichton)”

  1. John Brady Says:

    Thanks Yra for the hat tip above, but you too have been following it and have been keen to point out the key technical levels. A lesson for the markets? The Chinese and the Japanese have been waging economic warfare in the Pacific since before Columbus landed in the New World. And a New World it may truly become should the beggar-thy-neighbor currency war intensify into 2017. Thanks again Yra. You are a true gentleman. JB

  2. asherz Says:

    It is fitting that Yellin gave her usual empty economic assessment that purports data dependency but in truth has a preordained policy of perpetual low interest rates, on the same day as The Donald gave his much ballyhooed foreign policy speech.
    His rhetoric of American military strength has as its true vision a 1930s isolationist theme. Their smoke and mirrors make them a fitting pair as they point us in a direction that want to make some of us cry as we witness the great American Experiment trailing smoke as it spins out of control.

  3. Frank C. Says:

    Watching former Fed governor Richard Fisher on Santelli today he blurted out the word “manipulation” in response to a Rick question. He quickly corrected himself but his honesty and candor about Fed manipulation of markets was a great admission from someone inside the board room.

    As he said at the end of a great interview “the Fed should just get on with it” and raise rates.

    Fisher is a former investment banker and fund manager Although he has an undergraduate degree in economics from Harvard and MBA from Stanford he is not an academic economist tied to economic models and sophistry.

    He also went on to say that bifurcating the comments from the Fed is a ” theater for the absurd”. Which I immediately interpreted as saying the language is total b.s.

    Fisher would make a great incoming Treasury Secretary for someone’s cabinet.

    Janet is one thing and that is predictable. She is not going to surprise anyone or doing anything outside the consensus. Don’t bet on a June hike unless it is very well telegraphed in advance by her to the markets.

    • yra Says:

      Frank C.—thanks for the post and i agree on the Santelli intervieew.This past week I have been reading some of Janet Yellen’s early writings and the research provides a look into her thoughts—yes people certainly change and hopefully evolve as time provides new insights but her dissertation under James Tobin with advisory role also provided by ,Joseph Stiglitz.Her first two decades were heavily labor oriented topics dealing with the alienation of unemployment.I am sympatico to much of her thoughts on unemployment in a philosophical sense but how does it effect her role as policy maker—-the research titles read like Marx’s Philosophical and Economic Manuscripts of 1844 and that is a compliment–

      • Frank C. Says:

        I too believe in helping the hard working man and the disadvantaged. The irony of the Fed’s monetary policy is that the benefits have gone almost exclusively to Wall Street and not to Main Street.

        It was the Fed lack of oversight/regulation that allowed the working class to overleverage into mortgages they did not understand and create the housing bubble which created much unnecessary turmoil and havoc on families.

        The working man’s pension, savings and retirement is greatly jeopardized by zero interest rate policy. The huge Federal debt level will be passed on to future generations that will undermine the social net.

        Perhaps Japan’s surprise “no move’ Is an admission by Central Bankers that negative rates are bad experiment.

        Janet should have been paying more attention to Tobin. He is well publicized for his views of “pushing on a string” when economies are in a trough.

  4. Chicken Says:

    With 0.5% GDP growth, surely there’s room for several truckloads of rate increases.

    • Chicken Says:

      Playing this country and western song backwards; the economy heals, your former employer exits bankruptcy and calls back their laid off workers and the persistent collections agent gets paid.

  5. Chicken Says:

    With today’s PMI forecast, were those hawks out for another bow waxing and wingtip clip job?

    Aside: Looks like the auto industry is in the process of moving off shore, good thing they were only bled dry while on life support and weren’t allowed to go completely bankrupt so they could complete their dream transition.

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