This past Friday saw what many like myself can only describe as a blatant example of just what’s wrong with both the economy – as well as the markets.
At precisely 15 minutes before the closing bell on Wall Street the now Chair of the Federal Reserve, Janet Yellen gave a press conference detailing further insights into upcoming monetary policy. I guess two days worth of FOMC discussions, along with a press conference detailing all that was discussed immediately after, followed by a question and answer session about all those “insights and decisions” wasn’t enough. For the markets remained red for the week while losing all its post FOMC pop which in itself is an ominous sign.
At first blush some might contend, “Well, that’s a good thing they decided to communicate even more. Best to have any and all the information available as soon as possible. After all: more information is always better for the markets – no?”
Yes it is, however, when it exposes just how cozy (as well as frightened) monetary policy setting has moved from the appearance of setting beneficial policies that help ensure a free and open capitalistic system – to one hell-bent on serving a newer more dominant form of crony styled capitalism rampant within our markets. Where winners and losers are decided solely on their ability to manipulate their bottom line earnings “beat” via access to resources made possible only via the Fed.’s current zero bound stance. (i.e., ZIRP) I don’t believe that was their original intent.
If you were one of the few (i.e., not one of the Wall Street “In crowd”) that watched and listened to that presser on Friday. You were left dumbfounded on just how illogical, as well as contradictory nearly every example given was as to what one should now infer about what the Fed. is going to do next – and when.
So convoluted was both the rational as well as examples given I concluded: there was no other intent for this presser other than to signal the “In Crowd” – You better get the heck out of Dodge because we’ve painted ourselves so deep into a corner this is probably the last time you’ll have a chance as to “paint the tape” in any upcoming quarters. For we might actually have to do what we implied (e.g., raise rates) regardless – just to keep up the appearance that we’ll do what we say. Even if so doing means – creating turmoil. So don’t say “we didn’t warn you.” (i.e., We’ve changed the meaning of “data” so many times now even we can’t figure out what it means or, what we should do any longer!)
Certainly total conjecture on my part. However, if you listened to the rational and explanations given about “data” and “the economy” – nothing made sense. Everything was conflicting not only in the examples but also the tenor and tone. Here are a few examples of what I mean: (I’m paraphrasing) “The economy has improved considerably, that’s why we need to continue the extraordinary measures we’ve been implementing.” Huh?
Or better yet: “We see continuing improvement in the labor force and expect even further improvement.” (as they seemingly disregard the only sector that provided all that month over month, year over year boost in honest job formations, e.g., oil related sectors in States which has now dramatically fallen off a cliff with massive layoffs already announced, as well as the possibly of accelerating further as the price of oil drops ever more.)
And last but surely not least, “We see continued growth in upcoming quarters of GDP.” (As long as you don’t pay any attention to the latest Atlanta Fed.’s report that’s downgraded its GDP forecast from just over 2% which by itself was pitiful, to now just 0.2% faster than one can say “everything
was is awesome!”)
The timing of this reprise in conjunction with the latest FOMC’s conference just a week ago was quite instructive in my opinion. I mean, think about it: Fifteen minutes before the closing of the markets on the very day of the quarter ending? Isn’t it just funny how the timing of this presser coincided with allowing for the opportunity as to “paint the tape” if needed? Along with the additional 15 minutes of the later closing futures market as to hedge for Monday’s opening? Again, “if needed” as in – just in case what you heard went against your current positions. The serendipity of that coincidence is an amazingly funny thing – no? I firmly believe this presser was nothing more than a contorted effort by the Fed. to signal what many like myself have been anticipating since the ending of QE just a few months ago: They’ve lost control.
I theorize the Fed. was trying to accomplish two things. One: State for the record publicly as many C.Y.A. statements as possible regardless of how contradictory. And two: Warn (i.e., signal “The In Crowd”) that because they’ve painted themselves into such a tight corner that messaging and more is now a useless exercise. The only way they’re going to be able to adjust going forward or, further intervene within the markets is: If and when a calamity is upon us. Or better said – If, and when the markets fall apart. And “when” just might be a whole lot closer to reality – than “if.”
All one has to do is be willing to look at the “true” data with eyes open and a rational open mind to see what’s taking place. Everything (and I do mean everything) as to what the Fed. said should be taking place via their intervention 6 years ago not only is not. Rather: it’s coming unglued, as well as beginning to run off the rails. Nearly every report released since the ending of QE that was previously always indicating “awesomeness” is now indicating borderline if not outright pathetic-ness.
We are entering out first (yes 1st!) earnings period since QE was halted just a few months ago and what are we beginning to see and hear? All those projections and assurances made by the so-called “smart crowd” that “this time is different” are suddenly changing their tune to “Well you know we’ve had so much improvement surely a pause is warranted.” Sure it is. And they call us “idiots.”
The unemployment rate is and has been an absolute joke having more in common with fairy-tales than anything factual. GDP has gone from poor to worse. And remember when you were told that 5% GDP print wasn’t an outlier but “indicative of the recovery” by the so-called “smart crowd?” How’s that meme working out?
The Dollar is still screaming higher making imports cheaper, and our exports non-competitive. Remember we were told by this very same crowd “we were going to export our way to prosperity soon?” I know, I can barely type as I chuckle also.
Reduction in oil prices were going to put “more money in consumers pockets to spend helping to boost the economy.” Problem is all that “free” healthcare now costs far more than the potential “gas savings.” But hey, don’t complain. For without having to now spend more on healthcare – retail spending would be far, far worse. And this is just a handful of the boatloads of fundamentally flawed data reports we were besieged with by the so-called “smart crowd” ad nauseam as to continue their narrative of “everything is awesome!”
However for the rest of us that have questioned such reports over the years we’ve been branded as: uninformed – data deniers. Personally I just might go out and get a t-shirt made stating just that. On the front I’ll have: “I’m a data denier – and proud of it!” And on the back it’ll read: “I believe in critical thinking – That’s why you wont see me on CNBC™.”
It’s not just here in the U.S. where the once burgeoning commodity sectors like oil and gas, as well as others such as steel, and more are now getting bludgeoned. The entire shale industry for one is beginning to buckle under the weight of falling prices. Canada is now beginning too feel the effects. And these ripples are far from over – they’re just beginning. Remember oil and such helped insulate Canada from a downturn in housing such as we had here. By the most recent reports that all seems to have now changed. And the implications for our friends to the north could be dramatic.
How about China? That once rejoiced “savior” of the economic world is itself having a harder, and harder time trying to dismiss (as well as cover up) clearly visible signs of economic weakness. Here’s where I’d also like to bring attention to one economic fact squarely staring the world down with implications just as far-reaching as the latest oil carnage. And: with possibility the same effect to the repricing of everything everywhere. This ominous scenario alone seems lost across the financial media.
How can one not derive the implications on the market forces associated with the decision of the Saudi’s to continue pumping at record levels and at lower prices as to help preserve their market share with the added benefit of simultaneously crushing as many as possible competitors: and not see that pretty soon China is going to do, in effect – the very same thing with everything it exports? Once it begins just like with oil – It will crush pricing power (on everything from trinkets to commodities) globally in my opinion.
This is the world the Fed. has wrought with leaving the punchbowl out far too long after everyone at the party was clearly inebriated. Instead of wisely pulling the bowl back and away (at the least in 2012 or there about) while everyone was passed out. They decided it would not only be better to remain – but continued refilling it as the one’s with an affinity for risk gulped more and more down their gullet acquiring shares in any sector they thought provided yield.
And if you’re in Asia? Sectors be damned! It’s a straight Kamikaze spree into the Nikkei™ or better yet, Shanghai Composite™. There you don’t discern. You just buy, buy, buy in way that would make Cramer envious. All while using multiples of margin never before seen in the history of that market. What could possibly go wrong? And I haven’t even mentioned Greece, or The EU.
Again this is what I believe the Fed. has finally come to terms with. The realization that control is no longer an option. It’s been a mirage that’s held up far longer than originally anticipated. The monster has now grown far too big and dangerous while possibly exposing to their dismay – the only way they might have a shot of regaining some stability for future control is to let it fall apart: as they stand by and watch hoping to “thread the needle” for further intervention just in time. Along with trying to have some C.Y.A. assurance to the “In Crowd” that “Hey – we tried to warn you!” if it indeed does exactly that.
At issue is, even if I’m only partly correct. What should scare the heck out of any critical thinking person is: With everything we’ve witnessed over the last 6 years, along with what is now transpiring which is scarier?
A Fed. that may be signalling they’ve lost control? Or, a Fed. that still believes “Don’t worry – we’ve got this!”
© 2015 Mark St.Cyr