Since the Great Financial Crisis of 2008 there has been one consortium responsible for the current valuation of the stock market: Central bankers, and in-particular the Federal Reserve.
So adulterated have these once enviable capital formation repositories become that the term – markets – now has to be used in the following manner: “markets.” For what they now represent is further away from reality of anything resembling true price discovery, than Alpha Centauri is to Earth. i.e., The distance is near unimaginable.
The true problem with all of this over these years has been the central banking cabal itself, and its sheer indignant stance or responses when anyone dared question the efficacy of their interventionist policies. Even though, as history shows, it has been central bankers themselves that have been the ones most thoroughly blindsided by the resulting chaos that developed in regards to their prior policies, which by-the-way were enacted in response as to “fix” prior errors. Think: Great Depression, Dot-Com Crash, Housing Crash, et cetera.
The real problem of today is that we’re now in an era where it appears by all objective reasoning that central bankers have moved from “guardians of the money supply” to: an unelected cabal instituting what they believe national governance or policy should be via the printing press as either a blatant incentive, or bludgeoning weapon.
As I’ve iterated before: at no time has more authority been handed over to an unelected body that has the power to control not only the economy, but who gets what, and how much, since the days of yore reserved only for Kings and Queens via their blood lines. Today’s “bloodline” seems eerily similar. i.e., Ivory Towers and Ivy Leagues.
However, there now seems to be something on the horizon that I feel the Federal Reserve is once again going to be blindsided by, for its coming from an area (and I’ll dare say adversary) from which the Fed. has never truly had to play, let alone, defend itself against. That “area” is the Oval Office.
I am of the opinion the appointment of Anthony Scaramucci as White House Communications Director communicates much more than most realize, let alone understand. Here’s why…
There’s a lot here and far too much to try to cover in a single article, so pardon me for being general in terms, but for this discussion general is all I believe one needs to understand and possibly connect-the-dots as to where things may be going.
First: let’s tackle the big brouhaha about Mr. Trump claiming responsibility for the current market highs. If one peruses the media it’s hard to not see any article implying “He now owns it – and he’s going to regret it!” Personally, I believe that’s short-sighted because in actuality; it is at these heights for only one reason: “The Trump Bump Hopium Trade.” i.e., What was believed as a near slam dunk (e.g., GOP now controlling all three houses) for getting not only Obamacare repealed, but tax cuts, regulation relief, and more.
The rise since the election has been in spite of not only current Fed. actions into continuing abysmal data, but also, in rejecting the impending effects of that very same data. In other words: There is absolutely no other reason for the “markets” to be where they are currently except in response to the “Trump Bump of Hopium.” Below is a chart showing exactly that “bump”, along with another detail which needs to be remembered. To wit:
As one can see on the above chart I highlighted (shown in the square) what the “markets” response was to the reality QE was no longer. i.e., Direct QE that is, for the roll-over or reinvestment process behind the scenes QE remained in full force, and then some. Supplying all the necessary “dry powder” for their preferred entities to buy any – and all – dips.
Again, for this point needs to be asserted: the markets have not only continued to rise, but have mirrored the prior accent when QE was in full effect, all while the Fed. has embarked on a tightening schedule unseen since the crisis along with putting into its “forward guidance statements” that it is not only going to reduce the balance sheet, but has given a schedule where that process should be construed to possibly begin at any day, releasing the biggest bugaboo fear of Wall Street, bar none.
And the “markets” have so far resisted (actually gambled) putting more faith into the “hopium” trade than the Fed’s resulting actions.
But that was then, and this is now, and things have changed markedly. And it is the appointment of Mr. Scaramucci which I believe signals far more of that “change” then most suspect – especially – The Federal Reserve.
A lot of the so-called “smart crowd” are assessing the change in the Trump administration as some form of chaos, or proof that its falling into disarray. I believe that observation to be naive and ill-informed. Why? As I made the case early when the President was first assuming the role and people were reporting their consternation on why he was doing this, and not doing that. From the article, “Why Is The Media Perplexed? Because This Is What Business Looks Like – And They Don’t Get It”
“People forget that he’s a billionaire or successful businessman today for one reason, and one reason only: He is a proven turnaround specialist.
That point gets lost on a lot of people. They forget he has been not only “on the cliffs edge.” He’s also been over it. Most don’t recall, or never heard about the exchange he revealed in one of his books between him and his daughter when he spotted a homeless person and he pointed out as to make an instructive lesson to her (paraphrasing): “See that homeless person over there? He’s worth a $Billion dollars more than I am right now.”
He wasn’t being coy – he was telling the truth. People forget just much financial trouble he was in during that period. It was a turnaround worthy for entry into the business textbooks. Personally, I’ve taken cues from it over the years.”
Why the above is instructive is this: He (or his administration, if you will) is precisely six months into it. And what has he got to show for it? Nothing, except for the actions he could do alone. (e.g., executive action) And this is where people who’ve not only been over the edge, but who’ve fought back and survived show, along with further prove, their mettle is far more resilient than most.
All the so-called “help” that was supposedly at the waiting (e.g., the House, Senate, and more) has given nothing but lip-service to previously agreed upon legislative actions. e.g., Passed repeal of Obamacare dozens of times when it was sure to be vetoed. But now where it would be signed? All they can agree upon is to now disagree, with their prior agreements.
Let me be clear: I am not endorsing nor reprimanding one political side or the other. What I am doing is trying to point out what is the current reality and meaning for it, along with how it may affect not just business, but the entire global economy going forward. And how one might use these observations to either buttress, or at the least get one to think about what might be coming down the pike – before the hooves begin racing down the alley.
Again, whether or not one agrees with the President one thing is above reproach, as I stated prior: He’s not only been to “the edge” – he’s been over it, and clawed his way back to the top. Steve Jobs did the same, as have others. (I’ve been there albeit at a different level) And it is here where things not only from a business perspective change, but also in others, in ways most have no understanding.
It is from that viewpoint I have now deduced that Mr. Trump has now fully, and with intention, removed any and all gloves – and is about to not only come out swinging further, and harder. He might land blows others never dreamed forthcoming. Especially with the Fed.
The Scaramucci appointment particularly piqued my interest in its timing for two reasons. First: This is very typical in a turn-around situation if you’re at a 6 month point. i.e., evaluate prior assumptions and actions for efficacy, and jettison any and all that proved to be ineffectual – with immediacy and certainty.
Yet, it was the second where things begin to make more sense for not just its timing, but as well as the who, what, or why’s, because it happen to coincide with near immediacy of another release. That release? Via BI™ Pedro Nicolaci de Costa “A Federal Reserve committee executed a brutal takedown of Trump’s budget” To wit:
“Despite signs of strength and growth in aggregated data, there is persistent and perhaps even worsening anger among Americans living in marginalized communities across rural, suburban, and urban regions about their economic position,” the CAC said.
Unlike the Fed, which prefers to stay away from politics and has largely skirted discussion about the impact of Donald Trump’s economic policies, the central bank’s community council did not shy away from taking issue with the president’s proposals.
“While capital markets have shown continuing signs of strength, recent budget proposals and executive actions by the new administration, if enacted, would severely constrain capital flow into low- and moderate-income communities,” the Fed’s community council said.
If there was ever any question that the Federal Reserve has inserted itself into the political strata it is now laid bare via their own words.
Reading just Mr. Nicolaci de Costa’s breakdown of it is well worth the read. Did you know “climate change, health care, affordable housing, immigration” and more are now a focus of the Federal Reserve? So much so has its own committee to put forth its findings?
It’s been around for two years and was created as some form of PR vehicle to counter criticism. But suddenly, now it wants to be heard as to offer it. And the topics are of the political. Funny how that happens, no?
Here’s where I believe the Fed. has now overstepped so much so – it’s putting light where it once wanted to do things in the dark. And the Trump administration, especially Mr. Trump himself, not only knows it, but can see it coming a mile away. i.e., The Fed. is now openly waging “war” for control, and inserting itself into, and against the White House via monetary policy as to cripple it – if not worse. All while using arguments and reasoning reserved for political strata.
Or said differently: The Fed., an unelected consortium of policy wonks has now openly declared what it deems “politically important” and is good for the electorate or global community, thus influencing (a given extrapolation) and conducting monetary policy for those desired political outcomes.
Don’t take my word for it. Read the reporting and report for yourself, and come to your own conclusion. It’s actually breathtaking in its scope once you do.
As I stated in the headline the appointment of Mr. Scaramucci should give pause for the Fed inasmuch as when backstopped against the President’s own latest rebuttal of congress itself the other day.
Mr. Trump in no uncertain terms lambasted his own party in a manner not seen in generations. i.e., He put the blame squarely and empirically on them in no uncertain terms, with no place to reason away his assertions. e.g., (paraphrasing) “Where’s the legislation you passed when it was sure to be vetoed which you ran on, and promised to pass, should you and I win? I have my pen in hand, where is it?!”
These are the types of in your face rebuttals that come from people who no longer care about how something looks to others, or if feelings are going to be spared. This is now all about results. A fundamental “turnaround” process and distinction. (Think Jobs when he wasn’t getting the desired results from his subordinates, or was being openly questioned via Wall Street. It’s not that dissimilar.)
This is critical because if there is no “Obamacare” repeal, something which was supposedly a given – tax cuts and more are not just DOA, but possibly dead and buried. And these are the reasons for the “Trump Bump.” Period.
Add to this the forthcoming debt ceiling debacle that is sure to take place, along with all the negative press that will come pouring out from every mainstream media outlet, coupled with the ever-increasing resonating effects that the Fed. has not just raised the costs of borrowing on the nation at a faster rate than they ever signaled ( so much for all the forward guidance) but rather, into increasingly deteriorating data far worse (both in cycle timing, as well as for a supposed “data dependent” body) than the many times prior (such as 2011, 12, 13) when they sat on their hands as the “markets” overtook the prior highs of the original crisis exacerbating an already evident growing bubble.
The issue for the Fed. is not that this “blame” or “spotlight” will be regarded to just some “tin-foil hat wearing, conspiratorial crowd” as they’ve been referred to by the Ph.D set. No, the reason why Mr. Scaramucci should ring alarm-bells for this set is because he, unlike most of his predecessors, will be able to frame and articulate that very same argument squarely, forcefully, an unabashedly directly onto the Fed’s shoulders in a manner and extreme I believe they’ve never encountered. And it will leave them literally dumbfounded on how to react or respond.
I am also of the opinion any, if not all, blame for any ensuing faltering, or heaven forbid, any true correction in the near term will be thrust so directly and vehemently at the Fed. their reputation in the public eye will quickly go from some form of “saviors of the economy” they like to believe of themselves – directly to where the masses begin to look as to where to bring the torches and pitchforks.
Again, I am of the opinion this new iteration of the White House communication staff and players are not only willing, but capable of doing just that. And not by using lame constructs and reasoning like those of the Ivory Towered set. No: the most effective, as well as volatile ammunition that will be used will be the Fed’s own prior words and reasoning.
It will be their own words, actions, and more that will be regurgitated as to come back and “bite” them. i.e., One example is Ms. Yellen’s own “high pressure economy” argument just this past October vs her policy stance and actions to date.
A lot of people have mocked the idea that Mr. Trump has unwittingly taken claim of the current rise in the “markets” as to be an anchor around his presidency, let alone, neck. However, if looked upon objectively – it might be the singular weapon he can use to show against all odds – the “markets” since November rallied for one reason, and one reason only: what his presidency was believed to be bringing to the table as in repeals and tax reform.
All in spite of Fed. actions to the contrary.
And now with the GOP falling short of what was expected and the president willing to call them out for it in no uncertain terms? I surmise the only ones whom think they’re not next is the Fed. I also believe they’ll not need to wait too long for it to begin in earnest. After all – it’s not like Mr. Scaramucci doesn’t know these arguments for himself.
And here is an important observation: He’s not there because of any “love affair” or “political payback” for loyalty. Far from it.
In actuality they’ve (Mr. Scaramucci and the President) been adversaries via Mr. Trump’s vanquished opponents. And yet – there he is now. There’s a reason for it. I’m of the viewpoint it’s because of Mr. Trump’s now unmistakable pivot to taking the gloves off entirely. And I have a feeling it’s the Fed. that has now entered into these newly acquired crosshairs.
American’s love a fighter, especially one who seems to have their interest at heart. What far too many believe is that these latest impasses are hurting Mr. Trump politically. Far be it. The harder he fights – the stronger his base will not only get, but grow.
This is anathema to what the political class understands. And with Mr. Trump coming out swinging as he did in that latest press conference, along with his latest barrage of tweets bring back to light obvious one-sided dealings for political, if not legal hypocrisy. One should take these as not just clues, but rather obvious manifestations as to leave little to no doubt how things are going to be handled going forward.
And once again I feel the Fed. is about to be blindsided in a way they never dreamed imaginable. e.g., From the real Bully Pulpit.
© 2017 Mark St.Cyr