We Are At The Beginning Of The End For Super-Hero Central Banking Invincibility

When it comes to super-heroes there is only one thing that matters: either you have the ability to save the world and crush all comers via some extraordinary superpower. Or, everyone must believe you do and not challenge it.

Yet, as we all know, there comes a time when bluster just won’t cut it. As any good comic series has shown – there’s always some circumstance (or villain) ready and willing to put all claims to the test.

Today’s super-heroes are falling faster than their box-office ratings. Now it appears the once unchallenged superpowers of central bankers has now entered this same universe. And that’s a very real problem, for all of us.

Last week the once unquestioned power of Mario Draghi (aka “Super Mario”) president of the European Central Bank (ECB) with his unwavering declaration to supply “whatever it takes, and it will be enough” launched another barrage of shock-and-awe styled stimulus upon the European economy. The shock-and-awe description should have fit since this was a complete reversal from the track the ECB said it was following. The result?

It would probably be more befitting that the shock-and-awe reaction was not displayed via the European markets rather, it would probably better describe Super Mario’s reaction. In other words – nobody was buying it, literally. And the markets sold off, and kept selling.

This is the antithesis for the once knee jerk reaction (e.g., vaulting higher) the markets would display in times past. It appears releasing another round of “whatever it takes” of monetary easing, after just trimming said policy, makes others now question everything. i.e., Sounds great, but I’ll take my money now, thanks.

What’s happening in Europe is not an isolated event. It’s happening across the globe to central bakers everywhere.

The Bank of Japan’s governor Haruhiko Kuroda did similar in December where he signaled the banks readiness to ramp up stimulus if needed. The result? See above for clues.

In China the same. Over the past weeks the PBoC has released almost as many differing rounds of policy interjections (e.g., RRR cuts, record setting direct money interjections, etc., etc.) as they have spinning plates. This is all under the guise of “prudent and neutral.”

It sure appears to any observer this has been more akin to, “We’re willing to throw everything including the kitchen sink and then some!”

Again, the result? Once again, see above for clues.

The interesting thing, as always, is if you look at any chart they all follow what can only be described as the ultimate superhero of central banks headed by the seemingly mild mannered Chair of the Federal Reserve, Jerome Powell.

So far his super powers have been put to the test twice.

In February and December of 2018 the “markets” suffered from an all out assault to their once unquestioned cloak of invincibility provided by quantitative easing (QE) and zero bound interest rates, enabling those with no-clue to BTFD’s (buy the f’n dips) with pure, unadulterated impunity.

Then, suddenly (Feb and Dec) watching BTFD genius became akin to watching people doing stupid things with horrific consequences on YouTube™. i.e., “Watch me, I can fly!”

After each of these incidents Mr. Powell’s response (or maybe Super Jerome?) has been nothing more than inclinations that he will do something. I must repeat this, even if it is for the billionth time:

As of this writing the Federal Reserve has not paused anything. The balance sheet has continued to be allowed to run on full “autopilot” and the non-raising of interest rates at the January meeting was already a well considered probability going back as far as September, if not earlier.

Remember: it was Mr. Powell’s decision to have a press conference after every meeting beginning in 2019 that made the odds for a rate increase at January meeting, for it now had to be considered “live.” That’s how confident the Fed was in its projections just a few months ago. Don’t let that point just go by. Ponder it vigilantly for real perspective.

In other words, “the signal” was that rates could now be raised at any meeting. But in reality markets never priced in a January raise to begin with. The “December Debacle” only solidified the issue.

His response (Super Jerome), so far, has only been words. e.g., “pause” as in we will, may, might, can, etc., etc. There has not been anything said like “did”, “have”, or any other past tense descriptor.

I have a suspicious feeling that’s not going to do it for the third.

And when is the third? Hint March 19/20. And here’s where the balance of the financial universe can suddenly feel itself thrown into free-fall that’s more like being sucked into a black hole than just some form of dark days reference.

As I have warned ad nauseam there has been no “pause” of the balance sheet. As a matter of fact, the “autopilot” sequence for the month of February was so that it exceeded the $50 Billion quota and needed to reinvest the overage as to stay true to the original plans set forth by then Chair Janet Yellen in 2017. And the “markets” just received confirmation of what I’ve been warning about this past Thursday.

For those who believed the incessant prognostications via the mainstream financial/business media that the Fed had indeed capitulated and paused, I can only sum it up with the one word we used to say back in my home town: “Su-prize!”

So much for the truth in the power of “pause,” no? And that’s where the real issue now lies.

The “pause” induced rally since the “December Debacle” has been historical in may ways. First: It’s been the most powerful since 1987. The flip side? To remember the historical fact of 1987, let me use this one – “Black Monday.”

Will history repeat? Who knows? But more importantly is this – will there be any rhyming? For that can have just as bad, if not worse consequences because of where we currently stand.

“Where do we currently stand?” you ask. Great question, for this is where the sum for perspective matters, maybe more than the underlying issues when taken individually.

Everything that was suppose to be going right is suddenly going wrong.

GDP seems to be not as strong as first thought, interest rates are cramping the housing markets globally, the latest employment report was a mess, trade wars are heating up everywhere, not subsiding, U.S. trade deals are seen to be collapsing into inertia, nuclear powers are once again shooting across each others borders (e.g., India – Pakistan)

Is there more? Sure is…

Russia is sabre rattling, China is also. The EU and UK with Brexit seems to be in a slow motion car wreck of a situation. German banks are floundering. Italy, Spain, Greece and others are joining into the fray for political condemnation in solidarity with the “Yellow Vest” movement in France.

Ambassadors are being called back home in alarming rates globally. N. Korea seems to have both began underground testing, as well as reconstituting idled nuclear facilities. Did I forget anything? Oh, yeah, there’s Venezuela, but I’m sure that’s it, right? Hint: It ain’t. Need I say Taiwan? And yes, there’s even more but I’ll stop here for brevity’s sake.

So now here rests the balance of the financial world, global markets, national economies and Geo-political salvation as it awaits the arrival of the only person presumably endowed with the true superpowers to arrest the collapsing universe created via central banks everywhere. e.g., Chair Jerome Powell and his protégés constituting the FOMC League of Monetary Justice.

So now that the “markets” have been put on notice that anything resembling the term “pause” has not been implemented – and – that “autopilot” has not only continued unabated – it’s been running at peak velocity. All while the above has manifested itself within the last few weeks, “what could possibly go wrong,” is all I ask?

Hint: Rhymes with “too little – too late.”

After all, isn’t that what happened in the last superhero movie known as “Infinity Wars?” It seems that maybe the once unquestioned powers of central bankers in their “QE to infinity and beyond” powers could also meet the same fate. Why? Because one of the truly critical requisites that solidifies a superhero’s power is in power – that others believe in it.

Today it seems the once unquestionable power of the “Superheroes of the Central Banking Justice League” is meeting a force that may be far greater than one they ever considered, let alone planned for. And it is this…

No one unquestioningly believes in their once unquestioned powers anymore.

We’ll know how this all concludes in about 8 trading days.

“Buckle up” is all I can say.

© 2019 Mark St.Cyr