Hawkish? Dovish? Balance sheet reductionist? Rate-hike limited? Worried about inflation or excited by the economic outlook? Or just plain old confused?
What and why did Yellen just say what she did, unleashing the latest market reaction to her supposedly “dovish” congressional testimony, and sending risk assets higher just two weeks after the same Janet Yellen warned about frothy market valuations?
It turns out, you are not the only one who can no longer make any sense of it. As Bloomberg’s macro commentator Richard Brelsow notes, “we’re no longer just going to have doves and hawks to consider, but B/Sers and ratists. Charts about FOMC meeting outcomes will need virtual reality headsets to deal with the added dimensions. I’d settle for here’s what were going to do because it’s the right thing to do. And we’ll deal with what comes if necessary, that’s how we roll.”
He than rages at the Fed which “has a plan. But in essence has no plan. They have a desire. And the justifications for it vary over time. As does its perceived imperativeness. It’s why they keep telling us all the permutations of the stop and go strategy they say will work. They love sounding smart to themselves. But it all comes out as we hope so. They are so obviously trying to convince themselves rather than the investing community of the efficacy of their actions. Quite the opposite of sounding resolute, they appear unsure. Not what you want in a doctor, fiduciary or central banker.“
And then a disclaimer on disclaimers:
Disclaimers are there to insulate people when things go wrong. They aren’t really there as warnings. No one gets sued if everyone is getting rich. But the Fed is leading with the caution. And in the process opening wide the casino doors for harmful speculation and futile trading. When will they announce? How do we evaluate the trade-off between the balance sheet and rates? We’re all going to spend the next months, maybe years, arguing whether a number affects one or the other more. Speech after speech is going to further muddy the waters as they publicly debate the issue among themselves
He concludes with an ominous warning for the Fed: “I have news for you, when this chapter of financial history is written, the authors won’t spend a lot of time dwelling on the disclaimers then, either.“
Then again, Breslow has had a rather “angry” period in the past few weeks; our advice: relax – the Fed confusion over how to put the genie which the Fed first released, back in the bottle, is only just starting.
His full note below:
The Fed’s Making Hawks or Doves a Quaint Concept
Have you ever actually read the tiny print on the lengthy warning insert included with even the most innocuous drug? Doubtful. The farthest you are likely to get is the list of side-effects designed to insulate the manufacturer and ensure you stop reading immediately. Put this gel on your cut finger to prevent infection. But discontinue use if you experience bleeding from your eye sockets for an extended period. You end up just taking it on faith that someone other than the product liability lawyer who wrote it has read it. Certainly the clerk who rings up the purchase doesn’t make you study it first. Hey, you opened the tube so it’s now all on you.
It’s even worse with fund offering memoranda. They begin by telling you that this opportunity is only to be made available to sophisticated investors. Stop right there. I’m sophisticated, so do I really need to focus on the details? I don’t want to look like a rube in front of these people. And if you’ve ever been to a pitch, no one spends even a nanosecond on those disclaimer paragraphs in the documents. Shall we quickly just flip to the past results graph and look at what we’re all sure will be replicated. Oh, and don’t get caught up in the language about side-pockets. Don’t think of it as style drift. More like, say, responding to exigent circumstances.
In both of these cases, the presumption is strongly skewed to making the leap of faith that nothing can go wrong. Trust me, I know best. So let’s focus on the good. Which is why I find the hand-wringing and introspection by the members of the FOMC over whether, when and how to begin balance sheet reduction along with further rate rises troubling as well as frustrating.
The market has so far accepted the premise that the experts know exactly the way those trillions of assets can be run-off with pain to no one. Why should it affect any of the assets that have been wildly distorted by building up the balance sheet to begin with? What does Jamie Dimon know about markets, anyway?
The Fed has a plan. But in essence has no plan. They have a desire. And the justifications for it vary over time. As does its perceived imperativeness. It’s why they keep telling us all the permutations of the stop and go strategy they say will work. They love sounding smart to themselves. But it all comes out as we hope so. They are so obviously trying to convince themselves rather than the investing community of the efficacy of their actions. Quite the opposite of sounding resolute, they appear unsure. Not what you want in a doctor, fiduciary or central banker.
Disclaimers are there to insulate people when things go wrong. They aren’t really there as warnings. No one gets sued if everyone is getting rich. But the Fed is leading with the caution. And in the process opening wide the casino doors for harmful speculation and futile trading. When will they announce? How do we evaluate the trade-off between the balance sheet and rates? We’re all going to spend the next months, maybe years, arguing whether a number affects one or the other more. Speech after speech is going to further muddy the waters as they publicly debate the issue among themselves.
We’re no longer just going to have doves and hawks to consider, but B/Sers and ratists. Charts about FOMC meeting outcomes will need virtual reality headsets to deal with the added dimensions. I’d settle for here’s what were going to do because it’s the right thing to do. And we’ll deal with what comes if necessary, that’s how we roll. I have news for you, when this chapter of financial history is written, the authors won’t spend a lot of time dwelling on the disclaimers then, either.
via http://ift.tt/2tMVmd2 Tyler Durden