“This Isn’t Entirely Healthy…”

Authored by Richard Breslow via Bloomberg,

The annual Federal Reserve economic gathering is this week. No fly fishing, just login credentials, this year. We’ve become accustomed to expect this event to be an enormously seminal event where something will be told to us to that will reveal all we need to know.

This year’s nominal title is “Navigating the Decade Ahead: Implications for Monetary Policy.”

I have to admit, that leaves me cold and, somewhat worryingly, uninterested. To think they know anything about the decade ahead, let alone intend to act upon any conclusions based on the forecasts, seems devoid of any ideas to do something about the here and now.

Rude comment? I’d love to be proved wrong.

Frankly, it would be more believable for the headline subject to be “QE Forever: Is There Any Way Out of the Rabbit Hole?” Whether you are thinking about the decade ahead or strictly focused on the immediate future, has a lot to do which branch of the K-Shaped recovery you have managed to end up on. Doesn’t “V” seem like a happy memory? On the face of it, things are flying high.

A chart of the S&P 500 Index looks absolutely sanguine and portends clear sailing. Not so much if you break it up into its component parts.

If there is anything different this time, it’s that the upper stroke of the K people are well aware this isn’t entirely healthy.

Story after story, still includes that the coronavirus is everything. For the economy and society. And whether we can slink back into the office, watch a movie in a mostly empty theater or stay buttoned-up at home that’s true. What we need to avoid is that the statement doesn’t merely become a comment on sector rotation than our actual future. Numbers get a little better and we rush into value. Slip backward and its grab more mega-tech. The powers that be, not really meeting this week, need to accept that the way forward for the real economy has little to do with forward guidance or yield-curve control. And trust me when I tell you, no one thinks they are itching to raise rates. So being told they are willing to let the economy run “hot” when inflation picks up isn’t even useful information for short-term interest rate traders.

Meanwhile, the equity markets continue to bubble up. A sea of green across every part of the world. I keep being told it will end in tears. That it isn’t as happy as it looks. Does it really matter? The winners smile and the losers, or those on the outside looking in, say deal.

There is renewed technical bullishness for lower bond yields, the dollar bears are convinced any correction is just that, and off we go. The equity markets will continue higher until they don’t. Discussing the world’s travails is an interesting pastime, little more.

For those who wish to wish to bemoan lack of breadth, take a deep breath — one day all of your bearish inclinations will no doubt be rewarded. But wait for the central banks to tell you when that will be.

I do confess that the utter lack of momentum in emerging market currencies is both curious, and on some level, worrying. It’s definitely worth watching. Not that they have done anything particularly wrong at all as an asset class. They just seem to be stalling at an ambiguous price point. And, at least, they are fun to keep tabs on. The world needs these economies to, eventually, kick-in to higher gear. Wouldn’t that be something?

Lastly, gold, the active contract has definitely had its gyrations of late. Plenty of traders are willing to admit it hasn’t really been behaving all that well. But, I’ll have to get back to you when I find one that doesn’t remain a committed bull.