by Mark St.Cyr at Markstcyr.com
In a world where the Fed. articulates its reasoning for any policy decisions as “data dependent.” One has to now ask – exactly who’s data? For if one originally assumed “data dependent” meant U.S. data – one would now be incontrovertibly proven wrong.
The parlor game projections as to whether or not the Fed. would, or, would not raise rates by many of the so-called “smart crowd” on Wall Street was often hysterical. And the word hysterical could be used twice in the same sentence. Once, as to describe the sheer hysterical begging by those whose salary is based (as well as bonuses) solely on whether or not the Fed. give-ith or the Fed. take-ith away their “punch-bowl.” And second; for the sheer comedic value in that begging. I guess when you’re charging 2 and 20 – you gotta do, what’cha gotta do. And If you’re not begging clients against redemptions – might as well beg the Fed. for it.
There were quite a few discrepancies made manifest in the Fed’s decision not to begin the process of monetary normalization with its standing pat of not lifting interest rates off the zero bound by 25 measly basis points. Even if it was seen as being only a symbolic start in effect.
One of those discrepancies is this: What happened to all that “great” data we’re forced to ascribe to when we turn to most financial media outlets? Apparently the “data” the Fed. watches is not the same which we’re told. For if unemployment is statistically within range of what is considered full employment (e.g., 5.1 per the latest report) how can the economy be so shaky as to delay one of the most anticipated hikes in years?
One can add to that list another data point which seems apparent of no consequence for consideration: Not only has there been a tripling from the “generational low” coined by many on Wall Street (i.e., the low of 2008). Rather, that tripling has resulted in the markets being well above their previous life time highs that occurred immediately before the crisis. And yet, even with a 1000 point panic induced sell off which it all but erased in a week, they still not only hover well above those previous heights, they remain within the proximity of their “never before seen in the history of the market” highs!
One would think the Eccles building would have its own banner hanging proclaiming “Mission Accomplished.” Yet, we’re to infer by the latest policy act those data points must be irrelevant. For they chose inaction – as action.
Remember when just a mere few months ago Wall Street’s next in rotation fund managers, economists, chief investment officers, et al nearly stampeded over one another in bullish form as to get to a microphone, keyboard, or camera and profess “Earnings are beating expectations! 60% or _________(fill in your own and be bold!) are beating as compared to missing. The economy has turned a corner. No fear of a rate hike should be expressed. As a matter of fact – a hike would be even more bullish so buy, buy, buy!”
It seems that didn’t last long for it’s now been turned about so quickly it would make a merry-go-round blush. i.e., “Oh my heavens! A rate hike in this poor climate would be disastrous! Please, please, please!! Someone do something! My bonus! My house in the Hampton’s!! My cocktail party invites!!! Oh the humanity!!!!
Then there’s the 800 pound panda bear in the room: China.
It seems with all its fantastic (i.e., made up) data points coming out of the politburo, is “data” made for slinging right down the Fed’s alley. In other words; goalseeked data fueled by the utilization of the Fed’s QE programs that are now falling apart since its ending has created a free fall in their stock markets. It seems this is just the “emergency” the Ph.D’s ordered as to brush aside any relevant data States side, and keep the free money spigot open indefinitely.
Not only this; one can’t help being left slack-jawed witnessing that the Fed. has just publicly inserted itself into geopolitics via its monetary policy as de facto first responder/savior of all economies. Even if it puts U.S. savers, retirees, along with its economy in the back seat. I wonder how the Bank of International Settlements feels about this latest move? But I digress.
Some may be thinking “Well it’s not like they didn’t do similar during the 2008 crisis. So what’s the big deal?” The big deal is exactly that: crisis. As in whose? Theirs? Ours? Everyone’s? For there are many a crises right here still not being addressed. Let it not be lost on anyone: Ms. Yellen in her press conference said she was “impressed” with the strength of the U.S. economy. However, it was the newest data from “international developments” that now seems to be more compelling to the Fed. than any lingering crises that are still churning within our own economy based on their maniacal grip to a zero bound rate policy. Crises such as:
If you’re a person trying to live off what amounts to a meager savings here in the U.S. – you’re having a crisis.
If you’re someone relying on a private pension to remain solvent, as the manager of one searches in futility to find lower risk yield – you’re in a crisis.
If you’re working, running, or own a business that’s in direct competition with a company being kept alive via “free money” policies attainable only by them – you’re in crisis.
If you’re an entrepreneur and are seeking needed banking services such as loans or other business products – you’re in crisis.
And if you have any sizable working capital within a bank structure? You just found out you’re in pre-crisis mode. Why?
Because; for the first time ever the Fed. publicly stated (via their Dots chart) negative, repeat, neg-a-tive interest rates are being openly considered as a viable tactic of monetary policy. i.e., The banks will legally bleed your account like a parasitic leach and will be looked upon as giving you the privilege for them to do it.
However, all this data seems to be falling on deaf ears. Yet miraculously when Wall Street speaks – the Fed. not only listens – they deliver! And now with “international developments” interjected as a new data consideration – it’s a free money ride made to order.
Sure, China’s stock market is currently experiencing major turbulence. All one needs to do is look at a price chart. Yet, China continues to report that GDP growth is somewhere around 7% give or take. Is that “data” suspect in the eyes of the Fed? And if so – why so? Is deciphering China’s imperial stated GDP data now an additional “mandate” that’s up to the Fed. as to calculate and react accordingly? Wall Street thinks so. And demanding that so too does the Fed.
Surely a stock market bubble that’s popped within an economy growing at 7% is precarious. However: why does China need the intervention of the Federal Reserve as to not begin its own nation’s monetary policy towards normalization? For if China is growing at a rate far above our own – aren’t they in a better position to handle their own issues? Wall Street has been telling us for years “China is the economy that will lead us out of this economic malaise.” What happened to all that “great” data? All gone in mere months?
And there lies the open question. Exactly what “data” is the Fed. watching which they’re clearly not revealing? Maybe that “data” are their phones and in-boxes being hammered from Wall Street demands as to act by not acting? For what little credibility in transparency and foreknowledge they’ve professed to be executing has now not only been shattered – it’s been out-rightly laughed out of the markets. Unless: that laughter is now coming from none other than those that now know “data” means “what they say it is – or else!”
Yes, Wall Street did put on quite the horse and pony show in stunningly quick order as to demand a stay the course action of no rate increases. However, if one wants to be cynical (if not down right conspiratorial) all one needs to contemplate are the following “data” point theories.
Imagine pulling the plug on the HFT imaginary liquidity machines at precisely the right time, and for about the right coinciding duration (Oh let’s say 10% or so should be enough) and you can scare the Fed. to stand pat when needed. Or, you can increase the duration (Oh let’s say 20% or so) and you’ll probably have an even better shot at triggering another round of QE. It’s a manipulators dream come true when viewed from this light. Is this a “data” point that now needs to be considered?
Or better yet imagine another to help coincide with their new “international developments” data concerns.
Let’s imagine right before the Fed. dares to show any backbone or display any credible signs of actually beginning the process as to normalize interest rates. You (let’s pretend) may be in charge of an economy that will suffer at the hands of such a process. You then just out-of-the-blue send war ships right off the U.S. coast. Then, follow it up by sending ground troops, heavy arms, and rattle sabers in a menacing fashion right where the U.S. will declare your actions as hostile or provocative. e.g, Syria.
Chances are that too has a good chance of interjecting global concerns into Fed. decisions. After all – all one needs for empirical evidence as to whether or not such a thing is plausible or probable is to look at what took place a mere 24 hours after the Fed’s decision on Friday.
In an about-face only rivaled by the Fed’s – Russia and the U.S. conveniently embraced diplomatic talks in Syria. (For more clarity on this reference here’s an article I penned “Could An Interest Rate Hike Be The Last Straw Before War?”)
As for China? Well I would imagine it didn’t hurt that the Fed. stood pat, for it could have put far more pressure on the dinner conversations as China’s leader visits Washington next week. After all, with what the Fed. decision resulted in as well as how it was explained. The only logical conclusion one can come away with is these seem to be the only “data” points that either mattered or were taken as important considerations.
For all the rest like savers, retirees or the overall U.S. economy? It seems they’re expendable. For as far as those previously outlined crises here in the U.S. Not only are they not going away, they may in fact be exacerbated. It seems many on Friday took a look at what the Fed. proclaimed as “data” and decided we’re in a whole lot more trouble than the Fed. understands – or can deal with.