Depending on how one looks at it September 17th seems both as far in the rear-view mirror as a distant memory, and yet, almost as if it were just yesterday. I believe part of the reason is the fact no one has been able to stop thinking about it in one form or another. For those of you who don’t await with bated breath for the world’s equivalent of monetary dictates, September 17th was the date The Federal Reserve punted on raising interest rates stating reasons that still have many scratching their heads.
However, as of today, by all indications put forth via a myriad of so-called “in-the-know” types. This time they’re really, really, really, no fingers crossed, and Scouts honor going to “just do it.” Unless you listen to Fed. officials themselves. For if you have, “just doing it” may indeed turn out to be: can’t bring themselves to do just about anything except to wait on doing – it. Welcome to monetary policy 21st century style. Where the meaning of “it” can be just as tricky to identify as what “is,” is.
Maybe you think I’m just trying to make a play-on-words type argument. Let me assure you I’m not, for I’m not that good. You can’t make this stuff up. This monetary gibberish writes itself (actually it’s spoken by Fed. officials first) which is why it’s both so laughable, as well as dangerous at the same time.
Remember “forward guidance?” This was for the expressed purpose as to help give markets, as well as any other monetary policy affected entities some form of clarity into what one could expect emanating via future policy decisions. That “clarity” has now evolved into: clarity of confusion. And all I’ll just point to as the latest in a longer run for proof that Sept. 17th announcement. For this was the most debated, signaled, professed, anticipated rate hike in decades – and – it didn’t happen. I mean, what’s left to say?
So now, here we are in the lull just as we were before that Sept. meeting, And what is happening this time? Well, don’t look now, but there indeed looks to be trouble brewing on the global stage (or should I say “international developments”) that could turn out to be just as big of a headache to the Fed’s reasoning’s on whether or not to “just do it.” Just one of those issues is – once again: China.
It seems, just like last time, as we get within weeks of the Fed’s impending rate hike China’s stock market is once again displaying the same characteristic behavior as it did last time with virulent selloffs of the 5% variety. Lest I remind anyone this was exactly the same type of behavior witnessed that many believe was instrumental to the Fed’s not moving decision.
Here was what everyone inferred by the newly inserted descriptor “international developments” to be code words for a possible China stock-market meltdown if they did “just do it.” So – they didn’t. But don’t worry, they’re really gonna this time – unless they don’t. One needs to remember “international developments” is still an “on-the-table” viable excuse. Or, should I say: “Viable input as to not adjust?” Sounds more Fed. like, yes?
As I implied earlier this is just one, and I need to remind you (for it really is an important point) this “one” was all it took to get the Fed. to sit on its hands. Now, this time, there are several others just as onerous, and formidable to up-heaving the entire global markets. Another of these “one’s” is directly affected instantaneously via any implementation (or lack there of) Fed. policy: The $Dollar, along with all of its intertwined carry trades.
Since October the Dollar has been doing exactly the opposite of what the Fed. wants. It’s been strengthening. In other words, the Dollar is now ever higher threatening to take out highs not seen in years resulting in the exact opposite of the Fed’s stated objectives for interventionist actions. i.e., If you want and are targeting 2% inflation – the last thing you want or need is a stronger dollar. Again, what’s one to say about this monetary debacle or quandary? Ooopsy?
Then there’s the latest round of economic data points which have since been released. GDP? Horrible. Consumer spending? Pathetic. Cap-ex investment? Deplorable. Corporate earnings? Depends. If you count the ones that beat via lowering their expectation bar to ant-height; they were still pretty dismal. However, via Non-GAAP? “They were killing it!” So pick your own poison.
Yet, that’s neither here nor there. All that mattered (via the main stream media) was the latest “jobs” report. And that was “spectacular!” With near statistical full employment (5.0) and creating some 271,000 new jobs. Does sound great. As long as you don’t count the ever-increasing 94 million not in the work force. i.e., without jobs. Good news such as this has been bandied across the financial media as proof positive The Fed. not only can move, but must move. All I’ll say is: Unless they don’t.
Now this next “jobs” report due Friday is said to be “the most important report” possibly in history pertaining to the setting of monetary policy. Fair enough. And if it’s 300K with a 4.9 print as China’s markets once again free-fall and bleed contagion into both U.S. and global markets? Does anyone believe they’ll raise sending the Dollar to the stratosphere crushing U.S. competitiveness and earnings delivering the U.S. economy straight into the teeth of what could start a deflationary spiral? Well yes if you’re an Ivy League economist, for if you’re wrong just remember the old standby: make another prediction. But I digress.
How about the other side of that argument? If it’s sub 100K do they stand pat? Crushing their credibility further to a jubilant Wall Street consortium of JBTFD (just buy the dip) algo-fueled HFT’s? Do you see clarity in what they may or may not do? I sure can’t. And I’ll ruminate openly: neither does the Fed. Never mind what the so-called “smart crowd” thinks.
And how about another “one” to consider? Say like that other little indecent taking place in the middle east with the likes of Russia and others? (as I said earlier, there are more than just “one” reason this time about) How are Emerging Market economies such as theirs which are far more susceptible (i.e., rise or fall) with currency fluctuations going to view the Fed. raising rates which may in-turn send the Dollar stratospheric crushing these already teetering economies?
If China’s market is indeed once again flailing as it did previous; having The Fed. raise rates regardless may be seen in my view as an act of monetary aggression. I wrote about this very subject a few weeks back and was jeered by many in the economic circles. Yet, as we stand today – it’s anything but a laughing matter. And as the title implied, it is a “Perilous Possibility” which needs to be contemplated.
The Dollar is about to do the exact opposite of nearly all other global currencies. This alone begins compiling complicating arguments of nearly every stated Fed. intention. Within the for-ex markets alone it will further crush carry trades. And, in many ways, put already desperate commodity dependent economies (such as Russia and others) into an immediate for-ex fueled world of pain.
This would be happening simultaneously as every other central bank is falling all over themselves to get to a microphone, camera, or printing press first to announce they’re cutting or printing ever further. Even if it means turning their bank notes into toilet paper. After all, “what ever it takes” may mean just that.
In this environment the Fed. is going to raise? I’m not so sure. And I’ll repeat: I don’t think the Fed. knows either. Regardless of any upcoming “jobs” report.
Again, I must reiterate: Is it possible that the raising of rates in this climate alone, even if it were the “right thing to do” for the U.S. (i.e., The Fed. raises regardless of turbulence or data points) might be viewed by others (both sabre rattling as well as military engaged countries) as I argued earlier as proof of the Fed. being “weaponized?”
Whether it’s true or not will be a moot point. It’s how things are viewed in the eyes of others. Or, more importantly: how things may be spun to their own populace. That’s a very important point to ponder.
I’ll argue those looking for a “boogeyman” will be served a near perfect straw-man setup on a silver platter. After all the reasoning will fall around something resembling: “Why do it other than to bring on such things?” It will be made to order.
Again, let’s not forget: every other central bank is now openly printing like crazy. And here the Fed. is going to raise? Think about that very carefully, for the implications to triggering outright war in other ways more so than just currency should not go without consideration. For if you think it’s preposterous – you’re just not paying enough attention to what’s really taking place currently and globally.
Then of course there’s the other side: The Fed. once again chooses inaction – for action. Then what is one to contemplate?
If there’s one thing I do know it’s this: We wont get anything resembling clarity. However, clarity for the HFT, algo-programmed, headlined fueled, front running JBTFD parasitic trading houses? Count on it. Like an Arms dealer – they’ll win either way regardless.
http://markstcyr.com/2015/11/29/december-16th-a-date-for-monetary-infamy/
© 2015 Mark St.Cyr
