The Professional Traders Opinion
May 22, 2014
Dazed and Confused: Part One
Ralph (Jackie Gleason) used to stammer on the Honeymooner’s “homma, homma, homma…” Recent stock market action represents a neurosis that stinks of manipulation; both contrived from those actions already in place and confused by those expectant. The diagnosis, my dear Watson, is this patient is neither dead nor alive; it’s unconsciously comatose infected with a viral complacency the likes of which we have no known cure. We must say Watson, we are a bit dazed and confused.
Confusion? Here are some of the headlines directly off the tape shortly after the release of Wednesday’s, May 21st FOMC’s minutes:
• “Most Fed officials see inflation returning to 2% within a few years, some see more gradual rise”. This of course is from the minutes of the April 30th FOMC meeting, just days before the April PPI report showed an increase of a year over year increase of 2.1% and the biggest monthly rise of Producer Price Inflation in several years by the government’s Department of Labor’s calculations).
• “Fed expresses skepticism about studies saying long-term unemployment puts less downward pressure on inflation”. Therefore, unraveling Fed doublespeak, they feel that long-term unemployment adds downward pressure to inflation; thus normalizing this dilemma would both fix their jobs mandate and increase inflation, their stated goal. Unfortunately the Fed fails to connect the dots and offers no empirical evidence that manipulating zirp interest rate policy for 5 years, simultaneous to $4 trillion of stimulus, hasn’t dented the long-term unemployed problem; in fact those longer-term unemployed are at a forty year high from throwing in the towel looking for work with job participation rates at nearly historic lows. Maybe the long-term unemployment benefits are both masking the underlying economic strength of this feeble “recovery” and exacerbating the lethargic tendency for those out of work to get off their government subsidized couch to find work.
• “Fed officials do not see “imbalances” posing near-term risks to the financial system”. Really? Then why all the demagoguery regarding the inequality of the workforce, the need for higher minimum wages or the growing chasm between the wealthy or one-presenters and what’s left of the middle class? In fact, what does the Fed see as near-term risks to the financial system? A China meltdown? More “unrest” with the Ukraine and mother Russia? A Sino-Russia trade pact denominated in non-dollars? (Hold onto your hats, it just happened). God-forbid, a U.S. GDP contracting even after Thor’s last assault on Al Gore?
The next two came just five minutes apart at 2:30 and 2:35 PM EST:
• “Fed’s Kocherlakta says dual mandate at times faces a conflict”; directly followed by “Fed’s Kocherlakta says dual mandate not creating conflict now”. As comedian Louis Black would say, “I can’t make this s#@t up”! Kocherlakta separately adds “raising rates slowly would help lift inflation”. So if they (the Fed whom Kocherlakta is a voting member) is anxious for higher inflation then why raise rates at all especially since they believe the longer-term unemployed adds to disinflation and raising rates would cripple American business’s seeking to hire new workers?
Are you confused yet? Don’t feel bad because the alchemists experimenting with our Treasuries’ printing presses haven’t an apparent clue either and they are permeating the thought that they are just flat making this up as they stumble forward. The Fed is the tail being wagged by the Wall Street Dog. But wait, here’s more:
• Fed says “housing market slowdown in part due to monetary policy” and “reduced asset purchases have contributed to slower housing market”. What? Again dissing Ole Man Winter … has he no effect on the weak 1st Quarter GDP; it’s just leaner monetary policy in disguise? Does this set the stage for a taper of the taper? Or a thrust in stimulus to confront the soon to be negative ECB reserve rates? Yes, a protracted currency war with our “allies”. There’s nothing for Putin and his new ally China to do but sit back and enjoy the show. The hunt for the nuclear finger is not on the “Red October” but on the hands of Ms. Janet Yellen, Mr. Mario Draghi and Mr. Shinzõ Abe.
We could go on and on, but all of this is less than 45 minutes of pyscho-babble from the latest FOMC minutes! We will end this section with a coup de grâce from the huge thinking unpretentious leader of this country’s lender of first resort, Ms. Janet Yellen:
• “Listening to others has forced us to realize that we don’t have a monopoly on the truth”. An unbelievable miscue of the tongue; a Freudian slip; a brain flatulation! Reinterpreted, Ms. Yellen admits to committing the act of subreption but only after being caught or, in her case, having the facts explained or her theories decomposed to reality.
We continue to rant; there is no-one home at this Fed and the economic supporting staff couldn’t win a nomination in a children’s play about Beatrice’s Goat! A perfect storm is brewing with an exogenous economic or geo-political event(s); a currency implosion; the Fed losing control of the yield curve; the contradiction, and thus the exposure, of all the government lies regarding economic releases; another quant-driven, computer designed high-frequency flash crash; or simply the convergence of complacency about owning equities in an economy tilting on the cliff of low growth, no growth or outright contraction.
Stay tuned for Part Two of this four part series being Dazed and Confused; “What has changed since the Great Recession”.
Ronald M. George
William J. Taylor
Professional Traders Opinion 2.0