How long will “magical thinking” sustain the rally? No way to say. But when the gears are reversed, it could get ugly…. From Wolf Street:
“There are a million reasons why multiple compression hasn’t started yet, including the scorched-earth monetary policies by central banks around the world and the hope for miracles during the Trump administration.”
So Fed boss Janet Yellen rolled out her ongoing take on the “Greenspan Put” today, giving the markets a tickle, if not the bracing slap they deserve. She can’t match the “Maestro” in his lexical exertions, but she did try. Check this out (from Bloomberg):
“I consider it appropriate for the committee to proceed cautiously in adjusting policy,” Yellen said in the text of prepared remarks Tuesday. “This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric.”
“Asymmetric.” Nice one. As if Blake’s Tyger were just sneezing – you know, a brief distortion before the balance of power between the Fed and the markets reverts to its shepherd-and-sheep concordance.
It didn’t sound like an admission that the Fed’s disastrous rate policy – which has caused massive socioeconomic dislocation, been an utter failure in boosting retail wealth and consumption, and hardened Wall Street’s carapace – had left it no room for maneuver.
Yellen must realize this, or she wouldn’t have threatened another go at quantitative easing. The Fed, she said, could increase the “size or duration of our holdings of long-term securities.” That’s simply appalling.
After three servings, the Fed finally closed that $4.5 trillion slop trough for banks in 2014 in an unexpected show of backbone, and is now trumpeting a “recovering” housing market. So it’ll be interesting to see what tongue-tying Greenspanner she uses to justify a retread of that mistake.
Okay, so with the rest of the advanced economies merrily screwing their savers by dabbling in the untested and already suspect alchemy of negative interest rates (which Yves Smith takes a typically insightful squint at here), Yellen doesn’t want to blow up the “reviving” manufacturing sector in an election year by pushing the dollar through the roof. Understandable. The Fed’s (unreconcilable) “dual mandate” and all that. We get it.
But individuals are still not spending, even in countries with negative interest rates. The Fed and its overseas counterparts might have underestimated the average Joe’s insight that he has been losing money on an inflation-adjusted basis for years anyway, so negative interest rates represent merely more spray, rather than the ongoing, underlying noxious public policy gob.
So who wins? Well, a glance at Bloomberg today reveals at least some of those who benefit from the Fed’s faux inflation alarm. There are unctuous marketing factotums at places like PIMCO and Blackrock, who make their sorry livings churning out dreck about TIPS and other pump-and-dump fare to fill CNBC airtime and space on Bloomberg, peddling products that have lost their clients bazillions. There are the value-destroying (“Where Are the Customers’ Yachts?”) wealth managers, economists, strategists and commentators. Yup, there are the bloggers. And there are countless other remora fish, all just looking for a ride.