Welp. The Fed won. As masterful a perception management campaign as has ever been deployed by that predatory institution, the Fed duped investors into thinking they would do nothing, and then they did it. Cut the capital fabrication program by $10 billion a month, or 11.8%. This after October’s equally masterful feint, whereby our expectation that the Fed would start to diminish (I refuse to employ the carefully crafted “taper” term…it has the annoying characteristic of conferring the mantle of positivity on a wholly negative program!) Quantitative Easing. (Another boondoggle term designed to confer the mantle of Economic Credibility on an utterly un-credible counterfeiting scheme.)
The meticulous forethought that went into the decision to cut cheque-kiting now, and coordinate it with a counter-intuitive perception management campaign is evident in today’s press output, which proclaims that “stocks are down on employment numbers”. Not only does this put forth the canard of markets reacting to employment data instead of the fact that the pusher has conveyed to the junkie in no uncertain terms that there is a limit to the pusher’s largesse, but it sets the stage for a reversal of the cut, as here we are after the first day of reducing stimulus greeted by negative econometrics. How fortuitous.
It’s a dangerous game the Fed is playing though.
The biggest market players and traders – who no doubt talk to each other in recognition of their elite and vaunted ability to move markets in the U.S.- are a famously arrogant lot. At this time of year, chuckling over their mochas and lattes in St Bart’s as they read the astounding news on iPads that the Fed cut when they were sure they wouldn’t, their thoughts and conversations most likely revolve around “putting the Fed back in its place”. I’ll bet that the major market swoon that these self-inflated tycoons would have dealt to Bernanke had the PM campaign not worked so well is yet to come.
If fact, the Fed – famous for its lack of forethought more so than the opposite – runs the risk of inducing a worldwide retracement of equity market peaks, and rekindling the doomy gloomy collective malaise that was left behind when the Fed first came up with the term “tapering” back in April.
Ben is no doubt trying to balance his obligation to Janet Yellen to leave things in a manageable state of affairs with his obligation to render himself a living legend for the sake of posterity and history.
But whatever. He’s made his move…ensured himself the credit of both originating and beginning the responsible eradication of the unfortunately necessary buy now in retrospect economically abhorrent blah blah blah…
The thing that we must needs concern ourselves with – and I mean the thing that us apparently targeted sub-billion dollar players need to worry about – is this: What is the smart move here?
Let’s assume for the sake of eliminating all potentialities that Ben and Janet’s ploy turns out to be perfectly executed, and the larger capital forces that be are for the moment too distracted with Christmas bazillions to care about retribution right now, and we step on into 2014 with a neutral market. I can’t see it continuing in its frothy exuberance in view of the sobering realization that we’re running out of booze.
Will Janet Planet make her first blunder interpreting the market’s apathy as a signal that its okay to taper away, and slap another $10 billion fine on the soma supply?
Or, will the market pachyderms return in the New Year to make sure the Fed heeds the fact that the new boss is the same as the old boss, and markets get a good beating to encourage the Janetor to get busy with the chequebook and pump up the volume again.
I think the latter is the more likely scenario, just because Janet’s utterances to date demonstrate in no uncertain terms a trophy wife’s proclivity to spend spend spend and bills be damned. Furthermore, the only market reaction more predictable than panic at the first sight of blood is the inclination towards drinks for all my friends when the bar is restocked.
Either way, the Fed’s election to momentarily shout last call is not relevant, in that the bar is still open, just the hours are a little shorter.
The only important takeaway for us chickens is that What The Fed Does is, in fact, the only relevant fundamental in the world we need concern ourselves with going forward.
