By Mark St.Cyr
So, here we are, the first day of Fall and just like the leaves slowly losing their luster before they wither all together and die, so too is the economy as The Federal Reserve – once again – chose inaction for action. All the hawkish implied statements, all the “They’re really, really, really, gonna do it in September!” has come and gone – once again – upon the furious wings of doves. I’m sorry, but this has now become so ridiculous – it’s bordering on maddening.
If one listened to the presser immediately following the rate decision given by Ms. Yellen, one couldn’t help but be dumbstruck as to think that they really might think we believe, or are considering, their prognostications are based in reality. The only true reality is, I almost couldn’t stop laughing as I typed it. And I know I’m far from alone.
First off starting with the press conference. One of the things I’ve had to hone over the years is the ability to read people, in real-time, whether it was for sales negotiations, contracts, hiring, etc. It’s an essential part of the business toolbox much like the need for a well honed bull#### meter. And the more I watched many of the exchanges, along with contemplating the reasoning of the answers, the more my meters kept pegging to 11. I’ll highlight just two for examples.
The first came oddly enough in the very first question posed in the Q&A by CNBC™ reporter Steve Liesman. The question was nothing out of the ordinary especially given the current circumstances (i.e., questioning Fed. credibility as they once again kicked the can.) However, what did seem rather odd was Ms. Yellen’s response. Not the content of that response, rather – the way in which she delivered it.
Her answer seemed in no way to be extemporaneous. It had all the hallmarks of an “in-advance, prepared question and response.” Here’s my reasoning (remember, “reasoning” for I have absolutely no proof):
First: It’s well-known that Mr. Liesman is an ardent supporter of the Fed. along with a seemingly favored (i.e., they know they’ll be treated with kid gloves) interviewer by the Fed. itself. Second: The question was the most obvious question, and the one that needs to be addressed first as to get it off the table (i.e., I’ve already answered that so let’s move on.) Yet, it’s the third part that solidifies the reason why my meter went to 11, and it was this: Ms. Yellen seemed to be reading the answer verbatim from a prepared statement.
Don’t take my word for it, watch it for yourself. Personally I was dumbstruck by the exchange, and especially by one who should understand “communication” and how the cottage industry of detailing and parsing the Fed’s wording, demeanor, and more is now viewed in today’s Fed. centered world. Or, did she do precisely what is demanded in today’s HFT centered market?
Under normal circumstances it would be far more important for any leader (i.e., Chair, CEO, etc) to have answered such a question directly, forcefully, and extemporaneously. Again, especially given that the Fed. had done nothing but send “hawkish” signals prior. Yet, the Chair delivered what can only be interpreted as “prepared remarks and wording” to what is posed as an open question live Q&A.
You would not do that if your intended recipients were carbon based. It just doesn’t come off as credible. However: that’s precisely what you would do if your intended audience (or the audience that strikes fear into your committee) is silicon-based e.g., the parasitic, algorithmic, headline reading, laser enabled, High Frequency Trading (HFT) outfits. Here – wording, and precise wording at that, is paramount.
The next iteration of this form of exchange came a few questions later from none other than who is now known as “The Fed. whisperer” John Hilsenrath of the WSJ™.
Again, here was a question much like Mr. Liesman’s: a must ask, and, the way in which it would be answered, again, has real implications. i.e., “Will you raise before end of year, and is November now off and December the real focus?” The response? No need to type it all again. Just insert from the first question and response here, in every detail.
Now I will say there are times Ms. Yellen does answer other questions where at times seems to be glancing at either notes, or a prepared “call back into mind” response note which are tricks of the speaking trade. That’s not what I’m calling attention to here.
What I am highlighting is the stunning coincidence that the two most probable important questions of that presser were one: asked by the two reporters, to many which are viewed as the most accommodating Fed. reporters currently, and secondly, those questions seem to be the only ones in the entire meeting that were answered as if reading from prepared text, with absolutely no follow-up questioning as to clarify or pull any more information forward. None. Yet, that last part isn’t that hard to understand. For they’ve all seen what happens when one does precisely that.
If my assumptions are correct, than the implications for not only the “markets” but for the economy as a whole are truly frightening. Why?
Easy: It would prove as I stated many times earlier: “Wall Street now knows it can manipulate Fed. decisions with deadly efficiency.”
Want proof? See Wall Street’s efficiency in real-time by looking at any recent index chart and the “markets” response to a well-known dove imitating hawkish calls (e.g. Mr. Rosengren) then to what was considered the last voice of the Fed. before their media “black out” time before the September meeting delivered by Ms. Brainard as she intoned why the Fed. should refrain from raising rates.
If that isn’t enough “coincidence” to make a point I offer up the time since as the “market” appeared to be in limbo (if you look at the two days prior to the announcement it would not be unreasonable for the average person to look and ask “Were the markets closed Monday and Tuesday?”
And here we are today, less than 24hrs later when the Fed. basically made the same announcement as it did the previous year: “It’s Christmas in September. You’re welcome.” We are now (once again) poised to make never before seen in history highs across the “markets.” (The Nasdaq™ already did that within minutes after the decision. Remember: nothing to see here, move along. Thanks for stopping by and buy, buy, buying.)
So to bring all the above into more context let me illustrate why this is all now become far more frightful in my opinion….
If one watched the above presser (and if you haven’t, you should, don’t just take my word for it) you’ll notice when Ms. Yellen is asked what is probably the most important question after the above two, she answers it far more directly when the question is posed, as to the allegation, that the Fed’s decisions to keep interest rates low are politically motivated. It’s here that helps solidify my contention of opinion.
Her response needs no notes, is directly addressed in demeanor, and some might argue quite curt.
Why do I make this observation? Well, here is where carbon based (e.g., humans) recipients of the messaging is paramount. If you hadn’t noticed the difference previously, now that I described it, it’s far too obvious to now miss. It’s conjecture yes, I admit that. Yet, my assertions are made via years in business and needing to read these things in real-time. Your conclusions are your own, as they should be.
So, with that said, it was the answers she gave to that last question that left me both slack-jawed, as well as foreboding.
In response the Chair defended and pushed back against the political insinuations. Yet, it is hard to square a few circles in the logic or reasoning given in her answers. To wit:
- If the November meeting should be considered “live” how much of a stretch of the implausible does it take to believe the Fed. would indeed raise rates (regardless of how small) one week before a presidential election?
- If the results delivered a Trump victory, does the Fed. truly believe they could raise then without shattering all credibility as to the “politically aloof” contention the Fed. emphatically tries to bolster? The ramifications from the electorate, never mind the elected, could inspire “torches and pitchforks” type movements.
- If the results delivered a Clinton victory, does the Fed. believe they could raise without inspiring the “torches and pitchforks” scenario not coming from the electorate – but being led in procession by the elected? (For clues look to the former senator’s senior senator from N.Y. Charles Schumer when he indignantly advised the former Chair Ben Bernanke when he expressed maybe more help from the political class was what was needed more than more monetary policy. i.e., “Get back to work Mr. Chairman.”)
- If someone thinks Wall Street hasn’t parsed and concluded the answers to the above – there’s a bridge in Brooklyn they’d be happy to sell you options on. Just ask them.
I’m now firmly in the camp that not only will the Fed. not raise this year – they may not raise again for years. For they are not only “painted into a corner” via their own misdoings – they are chained there by Wall Street. They’ve missed the window (which myself and a few others have stated was years ago) and now that window is boarded shut in the very way the Fed. itself should have done to its own Discount Window years ago. Again: Now they’re stuck. And the only monetary policy tool available is to make Christmas a recurring holiday at every FOMC meeting going forward.
As I stated long ago, once you began hearing the Fed. refer to “the neutral rate” or the “natural rate” as a go-to defensive response to monetary policy, that was the clue that they’ve lost control and are just punting and praying. Period. But the result of all that can kicking is an ever-growing tulip-mania beholden Wall Street, and a financial repressed economy that’s having a harder and harder time of concealing crony-capitalism manifestations both large and small. (See Wells Fargo™ for the latest, but surely not the last. Remember the cockroach theory is all I’ll say to that one.)
But hey – It’s Christmas after all, right? Just ask Wall Street and look at these “markets!” Who are we to question anything different, at least, that’s what the mainstream financial media tells us. And they should know, right?