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43-Man Squamish Is the Fed’s Game

EST

One of the ironies of Wall Street’s obsession with the Fed’s crackpot policies is that fevered short-squeeze rallies such as the one launched on June 4 weaken the rationale for monetary easing.  Stocks went bonkers after the central bank started dropping hints that economic fallout from the tariff war might warrant a fresh infusion of funny money. Of course, it wasn’t the tariff war that concerned the Fed, but rather the stock market’s scary reaction in May when trade talks seemed to break down beyond remedy.

Although the banksters pretend to use sophisticated tools to shape monetary policy, their mathematical models have demonstrated time and again that they are about as useful for predicting economic trends as toad entrails. So what is the Fed to do if the stock market swings violently with each teensy policy tweak, and does so in a way that works opposite Fed meddling? Given the brash incautiousness of the current rally, we might expect the FOMC to pull back on the reins when it releases a statement after Wednesday’s meeting. Something just a smidgen hawkish, but cryptic enough not to douse the flames entirely. That would be risky, since bulls might be needed in a few weeks if the trade wars take an unexpectedly ugly turn.

Frullips & Frutneys

It’s a very delicate balance, but so far we’ve been lucky that the economy has not tipped into recession-or-worse. The Open Market Committee makes it up as they go along — an epic game of 43-Man Squamish, replete with Pritzes, baggish smashers, a head coxswain, frullips, frutneys and a probate judge. Side bets aggregate into the hundreds of trillions of dollars.  One of these days, we are fated to discover that even though QE money and the rules that govern it are fake, the resulting debt liabilities and consequences are all too real.

Comments on this entry are closed.

John Jay June 19, 2019, 10:39 am

I will always argue that with the obscene concentration of wealth, the solution to the debt problem is a RICO indictment, a proscription list, you name it.
Implement that solution, and the bulk of the debt vanishes, and the 99.99% of the world’s people get a fresh start. No one will miss the Kochs, Soros, Carlos Slim, Buffet etc.
They have never produced anything of value to civilization, they simply bought politicians to rig the game in their favor.
The real problem is surfacing more every day, in every way, everywhere.

The problem is billions of people, breeding like mad, who can serve no useful purpose in an advanced civilization.
Look at the flood of them assaulting our border. They will overwhelm our health care, housing, legal, and economic system.

Add to that the utter collapse of morality in native Americans.
In the recent news I read of one mother smothering her baby, another driving into a lake with two of their children in the car, a guy driving with the upper torso of a pedestrian he killed in his car, LAPD killing three violent crazy guys in one day, and ICE finding one billion dollars of cocaine in cargo ship. And the cocaine bust is not a supply problem, it is a demand problem, and always has been.

As pervasive lawlessness continues to accelerate out of control, as lunatics are being proffered by the Dems as fit to be POTUS……
To me this situation is the real problem, and it is insoluble.

The tailings pond levee has been fatally breached, here, and in Western Europe.
One of them contained billions of useless people, the other violent crazy people.
There will never be enough police, courts, hospitals, housing, whatever to control the invaders and the insane natives.

Unless there is a patriot band at Fort Detrick who are biding their time. More likely is a Russian/Chinese thermo- nuclear toilet flush, as the lunatics in DC are obviously running the asylum back there.
Absent those outcomes the drift into favelas and mansions will continue, with favela dwellers living the Mad Max lifestyle.
Demographics is indeed destiny.

bachus June 18, 2019, 8:43 pm

“One of these days we’re liable to discover that even though the money and the rules are fake, that the debt liabilities and their consequences are all too real.”

There are lots of Bond bulls around town at the moment , again! Lots of good reasons to pick from as well , mostly the lack of inflation – deflationary forces at work in fact. two years after Mario Draghi first laid out the blueprints for the ECB’s rate normalization with a speech about the Eurozone’s “strengthening and broadening recovery” at the ECB’s Sintra forum in 2017, the ECB president finally threw in the towel and said that if the outlook doesn’t improve and inflation doesn’t strengthen, “additional stimulus will be required” adding that the ECB can amend its forward guidance, that rate cuts remain “part of our tools” and asset purchases are also an option. With the Fed expected to go the same route in time, why could it possibly be a bad idea to buy bonds? Doesn’t the mantra go – dont fight the Fed and hasn’t it always worked out that way?

But lets just think about it for a moment , with a slowing economy comes lower tax revenues and higher funding requirements as we still have to service the existing outstanding debt , so the biggest seller of debt also become the biggest buyer .

So read that sentence again -” One of these days we’re liable to discover that even though the money and the rules are fake, that the debt liabilities and their consequences are all too real.”

I’ve had the personal pleasure of being a primary dealer in government garbage through 2 debt defaults in my career. Most young traders in government debt and very few investors have never even seen a decent bear market . Wait for the day that you dont have a choice whether you want to purchase bonds for your 401k , but are obligated to do so.

The default is coming to a country near you , dont know when , but it is coming. I have seen , lived and traded the force – feeding of government garbage , it is not something you ever forget. I will pass on the small bull in bonds, as in my opinion the Bear of Bears i.e. default is coming right on its heels.

&&&&&&

Thanks for your insightful post, Bachus. I remain a T-Bond bull nonetheless. Although it’s possible for the Guvmint to inflate assets, including bonds, almost without limit, there is no way that helicopter money will be able to cover the checks sent out every month by Social Security, private and public pensions and Medicare after those systems become insolvent.

Another argument against an inflationary endgame is that lenders will never allow mortgage loans to settle in snide. The workaround? A salient feature of the Second Great Depression will be mortgages rewritten as lease agreements. That is one debt we as individuals will never get out from under, implying a continuing deflationary pressure that will lie beyond the reach of monetization. RA



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