Barn
Yard Chickens and The Fed
First published at LeMetropoleCafe.com Crazy Market Anomalies? Here is what I think is going on with the way these crazy markets are trading. There are times when the Fed wants everybody on the same side of the boat. Go back to the Clinton Rubin days when they wanted a strong dollar and lower rates, get everybody in the a carry trade and let the good times roll. The Fed was very happy to have everybody buying our bonds and supporting the dollar. The Fed clearly telegraphed where they wanted us to go, so everybody ran to the same side of the boat and put on some kind of Yen carry trade that facilitated the Fed's policies. Happy days they were.
Fast Forwarding on Quaaludes! Now fast forward to today and we see the Fed needs to change course. They need interest rates to go up SLOWLY and the dollar down SLOWLY. The problem is the Fed can't get everybody to run Slowly to the other side of the boat. If everybody makes the same move at the same time the dollar collapses and interests rates go to 7, 8, or 9..... percent, a no can do. The Fed needs an orderly market for these down side adjustments, and that means small incremental movements so as not to up set the apple cart. The question is how do you do this. As I see it the Fed is using two tactics. One is open mouth Fed speak the other chaos in the market place. If they can confuse everybody by talking about inflation one day and rates need to go up and then the next day talk about deflation and rates need to go down, Greenspan sends mixed signals and nobody knows exactly what to do or how to position their portfolios. Then you make a normally trading market do something manic and you confuse everyone to the point nobody knows what to do except unwind what you just put on. Up is not down… Down is not up! If the Fed periodically makes a market trade up when logically it should trade down, you rip the head off a lot of smart guys. How many times have you and I witnessed a market doing the exact opposite of what good reasoning and fundamentals would dictate. Take last week as an example, the long bond trading up big in price while the Fed raised short term rates. I understand flattening the yield curve, but give me a break, this last move was pretty crazy stuff. Bouncing Chickens Over Here… to Over There!
Strange Home Brew or the Interrogative… of Prerogative? I think this is the Fed strategy and it explains why we see such strange trading activity taking place. In the future I think we will see more of the same. The Fed is going to continue to administer chaos to the market place and speak with forked tongue on policy. To the extent they can make a Richard Russell or a Bill Gross look goofy they will do that as well. The Fed if it can is not going to let a guru get traction and then have to deal with their herd going in an unwanted direction. Guru's are in the cross hairs of the Fed if they do not act out and speak the foreign language of the Fed. Where the deck chairs are placed is a prerogative of the Fed and not license of guru's. Conclusion to a Head Fake… Obfuscation to a Derivative Bailout as the Lender of Last Resort? I think the Fed will continue to head fake the markets with double-talk and intervene at times to whip saw traders. This is all in an effort to forestall everyone crowding to one side of the boat causing the markets to get ahead of Fed targets. Best have everyone running around like barn yard chickens even though we are headed for an iceberg. As Ed Ball used to say: "confusion to the enemy." And that is just how the Fed looks at it, we are the enemy!! God’s Finger on Mankind? or Just the Greater Cosmos Big Bang Theory? I know you probably laughed at the Big Bang Theory chart (foot note www.gata.org, please) I talked about a few months ago, but take a look at the chart again: Big Bang Theory II. Guess what the Fed has regained stability at least for NOW in gold and rates. Remember this Fed runs on targets and everything they do has a target goal. The Fed wakes up every morning and manages their targets, that's their job day in and day out!!!!!
© 2004 W Bishop Jordan This essay first appeared on Midas Bill Murphy’s www.lemetropolecafe.com, and is used with the permission of the Author and Midas Bill Murphy. For those of you, who don’t know, Midas Bill Murphy is Mr. www.gata.org and the proprietor of www.lemetropolecafe.com. Reprinted with permission with edits, approved by the Author, for this version of the essay for www.financialsense.com and Realty Reality.
Ole Bear, Editor Comments We find Bishop’s essay to be most timely with the accounting mess at Fannie Mae [the Enron of the GSEs, perhaps?], and a couple of other essays we are aware of. Given that the GSEs operate as separate central banks sucking money from Wall Street in the process of money market fund intermediation, and that these Fat Cats get some pretty hefty perks in addition to their sky-high salaries -- the “business as usual” approach by the FED has a lot of investors smoked and mirrored regarding heavy metal, real estate, and investing on Wall Street. In an election year, one can rest assured that the FED Boss will provide “measured” steps to get his Boss re-elected, and maintain “quality control over every financial market’” it can rig. We believe the FED to be a very politically motivated Creature from Jekyll Island – to ensure its own “measured” existence. Barnyard Chickens is directly correlated to the Reality of Realty, the financial markets on Wall Street, as well as heavy metal music [bullion], in our global markets big picture. © 2004 Realty Reality |
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So
what the Fed is doing with this market chaos is making it difficult for
anyone to know exactly how to position their portfolios. Everyone is
running around like barn yard chickens on the decks of the Titanic,
bouncing off one another, knocking each other down and generally going
nowhere. The result is everyone is everywhere and therefore nowhere but
at least from the Fed's perspective they are not all on the same side of
the boat selling bonds and dollars. The result is the Fed gets half the
people running around over here and the other half running around over
there. This makes it much easier for the Fed manage markets. With this
strategy the Fed has removed managers from influencing the markets as a
group. Can't have a bunch of speculators running the show, you know.
