On June 27, in comments delivered in Sintra, Portugal, Mario Draghi suggested he’d look through transitory weakness in inflation when assessing the appropriateness of monetary policy.
As it turns out, that was the shot across the bow which set the stage for two weeks worth of hawkish posturing from DM central bankers – posturing that culminated on Wednesday morning with a rate hike from the BoC.
Of course the most notable move across assets since June 27 is what we’ve seen in bund yields, which have more than doubled.
Draghi has channeled his inner Donald Trump…
But just as it looked like central bankers were getting serious, Yellen’s prepared remarks (released this morning, prior to her actual appearance on Capitol Hill) seemed like an attempt to walk back the hawkishness. Cue this:
Of course the problem here for folks like Janet Yellen is that you don’t want to get too aggressive when it comes to “grabbin’ ’em by the pussy.” That is, you can’t just say “fuck it, we’re winding down this balance sheet and nothing’s going to stop us except maybe an outright catastrophe.”
As Jamie Dimon noted on Tuesday, there are going to be consequences here and you’ve gotta think that through.
But former FX trader Richard Breslow is sick of the dithering. He wants to hear a little less about what might go wrong and a little more in the way of conviction – just like when he buys a tube of NEOSPORIN he doesn’t need the CVS clerk to tell him that using it on his “cut finger” might cause him to “bleed from his eye sockets.”
More specifically, he thinks the Fed should “move on the balance sheet like a bitch” because, and this is a quote from what you’ll read below, “that’s how [Yellen] rolls.”
Have you ever actually read the tiny print on the lengthy warning insert included with even the most innocuous drug? Doubtful. The farthest you are likely to get is the list of side-effects designed to insulate the manufacturer and ensure you stop reading immediately. Put this gel on your cut finger to prevent infection. But discontinue use if you experience bleeding from your eye sockets for an extended period. You end up just taking it on faith that someone other than the product liability lawyer who wrote it has read it. Certainly the clerk who rings up the purchase doesn’t make you study it first. Hey, you opened the tube so it’s now all on you.
- It’s even worse with fund offering memoranda. They begin by telling you that this opportunity is only to be made available to sophisticated investors. Stop right there. I’m sophisticated, so do I really need to focus on the details? I don’t want to look like a rube in front of these people. And if you’ve ever been to a pitch, no one spends even a nanosecond on those disclaimer paragraphs in the documents. Shall we quickly just flip to the past results graph and look at what we’re all sure will be replicated. Oh, and don’t get caught up in the language about side-pockets. Don’t think of it as style drift. More like, say, responding to exigent circumstances
- In both of these cases, the presumption is strongly skewed to making the leap of faith that nothing can go wrong. Trust me, I know best. So let’s focus on the good. Which is why I find the hand-wringing and introspection by the members of the FOMC over whether, when and how to begin balance sheet reduction along with further rate rises troubling as well as frustrating
- The market has so far accepted the premise that the experts know exactly the way those trillions of assets can be run-off with pain to no one. Why should it affect any of the assets that have been wildly distorted by building up the balance sheet to begin with? What does Jamie Dimon know about markets, anyway?
- The Fed has a plan. But in essence has no plan. They have a desire. And the justifications for it vary over time. As does its perceived imperativeness. It’s why they keep telling us all the permutations of the stop and go strategy they say will work. They love sounding smart to themselves. But it all comes out as we hope so. They are so obviously trying to convince themselves rather than the investing community of the efficacy of their actions. Quite the opposite of sounding resolute, they appear unsure. Not what you want in a doctor, fiduciary or central banker
- Disclaimers are there to insulate people when things go wrong. They aren’t really there as warnings. No one gets sued if everyone is getting rich. But the Fed is leading with the caution. And in the process opening wide the casino doors for harmful speculation and futile trading. When will they announce? How do we evaluate the trade-off between the balance sheet and rates? We’re all going to spend the next months, maybe years, arguing whether a number affects one or the other more. Speech after speech is going to further muddy the waters as they publicly debate the issue among themselves
- We’re no longer just going to have doves and hawks to consider, but B/Sers and ratists. Charts about FOMC meeting outcomes will need virtual reality headsets to deal with the added dimensions. I’d settle for here’s what were going to do because it’s the right thing to do. And we’ll deal with what comes if necessary, that’s how we roll.
There you go Janet. “Get your motherfuckin’ roll on…”