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Re-Emancipation Proclamation And The Re-Restriking Of The Fed Put
The re-emancipation of markets is generally seen as desirable ... Price discovery is making a comeback, but at what cost (figuratively and literally)?
That's from "Theme Overload", published here last Saturday.
The reference to the "re-emancipation" of markets harkens back to the characterization of the post-crisis policy regime as a "state of exception" - the paradoxical short-term suspension of market rules in the interest of restoring normal functioning over the longer-term.
That character
Delusional Don might want to be not only his own press secretary, but also bring in Fed policy under his control since he knows more than they do. He also has a natural instinct for science and knows more than the Generals since he watches the Sunday shows. You go for it Delusional Don. Sad!!
Clarification needed. I am confused about meaning of Re-emancipation and Re-Restriking. In this and subsequent articles over last 24 hours, my overall takeaway is that Powell is still on pace to continue with current monetary policy of rate hikes in December and at least into 2019. However, the section in this article about difference in beta of 2% as opposed to more customary 10% and suggestion of Fed put at 2400, seems at the very least in variance with this conclusion. Containing a drop of SPX to 2400 would be a mild correction only and not address/correct many of the long term/nearly historic excesses that we have in other macro indicators, setting the economy up for a much bigger fall further down the road -albeit potentially good for a “not on my watch” philosophy. Does the information about the low relative betas suggest something that has already been done by FOMC to support this beta and Fed put for 2400 or is it something else that might be done later by the Fed? Finally, a separate, but related question. Would it be Powell’s or Mnuchin’s decision to slow down retirement of Treasury via QT? Thanks much for clarification, please.
Powell’s and committee’s decision on QT. beta of 10 is historical but times are more perilous today with higher corp and govt debt levels. Reflexivity could cause a serious issue that if not addressed could cause serious damage to the econ. Sentiment is powerful in both directions. If corps see lower stock prices the focus on costs, retrenchment and dealing with high debt could be toxic. The Fed will blink. 2400 probably close to being right but if the boat tips it may capsize. The Fed knows that so they will tend to play it cautious imo. FOMC through rates and communication tried to limit beta and now are trying to expand it. Have not done anything recent to reduce that beta.
Thanks for commenting. Helpful.
You are welcome. Hope it helps. Not as eloquent as heisenberg but hopefully it explained the thinking. As Mike Tyson said, everyone has a plan until they are punched in the face. Meaning in the markets everyone has a plan but the situations (fundamentals) usually are different than what was in the plan. It is fluid. Stay smart and nimble and humble and you should navigate the markets well. Being here puts you steps ahead of most market participants imo. All the best.