Narayana Kocherlakota has had just about enough of Richard Clarida, who the former Minneapolis Fed chief on Thursday accused of trafficking in patent nonsense during remarks made earlier this week.
And I’m just barely exaggerating. “The vice chair of the Federal Reserve made a series of perplexing statements on Tuesday”, Kocherlakota wrote, in yet another Op-Ed for Bloomberg calling for immediate Fed action to help shield the US from the economic fallout of the coronavirus.
Suffice to say Kocherlakota isn’t buying any of the three possible counterarguments against an inter-meeting (read: emergency) rate cut. You can read his latest missive here, but the gist of it is captured in the following short excerpt:
The Fed is facing the growing threat of a significant fall in aggregate demand. It needs to cut rates now in response to this risk. Failing to do so will only accelerate the ongoing collapse of its institutional credibility.
That sounds pretty bombastic, right? Well, if you think that’s alarmist, Guggenheim’s Scott Minerd wants you to hold his beer.
“You know, one thing Joe, I will tell you, that I’ve not said to anybody else in public”, Minerd began, clearing his throat to build suspense during a series of comically overwrought remarks to Joe Weisenthal. “This is possibly the worst thing I’ve ever seen in my career”.
“And you know, I’ve been through a lot”, he continued, before name-dropping 1987 and the GFC as if those are two market events that nobody but him survived. “This has the potential to reel into something extremely serious”.
Believe it or not, that wasn’t the best part.
Perhaps sensing an opportunity to — I don’t know, throw some on-air shade, risk-free, because at that point, Minerd had rendered any and all followup questions fair game — Scarlet Fu asked “At what point did you have that realization?”
Without missing a beat, Minerd said: “This morning”.
“What happened overnight?”, an incredulous Fu wondered. “What happened this morning?”
“When you start looking at the data that came in today“, Minerd said, pausing to clarify that today’s data is not to be confused with “yesterday’s data”, a distinction he apparently believes isn’t evident to all English speakers. He then claimed that the overnight rise in cases in South Korea and Italy make it “very hard to imagine a scenario where you can actually contain this thing”.
Ok, so, I want to make three quick points about this exceedingly unfortunate discussion, starting with the most obvious.
First, it is not, in my opinion anyway, responsible for someone who manages more than a quarter of a trillion dollars to go on business television and make objectively alarmist statements like those Minerd made on Thursday afternoon. There’s plenty of concern and hand-wringing out there already.
“This was pretty extraordinary”, Weisenthal said, in a subsequent tweet. “[A] manager of $270 billion saying the coronavirus crisis is perhaps the worst thing he’s ever seen in his career”.
With all due respect, Joe, “extraordinary” isn’t the right adjective.
Second, it’s not immediately clear why the Wednesday-to-Thursday jump in coronavirus cases in Italy and South Korea is any more alarming than the jump from Tuesday to Wednesday. I suppose that’s a subjective assessment, and Minerd is entitled to his own epiphanies (and certainly to his own interpretation of those epiphanies) but Korea’s infection totals, as well as those of Italy, went parabolic days ago.
That’s clearly bad news – indeed, it’s a tragedy – but it’s possible to argue that the really scary part of this story happened last weekend, when it first became apparent that there were major virus clusters outside of China and outside of the Diamond Princess cruise ship. The market certainly agrees with that assessment, given that the dramatic de-rating in equities started on Monday, not “this morning”, when Scott had Armageddon visions with his coffee instead of cream.
Finally, third, this is the same Scott Minerd who, just two weeks ago (exactly), wrote the following in an irritated-sounding outlook piece which struck a similarly alarmist tone:
For those investors who perceive the disconnect between risk assets which are priced for a rosy outcome and the reality of the looming risks to growth and earnings, any attempt to reduce risk leads to underperformance. It is a mind-numbing exercise for investors who see the cognitive dissonance. The frantic race to accumulate securities has cast price discovery to the side.
Given that passage, you’d think Scott would be pleased on Thursday. Not because of the human tragedy associated with the virus, of course. But because, at least for this week, price discovery is back – with a vengeance.