Ponzi will not reveal business secret
The dollar’s recent rapid slide has been accompanied by a constant backdrop of dovish cooing from the Fed. Until this week, both equity and commodity markets had embraced the weak dollar as the elixir to solve all their ills. That relief has now proved fleeting as fear of weak economic activity has reasserted its influence on investors. The weak dollar should be seen as merely a shuffling of deckchairs on the Titanic before the global economy sinks below the icy waves.
My erstwhile colleague Larry McDonald, now writing at Bear Traps Report, has spotted a disturbing pattern. At its last meeting the Fed removed its reference to concern that global risks posed a risk to the outlook. He notes that weve seen this before.
- Jul 2015 - Not concerned
- Sep 2015 - Concerned
- Dec 2015 - Not concerned
- Mar 2016 - Concerned
- Apr 2016 - Not concerned
In a recent interview with CNBCs Rick Santelli, Richard Fisher, former President of the Dallas Fed, explained “The Fed has the market on Ritalin—trying to keep the mood very smooth, keep volatility down as much as possible. As soon as they hint that they might remove that, then they create the problems they're afraid of. So, they've boxed themselves into a corner, and the real art will be to see how they manoeuvre to get out of that”….“When [the Fed] move—and I hope they move sometime in June—there'll be a settling in of the marketplace. There will be a correction. Suck it up. Deal with it. That's reality.”
The sad thing is that, as Fisher says, the Fed has boxed itself into a corner, for surely it is clear to all in the markets by now that its not global risks that worry the Fed but the impact on the S&P. But all the Feds loosey goosey will prove irrelevant as the cycle ends. Get ready to suck it up as the inevitable recession demonstrates the Feds total impotence.