A Perilous Possibility: Weaponizing The Fed.

The world sits at a very precarious point once again in time. There is a very real possibility, as well as an ever-increasing chance one wrong unintended or misunderstood event could trigger an all out war of global proportions. Yes, I said it, and I don’t take it lightly. Nor do I say it cavalierly. As a matter of fact my blood ran cold just typing it. For the matter at hand, the players involved, the possibilities of doing just the slightest of wrong moves whether intentional or not. At precisely the wrong time; has the inherent risk of triggering world events in ways and at magnitudes not seen since (dare I say) WW2. And if you think that’s hyperbole – you’ve just not been paying attention.

Currently as we sit events that were expressed by the main stream outlets as having no chance of ever happening (implying they weren’t worth contemplating) are not only happening – they’re turning out to be far more dangerous in both their escalation, as well as speed. The only thing rivaling my level for concern are the reasons being touted via both official, as well as media interpretations on why or, what is to be expected. The current double speak, plausible denials, moving of heavy armaments, ships, troop deployments, kinetic engagement, finger wagging from not one, but more than several world military powers has been breathtaking. All this over the course of just two or three weeks. The risks in my opinion for misstep with global ramifications haven’t been this parlous in decades.

One of the real reasons for my concern stems from the players involved. I’m far more concerned and have a greater sense of foreboding when it appears the “intellectual” set are the one’s playing against adversaries or circumstances they themselves only understand through textbooks or debate. i.e., A relative example could be the proverbial college professor that teaches business theory and application yet, has never been outside the walls of academia.

Back in April of 2014 the situation in Ukraine was all the media channels cared about. They touted how X, Y, and Z would be the obvious resolution. (X,Y, and Z represented everything breaking decisively, as well as matter of factually in the U.S.’s favor)  The problem was, anyone with any understanding of what one “thinks” should take place because they “believe” that it should be so; as opposed to actually looking at the situation, the players, the posture, and verifiable resolve through previous actions; it was clear to see the outcome was going to be far different from what the “intellectual” crowd proposed as well as believed.

During that period I wrote an article titled “Why Intellectual Leadership Can Get You Killed” in that article I made one of the following arguments:

“The intellectual prowess of the so-called “smart crowd” can not only be dwarfed by the truly ruthless leader, but can put both themselves as well as their company or followers in grave peril. For intellectuals think out processes far too much. Then do nothing.

They’ll over think why someone would do X, Y, or Z. They put themselves into shoes that don’t fit, then spend more time contemplating if their opponents should be wearing leather vs rubber soles. All the while their opponent laughs running circles around them barefoot.”

That first line could be used to describe the Fed.’s past inaction on rate hikes. For if you listen to the arguments made by the members themselves – over intellectualized the consequences is exactly what describes their reasoning and resulting decision. And the second? You could say the same for just how Ukraine ended. My premise was utterly mocked during this period – today it fits far closer to the ending results than even I dared think. Which is also the basis for my concern today.

Currently the once advocated U.S. involvement in Syria is not only turning into an all out political humiliation, but what might be worse is it’s not coming at the hands of just a perceived or noted adversary. It’s also coming at the hands of another military power that for all intent and purposes is being held up as “a regime we can work with” as they work in concert against U.S. stated warnings to the contrary. I wish this all we had to worry about, but as usual, it’s not.

Since our involvement in Syria (however it was achieved) one of the stated reasons why was for the goal of extinguishing terrorist threats seated there that could eventually turn up here. So far the progress has been seen, as well as reported, to be less than inspiring. Then suddenly not only is the U.S. brushed aside. It was basically told – move aside; and stay aside – while we show how it’s done. Moves like this, by these powers, on this level of stage and engagement are done precisely to test “intellectual” resolve against forceful resolve. A calculus not played for checkers or chess, but for far more dangerous games with onerous consequences.

Add to this the simultaneous display of “Watch this!” alarm bells as Iran launched its newest long-range missile in an apparent thumbing-its-nose enticed provocation to any one caring to watch. All while the U.S. (and supposedly other U.N. bodies) are negotiating a weapons treaty. Forget about “the ink not even dry.” It’s not even fully signed.

Concurrently as all this is playing out, it’s been announced the U.S. is indeed going to send warships to challenge China in an outright confrontation styled game of “who blinks first” to contest their proclamation that both the territory around and of the Spratly Islands is irrefutably theirs.

Who on this earth believes this is the time to do such a provocation? I’ll tell you who: the intellectual set. That’s who. For the belief of “we can handle this” by debating and game playing override what begs clear, common sense, level-headed, outright caution. And that’s a problem on so many levels from my perspective.

The warning signs of danger are flashing everywhere, but they seem to be falling not only deaf ears, but those that might be blind to the speed one misstep could turn every contingency plan – to absolute useless trash. These are the times I believe Mike Tyson summed up best, “Every one’s got a plan – till they get punched in the face.” I’m of the opinion we’re now walking round chin out, and chip shouldered. The problem is someone just might take the shot. And who, where, or why might not be exactly what the intellectual set ever contemplated. And that’s a very big concern.

Then there’s what I stated in title of this article: The Fed. And here’s where things begin to rattle my cage even more. With the current global marketplace intertwined as tightly and as correlated to what happens with the U.S. Dollar as well as outright policy changes or stances by the Fed. The question begs to be answered or asked: Would or could the powers that be look to the Fed. and state (or demand) “Raise rates, drop rates, ___________ (fill in the blank) now!?”

I think it would be crazy not to contemplate the possibilities of such a move out-of-the-blue, unannounced with what is transpiring currently. That’s why I intentionally used the word “weaponize.” For it’s one thing for the Fed. to try to dance the line of the body politic when decisions are being made. It changes into something far different if, or when – they are instructed to do something. Not asked, or advised.

Currently it is more than fair to say the current language, as well as position of where they (the Fed.) believe policy should be heading is all over the board. Again, that’s to say the least. However, all this has to be wrapped up in the assumption the powers that be at the Fed. are making the choices whether one thinks they’re correct or wrong is a side argument.

Wall Street, as well as the global markets are working from the assumption they need to game play what the Fed. and its players are stating. And I’m not saying that’s incorrect – it’s the possibility of that changing overnight by means of some outside dictate which may be demanded that’s the real reason for concern. For it changes everything where the resulting chaos of the markets could make ’08 look like a “good day” compared to what might transpire following such an intervention.

Some will say or argue, “That wouldn’t happen for it would hurt us probably just as much as anyone else. That’s just crazy talk.” And there is a point to that argument. However, I will pose this rebuttal: If that were true; then why do people die in wars and infrastructure destroyed in epic proportions when both sides know exactly that – and do it anyway? This is precisely the way intellectual arguments are at first proposed, then result in consequences the proposers of that intellectual strategy get blindsided. Many times with appalling repercussions. Hence lies the reasoning for my concerns.

Even if we take out all of the above, another overarching possibility that could throw the markets (whether from a misstep or, by design) into an outright tailspin of epic proportions and consequences overnight, fueled by a sudden carry trade unwind within the forex markets which could (if not would) simultaneously crush global equities. All of which could transpire via a HFT fueled algorithmic ignited frenzy brought on by an intentional media headline like: WAR! Think that’s crazy talk? Just look back to August for clues.

With the way the current global markets are now predisposed to HFT – If one wanted to put a hurt on a presumed or proposed adversaries economy; why wait for sanctions to be reimposed or, tightened or, a number of other financial weapons that need to be brought for a vote or, announced or, whatever: when it could be done today through various other means with only a nod-of-the-head.

This is the place we currently find ourselves. And if you own a business, regardless of size, you need to have contingency plans in at least a cursory overview understanding on actions to implement either for yourself, or with your people; for all hard plans usually go out the window the moment they’re needed. But understanding and contingency discussions ahead of time help quell panic during business disruptions.

Circumstances can change rapidly as to what may or, may not be available in as much as operations funding, supply lines, currency exposure, and more. This holds true not only for the global entity, but also for small businesses. You need to be actively thinking “what if” scenarios if your serious about business during times like these. Others won’t understand and that’s fine – they aren’t in business: you are. It comes with the position.

These are the circumstances of the day, and those circumstances have changed with the very real possibility that what was once taken as “We believe we have an idea of what the Fed. may do for the rest of the year.” Is now only part of the equation. With the current military changes, positioning, as well as rhetoric coming from global leaders around the world; what the Fed. may or, may not do or, signal – might be out of their decision-making process altogether. As implausible as this may sound today: It’s a risk that any prudent business person must now consider. Again, regardless of how far-fetched it might appear at first glance.

I’m completely aware all the above will be argued away by many as “crazy talk” and that’s fine. However, seeing around corners or, trying to anticipate circumstances that have real chances for disruption on one’s business is a crucial requirement of any prudent entrepreneur, CEO, or solo-practitioner. There is no alternative – it falls on you. With that said I’ll ask you to ponder one last point.

Back in May of 2014 I wrote an article titled “Will History Record The Ending Of QE As An Archduke Moment?” In that article I proposed why one needed to take prudent steps as to help prepare one’s business to possible global changing consequences that could come from nowhere with blinding speed. Where the consequences could have both local, as well as, global concerns. Again, like many before this was brushed out-of-hand, mocked, and shouted down as some form of “crazy talk” from some kind of “alarmist” or “Chicken Little.”

Today? Since QE did in fact end, not only have the markets around the world sputtered and set off alarms bells; it’s now being widely reported via main stream media channels Russia and the U.S. are now engaging in a proxy war in Syria. Along with Iran who not only is also engaged in direct opposition to the U.S., but is also launching newly developed missiles in open defiance of U.S. concerns. All this while not only is the U.S. sending warships to challenge China’s claims around the Spratly Islands, it’s also been announced we are reversing policy in Afghanistan and staying with troops for who knows how long. And I didn’t even mention NATO jets or bases in other countries saber-rattling against Russian flyby’s. Or the Saudi’s who are also voicing troubling warnings towards Russia.

This has all taken place in the course of two to three weeks. Not months, not years. And it’s seems to be getting worse – not better.

If you started to at least begin taking precautions when I first warned, you would at the least have some form of contingency plan or idea of what preparations you may take if such events did ever take place. Those events have now moved from “possibly” to a razors edge of “highly plausible” if not outright likely.

Bombs are dropped when no one expects. That’s a fact of war. And to not think that somewhere within the bowels of some “think tank” the “intellectual argument” isn’t being made or, considered which involves using the Fed. or a monetary equivalent to act as a first-strike capability weapon is ludicrous. When it comes to the world stage where global entities are out-rightly challenging one and other for supremacy, hegemony, or even respect – all considerations – and I do mean all will be on the table.

The time for contemplating “what if’s” has passed. The time to prepare for “there’s a greater chance than not” is now the prudent policy. Your business now depends far too greatly like it or not to a Fed. policy move. The problem is – the Fed. could be the contingency that drops the first one. And there will be no announcement, no speech, no meeting, no nothing as to preempt its happening. All one can do is plan for the worst – hope for the best. But to ignore the possibility of either could be business suicide. Plain, and simple.

© 2015 Mark St.Cyr