Central Bankers Have Officially Entered The ‘Pitchforks and Torches’ Insurance Market

(New feature: audio version of article. Format and delivery is in beta form.)

As the U.S. populace readies itself to deal with the reality of the oncoming workweek as the vestiges of any remaining typtophan dissipate. There is one entity that is still on the equivalent of a high that would make a crack addict envious. That entity is: the stock market.

The real issue with the above is not for its record setting highs. No, the real, and now very real problem, is how it got so “high.” For today the once shadowy figure that lurked just out of sight signalling “Don’t worry, the first is free and it’s not addictive.” Is now out in full view giving speeches, television interviews and more on how “free and non-addictive” QE is (quantative easing), by now proclaiming it’s not “QE.” All the while it doles out ever-the-more “hits” than any time prior.

What this has done is the exact opposite of what central bankers in general, and the Federal Reserve (Fed) in-particular had wished. In other words, rather than tilt the spotlight away from their money dealing hands, it’s shined a bright spotlight directly on them. Everyone is now aware of what’s the catalyst – and that means they now know precisely whom to blame once any destruction arrives.

It is now the Fed itself which has become acutely aware of this manifestation. And the latest absurdity being professed by Minneapolis Fed President Neel Kashkari shows it, in-spades.

Here’s a bit of what I’m referring to via Bloomberg™. To wit:

Minneapolis Fed chief Neel Kashkari says monetary policy can play the kind of redistributing role once thought to be the preserve of elected officials

“We had historically said: distributional outcomes, monetary policy has no role to play,” he said in an October interview. “That was kind of the standard view at the Fed, and I came in assuming that. I now think that’s wrong.”

“Inequality Fight Gets In Ally At The Fed” Bloomberg .com 11/24/2019

Now unlike most I don’t partake in the viewpoint that any seated member at the Fed ever goes rogue in any public setting. I am of the opinion that although there may be very contrary, or vastly wide discrepancies on any given subject, they never deviate so far as to put any members in jeopardy for their opinions. i.e., Everyone knows and follows the “rule book” without exemption. Implying, all these varying ideas, as loony as they may appear at first glance, are more about premeditated trial-ballooning more than anything thought to be candor or, honest revelations.

Sure, you will get the occasional “Former Fed official” reporting of a suddenly rogue styled revelation (Bill Dudley is the latest) Yet, I’ll still contend these are just different tactics for delivery of the same strategy. i.e., Everything is a known and approved before hand. It’s all just a ruse to see if the brown stuff floats and how far.

On an aside: have you noticed the near blackout of any and all retired Fed Presidents? There was a time back a few years ago they were on nearly every financial/business channel and segment in one form or another. Today? Except for the now occasional Bernanke and/or Yellen excerpt from some speech, you’d be hard-pressed. Why?

Here’s an excerpt from from a 2014 speech made by former Dallas Fed President Richard Fisher at USC. To wit:

Let me cut to the chase: I am increasingly concerned about the risks of our current monetary policy. In a nutshell, my concerns are as follows:

First, I believe we are experiencing financial excess that is of our own making. When money is dirt cheap and ubiquitous, it is in the nature of financial operators to reach for yield. There is a lot of talk about “macroprudential supervision” as a way to prevent financial excess from creating financial instability. My view is that it has significant utility but is not a sufficient preventative. Macroprudential supervision is something of a Maginot Line: It can be circumvented. Relying upon it to prevent financial instability provides an artificial sense of confidence.

Second, I believe we are at risk of doing what the Fed has too often done: overstaying our welcome by staying too loose too long. We did a good job in staving off the deflationary and depression risks that were present in the aftermath of the 2007–09 financial crisis. We now risk falling into the trap of fighting the last war rather than the present challenge. The economy is reaching our desired destination faster than we imagined. 

Third, should we overstay our welcome, we risk not only doing damage to the economy but also being viewed as politically pliant.

“Monetary Policy and the Maginot Line” Richard Fisher July, 2014

The above was what you expected to hear from any Fed member (active or retired) that was being both prudent in his assessment, but also quite willing to call into question current policy for honest debate. You don’t hear anything of the sorts any longer, do you?

In fact, what you now hear is precisely the opposite and it’s down right bone-chilling.

When Mr. Dudley brazenly suggested the Fed should now add to its mandate the idea that if it didn’t like a sitting president, it should use (or curtail) its “toolbox” to rectify that situation as it saw fit. It not only backfired, but exposed a fatal flaw for its proclamation.

The real problem (my conjecture) now for the Fed was that it moved that aforementioned “spotlight” scenario I highlighted prior squarely into view with far higher wattage bulbs.

The Fed (again, my conjecture) was looking to see how the public would react to such an idea. After all, in the Ivory Towered halls of academia and the Eccles Building, removing Trump by any means seemed a no-brainer. The issue was – openly stating it was a completely brain-dead idea. But it did expose precisely why the Fed is worried.

The real problem, which I’ve opined now going on years, is not what the president or anyone else says about them, but what they say about them (Fed) using their (again, the Fed’s) own words and actions as proof positive.

It was at this precise time last year the markets were in absolute free-fall mode. Why? Hint: Rate hikes, balance sheet normalization, “autopilot.” i.e., The Fed insinuated at every juncture “We’ve got this!” What happened next?

Every single notion of “We got this!” has not only been reversed and rescinded. But the Fed has injected more money into the system over the last 2 months than at any time beginning, during or since the financial crisis. Again – ever!

The real issue?

The President was on the right side of the winning call, ‘bigly.” Doesn’t mean I agree with the call, but politically, it is what it is.

This in-turn means that the political Teflon® for any market crisis was moved from the Fed’s side of the ledger to the President’s. And the Fed is not only acutely aware of this ever-developing dilemma, but its trying desperately to inoculate itself from any potential social justice warrior (SJW) demonstrations should it all fall apart.

And make no mistake: regardless of the current “market” highs – it’s teetering on the precipice of a potential monumental fall. And no, I’m trying to be hyperbolic. Here’s why…

At the current run rate and increasingly apparent signals for negative repercussions emanating within the repo-market, coming before year end, are worrisome to say the least. And downright terrifying at the other end.

The Fed may have to nearly double (yes, double) what it’s already done so far in just two and a half months. e.g., every-time it makes ever-the-money available it’s been nearly oversubscribed by double. Meaning – the dealer is now at the mercy of the addicted market. Don’t deliver “the goods?” ___________ (fill in your own possibility here)

A few weeks ago I wrote the following article. To wit:

The case that I was making was, if one was actively paying attention, you would be hard-pressed to miss the so-called “1%” crowds adamant pleas as to say “Hey, don’t blame me and/or my wealth, it’s the system, you know: capitalism! Look. I’m really on your side, see, I donate and donated to _________ (fill in virtue signal of choice here.)” Ray Dalio has been the most vocal of late. But again, isn’t it funny this comes – after – he’s made all those $Billions? Funny how that happens, no? Purely coincidence, I’m sure.

But on the other side, do you notice who’s no longer out saying how little he pays in taxes any longer? Hint: rhymes with Warren Buffett. How about Bill Gates? Oopsy, yeah, now he’s out saying things that rhyme with “Hey, that’s too much!” when presidential candidates start arguing “No, it ain’t!”

Kashkari’s latest revelation that the Fed could do more, only this time directly for (and too!) the people, is nothing more than the central bankers coming-to-grips with the understanding that when this thing falls apart, the people that are going to be front and center for blame is them.

The reasoning is as simple as it is apparent: If they fail to stop the next crisis the people with torches and pitchforks won’t give them the benefit of doubt that they couldn’t, but rather – they wouldn’t and didn’t.

The problem with any “Torches and pitchforks” insurance is that it needs to be heard and understood by those carrying such implements. The real problem is they also have something else in common once the decide to pick them up and march. That problem?

Deaf ears.

© 2019 Mark St.Cyr