The Federal Reserve concluded its two day conclave Wednesday, noting that it is now gone from “Thinking about thinking about raising rates.” to, “Thinking about which month.”
The above has been laughable since its inception, yet, has been the actual term used by the Chair to signal their intent. i.e., “We’re not even think about thinking about…” To now, as far as “Fed speak” is concerned: “You’ve been warned!”
As I watched the presser I found myself in side-splitting laughter too many times to count. After all, just how can one seriously take the Fed’s implied declaration of “They’ve got this, and they know how and what they’re doing!” When every time prior they have had to not just reverse course before it got started in earnest, but in their last, had to basically throw any and all further credibility to that notion down the drain as they panicked and scrambled to save the ‘markets’ from all their prior “We’ve got this!”
If anyone deserves an Emmy®, it’s Mr. Powell for keeping a straight face during said delivery.
But the muse didn’t stop there…
I’m not going to write verbatim what was stated because, it just loses the comedic punch, in my opinion. What I’d rather do (and I’m always up for a good laugh) is paraphrase mixed with my own read-between-the-lines inferences of what Mr. Powell said in response to two questions about the possibility of impropriety of Fed. members trading stocks as they set monetary policy and more.
Personally, I couldn’t watch if I was taking a sip of my coffee, it was just too perilous for my screens and keyboard.
I’ll condense the questions, because they came from more than one and about different aspects, yet, really were all about the same thing. I’ve taken the liberty to pose them in satirical form. So, here we go…
Q: Mr. Chair, what do you have to say about the latest news that Federal Reserve bank presidents were in the markets trading their own accounts as the Fed was propping said markets?
A: (Inaudible, but sounded a lot like: Sh#t!) Ah, well, you see, ummm, ahhh, we have this thing called oversight and stuff like that and, you know, it really is up to them to bring any attention to anything that may seem as conflicting so, ahhh, don’t look at me for answers. And all of this stuff is disclosed, sooooo, if they didn’t say anything, well, I guess there you go, right? But we’re going to do a detailed investigation and make sure this type of implied conflict is handled. (i.e., Things like this will never see the light of day again and will be non-discoverable by you pesky reporters going forward!) Although, there’s really nothing to see here. I mean, we’ve been doing this stuff forever, it’s just no one’s ever looked to find out. Next question…
Q: In regards to trading markets, the other Fed. presidents were trading stocks, but you were heavily invested in municipal bonds e.g., Muni’s (estimates ranged from $1.5MM to $2 or $3MM). However, the Fed is now buying Muni’s. Do you see any conflict there?
A: (inaudible, but sounded a lot like: Sh#t, sh#t, sh###t!!!) Well, ah, ummm, you see, my wife and I own Muni’s but, ummmm, the idea of the Fed buying them and saving those bond holders was never thought proper and was decided so prior. However, when the Muni market was falling apart (along with my portfolio) I reversed that decision and saved the Muni market (along with my portfolio) from disaster. But that was purely coincidental, there’s nothing to see there, move along, thanks for stopping by. Next question.
Now, here’s the thing with all the above…
Although it’s all pure satire (but you should watch the presser for yourself and decide just how close it may be) the issue is, the underlying problem its based on is anything but. Fed presidents were, and by implication, more than likely always benefiting from their direct policy decisions. However, for it can also be argued (and the Fed would like to do just that) that there has never been any intent to benefit, and every decision they have made has been purely for the greater good, which can also be a very credible statement.
But here’s the inherent issue with that statement, and it is this…
The exact opposite has just as much credibility for being true as the benevolent one. And that’s a very, very, very (did I say very?) big issue.
Again, here’s my question: If impartiality is a concern where even the appearance of possible impropriety is to be shunned via protocols as to ensure – then why is it not a requisite for all members (or, at a minimum, voting members) to be fully divested from any stock or other market and placed solely into either purely cash accounts or, at a minimum, U.S. Treasurys that expire at the duration of their tenure?
Here’s an example that could have taken place in real time using the Chair himself, which would give credibility to his argument…
If he was invested in Muni’s, and Muni’s were not a possible market the Fed could apply any rescue efforts? Not an issue. However, the moment the Muni issue became apparent that they would need to intercede – the Chair should have been forced to sell out his positions, even if they were badly in the red, then the Fed’s interjection into that market, along with Fed credibility, would have a strong pedestal to stand upon. Otherwise?
You’ve got zip, zero, nadda. No matter how much one seeks to Whirlpool® a defense. Why? Well, let’s think this through by hypothesizing the following, shall we?
If that were the case (i.e., Fed presidents would have to be divested to purely cash or cash equivalents such as U.S. Treasurys) …
Do you think interest rates on cash deposits that decimated savers, retires and more, now for over a decade, along with the surreal world of “zero interest rate policy” on cash equivalents such as Treasurys, would have been implemented? Ever?
Again, for it must be pointed out nearly every time, because everyone seems to conveniently forget this small detail: This was an area for monetary policy (aka “monetizing the debt”) that was once considered absolutely ludicrous for interventionism, even bringing up the subject was met with cries of derision in academic circles, from policy wonks and more.
To even propose the idea that it was even plausible (e.g., Federal Reserve intervention), never mind probable, that the Fed would ever intervene into this sanctified area was taught at the highest levels of academia as “Nuts!” . And yet – it is precisely the one area that the Fed has decimated – the most – and for the longest time.
Think about it.
However, there was something that did catch my attention that seemed to not catch the attention of any one this time. And it was this…
Remember in a prior article I stated I was watching for one thing and one thing only? Hint: The raising of interest rates on the Reverse Repo program.
Well, they didn’t raise rates, but in my purview, they did one that might be a bit more reasoning for concern, which is…
They doubled, repeat, doubled both the amount permitted, along with the amount of entities permitted to use the RRP. Meaning…
When it was at $250Billion it was implied $500Billion would more or less be a transitory event. Then it went to $500B, then $750B, then $1Trillon, now, at $1.2Trillion plus – it can now (more than likely will and soon) double, again.
But nothing to see here folks. “They’ve got this!”
What a freakin’ joke. Problem is, it’s all on us, literally. And if you think I’m mistaken? All I ask is, if you haven’t already, watch the presser for yourself and make your own conclusions, as you should.
© 2021 Mark St.Cyr
Note: This is not trading or investing advice of any sort. This commentary is for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.