The Fed is Now “Confident”
Trader Scott’s Market Blog
February 4, 2017
The PhD economists/Mensa members comprising the esteemed Federal Reserve Board of Governors (FRBG) held their paramount, decisive, crucial, meaningful, significant (via Thesaurus.com) meeting last Wednesday. It’s like the Super Bowl for Wall Street and the financial media. They get all excited and view these meetings of our country’s best and finest omniscient economists as vital to predicting the true direction of the economy. The FRBG puts Nostradamus to shame with their forecasting abilities. The complex (and hush-hush) econometric models which they employ apparently are built upon permabull algorithms, permabull statistical theories, and permabull linear regression analysis. And as permabulls, it’s unfathomable for them to entertain the possibilty for the economic activity of the country to decline. Because their sophistication will allow them to turn a few knobs, and adjust a few levers to keep the economy moving forward. Therefore their hush-hush econometric models treat all declining economic activity as “adjustments” which can be “contained” (relax, no prob). And only someone with a PhD from an elite American University could possibly decipher the labyrinthine details of these models. It’s why every word from theirpronouncements, speeches, and testimonies is parsed and fretted over. Because when you’re as brilliant as an FRBG, you can only speak in some incoherent academic language. So because of their vast formal education, and their “access to data which no one else is privy to”, then they will certainly be able to decipher when we’re facing a severe downtrend. Right? Well let’s take a look at the two most recent major tops in economic activity.
In Crameresque style, Chairman Alan Greenspan was super bullish about the economic prospects of the nation right smack into the 2000 major top. InJanuary 2000Mr. Greenspanread a speech with his rose-colored bifocals, when he opined,“ Four or five years into this expansion, in the middle of the 1990s, it was unclear whether, going forward, this cycle would differ significantly from the many others that have characterized post-World War II America. More recently, however, it has become increasingly difficult to deny that something profoundly different from the typical postwar business cycle has emerged. Not only is the expansion reaching record length, but it is doing so with far stronger-than-expected economic growth. Most remarkably, inflation has remained subdued in the face of labor markets tighter than any we have experienced in a generation. Analysts are struggling to create a credible conceptual framework to fit a pattern of interrelationships that has defied conventional wisdom based on our economy’s history of the past half century.“
So let’s just parse his words and make it easy. Right at the major topin the first half of 2000, “The Maestro” (TM) was very bullishaboutthe economy. Because of course, only an omniscient economic seer could understand that right at the major top in 2000, the nation was undergoing something “profoundly different”, with “economic activity far stronger than expected”. And TM continued to raise interest rates in the first half of 2000 into May, backing up his bullish outlook about the “profoundly different” economic prospects “reaching record length” in the US. In short he was confident.
And you can’t avoid finding good old Larry Summers‘ name when doing research about the most bone-headed economic outlooks in recent memory. Here’s what the brilliant Lawrence Summers had to say about the economic prospects of the nation in March 2000: “U.S. Treasury Secretary Lawrence Summers also jumped into the New Economy theme, telling the same group Monday that the technology-driven economy was benefiting the majority of Americans.”It’s easy to forget that this guy somehow weaseled his way into being the US Treasury Secretary. So right into the major top in 2000, old Larry was very bullish. In short he was confident.
Then who can forget the widely respected Chairman Ben Bernanke’s brilliance, when he was very convincing and reassuring (relax, no prob) with his predictions about the housing market right into the major top in 2006. Here are some of Helicopter Ben’s(HB)famous reassurances, just relax, the falling housing prices are minor “adjustments” and the problems can be “contained” (no prob):
February 2005:”Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” In March 2007 :”At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.” In October 2007:”Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low.”
And just to confirm his astuteness, right into the major top in January 2008 HB was just as unconcerned :”The Federal Reserve is not currently forecasting a recession.” In short, he was confident.
So now back to the current situation with the latest crop of the most elite economists in the country. At the meeting last Wednesday, Janet Yellen and the FRBG stated they havebecome confident about the health of the economy. Uh-oh.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.
February 5, 2017 @ 1:06 pm Jon
Scott, they’re just doing what they’re told. Could you imagine what would happen if they ever admitted things are falling apart? Talk about chaos! This all started in the 80’s when credit expansion started to balloon along with more malinvestment. I remember prior to Greenspan, the FED would make unannounced interventions between meetings as they thought necessary and markets made the adjustment accordingly. Can you imagine what would happen if they did that today? Greenspan saw the credit bubble accelerating in the 90’s and began his effort to try and control things using the “irrational exuberance” and unintelligible double talk to keep everyone guessing. Of course, the market figured it out and realized the FED “put” was on with each rate cut and the LTCM bailout fiasco. The soaring financial markets of 98-99 produced a windfall of capital gain tax revenue, and we almost had a balanced budget so the government has an interest in keeping the party going. The FED/central banks know we’re on borrowed time with this credit bubble. They’re insane monitary policies are the tell, but for now they are the “Bagdad Bob’s” of finance.
February 5, 2017 @ 2:28 pm Jon
And remember when Bernanke during a congressional hearing basically told them they were spending too much… Schumers response:
” get to work Mr Bernanke”…
February 5, 2017 @ 2:37 pm traderscott
It’s the bond bear market which will finally expose all of this Jon. The falling/low rates have allowed them to bury the bodies. The much higher rates slowly brings this all to the surface. The carcases will slowly re-appear. But now they’re rotted and even more toxic. They think they are brilliant, but it’s the bull market in bonds which they’re confusing their brilliance with. Like many very high IQ people (luckily that’s not my own problem) they can never imagine being wrong. I know some of them, and they fail because they (supposedly) don’t ever make mistakes (again, not my own problem) therefore they’ve never actually learned reality.
February 5, 2017 @ 3:02 pm Jon
Reminds me of the scene in the movie “A Few Good Men” when Col. Jessup (Jack Nickolson) in a rage under cross examination yells ” THE TRUTH! YOU CANT’T HANDLE THE TRUTH!”
On another topic:
I remember back in 2003 when American Airlines took out a full page in the major Newspapers to apologize to it’s customers for the inconvenience caused by union’s slowing down. This was right before they almost went bankrupt. So now : http://www.zerohedge.com/news/2017-02-05/deutsche-bank-takes-out-full-page-ad-apologize-its-market-rigging-misconduct.
This should mark the near term bottom for the $:
February 6, 2017 @ 4:14 am Tim
Brilliant. Thanks for the chuckle.
February 6, 2017 @ 7:58 am traderscott
Tim, the Fed is hilarious and they don’t even know it.