Post Turtles Running the Show?

We must be dreaming.

Or, could it be that Fed management is actually handled by post turtles? You know, like Obama - he didn’t get on top of that fence post by himself, he doesn’t belong there, he doesn’t know what to do while he’s up there, he’s elevated beyond his ability to function, that kind of turtle. 

Obama’s try at economics was “The Stimulus,” except that there was none.  Very early on into that debacle we warned, and did so repeatedly, that this, the economic equivalency of taking water from one end of the pool and pouring it into the other was at best a wash, more likely a retardant. We were right.

And now Bernanke has come along with his brand of “stimulus” which is also, our view, at best a wash. The QE’s have benefited equities because now companies can borrow cheap and buy back stock. But that’s it. Not much of a real sector benefit, and maybe none; one at any rate overwhelmed by the negative aspects, the uncertainty for real risk takers given we have planners at the helm.  For more on the negative correlation between Fed meddling – QE -  and growth, see this recent sketch by Forbes contributor Louis Woodhill: http://www.forbes.com/sites/louiswoodhill/2013/10/23/as-the-job-market-falters-even-some-democrats-wake-up-about-growth/.

Today we found the FOMC bunch are just a tad more optimistic. What? They are either full-fledged post turtles, or 100% cheerleaders. Yet they will still keep the gates open they say. How long? Until we have the equivalent of a Mount St Helens blowout, our bet.


Robert Craven

Change at the Fed

Janet Yellen will likely expand on Bernanke’s policy mix. She will sponsor Fed activism; she will continue to enable the Washington left.  

In a recent sketch, Thomas Sowell, the Milton Friedman Senior Fellow on Public Policy at the Hoover Institution notes that Yellen has a history of asking the right questions and giving the wrong answers: “Will capitalist economies operate at full employment in the absence of routine intervention,” she asked. “Certainly not” was her answer.  “Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than making matters worse,” she asked. “Yes.”

This reality -Yellen as chair - will prove to be a retardant to US growth.

We are going nowhere, and quickly. Any recovery will be in spite of, not because of this individual’s policies. Normal free-market pricing mechanisms will remain unplugged. 

Calvin Coolidge, help us.


Robert Craven

Roughed Up By a Planner

After all these years it still never gets easy. But now a new variety of snake has been thrown into the arena, one even more unpredictable and deadly than the rest.

For example, past years if we had a fairly good notion of relative performance, sovereign credits, we’d do alright. So early May we were pretty buoyant, pretty darn confident when we isolated what we thought would be “surprising” vigor in the UK and what we thought would be a “disappointment” in the US.  The simplest way to translate this view was to sell the Gilt 10 yr and own the US note. 

So that is what we did, figuring we were pretty sharp hombres, putting the trade on about flat, or 0 spread.

As it turned out, real sector results did cooperate; they still are.  However, the trade blew up in our face thanks to Bernanke’s mid-May hint that he may ramp in QE. US debt prices collapsed. Son-of-a-gun.  We had looked for something on the order of -20 come July (US -20 bps under UK) not +20!

This added dimension is why many experienced strategists are to be found in their garden, at least for this season.

Robert Craven

Praise for Mark Carney

Mr. Carney has very much limited his dialogue with the market crowd. For this effort he should be commended.

Recall that after the last meeting he said nothing.  Then last Friday (Yorkshire Post) he said he would likely leave things as is and pretty much left it at that.

We had noted that Carney was a quick study but we didn’t realize just how quick.

Early on we sensed “surprising” UK economic vigor and in which sectors and, we predicted much higher interest rates. That worked. 

But then in the last post we predicted that Carney’s reaction to higher long rates could well be an extension of QE, and that this would – contrary to conventional wisdom – drive long rates even higher due to elevated inflation reads. Finally, we noted that this situation could then arrest UK growth.

Carney is concerned with longer rates as a drag but – key - he also understands that chatter will inflame, not settle the market crowd. The less said the better (a lesson lost on Bernanke).

Carney has demonstrated the ownership of an asset rarely found in central banking - an understanding of crowd behavior.


Robert Craven