Newsletter – October 22, 2014
Stocks bounced hard last week because a NON-VOTING member of the Fed, James Bullard said that the Fed cannot “abide” the drop in inflation expectations.
Setting aside the fact that Bullard DOESN’T VOTE with the Fed and so has no REAL SAY in anything that happens there, let’s dissect his point.
First and foremost, Bullard is effectively saying that the Fed needs to somehow fix what’s happening in the financial system.
This is verbal intervention at its dumbest and most obvious. The Fed has something FOUR money pumps left in its arsenal. Together at most, they amount to a less than $5 billion in Fed money printing. It is impossible for this to make a difference in the markets or economy.
This leaves the potential for the Fed to do something at its next FOMC meeting, which is October 28-29. The notion that the Fed would unveil something then is absurd.
The Congressional elections for the Senate would be a mere week away. The Fed is going to announce a monetary program or change in policy a week before the November elections when the Democrats are already on the verge of losing the Senate? Really?
So what if the Fed announced a special meeting before the official FOMC meeting. The Fed is going to announce this after a mere 10% drop in stocks from ALL TIME HIGHS?
Moreover, once again the elections are less than three weeks away. If the Fed did this, it would be a de facto admission that the economy is once again in the toilet, which would be a death knell for any Democrat.
This in turn would mean the Republicans taking the Senate. And the Republicans are NOT pro-Fed. They’ll lump Yellen’s Fed in with the Obama administration as the source of all of the US’s problems. Strategically, that is the safest bet for the GOP if they win in November.
What does this leave? Idiotic verbal interventions like the one Bullard made last week. But those only go so far. You might convince the trading algorithms, which do not actually think, into buying stocks temporarily, but you’re not going to “fix” anything.
The reality is that the Fed cannot do anything to save stocks. We might be bumps here and there, but the market is in serious trouble. The smart money has known this for weeks and has been selling the farm.
Phoenix Capital Research