An Obituary: Fred Credibility

As with many terminal patients the initial hope is that aggressive treatment would work and cure the patient. But when the one time emergency round of drugs didn’t cure the patient additional drugs were needed and turned the patient into a hopeless junkie. After multiple injections a sense of dread was making the rounds. QE1 did not cure the patient, QE 2 and 3 were required with a little twist here and there thrown in. But the Fed doctors kept promising all would be well and the addiction could be stopped and the patient returned to normal.

And so it looks promising for a while. There was that scary flare up in 2016 when the patient regressed and the normalization had to be put on hold, but then a miracle drug came along called Tax Cut and suddenly it seemed as if the removal of drugs from the system could be accelerated.

So jubilant and optimistic were the Fed doctors that they promised further rounds of withdrawal and kept pointing to their dot plot of normalization.

Yet here we are, a mere 3 months later and the Fed doctors are at a loss again. Unable and unwilling to admit to the patient the true nature of the disease the Fed doctors once again decided to stop all withdrawal of the drugs, worse, they indicated they may have to administer new drugs to come. The patient begged for more drugs and the Fed doctors absolved themselves of their hippocratic oath and capitulated once again to the patient’s scream for another high, a scream only drowned out by the dying sigh of the Fed’s credibility, the initial casualty in this war on monetary drug dependency.

For it is true, the Fed doctors failed to wean off the patient:

Because deep down everybody knows, the Fed is the market’s bitch:

It’s not a secret, everybody knew all along:

But now Jay Powell has made it official and killed off the Fed’s credibility in the process.

It’s probably just as well. It’s been painful to watch as everybody knew the probability of survival was low. It was a slow death. And nobody wants to see suffering longer than needed and everybody knew it anyways.

As to the patient? Well, he’s back on the drip, smiling at the prospect of his final fix. The 10 year addiction never ended and the patient remains uncured. Yet the patient can’t get a new high without new drugs and so the current satisfaction at seeing the drip may turn into a great disappointment first before the new drugs finally arrive. See the Fed doctors have been withholding a vital piece of information from the patient: We can’t cure you, we can only get you hooked on drugs to make you feel better. In medical terms that’s called malpractice, which typically kills off the credibility of any medical professional. It shouldn’t be any different for a central bank. And it isn’t.

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Categories: Opinion

25 replies »

  1. excellent article, with great insight into FED..think Powell and the others are all afraid they will be blamed for any crash that may be coming soon…but by “capitulation” they may actually be bringing it on, as investors wonder what they see to cause such a change in actions and verbiage in just a few weeks

  2. Terrific analysis. The only missing part is: Where will the money come from to pay for the huge U.S. debt? IMO the choice is binary: Either the U.S. pays it, via extra taxes or a big drop in GDP, or it’ll make others pay it. My pick is the second. The U.S. is the world’s Don Corleone. When the Don owes far too much he doesn’t go bust. He just goes and rob someone rich enough to pay his debt for him. In our case the only candidate is China– it’s the only country with enough money. So maybe that’s why Xi just said he’d convert half his infantry into sailors and pilots. He knows what’s coming: His country is the only one with pockets big enough for the U.S. to pick: first via a trade war, then probably via a hotter one. We are probably in 1937 now, going towards 1939. I sure hope I’m wrong.

  3. You left off the part that ever-increasing drugs typically kills the patient as well.

    Great stuff as always!

  4. Greenspan legacy haunting all now.. irony is the greenspan was a Ayn Rand disciple turned into a true commie to rig the prices.. they killed the free market as we know it, all real players turned into zombies, dopers found shelter in passive linvestment” vehicles which can go bust in a few days as there is no real buyer left around down at the razor sharp exit formulated by genious ETF schemes.. K-winter is here, no runaway from it now… adapt, evolve and survive- Enjoy!

    You and me are hell-bent on heartbreak
    No matter what you say
    Won’t let you run away
    Don’t act like loving me is such a bad thing
    No matter what ya say
    Let’s get this right don’t take it slow
    Let’s not pretend we never met before
    Cause baby this love is something we both know
    But it’s been trapped in a cage like an animal
    And now we’re dancing under streetlights
    Drunk on twilight
    You say yours when I’m calling you mine


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