While this weekend’s headlines are dominated by who got exposed to and infected by Coronavirus from the President on down I want to make sure other key news items are not lost in the shuffle, specifically those that expose a system that has self corrupted itself and is desperately trying to keep the balls in the air while causing ever more long lasting damage to our global economy.
Let’s face it: This week’s market action was dominated by dozens of stimulus headlines. Stimulus progress and markets rip higher, stimulus disagreements and markets dropped lower exposing markets again to be a toy thing of the liquidity game.
Will they or won’t they is the question on everyone’s mind and many bets are placed that they will, for likely they must as the jobs growth picture is slowing dramatically from the summer sugar recovery high and keeping markets and consumer confidence high into the election is a political imperative.
And don’t think for a second that they are not political imperatives. Market levels are as much a national security imperative as is having a strong military. For the last few years Larry Kudlow’s curiously timed TV appearances have become a fodder of Twitter jokes and yours truly has been at the forefront on Twitter of mocking the ever so obvious attempts to manipulate markets higher at every corner and opportunity.
Oh you’re just a conspiracist. No, I just try to cut to the truth and reality of markets.
And sometimes that truth slips out:
Extraordinary line from former White House chief of staff Mick Mulvaney today on Fox Business:
“We always needed to put Kudlow on TV — on your show — when we needed the markets to go up.”
— Jeff Stein (@JStein_WaPo) October 2, 2020
“When we needed markets to go up”.
And there it is. Markets going up exposed as a necessity for political purposes.
And cue the drum roll:
Kudlow: “It’s a v-shaped recovery. Today’s numbers, when they’re properly adjusted, are in line with consensus… we are succeeding in dealing with the pandemic and the economy’s recovery.”
— Joe Weisenthal (@TheStalwart) October 2, 2020
And don’t think it’s just the current administration that is playing these games.
What? You think it’s an accident that on Friday when futures were down hard that Nancy Pelosi came out with this headline 5 minutes after market open immediately putting a floor under the market:
US Speaker Pelosi: Will Get ‘Something Done’ On Stimulus
— LiveSquawk (@LiveSquawk) October 2, 2020
Sometimes it’s hard to avoid getting the impression that the 2 parties are not in fact one in the same putting on a show of choice. They both are living off a market structure they can’t ill afford to lose in trajectory. As George Carlin once opined: “You don’t have a choice. You have owners. It’s a big club”.
Do you really think it’s an accident that the only people placed in charge of the country’s monetary policies are doves? People of the perma intervention kind. It is after all the same Congress comprised of these very two parties that approves all the nominations. Bernanke was a dove, Yellen was a dove, Powell now the perma-dove with interest rates at zero forever and ever amen.
There is no diversity of opinion, there’s no diversity of thinking, and critical viewpoints are either not considered or outright dismissed and mocked.
Indeed central bank career path day appears structured on the notion one must show positive effects of QE on growth whether it’s true or not. Critics don’t get considered for promotion in the ranks apparently:
“A new academic paper casts fresh doubt over the case for QE. Lubos Pastor, an economist at the University of Chicago, and three colleagues have parsed about 50 studies looking at the effect of asset purchases on growth and inflation. They found that researchers working in central banks tend to find a larger impact than academics and conclude that central bankers have incentives (such as possible promotions) to be too kind toward QE. Papers written entirely by central bankers found an impact on growth at the peak of QE that was more than 0.7 percentage points higher than the effect estimated in papers written entirely by academics. The authors then investigate the reason for these discrepancies. They suggest that career concerns may have played a role and provide some evidence that central bank researchers who found the largest impact of QE had a better chance of receiving a promotion.”
You can’t make this stuff up. And it is this very institutional group stink that leads to statements of self delusion such as this:
QE conspiracists can say this is all about balance sheet growth. Someone explain how swapping one short term risk free instrument (reserves) for another short term risk free instrument (t-bills) leads to equity repricing. I don’t see it. /end
— Neel Kashkari (@neelkashkari) January 17, 2020
This from the President of the Minneapolis Fed who, while denying QE’s impact on asset prices, proceeded to dismiss yours truly as a QE conspiracist and “swashbuckling pirate”:
1 thing I’ve learned abt twitter is the louder the critic, generally the thinner the skin. I confess finding amusement in needling critics calling them conspiracists or goldbugs. Its fun to watch swashbuckling pirates of free market capitalism get easily upset. I mean no offense. https://t.co/dMgSsk2pBR
— Neel Kashkari (@neelkashkari) January 17, 2020
It’s all fun and giggles while markets go up but the dismissive conspiracist voices fell notably silent during the 35% market crash in Q1 2020. Since then we again see the original criticism confirmed as markets rallied to new all time highs despite the largest economic crisis in our lifetimes. Amazing things can happen when you expand your balance sheet by $3 trillion in just 4 months. It’s called market distortion.
And no, that’s not my opinion, it’s a fact confirmed by another nugget of truth that crossed the headlines this week courtesy Dallas Fed president Kaplan:
“My concern about asset purchases is they can distort markets,” Kaplan told the Wall Street Interview in a webcast interview. “It’s a tool that I’d want to be careful with.”