It’s a Mad, Mad, Mad, Mad Market

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  1. Liquidity is there until it isn’t! All of us with decades of debt capital markets experience have, or should have, learned this lesson many times over. This time will be the mother of all lessons I fear…

  2. Thanks Peter.

    I’m having trouble seeing my way out of the Fed’s dilemma. They’ve signaled infinite willingness to plunge fingers into new holes emerging in the decaying bulwark that is the US economy. Powell even pulled out his version of Draghi’s bazooka with his “whatever it takes” statement from the latest FOMC. Legislative limitations on Fed purchases are cheap signals; I have no faith that they won’t be dropped in a heartbeat if deemed expedient.

    The (retail) market currently believes in the Powell Put. Ben’s comments that markets have become a political utility are also salient. Practically, that means that any excess money in retail hands will continue to flood into stocks, since “stonks always go up” (h/t WSB, my collapsitarian excess porn of choice). The ensuing situation keeps playing out in my mind as a one-sided game of chicken, where Powell keeps trying to swerve out of the way of the retail investor’s car, but the investor swerves every time to max, all the way to the inevitable climax.

    The climax in the case? Definitely asset price inflation beyond anything we’ve seen, up until Powell’s prime directives become more important than supporting stocks.

    My take on Powell’s directives is: 1) Extract maximal golden eggs from the goose (Read: US economy) without killing it; 2) Avoid effective oversight; 3+) the familiar ones like price stability, etc…

    Assuming that order is halfway accurate at some point the golden goose’s life support will start the long beep, and the Powell Put will end dramatically. Between here and there, there will obviously be rampant inflation in narrow speculative assets.

    Just thinking out loud here. Any comments?

  3. *investor always swerves to MATCH

  4. Hey I remember that movie !
    Great Piece ……Thank you…

    For what its worth, I believe that interest rates for the past few decades have been unable to stimulate the real economy….
    Here’s a quote from Peter Drucker, circa 2001 :

    The idea that the Federal Reserve chairman has power is a delusion. The only power he has is over the interest rate, and the interest rate has ceased to be important because businesses are no longer dependent upon borrowing from banks. The interest rate is only important to the stock market, to people that short or buy on margin. For the economy – yes, if it goes up to 18% or down to 2%, but half a point is a symbolic gesture. The Fed has control only as long as people trust that when Greenspan opens his mouth, it is meaningful. But the first time it does not work – well, magicians get no second chance."

    For a more contemporary movie, may I suggest Idiocracy [2006] …particularly the clip where President Camacho talks about the economy….

  5. Thanks Peter. I just got my bias confirmation fix for the week.

    No mention of It’s a Mad,Mad, Mad,Mad World gets past me without a shout out to Dick Shawn. " I’m coming Mama".

    Smiling all the way on the commute to the kitchen for more java, thanks again.

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