This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stock Under $10 that he thinks could potentially double or triple in the next 6 to 12-months. See what he's trading today with a 14-day FREE pass.

Fed Confusion; FOMC's Wrong-Footed Comments: Best of Kass

NEW YORK ( TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among the posts this past week were entries about the market's view of the Fed and the Federal Open Market Committee's most recent rate-decision release.

Please click here for information about subscribing to RealMoney Pro.


The Fed Is a Confused and Toothless Paper Tiger
Originally published on Friday, Nov. 1 at 7:29 a.m. EDT.

The market now sees the Fed as a confused and toothless paper tiger.

Whether this is bullish (as evidenced by eurodollar futures are at a recent high) or bearish (more volatility and less predictability lies ahead), we can't possibly know at this time.

I describe the market's view of the Fed as a toothless paper tiger based on the fact that the federal funds rate at year-end 2015 is being discounted to 62 basis points vs. the Fed's forecast of 1%.

As I described yesterday in "Happy Halloween From the Fed," I consider Wednesday's FOMC statement as a bunch of wrong-footed and low-quality gibberish.

Clearly, the Fed is now in a bind.

The dual mandate would suggest that current monetary policy would stay in place for a lengthy period of time (read: many years).

The more the Fed's balance sheet expands, however, the higher the amount of losses to the Treasury down the road. In its extreme, this could pose a risk to the Fed's independence.

This issue has been a talking point in academic and policy circles over the past two years -- even the International Monetary Fund cited this risk recently.

Let's review the confusing timeline of Fed tapering commentary in 2013:

  • On May 22, Humphrey Hawkins questioning Chairman Bernanke's "next few meetings" comment stopped the market's bull run, which had previously behaved as if the notion of tapering was so far out not to matter.
  • Bernanke's post-June 19 press conference led the markets to trade as though tapering were likely to begin in September. The S&P 500 lost 5% in four trading days, while the bond market suffered a brutal beating (as 10-year U.S. note yields rose from 2.05% to 2.95%).
  • Then Bernanke blinked. Financial conditions tightened as mortgage rates climbed. So, at the July 10 press conference after the NBER speech in Boston, the Chairman moved toward a very dovish stance, citing a weaker-than-forecast economy. No longer was the unemployment rate of 6.5% a trigger to policy -- there were conditions placed on the jobless rate. But, it seemed to markets that the message was that a September tapering was still on.
  • The Sept. 19 no-tapering meeting surprised the markets, with only Esther George dissenting.
  • It is clear that the Fed is confused and the markets view our monetary authorities as a paper tiger.

In the extreme, the Fed appears to be almost paralyzed.

In all likelihood, the economic data in the near term will be distorted and ambiguous.

There is simply not enough clean data for a confused Fed to make policy changes at the December meeting. A January tapering is also unlikely, as it coincides with another debt ceiling negotiation, and this Fed doesn't seem to be in the mood to upset the markets.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7870 -13.6380 -0.30%

Our Tweets

Brokerage Partners

Top Rated Stocks Top Rated Funds Top Rated ETFs