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.
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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.
- 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.
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