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Tapering The Truth

Summary:
Ceremony and ritual are not just important concepts for priming and keeping faith, they are absolute essentials. There’s a reason why cult leaders make themselves appear – at every instance – indispensable while at the same time keeping their masses busy with nonsense. Can’t ever permit thinking too much lest the house of cards crash downward at the first slight breeze of independent thought.So it is with these Rites of FOMC. From back before Greenspan the “Maestro”, we have been methodically conditioned to believe, to only believe, the entire financial and economic world is wound up in whatever deliberate acts this specific set of policymakers concocts. There is no market, there is no economy, there is NO LIFE without Dear Leader.And this age of un-growth will never end until this

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Ceremony and ritual are not just important concepts for priming and keeping faith, they are absolute essentials. There’s a reason why cult leaders make themselves appear – at every instance – indispensable while at the same time keeping their masses busy with nonsense. Can’t ever permit thinking too much lest the house of cards crash downward at the first slight breeze of independent thought.

So it is with these Rites of FOMC.

From back before Greenspan the “Maestro”, we have been methodically conditioned to believe, to only believe, the entire financial and economic world is wound up in whatever deliberate acts this specific set of policymakers concocts. There is no market, there is no economy, there is NO LIFE without Dear Leader.

And this age of un-growth will never end until this brainwashing washes out of the public mind. Looking to Washington’s standalone worst technocratic institution for answers it can’t possibly give, this explains much; far more than “easy money” could ever.

Tapering The Truth

I wrote the following more than four years ago, back in May 2017, back when China (ha!) was poised to lead the world into globally synchronized growth, pure policy nirvana as told by, well, everyone. Our FOMC Gods, however, just had that teensy little problem with bonds and inflation; the same problem they would never solve:

These FOMC statements are in many ways quite like that; the Fed continues to act as if it portrays any useful economic meaning when long ago, almost six years, to be exact, the bond and funding markets slammed the door of real power on it. They may from time to time appear interested in the rambling ruminations of the perpetually confused, but for all that really matters these things are whittled down to mere televised ceremony. It’s a big deal for the financial channels and even for filling media page views, but eurodollar futures truly designate what moves the Earth now.

Eurodollar futures, then as now or herein forever, take no cues from the likes of Yellen or Powell. Nowadays, as it was in 2017, there’s growing worries instead about, yep, why Treasury bills.

That’s just the start.

You wouldn’t know it from the financial press. Filling media pages today is every form of the word “taper”, as if that is the sole concern confronting the corona-shocked population. No China, no dollar, just taper.

It had been 2013’s great debacle which set up 2014-16’s “somehow” much worse global dollar storm, but from the “proper” perspective of “taper” nothing useful could have been learned from that period because of its improper emphasis on the guy before Yellen and Powell.

It’s not just that the emperor has no clothes, he’s not even an emperor; just some naked guy running around the street holding an apparently enormous and extensive blackmail file on every member of the media.

Taper. Taper. Taper.

Tapering The Truth

Who cares?

The Treasury Department just yesterday issued another much-reduced (from $35 billion last week to now $20 billion) 42-day Cash Management Bill (9127964L0). The top bid was a sinking 4 bps, an entire bip below the “competing” RRP rate of five. The median yield worked out to 3.5 while the low was briskly zero – the absolute lowest it can get at any auction.

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The weird thing, for the cult leadership (or others near attached who theorize “too many” T-bills), to explain is both why anyone would bid so high for these things as well as why it had been banks and “investment funds” who did. The latter constitutes indirect bidders at front-end Treasury auctions.

When Jay Powell told Congress there was a shortage of short safe assets, not a lot of T-bills, he, they, and the media didn’t realize the full extent and meaning of Powell’s unusual if small brainburst. Essentially this: the Federal Reserve doesn’t really matter.

Even when it comes to something like that institution’s very own RRP.

Regarding QE, the only way in which it, and its tapering, would make a difference is not the way people think. The conventional idea is that without the Fed’s (or ECB’s, whichever central bank) bond buying generosity the Treasury market will be left without enough buyers. Too many Treasuries!

Tapering The Truth
As if this fallacy hadn’t been undone and repeatedly, thoroughly disproved at every prior juncture; as well as its parallel, the idea that the safe asset market requires both foreign pockets in addition to all that central bank buying, too. Evidence continuously piles up all on the opposing side, each of these myths persists due to the cult’s stranglehold on public conversation.

No, where taper might matter is that it could reduce the harm QE actually does to systemic condition and liquidity. The Fed steals collateral from a global monetary system already structurally insufficient in that very vein. Less stealing theoretically could lead to better liquidity through less stretched collateral chains, therefore higher growth and inflation potential, which would mean higher yields the whole world should welcome rather than fear.

For a few short months in 2013, the “taper tantrum”, it sort of looked this way…before it quickly erased. Reality slammed shut and to this day no one from inside has uttered a rational word about why.

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The same mostly in 2018 when QT (taper’s following step) took hold. Media frenzy about the shrinking balance sheet somehow more unhinged (hysterical) than when it was being raised. Yet no dice, then, either, as instead a really serious collateral shortage again developed (becoming flat-out by May 29, 2018).

What anyone should’ve taken away from both episodes was that the Federal Reserve doesn’t really matter. The FOMC’s regular ritual press conferences and drolly worded statements were then, and are now, just that: pure theatrical ceremony.

You don’t, in fact, have to participate. It is not actually mandated. But I understand and sympathize how most people aren’t aware this, like all the rest, is what’s true. Cults don’t deal much in truth.


Jeffrey P. Snider
As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base. His company is a global investment adviser, hence potential Swiss clients should not hesitate to contact AIP

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