Thursday saw a repeat of a remarkable phenomenon in which after the FOMC meets and does what everyone expects it to do, which is not to raise interest rates, the stock market heaves a sign of relief and rallies a couple hundred points or so on the Dow.
Traders seemed thrilled that the FOMC downgraded its outlook for the economy, making a future rate action less likely. Thus, bad news is still good news, because as this blog and a handful of observers have been saying, Wall Street is addicted to ZIRP/QE-n, because this policy fuels an artificial boom in asset prices, and why would anyone want these good times to stop rolling?
In the first CNBC clip, Frank Holmes
, CEO & CIO of U.S. Global Investors, makes the well-worn case for having exposure to gold as the Greek crisis escalates. The purpose of posting this is to note in that a number of other commentators have cautioned that investors should not assume that gold will play the role of safe haven in a crisis, in part because this is not a crisis, and also because the dollar may be the safe haven, and a rise in the dollar is harmful to gold. For example, Dennis Gartman, Editor of The Gartman Letter, has consistently warned investors that if they decide to own gold, don’t do it in dollar terms, because gold has performed poorly against the dollar.
Next, Michael Fayed,
of Pension Partners, takes the temperature of the Greek circumstance, minimizing the risk of a Graccident and attributing the drawing out of the scenario to sheer procrastination. He points out that “institutional money that supposedly is in the know” is in a “risk-off” posture. Other commentators have attributed this to the market’s assessment that fragile entities like banks that could be forced to write down and dump assets have already been bailed out. The interviewer pointed to “contingent liabilities and derivatives that are not an insignificant amount.” Fayed allowed that investors should worry and recalled that, “In 2008, when Lehman defaulted, it took a week to realize what that actually meant.” He added that in traveling to 150 cities in the last year he has found “way too much complacency about secondary and tertiary” effects of events in Greece. This writer has warned repeatedly that markets have not reckoned with the contingent and derivative risks, because they are housed in TBTF entities and investors are banking on the “Yellen put.” Hence the rampant complacency.
In the next clip, Citigroup Managing Director William Lee
takes a crack at explaining why the Fed will not raise interest rates, addressing assurances by the Fed “that they’re going to do things ‘nice and slow,’ ‘nice and gradual.’” Unfortunately, but significantly, Lee then lapses into the industry trope that banks can no longer provide needed liquidity to the bond markets because of regulations under Dodd-Frank, an argument that was repeated constantly by compliant Members of Congress when Treasury Secretary Jack Lew testified on financial stability Wednesday. This writer agrees with Lee that there is a risk of another “taper tantrum,” but the reason is the chronic mismanagement of monetary and regulatory policy by the Fed.
The last two clips present the views of two of this blog’s favorite commentators.
First, Richard Fisher,
another former President of the Dallas Fed we’ve quoted this week, who has called for earlier action to raise rates, praised Yellen for being data dependent, meeting by meeting.
Finally, Marc Faber,
Editor and Publisher of the Gloom, Boom, and Doom Report, provides a contrary view to Fisher’s, expecting the Fed to keep rates at zero because a recession is coming.
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