This note was originally published at 8am on December 03, 2013 for Hedgeye subscribers.
“We had invested very heavily over a very long period of time in the education of quality leaders.”
John Allison retired in 2010 after building one of the best banks in US history. “BB&T made it through the sub-prime crisis without a single quarterly loss… In Allison’s 19 years as CEO, BB&T grew from a statewide bank… to a $152B bank operating in 11 southern states and the District of Columbia.”
“We had really strong presidents … they had a much higher level of authority than our competitors… they were held responsible – they owned the process.” –Allison (Knowledge and Power, pg 172)
Sounds like our central bank, right? Ha! Especially the crony boys from mediocre-land (downtown at the New York Federal Reserve Bank). That’s where you’ll find below-average-at-best Bill Dudley and his whipping boy Simon Potter. These guys aren’t leaders. They are academic group-thinkers. And one day, all of their conflicted “smoothing” decisions will come home to roost. Mark my tweets.
Back to the Global Macro Grind…
If you want to get into the holiday anti-Fed mood, pick up a copy of the book John Allison published this year – The Financial Crisis and the Free Market Cure. It contains 0% of the Fed-access-propaganda you see paraded around with CNBC’s Keynesian peacocks every day. They are real thoughts from a real-time risk manager of banking and non-linear market risk.
“In my career, the Fed has a 100% error rate in predicting and reacting to important economic turns… because it is trying to arbitrarily set the single most important price of the economy – the price of money… setting wage and price controls from the time of Diocletian to Nixon, has proven in every case a disaster for economies and the people entrapped by them.” (Knowledge and Power, pg 175)
In other news this morning, after stuffing the New York financial media with crab cakes and vino last night, the Fed’s anti-dog-eat-dog-price-controller-of gravity, currency, and rates (Simon Potter) proclaimed his mystery of faith that “operationally, market participants generally characterize the exercise as smooth, with minimal disruptions.”
Potter, of course, is talking about what Thomas Jefferson surely had in mind - a reverse-repo-facility from the Fed that will look over Americans while they sleep. Chartreuse for everyone in NYC. This is the new America we all believe in, baby! (I’ll have a Bud Light pls)
Meanwhile, US stocks are pinned by a vacuum of Fed stimulated performance chasing all-time bubble highs, on no volume, and rising implied volatility signals.
By “minimal disruptions” what the NY Fed means is that @PIMCO doesn’t have to worry about economic information surprises being market-to-market on the long-end of the yield curve.
As evidenced by June and August spikes in US #RatesRising, there is nothing “smooth” about US currency and/or rate markets trading freely anymore. Oh, and The Fed needs to find a way to get people out of an MBS market bubble that doesn’t trade, don’t forget.
That’s why yesterday’s story within Mr. Macro Market’s score was so revealing. Follow the bouncing ball of events in the order that they appeared:
- 10:00 AM – ISM of 57.3 for NOV surprised on the upside (driven by New Orders of 63.6 and Employment at a fresh YTD high)
- 10:14 AM – US stocks put in their low of the day as the market got briefly confused about great news being bad re Fed-taper
- 12:30 PM – SP500 stops going up at an all-time high of 1810 as #RatesRising push higher, Gold lower
4:00PM EST – US stocks close on their lows of the day; US Equity Volatility (VIX) closes at the high of the day
In other words, to John Allison’s point, the Fed continues to look silly whenever it hinges policy on its forecasts. Its 2013 forecast on US consumption and employment growth were dead wrong. So now the Fed is behind the curve, making stuff up, in a Sisyphean fight for its academic dogma.
We’re going to get a 3% handle on US GDP this week (Thursday) and all the Fed’s open-market-storytelling communications will be able to do is make up more reasons why you should think this is still 2008. Fear, forever.
And guess what – if you let them, they might just perpetuate their own reality this time. The next crisis is going to be a central planning one. America hasn’t invested in Paul Volcker type leadership at the Fed. We are hostage to un-elected NYC banking group-thinkers.
10yr Yield 2.71-2.81%
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer