Wed Jul 29 2015
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A Veteran Trader Slams The Fed: “Savers Are The Patsies For Share Buybacks”

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ia Bloomberg’s Richard Breslow,

As markets coil around themselves waiting for the next installment of Fed communication strategy it is amazing how with all the speeches and promises of clarity, speculation on what they may or may not say, runs the gamut of possibilities. This fact makes it all the more clear that they should not back off at all from being resolute in signaling a sooner rather than later, very gradual rate path lift-off.

There will always be some “crisis” or excuse to do nothing. But the fact remains that the U.S. economy is not at zero interest rate health.

Monetary policy is broken with the status quo. Unlimited and constant central bank participation in the markets is ultimately destructive, encourages dangerous risk taking (just buy every dip, nothing can go wrong,) and has become too much of an aphrodisiac for policy makers. 

Savers are being told you are the patsies for share buybacks.

The Fed also needs to stop mentally infantilizing the rest of the world.

Europe’s ECB has the wherewithal to continue QE and to increase it. Fed policies did not cause the recession in Finland nor the Greece debacle. Japan should not be encouraged to repeat past mistakes by being given the chance to taper too early, relying on other central banks to keep buying. China is in the big leagues now and if their equity markets are wobbling, they should handle it. Each one of these central banks views their currencies as reserve worthy. They need to act that way.

As far as emerging markets go, reserves are strong. The warning to not borrow in USDs has been given over and over. The RBI’s Rajan called it playing Russian roulette. It won’t get easier if markets get further proof that they can call the Fed’s bluff. If yield hunters get a bloody nose it will be because they don’t heed the super gradual message and replace stubbornness and greed with panic. Cries of lack of liquidity should be ignored.

Analysts may be right that the precise timing of the tiny rate rise doesn’t matter. That is because they are looking only at the economy and realize 25 bps is not dispositive. What they are missing is that there are much more important systemic imperatives involved.

The argument that a little late is better than a little early rings very hollow to me.


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