Here’s a question for you. What’s funnier: we buffoons who make up the cast of investors, brokers, kibitzers, commentators who produce the daily theatrical Sitcom called the US stock market, or Saturday Nite Live? I vote for us, if comedy is valued over drama.
Like this past Tuesday. Ms. Janet Yellen, San Franciso Fed Chairman, implied with a wink and a nudge in the ribs and 15 cautiously chosen words that maybe she and her pals might quit raising the Fed funds rate. (Well, maybe one more little bump.) But the fed push-ups have never had the slightest impact on long term rates. – some would add inflation. The rate game reminds me of the mythical sparrow who comes once a year to the rock of Gibralter to sharpen his little beak. How long will it take him to wear away the rock? Furthermore these multiple short term rate increases have put immense riches – via higher returns on CDs, money market funds, even savings accounts – into the pockets of short term investors. And not a single pundit can explain how that fights inflation. Transfer dollars from banks to consumers? Sure, there’s an incentive to save but Bastiat would predict booming shoe sales and lots of work for glaziers, eventually. Isn’t that called upward pressure on prices?
The Frenchman’s old adage re the “Seen and Unseen” takes on a weird new meaning. What’s seen is what the headline writers yell in your face – what is unseen is what’s unreported. Inflation, due to the Fed’s lecturing has bannered the front pages over the past 3 to 4 decades. It is the one word benchmark of our economic health. (Remember when they were in love with money supply, which they couldn’t measure?)
Even stranger, those leaden long term rates which had never jiggled in the face of multiple short term rate bumps – those immobile rates, declined upon Ms. Yellen’s pronunciamento! As though the Fed’s previous action was a historical factor in their feeble, pseudo-invisible, undetectable movement.
And not too many nanoseconds after she spoke, the equities market roared like a victorious lion and bounded to a new level. Why’s that? The IRS did NOT abolish the corporate income tax, Exxon did NOT reveal that mere mouse droppings would propel the car of the future, and Osama Bin Laden did NOT announce his conversion to Presbyterianism. Well I guess if the Fed believes that inflation is under control (witness the cessation of its rate game) investors follow, shouting buy orders.
Was inflation ever a threat? Who knows. Did it prowl the marketplace like Dracula? Did Fed rate manipulation put a stake in its heart or will the vampire take a short coffin nap, then revive and bite us in the neck tomorrow? Stay in touch, ignore the headlines and pass up SNL for the business news. It’s funnier.