Sunday, 24 June 2018

On the Fed, the ECB and rabbits

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Anthony Peters on investors trapped in the headlights

Anthony Peters

Anthony Peters, SwissInvest strategist

Monday was very much a day of “Yes, buts…..” as data arrives which can be seen as encouraging by the optimists and disappointing by the pessimists. However, as it said in a birthday card which I found and posted yesterday, whether the glass is half full or half empty, it still needs topping up.

Central bankers – I’m talking Fed and ECB – seem to be tripping over each other as they try to find a way of making economic news and market sentiment fit their forward guidance and to justify how it came that action on the tapering front flew straight in the face of previous signals.

Both Dennis Lockhart, President of the Atlanta Fed and William Dudley of the New York Fed were on the tapes justifying the FOMC’s decision not to reduce the bond buying programme on economic grounds. On the other hand, Richard Fisher of Dallas made no bones about his opinion when he stated his position as having been: ”Doing nothing at this meeting would increase uncertainty about the future conduct of policy and call the credibility of our communications into question.” Fisher, a non-voting member of the FOMC went on: “I believe that is exactly what has occurred, though I take no pleasure in saying so….”

The lack of volatility is not, in my humble opinion, the result of solid and sensitive policy presentation but emanates from investors being like rabbits trapped in the headlights and not really having the faintest clue which way to jump.

Somebody here is not “on message” but if you don’t believe the message, can you be obliged to be or was the reason you were appointed to a senior role in the Fed in the first place to bring debate into the public arena? Out here at the coal-face we are still wrestling with the aftermath of last week’s FOMC. Having closed down 8.07 points at 1,701.84 points yesterday, the S&P is back close to levels it saw a week ago. No signs of a rally on the back of the maintaining of QE3 then.

Markets clearly still don’t know whether to celebrate the continuation of loose monetary policy or whether to get scared by the uncertainty which even the Fed seems to be struggling with too as to where the economy is headed and, more to the point, at what speed it might be getting there. The monetary sword of Damocles may have been moved but it has not been removed – big difference.

Over in Frankfurt

Meanwhile, St.Mario is clinging on to his “Whatever it takes” policy and yesterday offered up the prospect of more LTRO. The words came from Erkki Liikanen of the ECB Governing Council who, when asked whether then bank was contemplating any further LTRO replied “I’m ready to act if needed….”

If markets hadn’t been as well prepared as they were for an end to easy monetary conditions, they would be taking all this in their stride but the central banks have not communicated well. The lack of volatility is not, in my humble opinion, the result of solid and sensitive policy presentation but emanates from investors being like rabbits trapped in the head-lights and not really having the faintest clue which way to jump.

I had a lengthy conversation yesterday with a senior PM at a major European insurance group. He confirmed what most of us out here have discovered to our detriment, namely that his team has given up trying to take strategic decisions and that it is playing very close to home. He does not envisage putting on any new bets between now and the end of the year and will be very happy simply harmlessly reinvesting coupons and redemptions if, as and when in the belly of the curve and in stable and predictable credits.

Who can blame them if they’re not even sure what the monetary authorities are supposedly trying to tell them?

Maybe Richard Fisher isn’t all that wrong. When on the subject of Fisher and his outspokenness, he has also commented on what he believes to be a botched effort on the part of the White House when it comes to appointing the new Fed Chairman. On the subject of the Bernanke succession he said: “This should not be a public debate,” and added that the Fed “must never be a political instrument.” Never has a truer word been spoken.

Meanwhile, poor old JP Morgan remains in the wars. This has nothing to do with Schadenfreude but it did irk when the bank was being presented as being whiter than white while Citi and Bank of America were being torn to pieces by the regulators and while it looked as though more or less every European investment bank which had been active in New York was being fined for getting up in the morning and doing what everyone else was most probably doing too. All Morgan needs now, if it is to bag a McNab, is to be done for money laundering too.

I do note, however, that Jamie Dimon – Chairman, President and CEO – who couldn’t be kept off the front pages and crowing while the rest of the industry was having its bottom smacked by the SEC and its peers is now keeping a very low profile. Of the “Class of ‘07”, he is pretty much the last man standing. Now that the veil has fallen, can he really justify continuing in his leadership role?

His failing is not in that he was running the bank while all the shenanigans were being perpetrated – it is impossible for one individual to control all the details of daily business and the now common ritual defenestration of CEOs helps nobody in particular – but in the self-righteousness he demonstrated in the face of others’ problems rather than using the time to instruct a root and branch audit of his own bank’s practices.

For my money, Dimon will either announce that he will be stepping down or even actually step down before the year is out.

Care to bet against me?             

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