The Fed’s Daily Market Affirmation, by Robert Gore

This morning stock index futures took flight after Charlie Evans, president of the Chicago Fed, told a forum in Chicago that: “raising rates would be a catastrophe.” Since mid-October, when St. Louis Fed president James Bullard stopped a stock market decline of less than 9 percent in its tracks with a comment that the Fed should consider delaying ending its bond purchase program (see “Fed Cries Uncle,” SLL, 10/16/14), to the fantabulous rally last month after the Fed included both the word “patient” and the phrase “considerable time” in its statement (see “Ms. Yellen Whispers Sweet Nothings In Mr. Market’s Ear,” SLL, 12/19/14), Fed “encouragement” has been about the only thing elevating the stock market.

Daily affirmations have become all the rage among self-helpers. Perhaps the Fed should pronounce its own daily affirmation for the markets. “We, the munificent high priests of The Federal Reserve, promises to keep our administered interest at zero in perpetuity, so that speculators in all manner of financial instruments, but especially equities and their derivatives, shall realize the blessings of cheap funding and infinite leverage forevermore. The Dow will improve every day in every way on its foreordained path to 100,000.” This could appear as a message on all Bloomberg screens five minutes before the opening of US equity markets. Speculators,  thus “encouraged,” would start the day in the proper frame of mind to buy, buy, buy.

On a more serious note, if the “Evans” rally fails to take out the highs of last month’s “Yellen” rally, it may be time to engage in a long-forgotten practice, the verb whose name cannot be spoken or fully written: S**L. From “Fed Cries Uncle”: “If all the economy and the financial markets have going for them is the central bank swapping computer entries with the Treasury (reserve balances with the Fed versus US government debt), intermediated by Wall Street, we are in a world of trouble.” An amplification: if all the economy and financial markets have going for them is an emission from a Fed-head recommending reconsideration of when the Fed might raise its zero interest rate a measly twenty-five basis points (one-quarter of 1 percent) then we are in a universe of trouble.

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