Tuesday, December 23, 2014


I though last week it was going to be all down hill.  It wasn't.  Eye was a mess for a few days...overworked is the diagnosis.  So we begin again.

It's kind of like playing "What if" with one's self.  With most of the world shut down today and Il Duce off to Hawaii after a grueling year of foreign policy disasters, electioneering, massive legislative losses and bad golf, things are going to be quite for a while which gives one some time to think.  So I was thinking...and it struck me that one of the greatest policy realignments coming in 2015 is the complete dovish nature of the new Federal Open Market Committee and what is expected to be a far more tight fiscal approach in the now, new, Republican Congress.

This is no little thing.  If the Republicans are serious about bringing their brand of fiscal responsibility ...which may be another way of saying squeezing the administration's initiatives at every turn--at some point there is going to be a hell of a policy conflict as every day it becomes more apparent that the economic advances of the past few months have nothing whatsoever to do with administration policies and everything to do with cheap and unlimited money and the massive tax break that is the decline in the price of oil.  All of this came to a head today as the DOW reached 18,000 for the first time in history aided no doubt by the remarkable GDP number of 5% that nobody expected.  Good for us to be sure but the debate has now changed a bit as the bond boys immediately sold the 10 and the 2 year figuring this signaled a no-brainer interest rate rise early next year while the equity guys paid it no attention at all and focused on free money tomorrow and the next day.  The classic debate between the investor and the trader.

As to who is correct?  My money is on the trader.  It seems that today's world is governed by the next headline and for the past ten years the Fed has slowly backed into a cage from which it reacts to event as opposed to getting out in front.  Blue skys are not going to be an everyday event and the Fed is going to be very reluctant to initiate a program that in any way can be seen to have precipitated a negative turn in either the economy or markets--they are not the same you know--particularly with the distinctive liberal bent of the members and the decidedly liberal bent of the FMOC.  Unless the economic outlook remains in the Goldilocks boudoir for the next six months, I suspect monetary policy will not move and there is a lot out there to change the current rosy outlook particularly on the international front.  More on that in detail at a later date.

Then again is the new Congress going to sit tight vis-a-vis it's relationship with the Fed?  Already we have heard rumblings regarding the "dual mandate" and whether it should be continued.  The question of auditing the Fed is very real among these folks up on the Hill and not a partisan issue at all.  It is a very big and powerful hammer in the relationship which could be used with great effect in any form of negotiation.  Fed oversight and regulation is a prime issue but within a different context.  I sincerely doubt if the extreme left wing of the Fed in the person of Daniel Tarullo, no matter what sort of support he has from Crazy Lizzy will have anywhere the same influence it has today.  Lizzy desperately wants to be the nominee but to have any chance in either the primary or in the election she needs Chuck's fund raising machine on Wall Street,  Bye, Bye Danny, it's been fun to know ya.  Fed watching might be back in style which may not be a bad thing if it gets Billy the Dud back to Goldman.

Anyway, those are some of the things I'll be watching (if I continue to see) in the coming months.  This is long enough for tonight.  Warming up my Fan Song I bought at a Russian Army/Navy store.  Wasn't worth much but it was really good at spotting Reindeer.

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