The seeming near impossibility of officials of the Federal Reserve to keep their mouths shut was once again on display this morning. Eric Rosengren of the Boston Fed, who has been a bit quiet for at least a week hit a home run today by suggesting...contrary to all of his previous thoughts on the matter...that the time may be coming to raise rates. The markets had be musing over Mario Draghi's apparent lack of interest in all things earlier on in the week and concluded--and I am not kidding--that THIS was the signal; the central banks were working in consort and rates would be going up. The 10 year Bund traded to a positive yield, the 10 year ratcheted up to 1.67%; the DOW closed down about 400 and the NASDAQ was down 100. Quite a day.
In case anyone was paying attention, the economic numbers--allowing for the fact that fewer and fewer believe them any more--were in the past week or so mediocre at best and downright stinko at worst. Meanwhile, Over There, Germany export numbers were way down and French Industrial Production was awful. The election is looking tighter by the day. The Chinese have a problem, Houston (it will get fixed but not for a while) and the Japanese show no signs whatsoever of figuring this thing out. Raise rates? I don't think so but today's exercise proved one thing (again) the the crazy monetary policy of the past Lord-knows how many years has, as it always does, created bubbles that if and when they burst, burst with great suddenness and ferocity. This was a very small pop today of what was perhaps a trial balloon on the part of the Fed. Having seen the reaction I suspect September is completely off the table. Underneath it all may be the growing understanding that this economy is a Potemkin Village, built almost entirely on free and easy money with a serious lack of substantive and structural underpinning. Maybe that's a good thing, if enough people get the message. Then again, one has to be listening.
Have a great weekend.
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