It all boils down to logomachy – a war of words over the choice of words.
Reserve Bank of India governor Raghuram Rajan had ignited a huge controversy in New York earlier this week when he described India as “a one-eyed King in the land of the blind” in response to a journalist’s question on the country’s emergence as the fastest growing economy in the world.
Rajan tried to clear the air over his controversial remark that the media turned into a severe headline-grabbing criticism of the Narendra Modi government’s performance, drawing sharp rebuttals from finance minister Arun Jaitley, his deputy Jayant Sinha and commerce minister Nirmala Sitharaman. “How forgiving should we be of a bad choice of words when the intent is clearly different,” Rajan said while delivering his convocation address at the National Institute of Bank Management in Pune.
“As a central banker who has to be pragmatic, I cannot get euphoric if India is the fastest growing large economy. Our current growth certainly reflects the hard work of the government and the people of the country, but we have to repeat this performance over the next 20 years before we can give every Indian a decent livelihood,” the RBI governor said.
The governor said his intention was to signal that India’s economic out-performance was “accentuated because world growth was weak.”
Stephen Roach is worried that the Fed has set the world up for another financial market meltdown.
Lower for longer rates and the proliferation of unconventional monetary policy have created “a breeding ground for asset bubbles, credit bubbles, and all-too frequent crises, so the Fed is really a part of the problem of financial instability rather than trying to provide a sense of calm in an otherwise unstable world,” Roach told Bloomberg TV in an interview conducted a little over a week ago.
To be sure, Roach’s sentiments have become par for the proverbial course. That is, it may have taken everyone a while (as in five years or so) to come to the conclusion we reached long ago, namely that central banks are setting the world up for a crisis that will make 2008 look like a walk in the park, but most of the “very serious” people are now getting concerned. Take BofAML for instance, who, in a note we outlined on Wednesday, demonstrated the prevailing dynamic with the following useful graphic:
Since the start of June, global equity markets have lost over $13 trillion.
(The last time global market dropped this much – Bernanke unleashed QE2)
World market capitalization has fallen back below $60 trillion for the first time since February 2014 as it appears the world’s central planners’ print-or-die policy to create wealth (and in some magical thinking – economic growth) has failed – and failed dramatically.
If the consequences for the economy were less important one couldn’t help but be amused by the predicament in which Janet Yellen finds herself today. She and her fellow Fed travelers have been “preparing” the market for a rate hike for nearly a year and now it is that very preparation that has kept them from hiking rates as planned. As I’ve said numerous times recently, talking about changing monetary policy is the same as changing policy in that it produces exactly the same response. So, as the Fed talked about a rate hike, the market raised the value of the dollar as if the hike had already occurred. The rise in the dollar created concern about the ability of emerging markets to service their dollar debts which caused capital to flow out and back to the US which further raised the value of the dollar and increased the concern about emerging markets, the cycle continuing until the Fed was forced to postpone the rate hike due to “international developments” which were caused by the Fed’s efforts to prepare the market for the rate hike they just postponed.
Ben Bernanke started the trend toward Federal Reserve transparency in the belief that demystifying the process would lead to more efficient, effective policy.Markets would be forewarned about future changes in policy, adjustments would be made incrementally and the economy would function more smoothly. Yeah, maybe in a textbook but reality has been a bit different. Forward guidance – who came up with that stupid phrase; what other kind of guidance could they provide? – turns out to be nothing of the sort absent an operating crystal ball. When the economy doesn’t perform as the Fed expects – and when has it ever? – because the Fed’s transparency policy has changed the market conditions that were supportive of the outcome the Fed originally predicted, they are forced to change direction, to change their forward guidance – policy – rather abruptly which was what they were trying to avoid with forward guidance. It is a fresh, circular hell from which there is no exit (with a nod to Dorothy Parker and J.P. Sartre).
And so we are left to ponder the significance of Ms. Yellen’s speech last week which many took to be a walk back of the previous week’s uber-dovish FOMC statement which she also certainly had a hand in composing. Whiplash is not supposed to be a feature of the new market friendly Fed but keeping an eye and ear on all of them as they galavant about the country providing forward guidance willy nilly to one and all whether it is needed, wanted or counterproductive is a full time profession that requires an in house masseuse. One pines for the day when central bankers were seen and not heard.
The list, posted Wednesday on the online-only English-language Inspire website magazine, included billionaires such as co-founder of Microsoft Bill Gates, investor Warren Buffet, former New York City Mayor Michael Bloomberg and former chairman of the US Federal Reserve Ben Bernanke.
AQAP claimed that the deaths of those selected would bring instability to the economy of the United States and prevent what it termed a US ‘revival.’ According to the website, those selected would be removed from the list if they withdrew their money from the US economy and invested it in other countries.
The website misspelled several names of potential victims and went so far as to include Sam Walton, the founder of retailer giant Walmart, in the list, regardless of his death in 1992.
According to NBC News, Inspire posted a list of potential targets online in 2014. AQAP announced its existence in 2009, to bring together al-Qaeda branches in Yemen and Saudi Arabia.
The FOMC meeting is the most important economic event next week. The implications are much broader than the impact on the US dollar, which has surprisingly not reacted to the recent string of strong economic data.
This month’s FOMC meeting had previously been widely seen as a likely timeframe for the first rate hike. The unexpected weakness in GDP and the well-below trend job growth in March help shift sentiment to September. This month’s Wall Street Journal survey showed 72% of economists expect that.
What follows from this is that neither the FOMC or Yellen at her press conference will indicate otherwise. To do this, the Fed will have to recognize that what will eventually appear as stagnation in Q1 appears to be proving temporary as it had anticipated. This will likely mean a reduction of the “central tendency” of Fed forecasts, by which a few highs and lows are dismissed, and an average taken of the remainder. In March, it was 2.3%-2.7% (2.5% midpoint, which after the recently updated forecasts is precisely what the IMF forecasts).
Tactically, it would be best for the Federal Reserve is they avoided being in a position to cut its growth forecasts again in September. It would not be helpful in the context of both the IMF and World Bank recent assessments that the Fed should wait until next year to raise rates. On the other hand, a central tendency of below 2% might be taken as a signal that the doves are prevailing.
The Federal Reserve wants to avoid sparking another taper tantrum. That will be easier said than done.
In May 2013, when the Fed’s then-Chairman Ben Bernanke said that the central bankcould begin winding down quantitative easing “in the next few meetings,” he sparked a selloff in Treasurys that sent the yield on the 10-year note from 1.94% to 2.9% in three months.
By then the Fed was having second thoughts, in part because it worried the rise in long-term rates was damping the economy. It didn’t begin scaling back bond purchases until the start of last year. If it mishandles communicating its plans for raising rates, it risks a repeat.
The Wall Street Journal’s monthly survey of economists, released Thursday, shows that nearly three-quarters of forecasters expect the Fed to begin raising its target range on overnight rates at its September meeting. The remainder are split between earlier and later dates. The median federal-funds forecast for year-end is 0.625%, which implies a target range of 0.5% to 0.75%—implying two quarter-point increases from the current range.
Those forecasts reflect a view that the economy will rebound from the weak first quarter, allowing the Fed to finally lift rates. It also seems squarely in line with what Fed officials themselves expect.
It’s nice to know we’re being read, and Thursday’s editorial on “The Slow-Growth Fed” sure got a rise out of Ben Bernanke. The former Federal Reserve Chairman turned blogger turned Pimco adviser wrote to defend the central bank and by implication his policies as innocent of responsibility for subpar economic growth.
This is fun, so let’s parse the Revered One’s arguments. First, Mr. Bernanke accuses us of “forecasting a breakout in inflation” at least since 2006. The central banker is getting into the polemical swing, but he’s wild with that one. We’re not always right. But we’ve been careful not to join some of our friends in predicting inflation from the Fed’s post-crisis policies. We’ve written that we are in uncharted monetary territory with risks and outcomes we lack the foresight to predict.
Our view has been that the Fed’s first round of quantitative easing was necessary to stem the financial panic—and that it worked. We were skeptical of the later bouts of QE, and in our view these have been notably less successful in helping the economy return to robust health. Asset prices are up and the wealthy are better off, but the working stiff is still waiting for the economic payoff.
Note that the literature listed below can easily be found in book stores or via the internet.
The following books and articles target some of the core psychological obstacles that traders face every day and techniques to maximize their trading performance. This is an extremely important part of the reading list, in my opinion.
“The Mental Edge: Maximize Your Sports Potential with the Mind-Body Connection” – Kenneth Baum“How Successful People Practice” – James Clear (www.jamesclear.com)
I’m a big believer in visualization techniques and the contribution it can make to trading success. I first used visualization during my years playing hockey.
“Zen and the Art of Management” – Financial Times, September 16, 2013
“Good To Great” – Jim Collins
The book is centered on how companies can go from a position of mediocre to greatness. Many of the concepts are readily applicable to the trading business and to building yourself into an elite trader.
All the books of Dr. Ari Kiev.:
“Trading to Win: The Psychology of Mastering the Markets”
“Trading in the Zone: Maximizing Performance with Focus and Discipline”
“The Psychology of Risk: Mastering Market Uncertainty”
“The Mental Strategies of Top Traders: the Psychological Determinants of Trading Success”
“Hedge Fund Masters: How top Hedge Funds Set Goals, Overcome Barriers and Achieve Peak Performance”
“Mastering Trading Stress: Strategies for Maximizing Performance”
Prior to his passing, I had been organizing a conference with Dr. Kiev. He revolutionized the hedge fund industry in terms of trader performance