Today begins the much-anticipated two day Fed meeting that could finally see the organization take a (small) step toward sanity. Yes, the cash will rain there's no doubt, but I think it will be a fraction less than recent months. Using the Fed's own parameters for changing accommodation policy one might say it's too soon for even the slightest change in course.
Ben Bernanke understands the Fed must be able to jawbone Main Street into action based on the knowledge that the organization can be counted on to follow up on intentions. It's been too long since the first official hints of tapering not to take some face-saving action now.
On that note, it's easy to distinguish a drizzle from a downpour and the change I expect to hear would be undetectable. The data isn't there and that makes the timing perfect for the Fed. If they lop off $10.0 billion to its current monthly buying binge it sets up future economic reports as a report card for their ability to predict the economy. Each time data comes out a little better than advertised it gives credence to the notion the economy is ready to roll on its own and makes future action more palatable. If the Fed doesn't taper it's actually closer to admitting their policies have failed.
Balance sheet risks are too high to wait for a six and a half percent unemployment rate and other signals supposedly needed for an official green light to reversing Fed policy.
Because your own strength is unequal to the task, do not assume that it is beyond the powers of man; but if anything is within the powers and province of man, believe that it is within your own compass also.
Ben Bernanke has to take a shot on the assumption things get better. That was the message for the Empire State Fed report yesterday - things are going to get better. If things get better it would be counter to what consumers are saying and belie the extra-cautious mood of businesses. Moreover, things would have to get better with less accommodation not more. I happen to think the nation could do better with a Fed, although fiscal policy and the war on success are still anchors on animal spirits that typically are unlocked after recessions.
New State of Mind
Yesterday's report from the New York Fed on manufacturing conditions in the state underscore why the Fed should pick this meeting to announce less asset purchases. The number itself was below consensus but pointed to expansion. Moreover, the survey points to greater optimism in six months.
Tapering now isn't a bold gambit, especially when Ben Bernanke has been adamant about his willingness to reverse course if it looked like the move was premature.
It's still going to rain free money for Wall Street but when and if this ever gets to Main Street remains a mystery. As far as I'm concerned the Fed can take a bow... even though Main Street should say "thanks for nothing."
Less Vitriol More Leadership
The Summers-Is-Out Rally was humming along nicely until President Obama gave a speech that was supposed to commemorate the fifth year anniversary of Lehman's epic failure. Instead we got the standard speech on how great the last three and a half years have been (the other year didn't count) then he launched into a tirade against Tea Party Congress members. The claim they want to "hurt" Americans presumes all of the president's ideas on the economy are perfect and these guys and gals know it but their hatred for him supersedes responsibilities as elected lawmakers.
The tone was really odd considering the death toll from the Navy Shipyard shooting was climbing.
I know I'm tough on President Obama as are his critics, but the Commander in Chief should never label a group of fellow Americans with the brush used yesterday. The Tea Party has been battered out the gate and called every name under the sun by people that have never taken a second to understand them. The biggest threat they pose is a dogged determination to stay true to the Constitution and make sure the nation isn't a bloated, debt-laden shell of itself. It's not unreasonable. Their political clumsiness has cost them easy seats and made ridicule easier, but what I heard yesterday was mean-spirited.
I think that meanness permeated the market.
The continuing resolution and debt ceiling debate coupled with a rehash of sequestration promises for a tough period in Washington. All parties can feel they're right without besmirching the others to the point of saying they want to hurt fellow Americans. The fact is the economic plan from the White House is an attempt at targeting beneficiaries of taxpayer money except those paying over 40% - those are the bad taxpayers. Thick skin is a must and there are no rules this autumn in D.C.
Call to Arms
Speaking of the Navy shipyard tragedy it didn't take long for politicians to connect dots that proved their points ... or at least they think it does. The most despicable was Alexey Pushkov, head of foreign affairs committee in Russia's lower house of parliament that said the shooting was another example of "American exceptionalism" (in Russian below).
This morning Washington DC mayor, Vincent Gray pondered the role of sequestration in the shooting.
"As I look at sequestration, which is about saving money in the federal government being spent, have we somehow skimped?"
This is just like a major weather event, it's happened throughout the history of mankind and always will, and the notion of trying to guilt people or make them culpable is terrible. There is a call to arms to ditch the Second Amendment which should fail each time. Tragedies will happen; they happened before the advent of gunpowder and before man invented combustible engines. There is a real crisis of violence birth by a combination of hopelessness and excuse-making for the actual culprits.
The idea runaway government debt could stop a mental disturbed person from killing innocent people is beyond the pale stupid and offensive.
God bless the victims of the Navy shipyard massacre.