King Report: FOMC Review



As we speculated in an earlier missive, once the FOMC Communiqué was released, traders would try to gun stocks to commence performance gaming for January. The only surprise was that it took about 20 minutes for traders to gain the courage to manipulate SPHs.
The probable reason for the delay is that FOMC Communiqué contains two negatives.

1) The communiqué said MBS buying would end on March 31. Various Fed officials in recent weeks advocated either extending the MBS buying or having the ability to buy as needed.

2) KC Fed President Thomas Hoenig voiced a dissenting vote as to keeping the ZIRP.
Experienced Fed watchers realize the FOMC loathes any public dissension. In the past, when discord was high, the compromise was to allow one person to voice dissent in the public record as a proxy for others that wanted to voice dissent. So the question is: who else disagrees with keeping rates near zero?

One other point – the FOMC again asserted: “…economic activity continued to strengthen and that the deterioration in the labor market is abating…” The forecast is dubious at best; but more importantly the FOMC omitted any comments about retail sales and housing – because both are in decline.

In the previous two communiqués, the FOMC asserted that housing was improving. This was not the case as today’s New Home Sales and recent Existing Home Sales demonstrated . . . How many times during 2009 did we hear ‘housing is rebounding or improving’ from economists, The Street and Fed officials?

New home sales unexpectedly fell 7.6% in December, to an adjusted 342k annual rate. 374,000 new homes were sold last year. The 23% y/y decline is the largest on record, which dates back to 1963. And this was with the ‘first-time buyer tax credit’.

Equities get it last again – partly on performance gaming. The dollar rallied (euro fell below critical 140 support briefly) while bonds and commodities declined. Copper tanked 15 handles…More importantly, 1-month Bills went negative again. We didn’t see any of the usual suspects try to downplay the fright to safety as ‘yearend’ related.

There is a troubling reason for the return to a negative T-Bills rate; and solons would like to keep the reason buried – so those in the know can adjust their holdings in an orderly manner.

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