Witch Doctors at the Fed Brewing Something Wicked?

Eventually, everything matters.

Whether it's a hurricane ravaging Houston, Miami, or Puerto Rico, Toys 'R Us going chapter 11, or JP Morgan Chase CEO Jamie Dimon bashing cryptocurrencies in general and Bitcoin in the specific, all actions have consequences. It's the butterfly flapping its wings in Africa resulting in the subtropical windstorm, pure physics, action, reaction, cause and effect.

Thus it is consequential that the Fed's announcement in June indicating that it would begin to sell off it's hefty bag of assets - confirmed just yesterday - beginning in October (a scant ten days from now) should have some noticeable effect.

Market reaction to the announcement three months ago was muted. It was more serious yesterday and took on a gloomy tone today as all of the major indices retreated from all-time highs, the hardest hit being the speculative NASDAQ index, though one could posit that the knee-jerk nature of the selling today was nothing more than casual.

Suppose it is more than that.

Wouldn't the biggest players in the investing universe be monitoring market movements closely, making incremental moves, buying insurance? Of course. None of them want to tip their hand, but, they are concerned that the Federal Reserve has lost control of the monetary side of the equation. After all, ZIRP (zero interest rate policy) didn't work, nor did quantitative easing (QE). With all of their bullets spent, the Fed has nonchalantly called the financial crisis over and done and signaled to the market that they are going to raise interest rates, sell off the assets they've been hoarding for some six, seven, or eight years and the economy of the United States - and the world - will suddenly and magically be wonderful again.

As Dana Carvey playing the "Church Lady" might say, "how convenient!"

The Fed is at a loss and has been for eight or nine years running (some may say longer), because they cannot control distant event, geological occurrences, sunrises, or the whims of people with money. They are what Ayn Rand and Rollo May might have called witch doctors whose power is derived from people's belief in their so-called powers.

When the Fed begins selling their cache of securities (mostly treasury bonds and mortgage-backed securities) expect some degree of howling from various quarters, notably those who have been calling the central bank's attempts to control global markets a scam, sham, or film-flam from the start.

Especially when it comes to the mortgage-backed securities (MBS) there will be great gnashing of teeth, especially deep inside the bowels of the Eccles Building, where it cannot be heard, as Fed governors (a number of them already jumping ship) bemoan their dissatisfaction over the task at hand.

They are about to become scorned, and with good reason. They've mismanaged other people's money (practically everybody's) to their own profit. Bernie Madoff would look like a saint compared to the crimes the people at the Fed have committed. Those crimes continue, and they will be manifest in the "great unwind."

As the case may be, all of these high priests and witch doctors of finance will claim they didn't see the carnage coming, but come it will. There's a place for people who use deceit and obfuscation to achieve their ends, and it's certainly not in heaven.

Keep a close eye on three things: the price of silver, the price of corn and wheat, and the performance of the major stock indices. If suspicions play out, all three (or two of three, with the only gainer being silver) will decline for months before there's true confirmation that, in the long scheme of things, the Fed officials, from Greenspan to Bernanke to Yellen, knew exactly what they were doing but did it anyway.

Today's position: Fetal.

At the Close, Thursday, September 21, 2017:
Dow: 22,359.23, -53.36 (-0.24%)
NASDAQ: 6,422.69, -33.35 (-0.52%)
S&P 500: 2,500.60, -7.64 (-0.30%)
NYSE Composite: 12,133.62, -13.88 (-0.11%)