A Note on Fed Policy
The Ever-Predictable Federal Reserve
As we have noted for months now the Federal Reserve is most likely on its way to a zero target. This view got some more evidence today. In addition to infusing massive liquidity into the repo market over the past few days they have now followed the July decrease with another. The intraday Pavlovian response in the equity markets was also as expected. It seems that the decade long plus dynamic continues. At least for now. We will continue to monitor the capital markets. Note, though, that the chaotic pricing dynamic across the capital markets is beginning to feel eerily like 2000 and 2008. The instability is beginning to manifest itself in the aversive rhetoric throughout the media coverage. In other words, it could be that the market psychology is beginning to recognize the frightening reality that global economic growth is seriously waning while policy makers haven’t anything left to counter it. It’s going to be a very exciting time in the investment industry over the coming quarters. And just for fun, we currently have Democratic presidential primary debates that seem to have literally zero understanding of basic economics. The dystopian insanity of the domestic policy prescriptions being debated are simply preposterous to any serious-minded investment professional. In our view, there are too many forces aligning for risk not to become the primary investment characteristic for the foreseeable future. As we have stated for several months now, sound risk management will be essential to produce superior risk adjusted returns.