And So It Goes

Since the bull market began in 2009, on three occasions (November 10, 2010, April 29, 2011, and March 30, 2013) I have posted a perspective from one of the voting members of the FOMC, St. Louis Fed President, James Bullard, and his seminal work, "Seven Faces of "The Peril'". In his commentary, Mr. Bullard provides a chart (see accompanying chart to your left) that illustrates quite clearly the underlying fear that drives the Fed toward its super easy (and, seemingly, never ending) monetary ease policy.

While yesterday's surprising decision to postpone the taper focused on the state of the US economy (and, to a degree, the financial markets' recent action), the real driver, I would argue, is the underlying fear that the US could, without a sustained intervention by the central bank, slip into deflationary territory - a place where government intervention has a very limited history of success.

Now, even if one doesn't fully (or, even, partially) buy the argument re the Fed fears of deflation, consider the very fact that the Fed was unwilling to engage in a measly $10 billion per month ($120 billion per year) taper in a $15 trillion economy. What does that say about an economy that has been on governmental intervention support for 5 years and counting?

To help illuminate the Fed's action as it relates to the state of the US economy, perhaps what my good friend, Dr. Vahan Janjigian, CFA, wrote today will help.

Investment Strategy Implications

Many who live inside the Wall Street bubble act and react according to the financial video game they play. Economists and financial theoreticians provide the intellectual cover, the legitimization of the illegitimate belief that the social sciences are more akin to the physical sciences and, therefore, are more science than art. And, in time, when things don't go quite as forecast, the outcome surprises. Should that outcome the next time the surprise occurs (and it will, it always does) turns out to be anything resembling the disaster of 2007-09 (or, more likely, worse), who will answer the question Queen Elizabeth posed at the London School of Economics, "Why did nobody notice it?".

And so it goes.