Do you want to know something that continually amazes us? Of course you do. Have a look at this chart:
(Chart: Deutsche Bank)
So pretty clearly, the market has no faith whatsoever in the Fed’s ability and/or willingness to raise rates, right? Well that being the case, why is it that all it takes is a few soundbites from Fed officials to send stocks off the veritable deep end and send vol soaring?
You can read the entire rundown elsewhere, but suffice to say it all started with the Boston Fed’s Eric Rosengren who basically said a whole bunch of nothing, but that didn’t stop everything from selling off. And now here we are down triple digits on the Dow.
Of course the silliest thing about this is that the bloodbath is apparently being fueled by a rumor about a speech. Here’s CNBC (which we would not normally quote, but this underscores the absurdity):“As the week drew to a close and the Fed's "quiet period" before meetings was about to settle in, investors recoiled over news that the central bank's most dovish official, Governor Lael Brainard, will be delivering a previously unannounced speech Monday at The Chicago Council on Global Affairs.”
"It certainly would be a clincher if she sounded any more hawkish," said Peter Boockvar, chief market analyst at The Lindsey Group. "I find it unusual that she would put together a speech just days before they go into a quiet period before the meeting."
This has turned into a baseball game. It’s just a matter of who’s on deck. And there were three - count them, three - Fed officials who spoke today. The more the merrier? Apparently not. They can no longer saying anything right. Look at the 10Y:
We’ve gone from 152 to 167 in 48 hours.
Here’s what BofAML had to say:
“Market shouldn’t overreact to the likely ‘cautious’ comments from Fed Gov. Lael Brainard on Monday.; Brainard has been consistently cautious, falls into ‘risk-management’ school of thought at Fed Even with multiple views at central bank, ‘the focus should be on Yellen,’ who is ‘most sensitive’ to asymmetry of policy and identifies most with risk-management approach.”
Right. But everyone knows that, so what’s with the panic? Here’s what Quincy Krosby, market strategist at Prudential Financial told CNBC:
"When a market is quiet, it's susceptible to rumors, whether we're talking about a path to freeze oil production or whether the Fed is going to raise rates in September. This may be a market that has too much time on its hands right now."
Amen to that brother.
Of course what the market should be focused on is realities. Realities like these:
(Charts: Deutsche Bank)
And realities like this:
(Chart: Morgan Stanley)
If you want a reason for the Dow to be down nearly 300 points, look to those charts, not to a speech by a Fed official.
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