Triumph of Fed Stupidity Over Common Sense

Futures have been gyrating wildly in both directions and trading for all but the nimble is difficult, yet riding this plunge out unhedged has been brutal (yet deservedly) painful.

I say deservedly because the equity markets never should have gotten to where they did in the first place. The Fed openly acted to support share prices. In turn, share prices gave a false signal that the economy was healing.

The fact of the matter (to which many are still in denial), is there was no recovery in the first place, only a mirage of fiscal and monetary stimulus.

The most galling thing is that Fed chairman Ben Bernanke actually spoke of rising share prices as “proof” of the success of QE II. Nevermind the fact the Fed’s stated objectives of QE were to increase bank lending and increase jobs.

The Fed took credit for the rise, now Ben Bernanke ought to address the nation and take full credit for the plunge.

Wild Ride in S&P; Futures

As you can see, far more than half of Tuesday’s 75 point wild ride has been taken back. The night session two days ago was just as bad. Volatility in both directions the norm. Wednesday evening (Thursday morning) futures are gyrating once again following volatile action during the day.

Hallelujah! At the time of this writing S&P; 500 futures are up nearly 2%. Will this last more than a day? More than two hours?

Who knows? I sure don’t. 5% intraday swings are now the norm. Is this insane or what?

This volatility is a direct result of Fed and central bank intervention to support the markets. It’s a veritable triumph of stupidity over common sense.

Fed Uncertainty Principle Yet Again

This volatility is yet another prime example of the Fed Uncertainty Principle.

Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Uncertainty Principle Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary number three should be enough to frighten anyone, yet it is exactly what’s happening.

Action in stocks and bonds as well a moral-hazard bailouts of banks (that are now plunging yet again) offers clear proof it’s time to abolish the Fed and fractional reserve lending as well.

Mike “Mish” Shedlock

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