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May 6, 2022

Frog Dissection

By:Josh Fabian

For the last couple weeks, if you had tuned into traditional financial media, all the talk was about earnings and the Fed. The earnings talk was akin to an eighth grade biology class dissecting a frog. In other words, the people doing the dissecting don’t really know what they’re talking about, at least not with respect to how it relates to markets. It was simply an attempt to place a narrative around why stocks were responding the way they were. Nothing more than a post-mortem. Then there was the Fed.

Each month we wait to hear what the Fed plans to do with respect to interest rates and monetary policy. Mark Haines, who we really liked, was a CNBC host that invented the Greenspan indicator. If Alan Greenspan went into a meeting with a briefcase, rates were going to change. No briefcase, no change. But just like today’s hosts, Mark missed the, eh, um, mark.

The reality of the situation is that the Fed does not lead when it comes to interest rate policy. There are currently four members on the Board of Governors with three additional seats vacant (that three seats are empty gives you an idea of how sought after those positions are). The bond market is a multi trillion dollar market with massive amounts of liquidity changing hands daily. Anyone thinking four people have more say over how that market trades than the market itself fails to understand the market.

Sure, we understand programs like quantitative easing did influence the market. But that was a unique situation where markets were not functioning well. We are clearly moving back toward a market without a crutch. And as we transition back, it is the market deciding on rates. By any number of various market indicators, a 50 basis increase in rates was a foregone conclusion.

In June the Fed will meet again. They will announce a decision on rates that was made for them by the market. But until then, media will speculate what’s to come. They’ll look at employment numbers, earnings, inflation and do what they do best, dissect frogs without really understanding what they’re looking at.

Written by Dylan Ratigan and Josh Fabian

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