There is a delicious liberation in having nothing to lose.
That profound realization quickly comes into focus for those who can bear the brutality that one man is capable of unleashing in Man on Fire.
Set in Mexico City, the casting and filming of the 2004 film are flawless. Though the supporting cast is critical to the film’s eventual success, its two main characters are key to the crossing of the film into the realm of sublime. Denzel Washington as “John Creasy,” a former CIA operative and Recon Marine officer turned mercenary, portrays to perfection a man whose heart had long since turned to stone. The on-air chemistry between Creasy and his nine-year old charge, “Lupita,” elevated the movie to greatness. A young Dakota Fanning nearly stole the show.
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As shocked as he was to learn he still had the capacity to love, Creasy was all the more moved to hatred when told the girl, whose kidnappers had nearly killed him, had been murdered. With that his soul followed his heart into darkness.
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Creasy avenged an evil as only a man with nothing to lose can. “Revenge is a meal best served cold,” he observed. And serve up vengeance Creasy did, to the powerfully protected “La Hermandad,” the corrupt brotherhood of police officers responsible for unspeakable crimes against the innocents.
Whether it was serendipity or fate that drew me to immerse myself in this film as I reflected upon the two years that have passed since I left the Federal Reserve will remain an unknown. Regardless, the resonance made its mark as I digest the latest headlines, warning that the new guard at the Federal Reserve will be much the same as the old, if not replicated down to the very same cast of characters.
Many readers who’ve journeyed with me these past two years have asked whether this spirit-sapping news will cause me to lay down my arms, to give the mission of reforming the Fed up to a higher being.
The answer is simple. Why come this far just to give up? I had no agenda, nothing to lose, the day I set foot inside the Fed. And I had nothing to lose the day I walked out its doors, determined to shine a light on an institution that is not so mysterious, as it is myopic, to the detriment of its own charges, We the People.
It is for the little guy that I will go on fighting the good fight. It is for the abandoned masses I will continue to make a stand against central banking’s answer to La Hermandad.
Did you miss the news, you might be asking? Have nominees to fill those three vacancies at the Federal Reserve Board been named? Has Janet Yellen been re-nominated to continue chairing the Fed? Well, no.
But Gary Cohn has told us we need not concern ourselves with change at the world’s most powerful central bank. As was reiterated in a deliberately timed and placed story in the Wall Street Journal last Wednesday, the very day the Fed met and raised interest rates,
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“The Fed will do what they need to do, and we respect the powers of the Fed.”
Note two things: Cohn first spoke these words in an interview aired in March on Fox News. That his words were reprinted two months later under a front-page headline that read, “Search for Fed Chief Begins, Led by Goldman Veteran” was no coincidence. Consider the story’s emphasis on Cohn’s, “appreciation for the power of the Fed during his long career on Wall Street and for the institution’s relative freedom during his current stint in Washington,” to be the icing on the cake.
In the event you sense some sort of conspiracy at hand, stop it. It’s not sinister. It’s strategic. It’s how the establishment becomes entrenched. It’s how wrong becomes the accepted right.
Speaking of wrongs, a recent Economist story, cleverly titled, “How to be wrong,” offered a rude reminder to all of us who’d prefer to think we’re above fallibility. Two years on, and 127 missives later, I’d be remiss to park myself in the deity department. Rather, let me count the ways I have been wrong…
For starters, risky asset prices have gone from being rich to richer. As much as I’d like to brag on a different outcome, one that would have hit the reset button long ago, the stock market hasn’t fallen out of bed, bonds of all ilk remain buoyant and real estate roars on.
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Rather than claim post-traumatic stress disorder resulting from too many years on the inside, take the words of Bernard Baruch, who once said, “The main purpose of the stock market is to make fools of as many men as possible.” Today, our upside-down existence dictates we flip his reasoning on its head. To that end, “The main purpose of a stock market in the modern age of central banking is to make fools of as many skeptics as possible.”
Did someone mention carnage in the junk bond market? Mea culpa again. Crude prices being closer to $30-something than $50-something looked to herald unprecedented losses in high yield bonds. What do we have instead, thanks to the bottomless pockets of those who ply in dry powder? That would be the leanest domestic energy industry on Planet Earth, which takes us one step closer to energy independence, an unequivocal best-case scenario result.
As for all those share buybacks I contended were the stock market’s sole prop, guess what? In the year through March 2017, the percentage of Standard & Poor’s 500 companies that have reduced their share count by four percent or more has halved to 14 percent from a high of 28 percent. Firms are being run as cost-effectively as ever and throwing off cash flow as never before.
Have faith the baring of these revelations that run contrary to my grave predictions has not been an enjoyable exercise. Nor was it supposed to be. But integrity demands it of the lowliest of us. Consider the alternative to fessing foibles, to acquiescing to necessary and yes, exhilarating, exercises in humility.
Perhaps you’ve noticed the belligerence of the bulls of late? How they all seemed to have lost any manners they should have gleaned from their upbringings in catty concert?
According to the Economist, “groupthink is highest when people within groups face a shared fate.” Well that explains a lot. “Even as the facts on a particular issue converge in one direction, parties can still become increasingly polarized around starkly different belief sets. That, in turn can make it harder still for a member of one party to derive any benefit from breaking ranks (emphasis mine).”
As little breaking bad as there is among the bullish herd, there’s even less among economists. For their sake, it’s a good thing Citigroup waves investors off viewing its proprietary Economic Surprise Index in isolation. The gauge, which tracks the pace at which economic indicators are beating estimates, has hit its lowest level in six years. You remember the summer of 2011, don’t you, when Uncle Sam was about to get slapped with a ratings downgrade? That said, once economists ratchet back their growth projections, this self-correcting index will pop back into positive territory.
As the New York Fed’s Bill Dudley himself has foreseen, it’s a matter of perspective and relativity. In his estimation, the overall outlook today is “pretty good.” As for what’s to come, forget the message in that old bond market. Things are apt to be smoking hot before we know it, hence the need to keep tightening.
“If we were not to withdraw accommodation,” Dudley said twisting his words as only economists can, “the risk would be that the economy would crash to a very, very low unemployment rate and generate inflation.” Follow? “Then the risk would be that we would have to slam on the brakes and the next stop would be recession.” Got it? The Fed is tightening so they don’t have to tighten. Right.
Dudley is right on one count. We could well see an overshoot on the unemployment rate. By the same token, the Fed wrote the rules on which economic indicators lead, and which lag. The caboose, if you will, is the unemployment rate.
What’s driving the train? What will lead the economy in its next direction? Hmmm. While earnings growth is all good and well, sales can’t seem to pick themselves off the floor and we’re talking the full spectrum, from the smallest to the biggest businesses. What else? There is that crude oil thing that’s looking less ‘transitory’ by the day and promises to bleed into inflation for months to com. As for the cars that have literally driven the current recovery? Maybe it’s best we not bring up the subject and leave it at that. You know how ugly it’s become in that space.
And finally, there’s this little thing called the commercial real estate market, which is taking daily body blows as valuations overheat in the face of a blindsiding barrage of supply emanating from retail, and soon to be restaurants.
Yep, that about sums it up if you’re into looking ahead as opposed to making monetary policy using only what you see in the rearview mirror to guide you.
To be fair, there are two voices of reason on the Fed. The Boston Fed’s Eric Rosengren has risen in stature as he refuses to back down on the potential for commercial real estate to spread to the macroeconomy.
And then there’s Vice Chair Stanley Fischer who just this week warned that house prices in a multitude of spots around the globe are a wee bit too high, “perhaps as a result of extended periods of low interest rates.” Imagine that. On the other hand, a $664,000 price tag for a parking spot in Hong Kong does seem a bit off (the Richter Scale).
If only, the lament goes, policymakers had a reliable inflation metric that correctly captured that darned asset price inflation! So we have whined for years and years…until now.
I wish I could take credit. Alas, the acclaim goes to a fishing buddy of mine who saw fit to put his mind to the grindstone for the cause of us wee souls who’ve been exhausted by “brilliant” central bankers who’ve yet to exemplify the capacity to come up with a new inflation mouse trap that incorporates real estate and asset price inflation. To think they defer to each other deferentially as “Doctor.”
For the time being, credit will have to sit with Brent Donnelly, or plain old Mister Donnelly if you insist on being formal, for taking a stab at reading reality.
Gourmand snobs in the audience will likely demand the details. To wit, Donnelly started with year-on-year figures for consumer prices (as per CPI), home prices and the Nasdaq. He then adjusted for volatility using the CPI as the baseline: he divided the CPI by itself; home prices by 1.64 and the Nasdaq by 11 (as it’s 11 times more volatile than the CPI). Is it me, or is it so far, so painfully intuitive?
The new and seriously improved metric goes by the ingenious acronym of the CAPI – the US Consumer and Asset Price Inflation. Maestro, can we please get a “Ta-Da?!” (Didn’t some central banker once go by that nickname? I digress…)
At the risk of Donnelly being drawn and quartered, I regret not being able to share the data and the glorious chart it produces that depicts this comprehensive metric all the way back to 1998, before the Original Sin of (inflation) omission was committed by Alan Greenspan.
Take my word for it, central bankers worth their weight in salt (gold is so passé!) would easily gather from a first blush glance that the line of demarcation between tamed inflation (the real and inclusive CAPI deal) and inflation run wild is seven percent…if they actually had to exist in a world that captured inflation in the aggregate.
In continuing on the theme of the data humbling any preconceived conclusions, in the here and now, the CAPI has just crossed up and over the seven-percent line. Inflation, measured wholly and holistically, is in true Goldilocks fashion, neither too hot nor too cold. The current equilibrium compares ever so favorably to early 2000, when the CAPI was double its current level, and 2007, when the index hit 10 percent.
Hate to break it to you, folks. Wherever “there” is, we haven’t arrived at “Destination No Looking Back.”
Bubbles, especially those that chip away at our intellect, wearing us down with their endless build-ups and messy aftermaths, are cruel, mean bitches that refuse to slink silently into any night. We may have a tornado in commercial real estate. We most certainly have a volcano building to eruption in the bond market. But we don’t have whatever it is that happens when a tornado meets a volcano in the risky asset marketplace that determines the fate of our financial livelihood.
And so, the Fed will once again appear to rise above the fray of so many naysayers, sloughing off worrywarts as Cassandras. The bulls will have their heroes and heroines to indemnify their vitriol. And the new administration will bask in the glory of being on the right side of the trade for the time being.
I refer back to the conclusion of the Economist’s lesson in fessing up to one’s ineptitudes to find a pathway to intellectual salvation, in the beauty of life’s eventually being allowed to be life: “It is rarely in the interests of those in the right to pretend they are never wrong.”
Should you choose to dwell in the land of central bank denialists, you too can dismiss the fifth largest state in our country being a stone’s throw from a junk bond rating. But first, ask yourself if an avalanche of states and municipalities will follow in Illinois’ wake when the markets correct despite the Fed’s delusions as to an otherwise out-worldly outcome?
Insist if you will that the Fed’s second mandate of maximum employment has not bastardized its originally intended role of safeguarding the value of the dollar in our wallets and stepping in as lender of last resort in times of extreme duress when the private sector is on its knees. Has the dual employment mandate not invited Mission Creep of the most nefarious sort?
Ignore if you must the flattest yield curve since the dark days of 2007 that preceded the financial crisis we crowned, “Great” for less than ignoble reasons; that flattening fast figment of our collective imagination is just that, a phantom in plain sight.
As for me, there’s a good chance I’m still Fed Up. There’s a high probability I’m more Fed Up than ever on behalf of you and you and you, that Twitter follower who recently remarked with deserved cynicism that “economic expansion” was defined as the rich getting more and the rest getting less.
More often than not, we forget the etymological wonders proffered by the Greeks. For shame. It is to those very ancient Greeks we are forever indebted for words such as “evangelize,” the literal translation of which is “to share the good news.”
There will indeed be good news to share and spread widely one day when the people take back what it rightfully theirs, their right to financial freedom. Until that splendid time arrives, have faith that I will carry the torch for one and all.
As for those who refuse to stop lying to us, the little people, the central bankers who continue to shush us, insisting they know better on all our behalf, be they ware, I remain steadfast to my committed cause. I still have no agenda, nothing to lose. I am now, more than ever, a Woman on Fire.
Article by Danielle DiMartino Booth, author of Fed Up: An Insider’s Take on the Why the Federal Reserve is Bad for America
