Pickle

In August 2010 the then Fed Chair Ben Bernanke suggested to his fellow decision makers they should think about an experimental programme to juice sluggish growth and stick some zizz into the jobs market. After some late night pow-wowing, they all decided to vote in favour of creating $600bn out of thin air to buy bonds. Lots of bonds. The committee all decided to vote in favour, bar one. Thomas Hoenig was President of the regional bank in Kansas City and it was a straight “no” for him. Indeed, he voted “no” again and again when the programme really got going. His record of dissent is one of the longest in the bank’s history. His concern – seemingly pushed aside by others – was that all the juicing would see capital being allocated without due care and that once experimental policies are unleashed, there would be no going back. It would all end up with the FOMC staring at each other wide eyed in a right old pickle. Over a decade later, pop goes the lid on the jar of pickle. Post the ‘hawkish’ minutes, stimulus withdrawal and balance sheet run off is now the game in town. The move on the run-off has jolted, somewhat, a market expecting something a bit more measured. A bit more ‘steady hand on the tiller’. Growth, for now at least, got torched. Amidst a seasonal flurry of what generally read as cautiously bulled up year-ahead forecasts that called for a front footed risk-on setting, there is likely to be some sweaty backs down Wall Street. For a market that has long been kept on the boil by abundant liquidity, it heralds a turn. Professional money managers often welcome a short-term price kerfuffle, but for others the volume on CNBC might get turned up. Last year saw nigh on $1 trillion flow into equities, larger than the combined flow over 20 years, much of it from retail investors. And much of it on leverage. Hmm.