In response to an FT Markets Insight by Mohamed El-Erian on 4th April 2016, entitled 'Fed flip-flops' are a reflection of global uncertainty'
Some thoughts on co-dependency and data dependency:
"As such, market participants have a choice: either break away from a codependency that has served them well but, almost inevitably, exposes them to volatility in the short term and the possibility of major losses over the longer-term if economic and corporate fundamentals fail to improve significantly; or continue to ride the rollercoaster powered by signals from a data-dependent Fed that operates in an unusually fluid globally economy"
This co-dependency has been in effect for years, arguably since 2009, undoubtedly since the announcement of QE3. As for 'serving investors well' that remains to be seen. As many tech bubble and real estate bubble 'geniuses' can testify, whether or not following the trend of phony wealth creation serves you well, depends almost entirely on when you choose to get out. There is nothing fundamental about the value of financial markets, other than that they are fundamentally used as a political device to keep the confidence trick from collapsing.
"…or continue to ride the rollercoaster powered by signals from a data-dependent Fed that operates in an unusually fluid globally economy"
Come on Mr. El Erian - I listen to your interviews regularly, and read your columns - you know better than that. The Fed are not, and have not been, data dependent for years now, unless you describe 'stopping the NYSE having a hissy fit' as being data dependent. Their 'official' figures could scarcely be more in line with a rate hike:
1) The 'official' unemployment is at 5%, and was at 4.9% when Janet Yellen made her 'preach to the choir' sermon last week
2) The 'official' core inflation rate is at 2.3%
I say 'official' because both of these figures would be much higher if measured honestly - if stripped of all the exclusions, additions and distortions that are used in service of what I call 'dizzy statistics' I.E. figures that have been spun so much they can't stand up on their own.
But, be that as it may, they are the 'official statistics', and they are being conveniently ignored, which even prompted an uncomfortable question at the last press conference from the normally poodle like Steve Liesman, who suggested that the Fed were putting their credibility at risk. In response he was served up with two paragraphs of totally meaningless drivel; a big dollop of utter tosh, which to anyone not ruled by political correctness, or the need to be kind to nice old ladies, said the following: 'Yes Steve, but please don't be so truthful - it makes me lose the power of thought and speech'.
So what's really going on? Why did Ben Bernanke implement QE3 at a time when unemployment was in a sharp downtrend and GDP was expanding at 2%? Why did he do this at a time when, as you have said yourself Mr. El Erian, was a time to begin the process of 'normalisation'? Two words - Presidential election.
Why has Dr. Yellen apparently rowed back from the December dot plots? - Two words - Presidential election.
Central Banks are political entities. Their job is to maintain the current financial system. They launch monetary programs when their own data doesn’t warrant them. Why? To ensure that a Central Planning-friendly candidate wins an election. Central Banks are Neo-Keynesian, they are globalists, and they are totally in service to the crony capitalist system that has led us to where we are now. They are the problem, not the solution; they are the medicine that is making us all sick, or at least 99% of us at any rate.
The so-called ‘economists’ at the helm in the Eccles Building, in Frankfurt, at Threadneedle Street, and in Tokyo, are first and foremost 'political' Mr. El Erian, and I think you know that.