But Don’t Call It a Tightening

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In a repeat of last year's reserves oriented emerging market meltdown, the quiet market ended yesterday. The blame game of excuses for the carnage centered on pointing fingers at exotic countries from China to Turkey to Argentina. If not for them, the US would never have a down day, I guess.

The reality remains that FOMC policies have stretched the chasm between market prices and real activity. Fine tuning, marketed under the hubris of "optimal control", is a tricky adjustment. Bernanke will be leaving next week under a fairly well deserved spotlight. Janet Yellen, on the other hand, assumes the throne under increasingly dicey circumstances. Restoring a domestic focus to the Fed in an intricately connected hot money world will require a steady hand and a helmet.

We posted earlier this week that complacency was too high and "down" seemed likely. Blaming the juvenile economies elsewhere on the planet is silly. The term may be "forward guidance" but Yellen could be wearing a "ZIRP 4 EVA" baseball cap when Bernanke hands over the keys.

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