Here’s the Thing

Greg Ip is wrong.

Yesterday, veteran economics reporter and former Greenspan mouthpiece (he was Jon Hilsenrath before Hilsenrath #GIK) Greg Ip penned a story explaining that the Fed had already tightened. A litany of anecdotal evidence was presented to support the theory. The base idea was: By vocalizing their intent, the Fed had nudged markets to the future event pricing and done the Fed's lifting for them. If only.

In fact, beyond Treasury/Corp spreads widening, there is scant evidence of market "tightening." Futures prices (forward forwards) have been wary to stray far from the well advertised Fed exit plan. Consider a path with NO Fed jawboning - the way things used to be . Markets would have dropped bond prices, widened spreads and flattened the curve. As Europe crumbled for the umpteenth time, oil prices collapsed (because there's too much of it) [causing the large amount of speculative notes issued in the space to falter] and the US data slipped, rates would adjust lower some until a clearer view of the future emerged.

Well I'll be damned. That's exactly what transpired. Never mind that the most basic gauge of "tightening" - the Bank Lending Survey - continued to show accommodative tilt throughout the zigging and zagging. No, Mr. Ip, the Fed has not already tightened by flapping at the lip. Markets have not done the heavy lifting for them. Our core theme of a Structurally Trapped economy continues to evolve as the Liquidity Trapp-ers change their story. And some start to make things up.

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