I don’t know about you, but after yesterday I am Fed up with the Fed. Oh sure, the market rallied like crazy and it seems that the Fed has had success bringing the global economy back from the brink of catastrophe and we should be celebrating, but somehow I am feeling a little bitter. And maybe I have no right to feel bitter. Let's face facts that despite all of the criticisms of Ben Bernanke and his merry band of Fed Governors, they have pulled off an economic miracle of sorts by bringing the global economy back from the brink of Armageddon. Oh sure, but what have you done for me lately?
Yesterday I felt a bit blindsided by the supposedly transparent Federal Reserve. No, I am not talking about the Fed meeting as their intentions were well telegraphed to the marketplace. What I am talking about was the release of the bank stress tests with little notice. Yesterday the Fed pulled a fast one and caught the market off guard by suddenly deciding to release the results of bank stress tests early. Supposedly the Fed was supposed to release the results on Thursday and decided for some reason to just tell the world that they were going to release them in a couple of hours. Really! I mean as a trade you have to be ready for everything but come on. After weathering the stormy seas of a Fed announcement and other factors, this surprise announcement sent a surge of buying when most traders thought the news was basically out!
What could have possessed the Fed, which has taken pride in becoming ultra-transparent, to give the market a sudden surge of extra buying and volatility caused by the shock value of it. What just happened was not supposed to happen, but it did anyway. The Wall Street Journal at first reported and later had to retract, that J.P. Morgan's release of its stress-test result prompted the Federal Reserve to speed up publishing the stress-test results for all banks under scrutiny.
The Fed obviously did not like that quote because then it would appear that J.P. Morgan and Jamie Dimon was dictating to the Fed what they should do and when they should do it. If that were the truth then it would raise the question of what did Jimmie Dimon know and when did he know it. Of course the Fed denial made it very clear that they had nothing at all to do with the sudden surge and change of heart on the timing of the release.
Yet at the same time perhaps they did not want the report being released piecemeal. Still that is the Fed’s fault because they should make it clear to Jamie Dimon and anyone else that the information and results should be embargoed to the release time. That way the banks could not take advantage of what essentially is inside information.
So did the Fed release the reports so the market would focus on the positive aspects of the reports as opposed to the negatives? Basically the stress test showed that overall the US banking system is in pretty good shape, but with a few notable failures.
The banks not only wanted to pass the test but open the door to pay stock holder dividends and buy back shares of their own stock. Yet Citigroup, while passing the stress test, was found not to be strong enough to start making payouts. That was also true of Ally Financial, MetLife and SunTrust Banks Inc.
Still while this is great news for the economy, as a trader, it is frustrating when the Fed signals a release of a report on a Thursday and suddenly changes their mind late in the day. As a trader, when you prepare for a Thursday release and it changes on a whim, it is difficult, if not impossible, to reposition orders and trades. How would grain traders like it if the USDA decided to issue the planting intentions report an hour or two early or the Labor Statistics to release another Monthly Jobs number later today? While the Fed has other things on their minds, their credibility on the issue and goal of transparency took a huge hit. By the way, congratulations on the improvement in the US economy.
That congratulations, of course, come with a little acknowledgement that QE 3d won’t happen unless we see things take a significant turn for the worse. We may twist again like we did last summer, but to withdraw liquidity not to add to it.