Patience with the Patient

The world seemingly hung on the words of the US Fed last night to see what would replace the ageing “considerable time” guidance on raising US interest rates.  Despite having ended QE3, all eyes are on how the US Fed will exit its loosest monetary policy in its 100 year history with a balance sheet of $4.49t of bonds for printed money.  Listeners to the Ainslie weekly wrap know they are still a long way from a real recovery despite the mainstream rhetoric.  Whilst they talk of jobs growth the reality is they are mainly low paying part times jobs, and the real US indicator of recovery, housing, is languishing badly.  Throw in the threat of an oil price induced credit crisis and it gets a little scary.  But that same oil price plunge has reduced their inflation rate markedly, and well below the Fed’s 2% target.  So they kick the can down the road and continue with their ZIRP (zero interest rate policy) for some time yet and not worry about how they service their $18t debt at higher rates when they are already in perpetual deficits (listen to last week’s weekly wrap for more).  So the new words?  Well its one really, and it gives complete flexibility to them as they have a market expecting the ultimate sign of recovery (raising rates) when they know themselves that’s not the case.  “Patient”.  And on that single word shares rallied strongly.  Some argue they are reading into the words that ‘everything is awesome’ and buying the future, some buy because we continue in this free money game and they use that to go get yield.  Both are arguably flawed of course as yield counts for naught when shares crash to cents in the dollar when this game ends and the patient dies.