The Fed Disappointed Everyone
05/07/2013 8:30 am EST
The FOMC announcement did not make anyone very happy, either those on the long or the short side, says MoneyShow's Jim Jubak, and that may make the next month more difficult.
I guess you’d say the Fed has to be doing something right. Because on May 1 when they announced their conclusions after the meeting of their rate setting committee, the Open Market Committee, they disappointed everybody.
Now the question is, having made a decision—having disappointed everybody—they’ve really left the markets out there on their own. The markets aren’t going to be very happy about that.
What the Fed basically did on May 1 was nothing. It changed the language a tiny little bit that said well, you know, if things change we’ll change our policy. But they left quantitative easing intact; they left rates intact. They left their language about waiting for the economy to recover, for unemployment to go down before changing policy...basically they did nothing.
Wall Street has spent a lot of time going over the statement, trying to figure out if they actually said anything. The conclusion is pretty much, well...no, nothing.
The important thing about that for the markets is, well, if you wanted the markets to go up—if you’re on the long side of the market—what you’re really hoping was the Fed would say something that would indicate that they’re going to keep their buying of $85 billion in Treasuries and mortgage-backed securities going for longer. Saying, "It looks like we’re now going to continue into 2014," or added some kind of language that extended it.
That would have given the markets a boost, because the markets have decided that the more Fed money the better, so we’ll keep going. That would have been good for the longs.
The shorts would have been happy if the Fed had said something negative, like "We’re going to cut back on this program earlier than expected, maybe as early as the third quarter of 2013." The Fed didn’t say that either.
Which means, basically, if you’ve been in this market betting directionally on Fed policy, as most Wall Street money has been during this rally, you’re left without a Fed policy to make any difference. You’ve thrown back on those terrible things like earnings and jobs numbers and all that. You actually have to pay attention to the real things in the world.
The real things in the world don’t give you very much in the way of direction. I mean, it’s not a booming economy. It’s not a terrible economy. It’s the standard 2% growth bumbling along at 150,000, 110,000, 160,000 jobs created a month—not the 250,000 we need to really get the economy rolling, to give us a steady decrease in unemployment.
So basically no Fed policy, an economy that’s not strong or weak but somewhere near tepid. That’s where we are. A rally period and look forward to the summer.
What the market is worrying about, why they would have liked something more from the Fed, is the last time we were in this place in 2012, we got a summer slump—actually a late spring to early summer slump, May, June. The anniversary is coming around.
People are starting to go, "OK, we’re going to go through this again." And the fact the Fed did nothing and disappointed everyone means that that worry hasn’t gone away.