Trapped By Moral Hazard

This society has taken monetary policy market manipulation to its logical self-destructing conclusion: The use of monetary policy under all conditions solely for the purposes of increasing fake wealth.

Which has set up the perfect conditions for the largest asset crash in human history.

Last night, BOJ chairman Ueda stood his ground in the face of feckless politicians who demanded he raise rates three weeks ago and then criticized him last night for raising them - Ueda explained that the financial quake that took place earlier this month was mostly due to concerns over the U.S. economy. He drew sharp comparisons between inflationary Japan and deflationary U.S. pointing out that this is not a one-sided equation as far too many pundits are eager to describe it. He made clear that if the Japanese economy continues to strengthen, then rates are going higher. Which is exactly what is supposed to happen.

Far too many pundits and politicians today are criticizing Ueda for doing his job exactly as defined by Monetary Policy 101: Ease policy when the economy weakens and tighten policy when the economy stregthens. Pundits far and wide are now solely concerned on boosting stock prices regardless of underlying economic conditions. This is the inevitable consequence of decades of accumulated monetary moral hazard. It's not Ueda who is wrong, it's the copious idiots who think that they are owed free money from central banks who are at the root cause of this problem. If carry traders did not already unwind their positions during all of the warnings that he gave them for this past year while the Fed was preparing markets for rate cuts, that is THEIR problem. These lazy traders have been at the free money trough for far too long and now they're fat and greedy.

Basically what Ueda said last night is that he will keep raising rates UNTIL markets implode. And then he will stop. Which we are to presume is the bull case judging by the sky-rocketing overnight futures.

Then we woke up to Powell and the other Fed members tripping all over each other to see who could be the most dovish at Jackson Hole on Friday morning:

Three weeks ago I warned that the Fed and BOJ are heading for a monumental policy collision. Then it happened exactly as described. At the time, few if any other pundits mentioned it or thought that it would be of any consequence. What followed soon after was a global asset crash which included a $6 trillion wipeout in stock market value. During the past several weeks global markets have partially recovered.

Now, we are witnessing the second and more imminent policy collision. And yet, once again pundits don't want to deliver the news that this impending "event" could derail the rally. So they don't. They make up any excuse to ignore the risk. Most of them pretend they are experts who use "fundamental analysis" to guess corporate profits a year from now. What they don't admit is that if we get another larger global asset crash right now then all of their future predictions will be wrong by a minus sign.

Interestingly, this is exactly where the Magnificent 7 imploded three weeks ago:

In summary, markets are priced for Fed rate cuts. Period.

Because "The time has come".

And if global markets implode due to imminent rate cuts, then what will the Fed do?

They will cut rates.

At which point even the greatest fool will understand what it means to be trapped by moral hazard.