In Deutsche Bank’s weekly credit report, derivatives strategist Aleksander Kocic – who over the past year has demonstrated a flair for the post-modern essay style – has written the following fascinating brief tragedy (or rather, comedy) in one brief part, explaining all every Fed watcher needs to know.
Avoiding the perplexed gaze, by DB’s Aleksander Kocic
Anyone observed requires the presence of an observer who, if he is observed by the object of his observation, himself becomes an object of observation, a situation which has a destabilizing effect, for the original observer discovering that he has been observed by his object feels caught in the act and, since being caught in the act produces embarrassment, this usually leads to aggression.
For example, observing someone through a peephole at the moment when the observed person notices the eye on the other side of a peephole, and when the observer catches his gaze, he either breaks through the door or leaves, but the observation can no longer continue. For such circular observation to remain sustainable there has to be a symbolic pact between the observer and the observed subject that their gaze will never be caught. Only that is stable.
So, the fed is observing the market and the market is observing the fed; the Fed has no maneuvering space and the market knows that, and the Fed knows that the market knows, but, in order to preserve the underlying symbolic order, both sides pretend that the other does not know it — their gaze can never meet, there has to be an implicit agreement that this can never happen; it is in no one’s interest to call the other side on it.
Because of this, nothing is likely to happen in the long run, the most we can see is some short-term disturbance that is self-correcting. If the Fed attempts to hike and this turns out to be disruptive for the markets, its action will be corrected quickly, probably before the next FOMC meeting. Similarly, if the markets appear too calm and complacent, the Fed might attempt to squeeze in a hike in order to free some maneuvering space without significantly raising volatility or disturbing the markets. One way or another, the excitement can be only short-term.
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And an even simpler, visual way of summarizing the above:
The post A Postmodern Tragedy In One Part: “The Fed Is Observing The Market And The Market Is Observing The Fed” appeared first on crude-oil.top.