Things That Make You Go Hmmm…Chekh​ov’s Gun

During my recent hiatus a number of things happened which I suspect will be the subject of feverish debate amongst the chattering classes (myself included) for months if not years to come.Amidst it all was a bald, bearded man of a certain age, who had transformed himself from a lifelong academic into a feared and almost mythical leader, becoming in the process the focus of the world as he stared down all kinds of trouble in the name of protecting his “family”.

This man did whatever he felt was necessary in order to further his agenda; and though it meant making many enemies, he dared look straight into the eyes of both his detractors and those who would defy him, and he never blinked.

He did what had to be done.

But lately he had been trying to find a way out. He didn’t want the responsibility anymore, and he felt as though it was time to quit and leave the empire to whoever was bold enough to seize it.

Sure, he tried to quit, but that wasn’t something he could just do on a whim. Loose ends needed to be tied up, and promises had to be made good and powerful people placated.

For anyone who doesn’t know the outcome of this tale, don’t worry that I might ruin the ending … because that outcome hasn’t been written yet. The best we can do is just guess at how it all plays out.

Wait? What? Oh… Breaking Bad? Nooooo… I wasn’t talking about Walter White, I was talking about Ben Bernanke. Except, he DID blink…

Yes, whilst I was away the Fed announced to the world that, although they had done all the hard work to convince the world that the Dreaded Taper was a done deal that allowed both bond and equity markets to price in a reduction in the amount of asset purchases being made every month by Bernanke (or, as he has become known in financial circles, “Buysenberg”), when it came to crunch time, the Fed didn’t have the guts to pull the trigger. To use the English phrase, “they bottled it”.

Now, any self-respecting drug lord central bank head (hell, any parent) knows that, in order to maintain respect, in order to continue to be feared, you MUST be prepared to follow through with your threats, even if you don’t necessarily want to. That’s just how the world works. You don’t threaten to rain down badness on people and then shy away. If you do that, your credibility is gone and your reputation is in tatters.

In this world, reputation is everything.

In the months leading up to the September FOMC meeting, the world was put on standby for a change in Fed policy, a process that had been innocuously labelled a “taper” by the Fed (check out the video interview with Elliot Management’s Paul Singer in this week’s videos section for an erudite — and I am willing to bet 100% accurate — assessment of how that phrase came to be chosen); and, as the Fed have come to expect in recent years, their preparatory jawboning was working its customary magic.

Source: NY Times

Between May 22, when Bernanke first uttered the T-word, to September 12th, on the eve of the FOMC decision, confidence in the Fed’s beginning their taper climbed relentlessly higher, reaching 67% right before the hammer was supposed to fall.

But a funny thing happened on the way to the forum: the Fed pulled a Cassius Clay and shook up the world….

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