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The Emperor's New Clothes, or How High Priests at Delphi Stay High
The market's slavish attention paid to the temple of the Fed is too obsequious. The market standstill before the oracular pronouncements and the panicked gyrations and stratospheric reactions on the announcement do not lend to a belief in market rationality. While the central bank carries weight and the governors are competent and serious people, they do not appear to have much if any more information than is available to the public, nor are they superior in intelligence or analysis to the market participants, nor does the announcement carry commensurate new information to justify the typical overreaction, nor do they directly control the longer end directly.
Fed day is one of those trigger points that give the market an excuse to break out of its normal routine. Remember Robert DeNiro in Taxi Driver when he is standing in the mirror, "You talking to me? You talking to me?" Well the normally well behaved market wants an excuse to cut loose and do the stuff it is normally too embarrassed to do. Some in the crowd that are just all wired up, especially with the tense build up all day before and even the day before. It's all so silly, but that is the landscape. Alice didn't have any choice in Wonderland. Dorothy had to go along with the Wizard in the Oz. Harry Potter has his world. So must we.
There is the "wait and see gang." There is the "wind up gang" and then the "itchy finger gang" and the "bait fish" that run and turn with the bait ball. The press calls it "knee jerk" which implies some sort of built in function. It seems to be the same itchy finger gang at first, and then when they are done, the crowd stampedes and surges on its own weight. Then there are the "predators" that follow or even herd the bait ball or the confused stragglers. One spear fishing technique is when approaching the fish, the fish sees you, panics, turns one way, then habitually turns the other, and as its turning back from the first turn, shoot it just as it turns - usually good for a dinner. Then again the last few meeting were followed by 40-100 point moves. All based on the turn of a few phrases, a few words. "Ignore that man behind the curtain! The great and powerful Oz has spoken!"
Jim Sogi, May 2005