Cynk or swim?

From Macro Man's perch, the most interesting part of yesterday's Fed minutes was the initial section on monetary policy normalization.  Contrary to his original expectations, it looks as if there will be quite a significant corridor between the reverse repo rate and the IOER rate; the minutes suggested a spread of the current 20 bps...or even larger.  At the same time, it seems as if the committee would prefer to keep the withered husk of the Fed funds market alive as well, presumably to revert back to using that rate as the policy tool in the distant future when the balance sheet is normalized, every American has a job, a house, and a GM car on the driveway, etc etc....

At the same time, the minutes paid lip service to the crowding out issue, suggesting that perhaps limiting the size of the facility could be a way around the problem.  The upshot of all of this is that it now appears less likely than before that we will get a 'LIBOR normalization' in the run-up to lift-off.  It was not altogether surprising, therefore, to see eurodollars stage a smart about-face after the release of the minutes.

Of course, some of this was also a result of the de rigeur hand-wringing and labour-market moaning from the FOMC.   Of course, it's hardly news to anyone even marginally more sentient than Rip van Winkle that the Fed carefully cherry picks its facts to support its prior conclusion.   Naturally, they are hardly alone in this behavioural foible...Macro Man has seen many a punter fall prey to the same trap.   Then again, most of those don't preface their names with 'Dr." .....

To be sure, the committee did pay lip service to financial stability, though it is unclear whether they are jejune enough to believe that this will actually work.   Then again, based on Greenspan's analysis of "the conundrum" a decade ago and the flaccid warnings of global authorities on low market volatilities in 2006, perhaps they are.

In any event, we appear to be entering a new phase of the market, one in which turds don't just float, they actually levitate.   A number of commentators recently highlighted price action in something  called 'Cynk', a one-employee 'social network' company with no revenue that has somehow risen in price from a nickel to more than $14- taking its market cap north of $4 billion.

Frankly, Macro Man is happy to see this kind of thing, because it would suggest that the misallocations of capital resulting from misguided monetary policies are becoming more acute- a necessary (if not sufficient) condition for a secular rise in volatility.  And in this case, the jokes will write themselves- you'd expect nothing less from a financial asset pronounced 'sink'.