The day after

Sometimes, being left to ones own devices isn't such a bad thing, as Macro Man found yesterday.   He started with a nice 55 mile bike ride, soaking up the sun and scenery of a glorious New England spring day (while avoiding the myriad of potholes littering the roads.)  He then made delivery on a Christmas present to Mrs. Macro, taking her into New York to see a great show from one of their favourite bands.  Oh, and while they were there, his alma mater managed to reel in some sporting hardware (the replay of which he plans to watch after finishing this post.)

Superstitious/dovish/equity bullish readers may wish to recall that the Fed has never raised rates in years in which Duke has won the NCAA basketball tournament (1991, 1992, 2001, 2010, and of course thus far this year.)  Of course, over the past 30 years, there haven't actually been that many in which the Fed has hiked rates, so the correlation is as spurious as they come.

Nevertheless, the will they/won't they debate has evolved from "foregone conclusion" to "well, I could envisage a scenario where they don't."  To be sure, June is almost certainly off the table, as there are just not enough datapoints between now and that meeting to meaningfully confirm that the recent bout of weak activity is indeed ephemeral.

Macro Man remains of the view that lift-off will occur later this year, and suspects that the bar for raising rates is probably lower than many think.  A hospital patient suffering from critical injuries or a virulent illness is placed into intensive care; once the acute phase of the threat to the patient's health has passed, he is moved to a normal treatment protocol without the bells and whistles of the ICU.

After six years in intensive care, the time has surely come for Dr. Yellen and co. to shift the patient down the hall.   After all, you never know when you'll need space in the ICU.  Macro Man speaks as someone who got off the Oxycontins within 24 hours of each of his ACL surgeries; obviously, some patients do not find it so easy to wean themselves from opiate-based painkillers, ironically developing new health problems from the treatment of old ones.

Similarly, over the last quarter-century, easy Fed monetary policy has been a sort of gateway drug for misallocations of capital, sowing the seeds for each successive iteration of financial crisis.  As some commenters have pointed out recently, corporate debt issuance has been roaring thus far this year in what looks to be largely an exercise in balance sheet leveraging to goose EPS.  That's not necessarily a bad thing, a priori, if conducted within reason and from a healthy starting point.   Unfortunately, economic actors are not known for acting within reason when the tantalizing allure of financial leverage rears its head.

Sometimes you need to be challenged to ultimately succeed.  If you have too easy a ride for too long, as the Kentucky basketball team did, you can run the risk of failure when faced with the novelty of being under pressure.