Let Price Discovery Go

 So much has been going on some of you might have missed this.

There were two things recently in the stuff we read, one of them the announcement by the Fed that all the big banks--yea, those that are too big to fail anyway--passed their phony Fed-rigged stress tests. Who but a bunch of bureaucrats could conjure up bank stress tests? What they didn't tell us is whether they used the Bruce or the Balke protocol. In this case it was probably the Yellin-Bernanke protocol or that of the heavyweight bureaucrat who's charged with roping in the banks without a lasso.

The second thing, also a gift from the Fed, was permission for these same financial behemoths to raise dividends and to do buybacks. Recall not too long ago the same Fed folks forbid Citigroup from raising its dividend because its balance sheet appeared a bit peaked-looking.

For a much of this year now we've had what MSM has described as risk-on, risk-off investing--that is, when risk is high investors tend to go to safe, lower-yielding investments and just the opposite when risk is off.  The two events mentioned above in one way is a vote of confidence of sorts, some might say bravado by the Fed, that means in this yield-starved environment if banks kick their dividends higher investors may move money into their equities to capture that yield.

Just like nearly everything else, money is competitive and, all else equal, will move to the highest return. That could mean money will move out of sovereign bonds with their next to nothing yields and move into riskier assets.Whether bank stocks are cheap is moot, but they have certainly been laggards as a sector. Central bank bond buying is believed to be over.

One could say that was one end of the teeter totter to balance out risk. Not there anymore. So a net below the flying bond market has been removed. No net for the trapeze artist is akin to those swimming in the ocean naked when the tide is up.

The Fed has been in a personal power struggle with the stock market and savers for a long, long time. The damage at this point is incalculable. Calling it interventionism is a kind term. Screwing up markets and peoples' lives is more accurate and appropriate. Fed Chair Janet Yellen and her minions would be wise to take a hint from Moses and let price discovery go.