Very Strange Indeed!

Fed made an announcement Friday they will be holding an "expedited, closed meeting" on Monday.  This is very strange indeed.  First, aren't all meetings "closed"?  And how often do they hold "expedited" meetings.  When I first heard this my mind started to turn toward "why"?  Why would they have the need to do this?  And on such short notice?

My first thoughts were either something may have broken in the derivatives markets or maybe it had something to do with the upcoming IMF vote to decide whether or not to let China into the SDR?  These two thoughts made the most sense as markets have moved in large percentages both up and down.  The stock and sovereign bonds markets have been firm and still pressed up against their highs so it can only be a short in trouble.  Commodities have been eviscerated so maybe a long (Glencore or others?) could be in trouble?

As for the possibility they are meeting prior to the IMF vote, the dollar has been firm so there is no current dollar crisis for them to manage.  Please understand, the Fed NEVER gets out in front of anything.  I find it unlikely the Fed is meeting to strategize how they will handle the inclusion of the yuan into the SDR ...and thus a lower slice of the pie for the dollar. 

Alternatively, is it possible the Fed has been informed there will be a veto to the Chinese entrance and are preparing for the blowback from such an action?  In my opinion if this were to really occur, it would be the very worst of all worlds.  The Chinese may not immediately react to the lost of face but understand this, they WILL REACT.  Maybe they wouldn't just pull the plug out of the wall but the "power" will be disconnected!

If we take their statement at face value, it sounds like they are considering changing what they pay banks for the massive pile of deposits that have piled up at the Fed.  Could it be the Fed wants these balances to be lowered and will decide to lessen the incentive to banks to park money and rather entice them to lend?  This thought process would be supported by the collapse in the velocity of money but the question remains, will the banks begin to lend.

To finish let me say the following: the Fed has NEVER in my career since 1983 ever been "proactive", they have always been "reactive".  I have asked many contacts if they know what this meeting is all about or why it is "expedited"?  No one has anything more than theory as to what's going on.  I have explored some of the possibilities here yet there are many more.  I do not believe whatever is going on is "benign".  I say this because of the way this meeting has been announced.  Something very strange is going on behind the scenes ...we will have to wait to find out what exactly it is.

********

Holter-Sinclair collaboration
Comments welcome [email protected]