Anybody Can Rewrite A Story: Alex Rodriguez And The Federal Reserve
On a clear July night at Target Field in Minnesota, 39-year old New York Yankee Alex Rodriguez swung at a fastball over the plate, driving the ball over the pitcherâ€™s head and over the centerfield fence. With the swing of a bat, A-Rod had hit his third homerun of the night, tying the game in the 9th and kicking off the teamâ€™s 8 to 5 comeback win. Just days later, he celebrated his 40th birthday by launching his 24th homerun of the year.
For A-Rod, powerful swings of the bat have proven as mighty as the pen. After a year suspension for his drug use, pathological lying, and unfounded accusations toward the Yankees and the league, A-Rod has begun to rewrite a sad story many thought would forever live in the annals of baseball and in the minds of its fans. Even Yankees fansâ€” some of the most unforgiving in the sportâ€”have allowed their joy of winning to justify a change in attitude toward the infamous player.
Our most basic human emotions, particularly hope and joy, have fed the A-Rod comeback narrative. In the more casual components of our lives, like sports fandom, itâ€™s easy to think of this as a possibility. Fans seem hungry to watch dejected athletes attempt resurgence despite whatever their level of wrongdoing or misfortune in the past. Itâ€™s a bit harder to think of emotion having such dramatic effect on some of our most important cultural constructs. But we see that effect every day. In U.S. politics, our leaders must establish laws that define our daily life. Yet emotions like fear, anger, and greed lead to inaction, as policymakers kick various cans down various roads. That same phenomenonâ€”emotion over logicâ€”similarly plays out in all other important facets of our lives, including our global economy.
Since the Great Recession, the Federal Reserve has used emotion to rewrite a story of economic growth and stability. Now, investors look less on those dark days of the downturn and even less on its deep-rooted causes. Loosening lending standards and mounting corporate and household debt harken back to a more carefree pre-2008 era. Amid the highest of stakes, the Fed has restored markets the same way A-Rod repairs his likability with 9th inning homeruns. Investors and fans alike are willing to accept new narratives for the sake of winning, no matter the gloom and lessons of years past.
The Fed has met any investor skittishness with various forms of quantitative easing and economic rhetoric. The market manipulation and psychological herding has forced investors to detach from long-term investment plans, a frightening proposition for many Americans heading toward retirement and in need of income. Such control tactics have gone global, showing up in various economies like in Asia. And when markets falter, the bankers swoop in to ease the pain, as in the recent China trade stoppages and introduction of numerous trading rules.
Surely, Fed members still spend time number-crunching and debating macroeconomic theory, but markets have become so addicted to announcements rather than basic economic fundamentals. These days, the members must spend just as much time on wording, timing, and tone. Valuing stocks solely on economic and corporate data has given way to emotional, group-think noise trading, as investors react to Fed news in flocks. As a result, markets have become hypersensitive to the Fedâ€™s touch. With those well-timed and artfully written statements, the committee members have gently informed markets of even the most miniscule rate increase, in hopes to avoid the next burst in valuations. Meanwhile, A-Rod must maintain his stats and well-worded post-game interviews, otherwise risk reigniting ridicule from the fans.
In hopes to uphold markets, the Fed has pigeonholed itself, now locked in its own storyline with an end still unwritten. Theyâ€™ve created diehard fans in investors, who now expect greatness from the teamâ€™s star players. Surely, the Fed will shield fans from those dark days of losses. And so, Janet Yellen stands on stages to affirm our steady growth and the consistency of the rate hike plan. She steps to the plate and everyone cheers, bolstering the bull market.
Unfortunately, the delicate nature of the Fedâ€™s plan for miniscule rate increasesâ€”and their hesitancy to execute the planâ€”might reveal the true fragility of our economic growth. Instead of true transparency, the committee tip-toes in the dark, whispers in those backrooms, and hopes to stop accidentally leaking information. However, economists seem to know that something is amiss. Indeed, wage growth is nonexistent, labor force participation is the lowest itâ€™s been since 1976, and the IMF has implored Yellen not to move forward with the plan. In addition, the Fedâ€™s massive bond buying program amplified the massive debt burden (now at more than $18 trillion) that rides on the shoulders of the economy and bondholders.
To be clear, this doesnâ€™t mean investors should anticipate some massive collapse in the near term. If markets start to slip when the rate hikes finally arrive (or for any other reason), the Fed will be ready to ease the pain. It remains to be seen how the Fed will write the ending to this story, or how they ease investors off their addiction to their safety net. Meanwhile, the bull market naysayersâ€”the ones actually concerned about economic fundamentals and repeating past mistakesâ€”squirm on the sidelines as the herd pushes onward.
Most recently in the baseball season, the Yankees have hit a bit of a slump. Now, each time A-Rod heads to plate and postures to launch his next season-saving homer, Yankees fans creep a bit closer to the edge of their seat. So after all that doping, cheating, and lying, might it finally be OK to join in the fun and root for A-Rod? As long he gets us to the playoffs.