“The Fed Has Made People Lazy” – Veteran Trader Filibusters CNBC: “This Doesn’t Get Sorted Out Overnight”

“History is riddled with disastrous outcomes born of really good intentions.. and I think we’re seeing it now”

That is how veteran trade and CNBC regular Guy Adami began a spectacularly calm monologue (some might call it a filibuster today explaining what the hell is going on currently and that it is anything but normal.

“It all started in the 80s with Fed Chair Greenspan”, he begins, “who said ‘maybe we can take recession out of the equation’ and were successful for a period of time, but as Adami warns:

“recessions are a natural part of the cycle. It’s like the forest – old trees burn down, new trees grow – it’s unsightly, it’s devastating, but its essential… it’s the same thing with our economy.”

And the effect of unleashing various experimental policies and ‘puts’ under the market to avoid these recessions, has “made people lazy.”

Corporate America got lazy:

“GE and IBM got really lazy.. because they borrowed money cheap and bought back stocks and paid their dividends and off they went.”

Now, “everything is coming home to roost” warns Adami as people are forced to focus on their businesses.

Traders got lazy:

“For a long time, traders bought options for protection, but when they saw that the market just goes up day after day, they said to themselves, why bother? It’s a cost I don’t need, so they stopped.”

Then it got worse, as the veteran trader exclaimed

“… they said ‘wait a minute, maybe I can sell options – if the market is never going to go down again, we can create this synthetic dividend for ourselves and everything will be fine.”

And so whether they realized it or not or intended it or not,

“The Fed and other central banks dampened volatility to a point that was unnatural… that plays into other things, like passive investing…”

What pushed Adami over the edge in his realisation of the insanity of these markets was the weekend that apple came out and said, “you know what? Things will be rough, because of what is happening in China.”

The next day, he continued, “the stock went I think down from 3.22 to I think 3.15. Not a huge move at all. Next day, the stock is trading right back at all-time highs. What does that mean? People got – market participants got lazy,” as he warns, “all this passive investing looks past the news.”

The director of advisor advocacy at Private Advisor Group, then explained why “we’re seeing the manifestations” of this laziness play out so aggressively:

“…in terms of the option volatility, you’re seeing what’s happened when people have what I call and what market participants call negative gamma. What happens is, the lower the market goes, the more they have to sell, which exacerbates the downside and the same things happens to the upside. And we have seen it a number of times over the last couple of weeks. The bad news is that doesn’t get sorted out overnight.“

Unfortunately, Adami heralds, “this is 5, 6, 7 years of this going on that needs to be sorted out through the system. So, that’s I think what is going on.”

 I’m not here to call a bottom. I’m not here to assuage concerns or stoke any investment fears, or those types of things. I’m just trying the explain to you what’s going on.”

So, Adami concludes his monologues with a flourish that stuns the CNBC offices:

“Bond volatility is historic. And it’s been going on for years, yet nobody talks about it.

And currency volatility is historic and it’s been going on for years and nobody talks about it, because everybody is so equity centric.

And I understand that. But it’s not healthy.“

And the last point, you tell me to go back to September, the Fed Repo, when they said this is normal business as usual. There’s absolutely nothing normal about what happened in September. And as we’re now in March, what’s going on now they can say it’s normal. That’s fine. That’s their prerogative. But if you look under the hood, something is really very wrong and it’s manifesting itself now.”

So what are investors to do? We’ve seen these kind of drops before and they have always been buying opportunities as The Fed put described above always saves us… The problem is, as Adami notes:

“we’re seeing it in the course of week and a half and it’s freaking people out. I mean, that’s what happens when volatility gets tapered to the extent that it is. There’s nothing normal about this, I get it, except that this the new normal….

I’m one of probably a handful of people on the planet who thought on October 2018, 1019, when Jerome Powell was saying, “You know, we’re going to reduce this balance sheet, we’re raising rates,” that he was doing the right thing.

You know, why follow everybody else down the rabbit hole of negative rates when you don’t have to? If our economy is as strong as the administration said, there was no need to do that. And I think we’d be in a much better place now.”

But, says anchor Tyler Mathisen, “isn’t The Fed mandate to protect us…” but before he could finish, Adami jabbed back politely”

“What are they protecting us from? You know, in my opinion, the Federal Reserve’s job is not to make the stock market go higher. Right. It’s not. I mean, I understand that they sort of need to. And again, this is just my opinion.

But consumer confidence, through the roof until recently. I think all consumer optimism is an overlay of the S&P 500. Not to suggest that everybody own stocks. That’s not my point. But when people see the stock market go up every day, year after year, they say to themselves, ‘the economy must be strong. If the economy is strong, I can go on that trip. I can buy that Starbucks coffee.’ and that’s 73% of that economy is exactly that.

Go back to October and November of 2018, when the market went down 19.8% in a month and a half. Consumer spending stopped on a dime.

And then they realized, ‘we have a real problem here.’ we can’t normalize because it will upset the market. If it upsets the market, it will upset the consumer and we have a problem. And that I think is what you’re seeing now. Again, I’m not suggesting I’m right, it just happens to be my opinion.”

Some honesty finally peaks out behind the curtain at CNBC.

Watch the full clip here…