Archive - Sep 2012

There is an ongoing debate among market participants over the reasons for asset elevation - global growth expectations? liquidity hose-pipes? European tail-risk reductions? or some combination of the three. Citi's Steven Englander attempts to uncover the changing face of the Fed's QE impact - with some very specific findings this time around. Gold is by far the winning asset relative to the S&P and even currencies. This is consistent with a view that there will be a lot of liquidity in the system but that neither US nor global prospects are as attractive as they were in the past.

We don't make these things up...

And cash from clunkers begins...

There is one last irony in Bernanke's constant promotion of his powers to unleash QE. Having talked up the market for years with his promises/threats of QE, the market has priced in ever higher doses of QE, in effect bidding expectations of QE's effectiveness to the sky. Bernanke has lost the power to surprise the market. Having raised expectations to the sky, he must deliver something beyond the stratosphere to surprise the market. But he doesn't have anything capable of matching the absurd expectations he's inflated, never mind exceed them. The only surprise left is a negative one. Chairman Bernanke and his fellow doves will soon realize the consequences of over-promising and under-delivering. It works better the other way around, but now it's too late.

All that devastation, all that chaos, and the USD is now equally as weak/strong as the EUR compared to the start of the year... meanwhile, Gold is 13.5% stronger versus them both.

Welcome to the Fed’s Weekend at Bernie’s ...

I gain nothing from pretending that I’m right when I’m not. And while I hate being wrong, I’m not going to ignore this fact and try to simply move on as though none of this has happened.

With a few minutes to go until Ben speaks, the entirely useless projections are out (as noted before by Reuters that the Fed has been constantly wrong in its forecasts). The stunning punchline is that according to the Fed things are not as bad as one would have expected given the dramatic open-ended shart-fest that Bernanke is portraying. In fact, things are improving per the FOMC! Though we assume that these projections are self-defeating since they likely include this new policy. Be interested to see the pre-policy projections.

• *FED OFFICIALS SAY GROWTH WILL IMPROVE FASTER THAN JUNE OUTLOOK
• *FED: 2012 GROWTH OF 1.7%-2.0% VS 1.9%-2.4% IN JUNE
• *FED: JOBLESS END OF 2012 AT 8.0%-8.2% UNCHANGED FROM JUNE
• *FED: JOBLESS END OF 2013 AT 7.6%-7.9% VS 7.5%-8.0% IN JUNE

One wonders, whether in addition to having excel models which appoarently do not recognize circular assumptions, if the Fed's forecasts also assume $10 gas, $100 loaves of bread, and $10,000 gold?

This is the last Bernanke conference that people will actually pay attention to, as we now know going forward everything that the FOMC will do. He better make it count.

There is one big problem with the Fed's announcement of Open-Ended QE moments ago: it effectively removes all future suspense from FOMC announcements. Why? Because the Fed has as of this moment exposed its cards for all to see from here until the moment it has to start tightening the money supply (which may or may not happen; frankly we don't think the Fed tightens until hyperinflation sets in at which point what the Fed does is meaningless). It means easing is now effectively priced into infinity. Now rewind back to that one certain paper by the New York Fed, which laid it out clear for all to see, that if it wasn't for the expectation of easing in the 24 hour period ahead of the FOMC meeting, the market would be 50% or lower than where it is now, and would have been effectively in negative territory in the aftermath of the Lehman collapse. What Bernanke did is take away this key drive to stock upside over the past 18 years, because going forward there is no surprise factor to any and all future FOMC decisions, as easing the default assumption. It also means that Bernanke may have well fired his last bullet, and it, sadly, is all downhill from here, as soaring input costs crush margins, regardless of what revenues do, and send corporate cash flow to zero. Unfortunately, not even in the New Normal can companies operate without cash flow.

So far, the Fed's QuEnfinity has lifted cross asset-class correlation back up to near 1.00 and while stocks look marginally rich to their credit, rate, vol, precious metal, FX, and commodity cousins, its barely notable. The inexorable draw of 'risk-on' has once again dominated the smartest-guys-in-the-room's minds - and while calling a turn here is foolish, this level of systemic move often ends badly/quickly as one leg of the multi-factor correlation breaks down (keep an eye on 2s10s30s).

There was one thing, ONE THING only that Bernanke could do, to become a gold bug's best friend today, than merely announcing QE 3/4. It was to announce open-ended QE. This means this is the Fed's final shot and there is no way to frontrun the Fed any more by definition. It means the terminal start of currency debasement is now here. It also means that the path to all time nominal (and inflation adjusted) highs in gold, which is now just $160 away, silver, platinum, and all other metals, as well as all other hard assets is now clear. It also means that very soon stocks are about to realize what soaring "input costs" mean for the bottom line.

Thank you Chairsatan: you are truly a gold bug's bestest friend!

From financial pundit extraordinare Brian Wesbury, as of March 1, 2012: "The bottom line is that even though Bernanke wants to make the case for QE3, he can’t. In fact, better news on the economy has cut the Fed off from doing more massive easing projects. In the end, we believe the Fed has finally run out of justification for its excessively easy monetary policy. As the quarters ahead unfold, the prospects of more ease will continue to wane. This is good news for stocks – which do not do well with accelerating inflation – but, it is bad news for gold. Gold is done….and so is the Fed." Oops.

So far it is Gold and Silver that are being bought, Treasuries sold and steepening (as mortgage spreads collapse further). Stocks spiked, fell back to unchanged, have new respiked to new highs, and are leaking back now... Notably, equities are the most knee-jerky whip-sawy - Gold and Silver seems consistent as do Treasury yields. USD is down a little, Oil up a little, and AAPL underperforming the S&P for now...