Archive - Jul 17, 2013

One word sticks out most, and it is not "(f)unemployment."

Bernanke's prepared remarks, which said nothing the market did not already know, have already been disseminated, and now it is time for the House Financial Services Committee to open their mouths and confirm to everyone they have no idea they are now irrelevant (everyone already knew they have zero understanding of monetary policy and that in fact, Bernanke is begging Congress to raise spending so he has more QE purchasing power as all Ben does to the Hill is monetize their deficit) and the sole person who calls the shots is an unelected Princeton historian, with his finger on the print button. So, without further ado, here is Ben Bernanke at the "Delivering Beta" conference, live from room 2128 in the Rayburn House Office Building.

Today the financial world will focus on one singular person. He is not elected but appointed. He kind of, sort of, reports to Congress but there is a football field of slippage in that observation. With the wave of a hand or the choice of a word he can send markets to the moon or leave them bleeding in the streets. It is a fascinating position that Mr. Bernanke occupies as he can take money or create money as easily as he can order his morning coffee. The fun begins when the question and answer session begins. Then it is rather like a video game. Traders all across the world sitting with their fingers on the keyboard just waiting to press the button if the wisp of some word blows left or right, up or down. It is the adult version of "Call of Duty, Modern Warfare."

In all the noise surrounding Bernanke's rehash of statements made countless times before, today's only relevant data point - June housing starts and permits - was largely ignored. And one can see why: printing at 836K, the starts number was the lowest since August 2012, the second largest sequential drop (down from 928K in May) since 2011 and the biggest miss to expectations of 957K since January 2007! And worse, permits which printed down from 985K to only 911K on expectations of a 1 million headline number, just posted their largest miss... in history.

In a somewhat unsurprising speech, Bernanke lays out the same old data-dependent, we-might-Taper-but-only-if-things-are-great (and they're not), just-enough-for-everyone to hope for the punchbowl to never be taken away on the basis of dreaming of more dismal data to come:

• *BERNANKE SAYS PACE OF BOND PURCHASES NOT `ON A PRESET COURSE'
• *BERNANKE SAYS FED MAY TAPER QE IN 2013, HALT IT AROUND MID-2014
• *BERNANKE SAYS FOMC BELIEVES RISKS TO ECONOMY EASED SINCE FALL
• *BERNANKE SEES HIGHLY ACCOMMODATIVE POLICY IN FORESEEABLE FUTURE

While the market is skittish on this (maybe on his ongoing recognition that the bubble is right back where it was), we suspect the post-speech Q&A will be the key as he will have had over two hours to see the market's reaction and therefore walk it back if he needs to.

Pre:S&P 500 1671.75, 10Y 2.5207, EURJPY 130.99, USD 82.58, WTI 105.8, Gold 1287.33

Maybe its a moment of Raghuram Rajan-like clarity facing his supposed bosses - or maybe its a need to discipline the ever-present fiscal profligacy but, it seems something happens that on average gives stocks (and other risk-on related asset classes) a seasonal affected disorder following the Humphrey-Hawkins Testimony.

• Bernanke Seeks to Divorce QE Tapering From Interest Rates (BBG)
• China launches crackdown on pharmaceutical sector (Reuters)
• Barclays, Traders Fined $487.9 Million by U.S. Regulator (BBG) - or a few days profit
• Barclays to fight $453 million power fine in U.S. court (Reuters)
• When an IPO fails, raise money privately: Ally Said to Weigh Raising $1 Billion to Pass Fed Stress Tests (BBG)
• Bank of England signals retreat from quantitative easing (FT) ... Let's refresh on this headline in 6 months, shall we.
• Russia's Putin puts U.S. ties above Snowden (Reuters)
• Smartphone Upgrades Slow as 'Wow' Factor Fades (WSJ)
• Snowden could leave Moscow airport in next few days (FT)
• New Egypt government may promote welfare, not economic reform (Reuters)

Moments ago Bank of America was the last TBTF bank to report earnings, which came in at $4 billion or $0.32 per diluted share compared to expectations of a $0.26 print. Revenue was $22.9 billion net of interest expense which was just a fraction above the $22.7 billion expected. The immediate reason for the beat: the usual accounting fudge to net interest losses which came in at $1.2 thanks to yet another $900 Million (well above the $804MM in Q1 and the same as Q4 2012) loan loss reserve reduction to the total net charge off number of $2.1 billion. And with $21.2 billion in credit loss "buffer" allowance still left on the books from those torrid days of 2008, expect the accounting fudges to continue for a long time.

Bernanke today testifies on monetary policy before the House Financial Services Committee (formerly the Humphrey-Hawkins). The testimony will be released at 8:30 am NY with Q&A after his testimony. Tomorrow he testifies before the Senate Banking Committee but the prepared remarks are the same for both days. Indeed it’s likely that the Q&A will be where all the fun starts. As DB says, he will likely try to pull off the trick of continuing to prepare the groundwork for tapering but try to give bond markets something to help them fight off the pressure of higher yields. With no post-meeting press conference planned for the July 30th/31st FOMC, and Bernanke not scheduled to speak publicly until he appears at the Global Education Forum event on August 7th, this week’s testimony may well be the only remarks we hear directly from the chairman for some weeks.

What happens if the central bank pushes the rate of interest below the marginal time preference? A destructive dynamic is set in motion...