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Goldman Capitulates: Lowers GDP Forecast, Increases Unemployment And Inflation Outlook, Sees Imminent QE "Lite"

Tyler Durden's picture





 

It's official: the double dip is here. Goldman's Jan Hatzius just lowered his GDP forecast for 2011 from 2.5% to 1.9% (kiss goodbye all those 93 EPS estimates on the S&P), increased his unemployment forecast from 9.8% to 10.0%, boosted his inflation expectation from 0.4% to 1.0%, and said that QE lite is now on the table, as he expects that "the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting." Look for all other sell-side "strategists" (here's looking at you Neil Dutta) to lower their economic outlook in kind, and the 2011 S&P consensus to decline accordingly.

From Goldman Sachs:

Over the past two to three months, the US economic recovery has lost a considerable amount of its momentum.   As a result, our forecast of a significant slowing in US growth in the second half of 2010—widely regarded as implausible just three months ago—is now increasingly accepted as the baseline.  As the data disappointments intensified in early July, we indicated that we would consider revisions to our economic outlook.  With the annual revisions to real GDP now behind us, we are making the following changes:

1.         Slower growth in 2011.  We continue to expect real GDP growth to average 1½% at an annual rate in the second half of 2010.  However, we have scaled back the anticipated reacceleration in US output in 2011, largely due to heightened congressional resistance to extending various measures of fiscal stimulus.  Thus, whereas we previously forecasted growth to rise from 2½% in the first quarter to 3½% by the second half, we now look for a more gradual pickup—from 1½% in the first quarter to 3% in the fourth quarter.  The 2¼% fourth-quarter-to-fourth-quarter average is about 0.9 percentage points below our previous forecast; on an annual average basis our forecast for growth in 2011 drops to 1.9% from 2.4%.  As a result of this downgrade, we now expect the jobless rate to rise to 10% by early 2011 and remain there for the rest of the year.

2.         Continued disinflation, but at a slower pace than before.  We now expect both the price index for personal consumption expenditures excluding food and energy (core PCE index) and the core CPI to slow to a year-to-year rate of ½% by year-end 2011; our previous forecasts were ¼% and zero, respectively.  Although the growth revision implies a larger output gap over the next 18 months, two other considerations dominate: (a) upward revisions to core PCE inflation announced in the latest annual GDP revisions, and (b) signs that disinflation in rents may have ended.

3.         A return to unconventional monetary easing by late 2010/early 2011.  We expect the Federal Open Market Committee (FOMC) to respond to renewed upward pressure on the unemployment rate with another round of unconventional monetary easing.  These measures could involve more asset purchases—probably Treasury securities—and/or a more ironclad commitment to low short-term policy rates.  If the committee decides on more asset purchases, the amount would be at least $1 trillion (trn).

4.         A “baby step” to unconventional easing next week.  Although it is a fairly close call, we now expect the FOMC to announce that they will reinvest the paydown of mortgage-backed securities in the bond market at next Tuesday’s meeting.  This would be a “baby step” in the direction of renewed unconventional easing, although it would probably be packaged as a decision to prevent a gradual tightening of the overall stance.

The table below shows the key changes in our forecasts.  Further detail will be available in today’s US Economics Analyst.

 


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Fri, 08/06/2010 - 12:45 | Link to Comment realtick
realtick's picture

The contrarian buy signals keep coming = new highs by November.

http://i38.tinypic.com/13z0qv5.jpg

 

 

 

Fri, 08/06/2010 - 12:49 | Link to Comment Ivanovich
Ivanovich's picture

Why not go back a little further and draw that chart?

Fri, 08/06/2010 - 12:54 | Link to Comment realtick
realtick's picture

Cause this pattern wasn't happening when the market was declining before March 2009.

It showed up after the bottom, and it keeps showing up, sending prices to new trading highs.

At some point it will fail - no idea when, though.

Fri, 08/06/2010 - 16:31 | Link to Comment jswede
jswede's picture

I think it's more telling that the last 'bottom' is lower than the previous 3...

Fri, 08/06/2010 - 16:33 | Link to Comment jswede
jswede's picture

I see that was already discussed - nevermind

Fri, 08/06/2010 - 13:10 | Link to Comment -1Delta
-1Delta's picture

pretty, but in all seriosness, that only works in a bull market...

 

to me you have one big as channel that was confirmed today

Fri, 08/06/2010 - 16:19 | Link to Comment RockyRacoon
RockyRacoon's picture

I'd call them tortured bottoms.  Proof that anything can be squeezed from a chart.

Fri, 08/06/2010 - 13:14 | Link to Comment AccreditedEYE
AccreditedEYE's picture

Not this time sweetheart... They've reached the end of their rope.

Fri, 08/06/2010 - 13:33 | Link to Comment realtick
realtick's picture

THEY have a lot more big government programs to ram through Congress, and THEY will keep the market levitating in order to stay in office.

Fri, 08/06/2010 - 13:38 | Link to Comment AccreditedEYE
AccreditedEYE's picture

We'll see about that.... Thx for the junk!

Fri, 08/06/2010 - 14:29 | Link to Comment SteveNYC
SteveNYC's picture

"They" are currently in the process of being ass-raped by the commodities market. Stay tuned, if they fuck the dollar, it's all over bar the shouting for the person that needs to eat and buy gas.....oh, that's all of us.

Fri, 08/06/2010 - 16:21 | Link to Comment RockyRacoon
RockyRacoon's picture

It's an open threat.  Blackmail if you will.

...largely due to heightened congressional resistance to extending various measures of fiscal stimulus. 

That means Bush tax cuts not being extended.  Pure extortion.

Proof that Goldman is a bunch of thugs, or sociopaths.

Fri, 08/06/2010 - 13:33 | Link to Comment Biggvs
Biggvs's picture

Doesn't concern you that your most recent breakout/bottom was lower than the previous one rather than higher?

Fri, 08/06/2010 - 13:44 | Link to Comment realtick
realtick's picture

Absolutely. The economic data concerns me even more.

That's why I try to focus on the technicals and patterns that have a good recent track record.

Fri, 08/06/2010 - 13:58 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

I try to trade on technicals in this market and find it impossible. I am starting to believe everything in the market is driven by liquidity these days.

Fri, 08/06/2010 - 14:05 | Link to Comment realtick
realtick's picture

Liquidity, yes, but TA still works. Patterns do fail, but this one has been working like a charm so I'm not gonna second-guess it.

And if I was Helicopter Ben, I'd be adding said liquidity at exactly when the technicals suggested to do so, like now for instance.

Or early next week.

Fri, 08/06/2010 - 15:24 | Link to Comment Lapri
Lapri's picture

That pattern actually existed around March 2009 bottom, too.

It existed right after the market top in October 2007, in November and December 2007.

The pattern is repeating for sure, I'm not sure which one - bottoming like March 2009 or topping like 2007.

Fri, 08/06/2010 - 12:46 | Link to Comment knukles
knukles's picture

The magic of so many differing forecasts is that one can always say, correctly; "Told ya' so."
Another facet of the Credibility Maintenance and Confusion Just Print the Ticket Program.

Fri, 08/06/2010 - 12:56 | Link to Comment Yikes
Yikes's picture

Monetary easing won't work.  Banks and business have the cash, they just won't loan it or spend it.  It's fiscal policy that matters and Obama has it so screwed up right now that they don't know which end is up. 

Fri, 08/06/2010 - 13:11 | Link to Comment Assetman
Assetman's picture

Not only that QE-Lite won't even move the needle on the deflation picture.

If you're going to mess things up, I guess doing on a grand scale will get everyone's attention, eh?

Fri, 08/06/2010 - 13:37 | Link to Comment SWRichmond
SWRichmond's picture

Anyone who believes that a sufficient amount of new money creation won't affect asset prices is in for a real shock.  The prices won't completely reflect the built-in loss of purchasing power, but raw prices?  Hell yes they'll be affected.

Fri, 08/06/2010 - 13:52 | Link to Comment Sancho Ponzi
Sancho Ponzi's picture

Yup

 

From the hand of Lloyd:

http://www.freakingclueless.com/click.jpg

Fri, 08/06/2010 - 14:47 | Link to Comment Assetman
Assetman's picture

QE-Lite, as its currently proposed, won't be sufficient.

Well... unless you classify a week's worth of equity ramping "asset inflation".

Trillions $ in QE will certaintly move the needle.  But a trilion $ this time around will have less effect than the last time around if QE if it's applied the same way.

Fri, 08/06/2010 - 14:50 | Link to Comment Sancho Ponzi
Sancho Ponzi's picture

I agree it won't be sufficient, but money has to flow somewhere where it earns some semblance of a return. Commodities could see a nice bump.

Fri, 08/06/2010 - 14:54 | Link to Comment SteveNYC
SteveNYC's picture

You are right. Trillions $ more in QE will explode commodities and gas/food will no longer be affordable. It will be game over, Ben will by lynched, Obama will have to flee on Airforce 1 etc etc.

Fri, 08/06/2010 - 15:15 | Link to Comment kaiten
kaiten's picture

Ben has his helicopter, so he wont be lynched either ;)

Fri, 08/06/2010 - 15:20 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Didn't I read somewhere that there are some left over shoulder launched anti aircraft missiles bouncing around in the USA? Seriously. I seem to remember a WSJ article from a few years ago claiming that a truck load were stolen from some army depot.

Maybe it was a cover story. Maybe not.

Fri, 08/06/2010 - 14:11 | Link to Comment MachoMan
MachoMan's picture

How much is sufficient?

Which assets?  Not houses I hope...

The FED is keenly aware of all these issues...  before the edict to print is given, our administration/congress has weighed all the factors.

I predict we have a series of progressively smaller QEs, our international creditors let us get away with it, and it allows the 1% to keep up the heist just that much longer.  Once we stop the robbery, then comes their shopping spree.

The other issue is whether we are even certain the increase in input costs, food prices, gas prices, etc., is a temporary effect or will be dragged down through the greater deleveraging process... 

Also, what happens when the loss of purchasing power is sufficient to prohibit the passing on of rising input costs and this phenomenon persists long enough to exhaust the reserves of the operating companies?  When the prices for these goods can no longer rise and find a buyer?  This seems like it will be a very widespread problem in very short order.  How is this situation remedied?

Fri, 08/06/2010 - 19:49 | Link to Comment SWRichmond
SWRichmond's picture

Your prediction might come true, for awhile.  The entire power structure of the West rests on the maintenance of the status quo.  Everything is invested init, so it won't be let go lightly.  Sonoer or later (IMO this has already begun) it will be interpreted openly as the end of U.S. foreign policy domination / the end of the U.S. reserve currency dollar.  New alliances will form.  "Core" CPI will continue to be touted, while the unimportant food and fuel component of CPI will be ignored, except by anyone who moves or eats.

The thing that will force them to keep on doing QE, though, is the fact that the debt still exists and is still unpayable, and the armies still are in the field at massive cost, and unemployment continues to un-recover, and the banks are still insolvent by any real accounting standards, and....

Sat, 08/07/2010 - 10:39 | Link to Comment MachoMan
MachoMan's picture

QE will continue, but it will be done from the budget surplus...  (a pseudo return to keynesian economics?) 

See post below regarding our attempt at austerity...  in a nutshell, it's the thing that will keep the status quo going the longest...   

Fri, 08/06/2010 - 14:15 | Link to Comment Yikes
Yikes's picture

How do you see this unfolding? What form will the QE2 take?  Who will get the money and how will it be spent?   

Fri, 08/06/2010 - 14:24 | Link to Comment Yikes
Yikes's picture

My point being is we have a debt and leverage problem.  If the money goes to the banks, they're not loaning.  If it goes to the consumer, the won't spend it but pay down their debt because the value of their houses are going down and the economy is not improving. 

Fri, 08/06/2010 - 20:00 | Link to Comment SWRichmond
SWRichmond's picture

I don't know how old you are and how long you've been paying attention to politics and economics.  Did you ever in your life imagine that the conditions that exist now could ever exist?  That banks would be openly blessed to ignore accounting standards? 

That the adjusted monetary base would look like this: http://research.stlouisfed.org/fred2/graph/?s[1][id]=AMBNS

That the federal deficit would look like this: http://research.stlouisfed.org/fred2/series/FYFSD

While the S&P would look like this: http://finance.yahoo.com/echarts?s=^GSPC

That the Treasury Secretary wold come to Congress threatening Armageddon if he didn't get a $700 Billion slush fund right away?  And actually get it?  In the face of 100:1 objections by the voters?

Don't you understand?  There are no more rules.  The government is playing by its own rule: survive and stay in charge.  Period.  You don't matter.  I don't matter.  The troops in Iraq don't matter.  Their wives and kids don't matter.  See?  There are two political parties in the U.S.: the dems and repubs with rich masters, and everyone else.  Don't try to be rational about it; it stopped being rational a long time ago.  Let history be your guide.  They're going to blow up the currency.  Currencies always blow up, sooner or later, and under circumstances just like these.

 

Sat, 08/07/2010 - 10:25 | Link to Comment MachoMan
MachoMan's picture

This is inconsistent.  If the government wants to survive (a pre-requisite to being in charge), then how can it do so by blowing up the currency?  The avenue that gives all the present players the most chance at longevity is a controlled demolition, which is what we're doing...  (if you can't generate inflation, you got only two choices with regards to deflation, fast or slow).

The fact is, the "government" is not in charge.  The 1% are in charge (hence the wealth gap).  Our handlers benefit the most from a controlled demolition, as their spoils get to be converted into greater riches and their relative position permanently secured.  A hyperinflationary collapse is the nuclear option and no one has any idea what happens on the backside.

I'm not saying that our eventual default/repudiation won't lead to a hyperinflationary currency collapse, but we're not poised to do so...  rather, all arrows presently point to austerity.  If we decide to go iceland on our creditors, then so be it...  but it will be a choice of the populace...  a choice we will NOT be asked to make...  we'll have to demand it. 

Sat, 08/07/2010 - 16:39 | Link to Comment SWRichmond
SWRichmond's picture

I didn't say they were going to blow it up on purpose.  I said they were going to blow it up.

Sat, 08/07/2010 - 20:15 | Link to Comment New_Meat
New_Meat's picture

and don't waste a good crisis - Ned

Fri, 08/06/2010 - 12:56 | Link to Comment eodinert
eodinert's picture

Disinflation, bitches!

Fri, 08/06/2010 - 13:25 | Link to Comment DarkMath
DarkMath's picture

Yes, for the moment Deflation is on the horizon until Wall Street pundits realize there is no way the US can EVER even dream of paying down the Debt if we slip into deflation (because how can you pay off a mountain of debt with a shrinking money supply, the math just doesn't work but why bother with mathematics). Deflation guarantees we'd have to default on the Debt which we can't do because we're White Anglo Saxon Protestants who would never think of doing what those over spiced, hip swinging latinos from South America would do. We would rather not make such a scene so we have a "Polite Default". Sooooo, that leads to only one conclusion, ready, wait for it: bam Inflation.

That just happened....I just said inflation in your face!

 

 

Fri, 08/06/2010 - 14:00 | Link to Comment MachoMan
MachoMan's picture

First, we're already balls deep in the deleveraging process and, through such process, we have had deflation.  This process will continue in earnest until we peel back a few decades at least...  and we have a ways to go.

Second, either the FED does not desire to or cannot generate meaningful inflation.  This, I suspect, is largely a function of the inability to reflate the credit bubble due to a sincere disregard by consumers to acquire new debt.  In other words, inflation, at this juncture, is not possible in the aggregate...  the question is deflate slowly or quickly.  We have opted for the former, which has been ongoing for a couple years now.

Third, before we decide to flip the bird to our international creditors, we will have widespread and thorough domestic default.  This, in a nutshell, is called austerity.  Domestic persons may feel the pain, but our international creditors LOVE us for it.

Fourth, the feedback loop that ensues from the deleveraging process is anyone's guess...  I can't tell you for sure that we will or will not be able to default if we completely got our shit together immediately...  I suspect we will repudiate, as hungry people are not generally in agreement to give food to foreigners, especially when our representatives, in all likelihood, increased our pain without our consent.  But this is a long time down the road.

Last, the present political atmosphere is not such that remotely hints towards expansion of the FED's ability to print.  The FED is not a magical island unto itself.  It must be TOLD to print and conduct monetary policy by the Treasury.  The two are connected at the hip; there is no difference.  As such, it has a leash that will be utilized soon to completely draw it in and crate it.

PS, the people that are inflating are not people that want to be repaid in monopoly money.

Fri, 08/06/2010 - 14:57 | Link to Comment DarkMath
DarkMath's picture

"inflation, at this juncture, is not possible in the aggregate..."

Inflation is the fall in the price of money. As we all know from Freshman Economics that price can be arrived at from either the supply or demand side. You can't imagine the SUPPLY of money growing but you're ignoring the fact that the DEMAND for money can fall while the supply remains contstant (which is what is happening now as the Dollar index falls even though M3 falls along with it, ever ask yourself how that could be).

So Supply of dollars is irrelevant, it's the fall in DEMAND for dollars that will spike our hyperinflation. All that has to happen is people perceive we can't pay back our debt. Say you're right and our economy deflates then Mathematically WE CAN'T PAY OUR DEBT BACK. It's like saying  1 + 1 = 11. The result is bond holders will reduce their demand to be in Dollar denominates Assets (Stocks, Bonds anything) because they fear either a deflationary default or inflation (flip a coin - it doesn't matter). This is ALREADY HAPPENING. The demand for our Treasury Debt is not high enough to "buy" all the debt at auction, but the subsequent rise in rates has been forstalled by hidden buying by the "Household Sector". The Fed will never allow a failed Treasury Auction:

http://www.kitco.com/ind/willie/jul222010.html

The Revolution Will Not Be Televised - didn't you get the memo?

Fri, 08/06/2010 - 16:10 | Link to Comment MachoMan
MachoMan's picture

I would agree if the 10 year was not at 2.82 and headed for 0.  Has the FED just ramped up its purchases?  Who are these new masochists buying treasuries?

Point being, at this juncture, we are perfectly capable of causing a flight to quality into dollar denominated assets.  On a long enough timeline, yes, the dollar will have its lengthy stay in the graveyard...  but that will not be for a while.  In fact, you're going to see something miraculous happen...  a reduction of state and local budgets as well as...  wait for it...  wait for it...  the federal deficit!  Maybe we get 1 more year of large deficits, but won't happen after that...  we get back to basics and balance...  and, as a result, we get more time.

The other issue is that you have to present a viable alternative reserve currency.  What currency will kill the dollar?  Who out there in the world presently has the capacity to do such a thing?  Who has the most relative gold holdings?  Who has the world's largest/best military and an itchy trigger finger?  What happens in the vacuum created by our demise?

I could see some of the countries that die before we do rising back to life in a position to threaten our hegemony after shedding themselves of dead weight (germany maybe?)...  but,this process is going to take a while.

If we're the last domino, which we are, what would the effect of a demise in the dollar actually be, with the rest of the world having previously capitulated?  Too many variables obviously.  What happens to the ashes of the former rest of the world?  Does it provide fertilizer for new opponents?  Or merely a barrier to entry for our even larger control? 

I don't know, but I do know that the 1% does not want to be repaid in monopoly money and the longer the dollar stays alive, the longer they get to loot before attempting austerity...  what you have proposed eventually happens to all currencies...  but, fortunately (unfortunately?) ours is still alive and kicking...  and will probably be so for quite a while in an attempt to undo decades of inflation...  I'm not sure whether it is a task that has any remote chance of success, but that is what we're going to try.

Fri, 08/06/2010 - 16:51 | Link to Comment DarkMath
DarkMath's picture

"Who are these new masochists buying treasuries?"

You didn't read the link. The Fed is that masochist. Read the link it's eye opening. As for low yields driven by the demand for investors looking for a safe haven. Sure, Real Estate looked like a great investment in 2001, the Internet looked great in 1995, Oil looked like a sure thing in 1980...do I need to go on? My point is the Fed picking up the slack is lulling these investors in. If the Fed wasn't stepping in auctions would start failing. And nothing would scare of those safe haven investors than a failed auction. There will be no failed auction, there will never, ever be a failed US Treasury Auction.

"you're going to see something miraculous happen..."

You mean the Politicians are going to vote to cut spending? Sure, I could also win the lottery tonight, anything is possible.

"viable alternative reserve currency. "

Gold would make a nice alternative. It's easy to store and hard to conterfeit. More than likely people/governments will vote with their feet. In other words there will be no G20 edict on SDRs or other such nonsense. The markets will choose. When? As soon as the sheeple wake up and realize we're fucked no matter what the Fed does. Have you ever seen this video:

http://www.gata.org/goldrush21

"ours is still alive and kicking... "

Revolutions don't plod along for years and years. They happen remarkably quickly when things get started. Look at Gorbechev, he was elected with the full confidence of maintaining the Status Quo. The Politburo didn't say let's select Gorbechev, he's the most likely to give us a velvet revolution. No that's not what happened, they chose him and events got ahead of them.

Fri, 08/06/2010 - 17:39 | Link to Comment MachoMan
MachoMan's picture

That was correct at one period in time.  There were a few auctions with hit rates incredibly high...  However, since then, QE has ended in earnest (officially anyway) and we now have teddy ruxpin treasuries.  So, what happened in 2008 before QE began in earnest?  What caused the rush to the dollar?  What is happening again, despite our best counter measures?  I'll posit this about the current divergence between treasuries and the dollar, the euro is going to get curb stomped soon enough and the dollar explode to the upside...  the present situation is merely the temporary derivative of swap lines and other currency interventions... 

Further, check out this chart and explain to me what would happen with the longevity of the dollar if a fractional gold reserve backing was implemented?  http://www.zerohedge.com/sites/default/files/images/user5/imageroot/tric... 2 out of the top 3 aint bad huh?  Ever ask yourself why another reserve currency never sprang up despite all the talk?

Let's presume that the FED is behind the bull bond market as of late...  what portion does it play?  This is an important question because its exit would cause a shift in the market...  if it does not play an incredibly large factor in the recent treasury purchases, then what will happen to the market if the FED influence is removed?  Obviously the other question is, why the fuck would the FED do this to treasuries?  Why do you need to spend the money to bid up the price?  Why not just buy enough to keep our head afloat and at a comfortable level?  (like it used to be doing, inching towards a target rate)...  You don't have to outrun the bear, you just have to be able to outrun your buddies.  What happens when we're just pumping turnover (which is large)?

And yes, the politicians are going to cut spending...  if they don't, our demise will be quick...  they know it, we know it, the rest of the world knows it.  This entire charade is all about longevity, ensuring the 1% get to the life rafts soon enough, and have free run of the main land once they get back to shore.  The way this will be accomplished is through austerity and fiscal tightening.  The theft (wealth gap) is already complete or thereabouts.

Also, I do not propose that we will have immediate, full and total austerity...  obviously that would kill us all (even some of the banks, although they're all trying their best to bolster cash position)...  what we will have is ever smaller QEs...  and better aimed...  (rather than the gigantic "we don't fucking know where it went" first round).  But, these QEs will be within a reasonable budget...  controlled demolition.

These issues will all come to light very soon...  if within say 12-18 months we have not begun the austerity program, then we will spiral out of control very shortly thereafter.  So, this is certainly a falsifiable hypothesis and in short order...  we'll see.

Sat, 08/07/2010 - 08:40 | Link to Comment DarkMath
DarkMath's picture

Your link to the WGC chart image didn't come through, can you send it again but test it to make sure it works. I think your point is that there isn't enough Gold to support a world reserve currency? If so, then the answer is simple, just increase the price until the amount of Gold matches. What would the price be then? About $52,000/oz:

http://www.gata.org/files/AdrianDouglasProofOfGoldPriceSuppression-07-20...

"if within say 12-18 months we have not begun the austerity program, then we will spiral out of control very shortly thereafter. "

precisely...no doubt the Tea Party will win seats but all that will do is create grid-lock in Congress since the last time I checked Obama was a Democrat.

Sat, 08/07/2010 - 10:12 | Link to Comment MachoMan
MachoMan's picture

My point on the gold backing is this, between us and the IMF there is nary a country, nor handful of plausible countries, that have any chance at competing in that regard...  http://en.wikipedia.org/wiki/Official_gold_reserves  this was from Dec. 09, but the other from ZH was June 10...  this is a significant reason why an alternative reserve currency has not popped up...  we're hedged. 

I'm sure some gridlock will ensue on social issues, but for fiscal, there will not be much gridlock...  the gauntlet has been thrown down...  if obama chooses to get in the way, then he'll just lose more seats for democrats next time....  as well as the presidency...  his/their choice.  In an effort to mitigate damages, they WILL capitulate on spending.  I just wish we could have done it sooner...

If they don't, as previously said, then we get the wolves knocking on our door soon thereafter...  we got maybe, maybe 1 more year of ridiculous budgets and then after that, it's lights out if we keep it up...  we didn't earn our reputation for doing what needs to be done, after exhausting all other possibilities, for nothing... 

Sat, 08/07/2010 - 11:45 | Link to Comment DarkMath
DarkMath's picture

"this is a significant reason why an alternative reserve currency has not popped up"

maybe, I would say a bigger reason is the critical mass of the dollar as the reserve currency. if you take gold out of the equation, it doesn't matter. the world realizes that the dollar is going down. imagine if you are a saudi, or brazilian, a venezualan,iranian or russian, you get paid in dollars. as the dollar sinks more and more Oil is basically being stolen from you. it's no more complicated than that. how long will you tolerarate someone stealing money from you. it basically a racket, we're like the crooked cop or mafia boss charging protection from the neighborhood businesses. they're praying for some real justice and will jump at any chance. they see a new world reserve currency as coming sooner rather than later...and the sooner the better.

Sat, 08/07/2010 - 15:04 | Link to Comment MachoMan
MachoMan's picture

This is the entire reason we're going to be forced into austerity...  that's the point...  you have boundaries to your theft...  you steal until they can no longer tolerate it and then you go straight.  It just so happens that in this case, our handlers, the 1%, benefit the most from austerity...  at this juncture, a strong dollar is going to happen...  no other way around it...  now, I do think we're at the end of the road/diminishing returns on the flight from the dollar/flight to quality...  we try and seesaw (swap lines), but, we'll be seesawing upwards.  We've had many, many decades of depreciation...  now we go the other way.  (think 2008).

The question is whether or not we have the will to keep up the attempt at austerity.  Once the saddle gets placed on our backs, I don't see us going a different route for quite a while...  as a result, we'll be baby stepped into it because they can't risk the potential we tell them to go fuck themselves.  State and local governments will contract...  the federal government will contract...  slowly...  and the 1% will slowly overtly take the power vacuum created thereby.  It's all predicated on their ability to control the demolition... 

Whether or not the measures will be enough to permanently stave off our creditors is a big question mark...  I doubt it, but this is largely a function of our willingness to submit to austerity.  Boiling frogs don't jump.  Just think of a reversal of all the dollar depreciation over the last few decades.  It happened slowly...  one day we woke up and the shit was worthless...  then in 2008 somebody told us differently...  they'll tell us again...  because it's all that's left...  but, like ride up, the ride down will happen slowly...  or at least that's the plan.

The path up was planned...  and so was the path down (it is the "payoff" from the way up)...

Sun, 08/08/2010 - 09:55 | Link to Comment DarkMath
DarkMath's picture

Austerity would cause deflation. But deflation can't happen. So it's your as yet to be voted in Austerians who will have little power to do anything except cause gridlock VS the guy with the printing press who says deflation isn't going to happen. I say we take Bernanke at his word:

"The second bulwark against deflation in the United States, and the one that will be the focus of my remarks today, is the Federal Reserve System itself. The Congress has given the Fed the responsibility of preserving price stability (among other objectives), which most definitely implies avoiding deflation as well as inflation. I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief."

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

 

Sun, 08/08/2010 - 18:05 | Link to Comment MachoMan
MachoMan's picture

"The second bulwark against deflation in the United States, and the one that will be the focus of my remarks today, is the Federal Reserve System itself. The Congress has given the Fed the responsibility of preserving price stability (among other objectives), which most definitely implies avoiding deflation as well as inflation. I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief."

I read this a different way...  "I admit that deflation may be an inevitability and the FED will cooperate to ensure the deflation that occurs will be slow and that we provide a trampoline for wiley coyote"

You say deflation can't happen, but you conveniently leave out the "as well as inflation" in the above quote...  aside from the fact that we're presently in a deflationary depression...  despite the fed's bazooka.

Bernake allows this process to continue by being vague and ensuring there are enough ambiguities to keep us guessing...  as soon as we all pile to one side of the island, it tips over.  Don't watch the helper's gigantic tits, watch the magician's hands.

Sat, 08/07/2010 - 11:56 | Link to Comment New_Meat
New_Meat's picture

Hey, Dark and Macho--Great back and forth.  Thank you both for your discussion. - Ned

Sat, 08/07/2010 - 17:34 | Link to Comment SWRichmond
SWRichmond's picture

Actually, all I read from Macho was a bunch of oft-repeated but already debunked arguments:

First, we're already balls deep in the deleveraging process

pffft....what has been deleveraged, exactly?  U.S. sovereign debt perhaps?  Interest rate swaps?  The real deleveraging hasn't even begun.  It has been postponed, pending the arrival of a miracle, which is not forthcoming.

Second, either the FED does not desire to or cannot generate meaningful inflation.

False and false.  The Fed desires inflation.  The entire fiat currency / central banking / fractional reserve / "managed economy" system is BASED on structural inflation.  The inflation, the currency-debasement kind, is being masked by phony reporting ("Core CPI, which exclude the volatile food and energy sectors, isn't rising blah blah blah".  Read Bernanke's 2002 speech; I assume you already have.

Third, before we decide to flip the bird to our international creditors, we will have widespread and thorough domestic default.  This, in a nutshell, is called austerity.

That's the plan, anyway.

Fourth, the feedback loop that ensues from the deleveraging process is anyone's guess

Ridiculous.  You write that as if history doesn't exist.  We know exactly what happens, and you know it.  Getting caught in obvious lies like this one doesn't help your credibility any.

Last, the present political atmosphere is not such that remotely hints towards expansion of the FED's ability to print.  The FED is not a magical island unto itself.

Not an island, but one of the visible faces of the banking cartel that runs the country.  The other is called CONgress.

It must be TOLD to print and conduct monetary policy by the Treasury.  The two are connected at the hip; there is no difference.

An obvious contradiction.  Be more careful.

The other issue is that you have to present a viable alternative reserve currency.  What currency will kill the dollar?

There is absolutely no reason why multiple currencies can't be used.  A single currency makes international trade easier, but one is not absolutely essential, and I am tired of people using this as a reason why the dollar has a long life expectancy.  Red Herring.

you're going to see something miraculous happen...  a reduction of state and local budgets as well as...  wait for it...  wait for it...  the federal deficit!

Yeah, from $1.5 Trillion in 2009 and 2010 all the way down to $1.4 Trillion projected in 2011.  Everyone agreed that the deficit was unsustainable at $400 Billion, so I am waiting for it....how low will it really go?

If we're the last domino, which we are, what would the effect of a demise in the dollar actually be, with the rest of the world having previously capitulated?  Too many variables obviously. 

Too many for you, maybe, but not a reason why the dollar will stay on top, is it?  "It's too hard to figure out, so it's a reason for the status quo to continue."  Right.

What happens to the ashes of the former rest of the world?  Does it provide fertilizer for new opponents?  Or merely a barrier to entry for our even larger control?

So we go from being the world's largest superpower debtor nation, with virtually no manufacturing base, to world's super-superpower debtor nation, with virtually no manufacturing base?  I'd like to see the Rand white paper on that one.

So, what happened in 2008 before QE began in earnest?  What caused the rush to the dollar?

Tradition.  The paradigm hadn't yet broken.  It is breaking now.

Let's presume that the FED is behind the bull bond market as of late...  what portion does it play?  This is an important question because its exit would cause a shift in the market...  if it does not play an incredibly large factor in the recent treasury purchases, then what will happen to the market if the FED influence is removed?  Obviously the other question is, why the fuck would the FED do this to treasuries

To keep the paradigm alive for as long as it can.  "Not only are Treasuries staying strong, they're getting stronger.  See!  They're the envy of the whole planet!  Let's get the next deflationary collapse going so that we can vacuum up more capital!"  If you want to fall for this, go for it.

And yes, the politicians are going to cut spending...  if they don't, our demise will be quick...  they know it, we know it, the rest of the world knows it.

Which of the now-majority dependency classes will defect and form a coalition for cutting their own free-riding throats?  (crickets chirping.......)

at this juncture, a strong dollar is going to happen...  no other way around it...  now, I do think we're at the end of the road/diminishing returns on the flight from the dollar/flight to quality...

I agree with this.  It's just not sustainable for very long.

Sun, 08/08/2010 - 10:40 | Link to Comment MachoMan
MachoMan's picture

Deleveraging.  I just said we were balls deep, not necessarily ready to blow our wad just yet.  Point being, we've had plenty of deleveraging in housing for example...  state and local governments are auctioning off buildings in an attempt to stave off mass firing...  we've already begun in earnest...  we just have some stimulus speedbumps along the way.  This effect will trickle out to fed.gov soon enough.

FED's Desires.  The FED's handlers desire inflation until the FED can no longer generate it.  When Bush sent out the stimulus checks ($300/$600) and they were just used to pay off debt and/or put into savings, we had a little gulp.  Round 2, confirmation, was made when TARP, et al, was rolled out to little, if any, success (miserable failure).  At this juncture, they are keenly aware the credit bubble is over and their monetary policy is impotent to defend against it.  The bi-flation issue has been discussed ad nauseam on this site (regarding CPI)...  so I won't get into that...  but, this is where my hypothesis is different from many other people... 

I propose that this was the design ALL ALONG.  Inflate, inflate, inflate until I can'ts inflates no more and then tighten the noose on the debtors.  I agree the FED loves inflation, but you know what its member banks like even more?  Not getting paid back with monopoly money...  that's what they're supposed to give us.  In return, we're supposed to turn over our land, labor, and first borns.  First by inflation, then by deflation....  think of a drug dealer...  you want your buyer hooked on the product, but not dead.  (sometimes they die anyway).

This is exactly what politics is for the top tier of machiavellians, you put your unwitting opponent in a situation that appears to be a choice, when in fact either way your opponent chooses is a winning proposition for you.  The allure of cheap money is vastly greater than our discipline.  Once the credit bubble has been inflated and the wealth gap created, the game is already over.  Whether we inflate or deflate, the end result is the same and the majority of the 1% have hedged accordingly and/or regardless of preparedness naturally have enough buffer to survive.  In the aftermath of nuclear winter, the squirrels with the most nuts will fill the power vacuum.     

The present issue is that the credit bubble inflated so large that the resulting contraction is enough to wipe most everyone out in quick fashion [all of the plebs, most of the thievery vehicles (multinational corporations), and even some of the 1% had their pants down...  this is where the stimulus came in to the rescue].  This is where the FED's new role steps in.  Now rather than solely being a drug dealer, it has changed its tune and now also sells rehabilitation services (genius right?)...  wins both ways.  After rehabilitation, we'll be ex drugees with a lengthy criminal record and no real job skills...  (setting up ye local general store that sells shovels for $5 on credit and pays $.02/hr for labor by mr. rehab facility is only a hop, skip, and jump away).  My guess is that maybe not this budget (unknownmagicbudget), but I put a very large weight into the following budget being vastly closer to balanced...  and containing very directed stimulus...  this will all be part of the attempt at controlled demolition.

Now, while the controlled demolition is ongoing, contemporaneously therewith, the looting will continue in earnest.  This means the principal actors at institutions feeding the 1% will continue to take large salaries, bonuses, and other perks.  The chosen (earned?) institutions will be fed the lame in an attempt to keep everything afloat.  The resulting consolidation will make it even more difficult for us to stop it.  Cash position and reserves will be attempted to be as large as possible... 

But, in the end, these all boil down to limited liability organizations.  Given that their principal actors will never be held accountable for the aftermath, none of the ill gotten gains will be clawed back or, at the very least, not in a sufficient amount to deter/cripple the activity.  At such point, the government will not exist in the same form.  It will be bankrupt and so will the organizations, but their principal actors live to fight another day.  This is what the FED desires.  It will even fall on its sword for its masters if need be and they'll feed on its carcass (we just get cornbread). 

Feedback loop.  My comments were in regard to the extent and severity of the feedback loop.  It is a certainty the feedback loop would be incredibly damaging.  I think many of us can probably agree that the extent is likely default/repudiation.  The real question is with the severity and timeframe.  If they tack on a couple more multi trillion dollar deficits, the jig is up shortly thereafter (maybe 1 more?)...  if they attempt to implement austerity, we could get many years...  this is the method that will extend the looting the furthest.

Alternative Reserve Currencies.  My question is this...  why has there not been a viable, concerted effort to overthrow the dollar's hegemony?  If there has, then it/they were certainly embarrassing attempts.  The reality is that literally every country is all in on the dollar.  We've all pledged allegiance to it and, in return, we're supposed to play nice with currency swaps, etc.  They know it, we know it, everyone knows it, that's why we continue.  Now, as we progress into austerity, and other countries fail around us, I suspect from the ashes a viable alternative may emerge.  But until then, with the current systems in place, we simply continue on the same path.

Variables to Currency Change.  There are too many variables.  The status quo will continue for, if nothing else, simple risk aversion.  What happens on the backside of a dollar collapse?  I don't know, but I do know not enough folks want to find out.  How long will it stay that way?  I don't know...  but for the foreseeable future, given a sincere attempt at austerity, I'd say quite a while.

Keeping the Paradigm Alive.  This seems like a contradiction on your part...  on the one hand, the FED wants to keep the paradigm alive as long as possible, but on the other hand it wants to print, which you contend will kill us in short order.  How do you think the FED reconciles these mutually exclusive positions?  My contention is that it gives up the printing paradigm to keep the charade going as long as possible.  We're in agreement that continued printing will kill us in short order...  but I disagree as to the reaction. 

I think your point is largely one from induction, e.g. the fed has printed in the past, therefore it will continue to do so.  I think its past has painted it into a corner and, as originally designed, it's time to turn the other way and tighten the noose on the debtors.  This was a really long two part play...  this is what bonds are telling you.

Political Change.  Ok, the majority are dependents, but yet were diametrically opposed to TARP?  That's the problem...  even the dependent masses are onto the fact that inflation doesn't work...  stimulus is impotent for our present predicament...  it seems the debtors are wising up to the noose closing around their throats.  (the problem is that they should have wised up 30 years ago, not when their faces are blue).  And if not, they're certainly at the end of their tolerance for stimulus to failed institutions...  which is certainly the lion's share of stimulus...     

Sun, 08/08/2010 - 16:41 | Link to Comment SWRichmond
SWRichmond's picture

I propose that this was the design ALL ALONG.  Inflate, inflate, inflate until I can'ts inflates no more and then tighten the noose on the debtors.  I agree the FED loves inflation, but you know what its member banks like even more?  Not getting paid back with monopoly money...  that's what they're supposed to give us.  In return, we're supposed to turn over our land, labor, and first borns.  First by inflation, then by deflation....  think of a drug dealer...  you want your buyer hooked on the product, but not dead.  (sometimes they die anyway).

I understand your outline and I agree with it.  Imagine a scenario where you had unlimited access to free money, and everyone else was broke.  Think of the stuff you could buy.  I get it, believe me.

if they attempt to implement austerity, we could get many years...  this is the method that will extend the looting the furthest.

The magnitude of the cutting required to achieve "austerity" is too great IMO.  You're talking about enough austerity to bring the troops home, slash social security, medicare and medicaid reimbursements.  I agree they'd like to achieve some kind of delaying tactic austerity.  This crisis has always been a "last man standing" event.  There is no political will to do this kind of deep cutting (yet).  I think they're hoping that China will succumb first.

why has there not been a viable, concerted effort to overthrow the dollar's hegemony?

Because there aren't enough side agreements in place to use other currencies yet, but these agreements are being pursued by China, Brasil, Russia, et al.  Everyone is so (in)vested in the dollar regime that everyone will continue to give it lip service while they all chart themselves a path out.

The status quo will continue for, if nothing else, simple risk aversion.

You are suggesting that adults will see the maneater coming and respond en masse by sticking their heads in the sand.  I think they've stuck their heads in the sand thus far because of the paradigm, not because of some conscious decision.  The paradigm is cracking, and I think it will resemble a dam burst when it breaks.

This seems like a contradiction on your part...  on the one hand, the FED wants to keep the paradigm alive as long as possible, but on the other hand it wants to print, which you contend will kill us in short order.  How do you think the FED reconciles these mutually exclusive positions?

I think they believe they can get away with it, a belief that I do not share.  I also firmly believe that when push comes to shove and they have to choose between risking it all by printing more, and risking it all in a sustained deflation, they will choose printing.  I believe that choice will be forced upon them, soon enough.  WHy has the Fed been able to reign in its extraordinary support programs?  Because enough time has passed that the major institutions know they'll be saved no matter what, and that they'll be blessed with false accounting for as long as it takes no matter what.  Why have there been NO fraud prosecutions?  Why do you think?  What's the message?

Ok, the majority are dependents, but yet were diametrically opposed to TARP?

People who actually pay some attention to the government were the ones who actually called; the ones who completely trust government with their very lives never question anything government does, unless it threatens them.  Since most of them pay no taxes, keeping the status quo working while they continue to get free money didn't matter to them at all. 

even the dependent masses are onto the fact that inflation doesn't work..

Nothing could be further from the truth.  The dependent masses think there is a bottomless pit of free money in the hands of "the government" that they can just keep drawing from.  They have no idea how things are made, what it takes to make them, how an economy works.  A silly assertion on your part.

Sun, 08/08/2010 - 17:58 | Link to Comment MachoMan
MachoMan's picture

I don't dispute the likelihood that our present debt levels may be too large to overcome through austerity.  Essentially, we got too much of a good thing.  But, I think we're in a disagreement as to the timeline.  We don't have to immediately send all the troops home, slash SS, medical benefits, etc.  These can be macheteed as time goes by...  hack off a limb here and there and continue to live.  Although, eventually, we start looking like the black knight. http://www.youtube.com/watch?v=zKhEw7nD9C4 This is when we lose reserve currency status...  when we're trying to bite ankles off.

I also don't dispute that they'll turn to the printing presses again...  and probably again and again.  However, in order to do so, we'll just have to cut elsewhere...  this will buy us time. (them time to keep looting and making final preparations).

The FED has been able to reign in support because of quite a few factors, one is a general flight to quality...  another is the limited investment abilities of our financial institutions who have been increasing reserves but yet are not required to recognize the inherent losses on the books.  Essentially, many cannot purchase anything other than treasuries or highly rated bonds...  and, given the general questioning of the quality of the rating agencies, the risk averse are left with few alternatives.  If you look at your local and regional banks, you're going to find an incredible amount of treasury purchases recently.  Another is the fact that plenty of institutions have unloaded the shit to the FED and/or GSEs and/or FED to the GSEs.  When push comes to shove, the FED knows the dollar is the last domino... 

The major institutions are not going to be saved and neither is the FED.  They're just the fuselage for the upper crust rocket ship.  Once it's safe to come back down, they'll come pick up the pieces on the cheap.

Every principal actor knows that if we continue to print at the current rate, our days are incredibly numbered.  As a result, we have two choices, quick death or slow death.  If we deflate too quickly, we end up the same place we would if we had just printed, hyperinflationary currency collapse...  a complete loss of faith in the unit of currency.  There is literally a single alternative at this juncture...  controlled demolition.  I'm not saying it will be successful in the end, but for the short and medium term, it's sure as hell the plan.

And don't paint the masses for complete idiots...  they're incentivized not to investigate...  but don't take that for stupidity on their part.  How difficult is it to show a number (how much we made in tax revenue) and how much we spend (on bullshit)?  A third grader can understand the concept of unsustainability...  as people are forced to get their own finances in order and see the devestation "cheap" money has caused, they can apply this concept very, very easily to the macro...  don't sell them short, they're coming around...  all be it the long way. 

 

Fri, 08/06/2010 - 12:57 | Link to Comment scratch_and_sniff
scratch_and_sniff's picture

Nice one Goldman, rock-out with your goldplated cocks out.

Could have made a small fortune today(ended up flat)...just wasnt thinking about QE2 being priced in; its always something. Price action on eur/usd is just plain odd atm.

Fri, 08/06/2010 - 12:57 | Link to Comment Steak
Steak's picture

Washington has no clue.  Jobs dropping like beats at a Deadmau5 show.  Sit back, and enjoy my stimulus package for you.

fired on your day off (a playlist): http://www.youtube.com/view_play_list?p=33135E8E214454B3

Fri, 08/06/2010 - 13:00 | Link to Comment Hansel
Hansel's picture

Wheeee, The Deficit doesn't matter.  Ben will print money to buy all the bonds.

Fri, 08/06/2010 - 13:23 | Link to Comment BobWatNorCal
BobWatNorCal's picture

Expected, yet distressing.

Fri, 08/06/2010 - 13:31 | Link to Comment Rainman
Rainman's picture

Ten year yield down 8bps today so far, 2y busted down through .5 !! Bennie's cornered now, ZIRP forever has consequences.

30 year mortgages at <3.75 will bust up a lot of banker bonus parties.

Fri, 08/06/2010 - 14:28 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

I can't wait to lock in that 15 year refi at 2%.

Fri, 08/06/2010 - 13:05 | Link to Comment hambone
hambone's picture

Time for shorts to take profits on the day as the melt up begins here...drumroll please...to close flat and show the markets "strength".  QE1.9 or lite or whatever has got shorts dutifully scared of getting killed again.

Moral hazard bitchez!!!

(disclosure - although the the author is short term bullish based on moral hazard he is not long moral hazard nor does he hold any in his portfolio)

Fri, 08/06/2010 - 13:10 | Link to Comment carbonmutant
carbonmutant's picture

With the top 5% doing 80% of the spending, removing the tax breaks should kick the last leg out from under this stool.

Fri, 08/06/2010 - 13:17 | Link to Comment docj
docj's picture

Meanwhile the FedCo Plunge Protector 1100 (S&P version, pat. pend.) seems to be working pretty well today.

Add: Good Heaven - but in addition to Mad Dog Cramer now I have to endure GoogleAds from Gov. Coupe Deval Patrick (D, for Disaster - MA) as well?  Double-plus-un-good.

Fri, 08/06/2010 - 13:17 | Link to Comment carbonmutant
carbonmutant's picture

Consumer Metrics Institute's Contraction Watch
This chart compares three consumer demand contraction 'events'. The contraction events of 2006, 2008 and 2010 are shown against the same scale of annualized contraction.

http://www.consumerindexes.com/commentary_2010_contraction_watch.png

 

Fri, 08/06/2010 - 13:18 | Link to Comment docj
docj's picture

Interesting - one of those is clearly not like the other two.

Seems to indicate we may have a ways to go before we see bottom, no?

Fri, 08/06/2010 - 15:29 | Link to Comment flacon
flacon's picture

We will never see the bottom until either the administration divorces itself of Keynesian economic model, or we all perish. I am being realistic.

 

"The long run is a misleading guide to current affairs. In the long run we are all dead." ~ John (the destroyer of wealth and raper of humanity) Mynard Keynes.

 

 

Fri, 08/06/2010 - 13:18 | Link to Comment Young
Young's picture

Wheat limit up yesterday, then limit down today...

Fri, 08/06/2010 - 13:35 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Rain in Russia? Or just "exit-stage-right" algos kicking in? I vote the latter.

Fri, 08/06/2010 - 13:27 | Link to Comment tahoebumsmith
tahoebumsmith's picture

There is no can left to kick, only a mere sliver of tin. Soon it will be nothing but metalic dust that they can sniff up their noses to get their last and final fix.

Fri, 08/06/2010 - 13:31 | Link to Comment hambone
hambone's picture

How bout a pot to piss in?

Fri, 08/06/2010 - 13:37 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Currently being used as a soup bowel.

Fri, 08/06/2010 - 13:41 | Link to Comment knukles
knukles's picture

Bowel? 

Fri, 08/06/2010 - 13:51 | Link to Comment impending doom
impending doom's picture

I am Jack's lower intestine

Fri, 08/06/2010 - 13:56 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Typo?

Or Freudian slip? :>)

Fri, 08/06/2010 - 13:27 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I had a 4% pullback starting yesterday and moving into Tuesday, at which point I think BS shoots his load all over his printing press and buys all markets (except PMs) outright.  So far so good.  I think that the time for QE "Whatever" is nigh.  I can not believe they are going to do it, but never underestimate sadistic, pathological morons.

Fri, 08/06/2010 - 13:29 | Link to Comment n2dark
n2dark's picture

i believe he's quite optimistic ... those government bullshiters are pulling fast ones every week now, durables initially -1% , 5 days later revised -1.2%, private payrolls +83k in june, now revised to +31k

Fri, 08/06/2010 - 13:34 | Link to Comment ivant
ivant's picture

today's number is a victory lap for some of us. i've been waiting for this number for a week. i even invented a new phrase to describe half the week. i think that if the printers arent working too hard at the moment over there at the fed, this could be a real breakthrough for the bears. i was even bearish enough to post bearish comments, which makes me ultra bearish for the next few weeks. for those interested, its here - http://thedailycable.com/

 

oh and by the way how did the unemployment rate drop?

Fri, 08/06/2010 - 17:22 | Link to Comment TraderTimm
TraderTimm's picture

I hear ya Ivan, still underwater on my puts but I see interesting things coming up for next week. I know people are conditioned for the monday pop - but I don't think it is going to happen this time around.

Have a relaxing weekend!

 

Sat, 08/07/2010 - 00:57 | Link to Comment ivant
ivant's picture

well it has been happening so often that its normal to eventually expect something to fall. plus the rally was typical of a friday summer night. what's the weather like over there? is it really hot?

 

have a grand weekend too and good luck on those puts!

Fri, 08/06/2010 - 13:48 | Link to Comment Caviar Emptor
Caviar Emptor's picture

From all corners of Washington and Wall Street you hear "This Should Not Be Happening!" We're 2 years post-crisis and 1 year into "recovery" and we're still hemorrhaging jobs! Housing isn't bottoming! And as pointed out above we still have upward revisions to core PCE inflation. (Forget about food and energy, we know where they're headed) How can this be ???

Because we've reached the terminal phase of the current economic paradigm. All things that worked before are no longer working. Like beating a dead horse. Only worse since the policy tools that were used in the past are all inflationary. There's growing economic and geopolitical risk as a result of this situation and the uncertainties that it leaves in the global economy. The uneasy calm (with head squarely in the sand) can quickly turn. Gold will continue to climb in this environment even under the rosiest of economic scenarios. Let alone the worse cases.

Fri, 08/06/2010 - 13:57 | Link to Comment hambone
hambone's picture

Keynsian Insanity - doing the same thing again and again and expecting the same result???

Fri, 08/06/2010 - 14:04 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Keynesian adherents would call that Keynesian basics. Keep on doing the same thing until it works or the world explodes into a million pieces and there's no one to blame you for pushing the trigger.

Brilliant. But of course, insanity is always irrefutable and self sustaining.

Fri, 08/06/2010 - 14:09 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"Mr Dissonance, we can see from you card statements that you have failed to purchase an ipaduh.  Big Brother has informed us that you have until the end of next week to do so, or you will lose your chocolate ration.  Remember, we are all in this together, and we are all Keynesians now, so please do your part."

Fri, 08/06/2010 - 14:19 | Link to Comment hambone
hambone's picture

Comrad Hendrix (or may I call you Lenin?),

I must admit my shame and guilt having not purchased an Apple product for 2 to 3 years...but good news!!!  Apple today touched my inner shakra w/ a new product offering (ok, actually on a patent at this point) targetting to interface w/ the bicycle.  With this, I may now rejoice in technological consumerism and be one w/ the borg.

Fri, 08/06/2010 - 14:25 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

+1

Bikes are the future.

Fri, 08/06/2010 - 14:23 | Link to Comment glenlloyd
glenlloyd's picture

Clearly in this case you mean Big Brother to be the coming Bureau of Appropriate Consumption?

Fri, 08/06/2010 - 14:27 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Edit:  Bureau of Appropriate Consumption.

:)

Fri, 08/06/2010 - 14:46 | Link to Comment AccreditedEYE
AccreditedEYE's picture

What the hell happens if we're....er, have friends... who are short AAPL?

Fri, 08/06/2010 - 14:20 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Who is crazier? The crazy man or the man arguing with the crazy man?

Fri, 08/06/2010 - 14:26 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

To directly answer your question, the man arguing. To go a little further, once the "crazy" event horizon has been crossed, what difference does it really make? :>)

Fri, 08/06/2010 - 14:30 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

I guess people will find their own. Well put.

Fri, 08/06/2010 - 14:14 | Link to Comment trillion_dollar...
trillion_dollar_deficit's picture

I think we are entering a period when the radicalism of what has transpired in the past two years will look tame. TPTB are about to go batshit insane with their attempts to keep the status quo.

Fri, 08/06/2010 - 14:25 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Agreed. Desperate men will do desperate things. And we really haven't seen all out desperation.........yet.

But it's coming, of that I have no doubt.

Fri, 08/06/2010 - 14:32 | Link to Comment hambone
hambone's picture

When there is no sane solution, the insane solution is the sane answer.

Fri, 08/06/2010 - 14:40 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

When there is no sane solution, the insane solution is the sane answer.

Said the insane asylum warden to the insane asylum inmate. :>)

Fri, 08/06/2010 - 16:35 | Link to Comment RockyRacoon
RockyRacoon's picture

You guys are driving me nuts...

Fri, 08/06/2010 - 14:17 | Link to Comment DoctoRx
DoctoRx's picture

If we go back to the approx 5:4 ratio of 30 year to 10 year yields seen at the top of the T-bond bull in 12/08 and at the bottom of the subsequent bond bear, then no change in the 10 year yield from here implies a 30 year at 3.50%.  Could happen no matter whether hyperinflation looms later . . .

Fri, 08/06/2010 - 14:42 | Link to Comment Translational Lift
Translational Lift's picture

"Goldman Capitulates: Lowers GDP Forecast, Increases Unemployment And Inflation Outlook, Sees Imminent QE "Lite....  QE2 Lite my azzz   Bloomberg TV just announced that the Fed to Purchase at least a Trillion $ in Treasuries.  I gotta figure out how the Fed does this....I'd like to purchase just a Billion $ the same way,,,,I wonder where they get their funding???

 

Fri, 08/06/2010 - 14:51 | Link to Comment hambone
hambone's picture

Equities starting their afternoon melt up but T bonds just don't seem to get it hanging just above 2.8% for 10yr.  Um, I think I'm probably the first to notice this but seems there is a small disconnect 'tween the bond and equity market.  Things that make one say hmmmm.

Another no volume rocket shot in the stock market...weird.  And in the last hour of trading no less.  Where have I seen this before?  Hmmmm.

Fri, 08/06/2010 - 14:53 | Link to Comment Yikes
Yikes's picture

Yep.  You can't make this stuff up! 

Fri, 08/06/2010 - 14:59 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

I get your point but in reality they are making this stuff up, 24/7/365.

We are all small data points in the largest real time economic experiment ever attempted in the history of our world. Makes for some exciting times as long as you have in your possession some experimental (and powerful) spinal cord pain blockers.

Fri, 08/06/2010 - 15:18 | Link to Comment hambone
hambone's picture

I got confused and instead ended up w/ penile implants heightening my sensitivity to all this.  It all hurts so good.

Fri, 08/06/2010 - 15:01 | Link to Comment hambone
hambone's picture

Title of this article should really be "Market capitulates to Fed...up, up, and...hmmm. 

Hey, btw, wasn't that the 200dma we just hurdled past?  Wow, I guess things really must be getting better.  I remember some report came out this morning but already I can't seem to remember what it said...oh well, it's time to catch the eod rally.

Fri, 08/06/2010 - 15:06 | Link to Comment banksterhater
banksterhater's picture

Time to CUT THE BULLSHIT Q/E rumors, it's artificially inseminating the selloff again. It did no good, Fed is NOT pulling any more out of their ass, I assure you. They're sucking in last longs with a penny to their name.

Fri, 08/06/2010 - 15:19 | Link to Comment walküre
walküre's picture

Q/E is actually part of the Patriot Act.

It's a matter of national security to keep printing and creating money out of thin air.

Read it. I swear, it's true!

Fri, 08/06/2010 - 15:29 | Link to Comment banksterhater
banksterhater's picture

You are correct in reminding us, and no company doing business with the gov in any way that is important to "nat'l security" can't be compelled to open their books, I am pretty sure.

Fri, 08/06/2010 - 15:09 | Link to Comment walküre
walküre's picture

Goldie sees "slower growth in 2011".. those fuckers. There's no growth when everyone is either saving, scraping the bottom of their barrel or flat out broke.

Credit is still contracting.

What they will not admit is that we're still in negative growth territory.

The day that Goldie recommends its clients to stop buying stocks because the market is a rigged casino, that would be they day I'd pay attention to what they say.

St. Louis Fed said they wanted to buy more MBS and other paper. Even the refi of all GSE mortgages was on the table.

Free money for everyone that is underwater. It can go on forever because the Fed says so. Don't forget this country gave everyone a mortgage that had a heartbeat and probably even without a heartbeat.

Oh, they will reflate alright. It will knock your socks off how they reflate.

Got fertile land? If not, you won't be able to generate your own food supply. Food will be a good barter in days to come. Worth more than paper.

 

 

 

 

 

 

Fri, 08/06/2010 - 15:23 | Link to Comment hambone
hambone's picture

Bulls win the day and stock market cnfm's American way of life is NEVER GOING TO CHANGE.  Phewww.

Fri, 08/06/2010 - 15:32 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Seems to me all forms of QE bless the banksters first and foremost, and the rest of the economy is then supposed to be cheered by their success and vow to carry on. Other than that, and propping up asset values, I have yet to hear a coherent sentence or two on how QE would get the general economy moving.  Credit is being destroyed and is contracting, therefore money supply is contracting, and QE has no effect on these things.

Fri, 08/06/2010 - 15:34 | Link to Comment banksterhater
banksterhater's picture

Mish makes sense of the Q/E FRAUD today, he's been right about almost everything so far.

http://globaleconomicanalysis.blogspot.com/2010/08/will-quantitative-eas...

Fri, 08/06/2010 - 15:53 | Link to Comment macroeconomist
macroeconomist's picture

I posted this above as well but once again, if anyone has any doubts about QE2, here you go: From the very man himself

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

" Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

And if that's not convincing enough:

""The Fed can inject money into the economy in still other ways. For example, the Fed has the authority to buy foreign government debt, as well as domestic government debt. Potentially, this class of assets offers huge scope for Fed operations, as the quantity of foreign assets eligible for purchase by the Fed is several times the stock of U.S. government debt."

"One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation"

And as an excelent joke from Ben Shalom:

"The claim that deflation can be ended by sufficiently strong action has no doubt led you to wonder, if that is the case, why has Japan not ended its deflation? The Japanese situation is a complex one that I cannot fully discuss today. I will just make two brief, general points.

First, as you know, Japan's economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt. Plausibly, private-sector financial problems have muted the effects of the monetary policies that have been tried in Japan, even as the heavy overhang of government debt has made Japanese policymakers more reluctant to use aggressive fiscal policies (for evidence see, for example, Posen, 1998). Fortunately, the U.S. economy does not share these problems, at least not to anything like the same degree, suggesting that anti-deflationary monetary and fiscal policies would be more potent here than they have been in Japan"

Any more doubts?

Fri, 08/06/2010 - 16:02 | Link to Comment hambone
hambone's picture

I think the PPT is just showing off now...demonstrating that the equity market is now their bitch.

I had to leave...couldn't watch anymore.  Was like watching your team get blown out in the superbowl.  All those "matchups" you identified before the game all for naught.  Blow out.

What I don't get is how BB can spin a tale around QE2 despite the positive stock market "forecasting" a positive business environment?

Fri, 08/06/2010 - 20:02 | Link to Comment SWRichmond
SWRichmond's picture

You can be sure that any new announcement of any new "unconventional monetary policy" (props to Jan Hatzius) will be met by a USDX ramp job, maybe after a short drop.  WHoo-Hooo!  Bucky's still king!

Fri, 08/06/2010 - 20:44 | Link to Comment Miles Kendig
Miles Kendig's picture

Oh, so the fed continuing its temporary purchases by rolling over rather than simply departing is suddenly a given.  Temporary measures that will last for decades...... as maturity will be avoided at all costs by the economic and political elites.

Sat, 08/07/2010 - 01:00 | Link to Comment ivant
ivant's picture

you know this is just total gayness. that chart i posted earlier in this post, how on earth did the market manage to move and almost end flat? in all seriousness, did every trader (well about the 2 that were left on the floor at that time), just go, hey let's prop the market higher. teach those bastards not to go the beach. after all we have the improving unemployment rate on our side.

 

i don't about you guys, but somehow i dont feel to comfortable having goldman on our side so openly. even though i have an interview with them next week, :p

Sat, 08/07/2010 - 08:40 | Link to Comment DarkMath
DarkMath's picture

No Comment

Sat, 10/09/2010 - 09:45 | Link to Comment senthil456
senthil456's picture


There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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