Goldman's Reaction To The FOMC Minutes

Tyler Durden's picture

Since it is now obvious to even the back office that Jan Hatzius makes monetary policy in the US (just note the spike in QE3 anticipating factors following his weak assessment of the weak Services ISM earlier), it probably makes sense to present his response to the policy that he through his predecessor Bill Dudley, helped enact. Below is the Goldman take on the FOMC minutes. Ignore the house of mirrors effect.

Minutes of FOMC Meeting - Ongoing Debate

1. Minutes from the March 15 FOMC meeting indicated greater division among Fed official about the policy outlook, in line with recent public comments. In particular, they stated that "A few participants indicated that economic conditions might warrant a move toward less-accommodative monetary policy this year." Note that this may refer to ending MBS reinvestment rather than raising the funds rate.

2. Despite stronger calls for tightening from a minority on the committee, many members seemed comfortable with the policy stance. Officials saw "significant slack in resource utilization", and expected that "underlying inflation likely would remain subdued for some time". As in the post-meeting statement, they said that it would be important to track measures of inflation expectations, but otherwise they saw the recent rise in headline inflation as transitory. Meeting participants also thought the decline in the unemployment rate contrasted with other labor market indicators, which "showed more-modest improvements".

3. Finally, the Board staff left its forecasts for activity later in the year broadly unchanged. The minutes noted that, in the staff's view, the drag from higher oil prices would be offset by higher household net worth and a weaker dollar.

While he bow down to the Viceroy of the West Printers, we can't help but wonder how a weaker dollar offset lower purchasing power? That's ok - since we have no Ph.D. it is obviously beyond our meager brain to comprehend this offset which only the "blessed ones" can grasp.

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IEVI's picture

"we can't help but wonder how a weaker dollar offset lower purchasing power?"

up is down and down is up

the new normal



A Man without Qualities's picture

I find the conspiracy of silence on the housing market very revealing....  

Bold Eagle's picture

TD, I also wonder how a weaker dollar leads to higher household net worth.

Cash_is_Trash's picture

But, but... the wise clerics at the Church of Hyperinflation know it all!

PhD = Permanent Head Damage

It's not Ben's fault seriously (!)

cowdiddly's picture

The Fed thinks that they can stand there in the same damn speech and say that the economy is expected to get much stronger but at the same time there is no need to stop QE 2 They think that the average guy is that dumb. Disgusting.

tek77blu's picture

Goldman's reaction should be..."Here come the higher floors for gold and silver".

Ruffcut's picture

Comments about comments from bullshitters comments of other bullshitters.

I will pay attention to that, once I figure out how to make my turds into fruit trees.

dogismyth's picture

eat the core of all fruit then shit outdoors.  Its called scarification.  BTW...them peach pitts are a bitch to swallow!

Silver Pullet's picture

Ummm...thats would be endozoochory.

Scarification is when you cut or burn an image into your skin. Much grosser than shitting seeds IMO...

OldPhart's picture

It ain't the SWALLOWING that's hard...

Pepe's picture

Blankfein sacrifices lamb to Bernanke. 

Revolution_starts_now's picture

The squid comments on the comments of the fed, that the squid told the fed to comment on?

That is a no doubt full on reach around, bitchez.

Revolution_starts_now's picture

" the drag from higher oil prices would be offset by higher household net worth and a weaker dollar"

I think you were missing a laugh track at the end of that one.

Tall Tree Man's picture

Since the Fed returns the interest it earns on its balance sheet assets to the Treasury - in effect, giving the US a ZERO interest loan, shrinking its balance sheet will have consequences.  What they are - only the great squid knows.

zaknick's picture

Shameless plug:

     With the fall of the Berlin Wall, Eastern Europe, Russia, the Balkans and Central Asia were opened to Big Oil.  According to Kurt Wulff of oil investment firm McDep Associates, the Four Horsemen, romping in their new Far East pastures, saw asset increases from 1988-94 as follows: Exxon Mobil-54%, Chevron Texaco-74%, Royal Dutch/Shell-52% and BP Amoco-54%. The Rockefeller/Rothschild Oil Cartel had more than doubled its collective assets in six short years.

     Russia and Central Asia contain over half of the world’s natural gas reserves. Royal Dutch/Shell has led the way in tapping these reserves, forming a joint venture with Uganskneftegasin at a huge Siberia gas field in which Shell owns a 24.5% stake. Shell has been the world’s #1 producer of natural gas since 1985, often via a joint venture with Exxon Mobil.

     In the US retail natural gas sector Chevron Texaco owns Dynegy, while Exxon Mobil owns Duke Energy. Both were key players – alongside Enron – in the 2000 natural gas spikes that battered the economy of California and led to the bankruptcy of that state’s main utility provider, Pacific Gas & Electric. Exxon Mobil has extensive interests in power generation facilities around the world including full ownership of Hong Kong-based China Light & Power.

     During the 1970s Big Oil invested $2.4 billion in uranium exploration. They now control over half the world’s uranium reserves, key to fueling nuclear power plants. Chevron Texaco and Shell even developed a joint venture to build nuclear reactors.

     Exxon Mobil is the leading coal producer in the US and has the second largest coal reserves after Burlington Resources, the former BN railroad subsidiary which in 2005 was bought by the DuPont family-controlled Conoco Phillips.  Royal Dutch/Shell owns coal mines in Wyoming through its ENCOAL subsidiary and in West Virginia through Evergreen Mining. Chevron Texaco owns Pittsburgh & Midway Coal Mining.

     Seven of the top fifteen coal producers in the US are oil companies, while 80% of US oil reserves are controlled by the nine biggest companies. Both Royal Dutch/Shell and Exxon Mobil are hastily buying up more coal reserves.

     Concentration of power across the energy spectrum is not limited to the US. In Columbia, Exxon Mobil owns huge coal mines, BP Amoco owns vast oilfields and Big Oil controls all of the country’s vast non-renewable resources. In 1990 Exxon Mobil imported 16% of its US-bound crude from Columbia.

That's Colombia not Columbia.

This guy shows you the blood and guts of the corporate bankster machinery.

AldoHux_IV's picture

Having a weaker dollar will create a manufacturing renaissance at which point those on the margin will see higher costs of living and will resort to desperation.  In some cases Goldman believes that this could actually reduce the population of 'those that contribute marginally'.  As the top 1% expands in its ratio to peasants as these peasants will die off from starvation etc. the trickle down effect of wealth will bring upon more diarrhea to the masses at which point GDP will have to be revised higher.

In other words, they don't care about those who don't matter thus it 'offsets'.

Caviar Emptor's picture

You can't apply traditional analysis to the current economy. Supply/demand forces simply don't compute when the Fed and global central banks provide the bid for everything. 

Here are the fallacies in the FOMC's logic: 

-Resource utilization is slack therefore there won't be inflation. Well splain me this: gasoline demand has been dropping for 5 straight weeks, on top of already slack demand. Miles driven has been dropping and the Highway Commission reported the lowest number of auto accidents ever in the series since 1951. Yet gasoline is rising briskly. Hint: US imports 35% and we got company. Extra credit: refining capacity has been dropping due to "slack demand", despite higher prices over the last 3 years. 

-The big leap of faith: the recent rise in headline inflation is transitory. That might happen in an economy that wasn't import-dependent, deficit-dependent and government-dependent. But it's not gonna happen as long as the money trees keep sprouting. 

Nate Taggart's picture

"since we have no Ph.D. it is obviously beyond our meager brain to comprehend this offset which only the "blessed ones" can grasp"

I do have a Ph.D. but have been run over and left for dead by the blessed ones bus.

Had an interesting conversation over lunch today with a number of typcial group think academics.  They're scared shitless, wanted to know what to do with their 403Bs.  Even the mindless yes men of the academic elite have started waking up and loosing faith.  But of course they're not ready to accept anything but the old dollar cost averaging/buy and hold mutual funds arguments.  Hard to resist the urge to shout "Gold/silver bitchez!"

So I guess  "the academic stooge indicator" is still bullish for stocks.




Caviar Emptor's picture

I think it's getting tired. And until there's clarity on QE3 the default is sideways. Unfortunately that's all denominated in dollars which are losing value fast especially when looked at as buying power (shrinking fast). So PM's make the most sense. If either the Bernanke bid or the Bernanke put waiver you'll see lots of money taken out of stocks. 

chancee's picture


JonTurk's picture

weaker dollar = higher S&P = higher net worth!! unless you spend it

he is trapped in the mind fields-- there is no spoon


unwashedmass's picture


higher household net worth?

Yeah, i guess when you add in the food stamps that 47M, or one sixth of the population, is now getting....

i guess you could say higher net least the day the stamps arrive.

Prof Gulliver's picture

The "higher household net worth" is a tell that QE3 will happen. The only -- ONLY -- contribution to household net worth over the past 2 years has been higher stock prices. This is all the Fed can control, and they will never let the foot off the gas. "Higher household net worth" sure as hell ain't coming from higher house prices.

Caviar Emptor's picture

Agree. They're using stock price as a counterweight to dropping home values and declining real incomes and job opportunities. Add in reduced lending by banks and you got households in quicksand. Unfortunately the side effect of keeping stock prices rising is declining buying power and increased cost of living. So the program is a net bust. Bullish for PMs as a hedge against declining buying power (or stocks redeemable for gold)

dogismyth's picture

we're still deflating!! and will be for quite some time.  Its really that simple IMO.

slaughterer's picture

Note that this may refer to ending MBS reinvestment rather than raising the funds rate.

FOMC minutes has Jan second-guessing the onset of the fund rate increase.   GS is starting to lose its cool here. 

Note to Jan: Better call up Dudley for lunch.

Bartanist's picture

It is hard for me not to notice that the US is awash in free money for I-banks, primary dealers, hedge funds and private equity companies who are using it to leverage up and buy anything that is not nailed down, regardless of price... just because they can.

The results of this are:

- misallocation of capital to existing assets instead of activities and future assets, where asset inflation detracts from an economy instead of adds to it ... contrary to "the models"

- consolidation of businesses, which results in less of competition, less innovation and job loss

- asset inflation and so fewer purchases of more expensive items

- very fragile businesses where debt and debt servicing are the overwhelming concern of the business management team ... they all pray assets won't continue to climb in cost at the same time interest rates rise, killing the company.

- costs cutting through labor reduction and reduction in new activity / new investment in a attempt to temporarily make the bottom line look better (for the flip to a sucker) at the expense of the future

- An increased incentive for businesses to move offshore and pay no US taxes, also in an attempt to make the bottom line look better

Free money to the I-banks and PE companies make sound business practices counterproductive and are helping send this country further into a death spiral ... but don't feel bad, after my recent trip to China, it appears that China is actually in a worse situation... just a few years behind and with absolutely galactic amounts of misallocated money and virtually every company teetering on an economic knife edge.... with only the prayer of going public and asset inflation saving them.

But China makes stuff. Free money to absolutely the wrong people (bankers and financiers) has stopped that in Amerika.

Thinkor's picture

The weaker dollar encourages exports, raising US employment.  That, I think, is the point of the Fed's comment.


thames222's picture

"underlying inflation subdued for a long time."  Yeah right!  tell that to my gas tank.  It does make sense that a weak dollar would lead to more exports and jobs, but with inflated prices none of these changes will play out as planned.