Strategic Alpha Macro Update

Tyler Durden's picture

Submitted by Strategic Alpha

Macro Update

It appears to me that the markets are NOT listening to what Bernanke is saying:

Apparently, I am told USDJPY rallied last night after Bernanke spoke on inflation but if you actually listen to what he said, he is quite clearly not worried by a transitory rise in inflation if wages do not follow! He went out of his way to suggest that the lack of wage inflation and inflation expectations are still on the low side means that he is not likely to see a pickup in core inflation and therefore is still unconcerned with rising prices. This does NOT suggest to me that he is planning to do anything about inflation in the foreseeable future. Mind you it seems that the bond markets realised this as futures rallied in Asia last night and correctly so. He may respond if he sees it but he was clear he does not. Bernanke is NOT concerned with inflation yet. For goodness sake just because Bernanke mentions inflation does not mean he is about to jack up rates or cancel the Q/E programme! There is also a very real possibility that foreign buying of US bonds is tailing off and cancelling Q/E now might be very bad timing indeed.

The problem I have with all this is that time is running out for a decision on Q/E but there is simply not enough evidence to make an informed judgement on the state of the economy and how it would react to a withdrawal of liquidity. Most analysts just look at the ISM and other supply data but Bernanke has got to make sure the economy can survive without his daily liquidity gift. In addition, if as some suggest, Q/E2 has done its job by ramping up equity markets, it still falls far short of his mandates. Unemployment is still massive (the real level is nearer 12-13%) and the participation rate continues to fall. Today there are 44.2 million Americans on food stamps, or 14.3% of the US population! Analysts also seem to forget the massive mountain of issuance coming from the Treasury this year and next. Consumer debt and confidence also matter more to Bernanke than it does to main stream analysts and housing is not helping at all and looks set fall further causing havoc at the banks again.

I must admit I have just seen the biggest load of old rubbish and political spin that I have heard in a long time and the source is scary. “The upsurge in commodity prices is not a result of the  Federal Reserve's quantitative easing”, according to research at the San Francisco Federal Reserve Bank released Monday. San Francisco Fed economists Reuven Glick and Sylvain Leduc contend that, “if anything, the Fed's large scale asset purchases, better known as "QE2," have put downward pressure on commodity prices”. WHAT? I give up; where do they find these idiots and why are they allowed to speak? Is the Fed so much on the defensive that it feels the need to spin this garbage?  It seems to me “thou dost protest to much methinks”.

The UK economy is in big trouble as stagflation looms:

The UK is just waking up to some of the austerity cuts and higher tax bands at a time when essential costs are spiralling higher. The cost of living will certainly impact hard but the problem is that growth is headed in the other direction. Real wages are falling so it is clear that consumers need to change their spending habits, if not their way of life. This is going to hurt and the UK cannot afford to allow the central bank to raise rates at this time, as it would be disastrous for the economy and consumer. In fact I would suggest that rates should not rise at all this year.

This concentrated focus on the fear of inflation is something quite strange in reality. The rapid rise in prices is not a demand issue from the UK, it is external pressures and a 25bp rise will achieve nothing but more pain. Job cuts are still to hit in the public sector and confidence is already at record lows. Higher stamp duty on buying houses is in place now and it now costs £50,000 for the privilege to buy a house costing £1m. VAT is at 20% and tax bands have been moved up. Petrol now costs £1.44 a litre for diesel for those not in this country and food costs have gone ballistic. The UK is now a very expensive place to live for all but the 1% of top earners.

The UK also has a huge private debt issue (one of the biggest in the world) and I can only see this being addressed now as many will shed debt and deleverage. Surely the economists on the MPC will be good enough to look past the supply-side data and look at what is happening with the consumer. As Bernanke keeps saying (Trichet seems to disagree) if wages don’t move higher, then inflation, whilst sticky, is transitory as spending on non-essentials could collapse. An increase in mortgage payments now would tip many over the edge. Of course there is a problem, as the rate decision is a committee decision and this can produce an outcome that goes against the two senior members, King and Bean.

As the Telegraph points out; According to the Office for National Statistics, real disposable incomes (what's left after taxes and inflation) fell 0.8pc in 2010 – the first decline since 1981 and only the sixth since records began over 60 years ago. Given the Office for Budget Responsibility's (OBR) forecasts, working Britain better get used to it. Inflation is expected to exceed pay rises until the middle of 2013. In my view we need to take a new look at how we analyse inflation at the central bank as to me it should have a growth component built into the target.

Without doubt the knock-on effects of this will be felt by the retailers as higher input prices will have to be passed on or margins will collapse. The problem is the consumer is in no mood for higher priced non-essentials and the high Street is about to take a massive hit as earning get slammed. Given the pressures on consumers, the OBR has slashed its estimate of households' contribution to growth this year from 1.3pc last June to 0.6pc. This is far too optimistic still and 2011 is going to be a very tough one for many, even the middle classes as the disposable income levels are dropping like a stone. Families are going to be forced to dip into their savings or borrow more! Maybe not; they may just change their life styles and stop buying things they don’t need or can’t afford. After all it was only a generation or two ago when this was the norm. Maybe we need to have a close look at what impact that would have. Whatever happens growth forecasts are still too high and a rate hike would be a policy error.

The IMF’s global growth forecast is too optimistic:

Whilst suggesting correctly that the global economy is still rather fragile, the IMF then went on to suggest that growth we reach 4.5%. I disagree. I am not sure they are projecting forward the drop in demand from higher food and fuel prices across the globe and especially the developed world who are massive importers. Tackling debt, higher taxation and fewer jobs is going to take its toll on spending. Even in the US, prices are rising fast but wages are not, as alluded to by Bernanke and this matters. Demand-side dynamics need more attention!

Australia’s trade balance swung unexpectedly to a deficit in February at A$205 mln, for the first time in almost a year, as disruptions from natural disasters cut mining shipments and higher fuel prices boosted imports. New Zealand’s business confidence slumped to a two-year low in the first quarter, with 27% of companies surveyed expecting the economy to deteriorate over next six months. We still don’t know the full impact of the supply shock from Japan but the Tankan is not giving good news and PMi’s in Japan are collapsing. Japan also has to import just about all its essentials and costs are soaring! In Asia many are now revising down GDP growth forecasts for Taiwan, Malaysia, Singapore and Thailand based on the quake story! Let alone those of the UK and US! Plus the Nikkei reported Toyota’s 14 factories in North America may temporarily halt operations in April due to a shortage of parts provided from Japan. Global PMI’s have also peaked in my view.

There are very real shortages in soft commodities like corn and soya beans so food prices may well stay elevated and who knows where the situation in MENA will take oil to. Europe still has a massive issue with the peripherals and a rate hike will surely impact hard on the public there. EM nations are intervening like mad as hot money flows in which will exacerbate inflationary fears and impact on the domestic consumer. This money is recycled into currencies like the EUR and a higher EUR will not help the peripherals at all.

Developed world debt is also a massive unknown as countries take different strides to tackle it. (Not the US of course but their day is coming fast). This must surely mean higher taxes and further cuts for the poor consumer. The US still has to deal with the foreclosure issue and who knows what that means for banks solvency issues? The French have cut growth expectations to 2% from 2.5% for 2012. Consumer confidence across the developed world is falling precipitously and spending habits are likely to change. Can no one else see all this? In my view in summation, the demand dynamics may well impact on many central bank monetary policy decisions let alone growth forecasts...Wake up.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Id fight Gandhi's picture

I see the Dow dropping 2000 points and oil crashing back later this year if they don't wage more wars.

Yen Cross's picture

USD/JPY has finished repatriation. There are massive offers all through 86. I like this GBP trade. GBP is the proxy on YEN right now. Look at the the moves in EUR/JPY. Look at the moves in Cable. Any how I'm up 12 positions. Time to start parking some profits in GBP/JPY. I won't touch AUD/USD right now. Maybe a hedge in EUR/GBP.

bob_dabolina's picture

I heard the most hilarious idea today.

It goes like this:

The Bernank is going to raise rates and assume asset purchases.

<sigh> as much as it doesn't make sense it will probably happen.

Yen Cross's picture

Looks like all the Junk is out today BD. You will see it in the discount or overnight window as a test, like last time. Best wishes.

blindman's picture

blah .....

qe 3 is already priced in.  qe 4 is already priced in.

qe 5 is already priced in.  ........

you're either in or you're out of the qe thing.

ben is in until the heist is complete and so

will everyone else be or they will be dead.  the bankers

have the populations on the ground and they will not

stop kicking the ribs till the breathing stops.  this is,

after all, their global business model.  no? 

Yen Cross's picture

QE is done! The Fed knows they need to tighten supply.

I think I need to buy a gun's picture

Yeah QE is done since QE3 would collapse the dollar why not just announce gold revaluation to suck that debt away and say good bye to foreign oil and if that fails the restart QE under a new name......its over every way. Gas is going straight to 8 dollars a gallon regardless if a barrel is 100 or 300 dollars a barrel.

I think I need to buy a gun's picture

By the way obama is having a town hall meeting via facebook april 20th whats that about?

TBT or not TBT's picture

re-election.  He is still bent on "fundamentally transforming the United States of America"

Yen Cross's picture

I found my James bond. This gentleman is the (prodigy) of a much higher source. Obamma is just the (Junxt) of a much older order! I have my sights set higher!

blindman's picture

if swords could be turned to plowshares....

"They will beat their swords into plowshares and their spears into pruning hooks. Nation will not take up sword against nation, nor will they train for war anymore.Isaiah 2:4 & Micah 4:3 "

if this then they could do without qe^*.  but....

they don't have the heart.  leaders.  and what of those who follow?



Everyman's picture

Most analysts just look at the ISM and other supply data but Bernanke has got to make sure the economy can survive without his daily liquidity gift.

This is plain stupid analysis.  The economy has GOTTEN WORSE because of Bernanke.  It is NOT SURVIVING with QE is is getting sicker.  What kind of analysis would lead ANYONE to make the above quote???

The real issue is that Bennie the Prick, has only inflated stock values and shifted the crap on banks balance scheet to AMERICAN TAXPAYERS.  It does not benefit the economy, it benefit asshole banker criminals.  They all should be shot in the head.


Global Hunter's picture

whoa next thing you'll be telling me the sicker it gets the worse the pay back is gona have to be.

Breaker's picture

"It does not benefit the economy, it benefit asshole banker criminals."

Well, to be fair, it also benefits congress and the administration big time. They are able to keep running huge deficits with no immediate interest rate consequences and to pretend the bubble will never pop. Politicians regard it as a very good thing to be able to spend lots of money buying votes when the consequences of the spending (other than votes) won't be felt until the after the next election. Eventually, that runs out. But in the meantime, they'll keep spending in DC as long as the Fed keeps funding the crack and hookers.

disabledvet's picture

those "little banks" kept failing AFTER the bailout of the richest people on earth--i agree.  i will say this "when i hear stories of neutron beams" it puts QE into perspective.  I'd rather have QE than neutron beams.  As chef said in Apocalypse Now "just say when on the airstrike" upon actually "meeting the Colonel in person."  And you may consider this a reference to K-Daff.

NOTW777's picture

when does cnbc do a gold and silver special with mr. kass's picture

A play on Joan Osbournes "What if God was one of us?"

What if Bernanke was one of us
Just a poor slob like one of us
Just a stranger on the bus
      (because the car was reposesed)
Trying to pay for his home       (since it is in foreclosure)

If Bernanke had a soul what would it look like
And would you want to see
If seeing meant that you would have to believe
In things like fiat money and in too big to fail and in printing money and all the talking heads CNBC

What if Bernanke was one of us
Just a slob like one of us
Just a stranger on the bus
Trying to pay for his home
He's trying to pay for his home
Back up to Capital Hill all alone
Nobody calling on the phone
Except for the Obama who's in Rome 
(because the radiation is floating over from Japan and he don't play that)

&amp;lt;img src=";amp;c2=2102&amp;amp;c3=283&amp..." /&amp;gt;
AN0NYM0US's picture


if you have had any tainted seafood recently this may help


Debbie Wasserman Schultz picked as Democratic National Committee chair
Still Life Living's picture

Is the government shutdown just a way for the financial markets to hide thier problems for another few weeks?

franzpick's picture

"...time is running out for a decision on Q/E..."

TD: Time is certainly running out alright, on the worldwide credit-collapse, but an announcement tomorrow of a June QE3 resumption would have what beneficial effect...?

alien-IQ's picture

It would serve to accomplish it's original goals:

To further enrich those who collapsed the economy.

To kick the can of reality even further down the road.

To create the illusion that the insolvent banks are solvent.

To completely devalue the USD.

It's simply a continuation of one of the greatest wealth transfers (theft?) the world has ever seen...The transfer, of course, is from the bottom to the top.

Broker NotBroke's picture

What happens in a worldwide credit-collapse? People lose their jobs? Unemployed people don't make money, no I think we'll keep it going for a long while. See how long it takes for people to be ok with a new, worse, level of "well, that's life".


Shouldn't take more than 2 generations...

alien-IQ's picture

"Bernanke has got to make sure the economy can survive without his daily liquidity gift."

That statement should be interpreted to mean "QE has been a failure and there is no real improvement in the economy".

The only thing that QE has accomplished, aside from make some fabulously wealthy people even more fabulously wealthy, is crank up the prices of everything the average person consumes on a daily basis at a time when wages are stagnant and/or declining, unemployment is a nightmare and home values keep plummeting.


At what point do we move on from this failed policy? When it's too late?


Everyman's picture

You made the point so much better than I did. Well Done!

Dr. Porkchop's picture

His daily liquidity gift is better suited for the toilet.

JoeSexPack's picture

Believe QE's end when you see evidence:

When stocks drop from POMO's end, when states & cities default from an end to Fed guarantees of bond sales, when GM & Chrysler fold. When the Euro's buy their bonds with printed cash, when the Yen rises to the dollar, when Treasury auctions go begging, when the Fed's primary dealers report losses, when JPM's silver suppression folds, when a TBTF actually fails.

The Fed tells only what they want, & nothing stops them from printing $trillions per day & lying to hide it.

They are a financial mafia in control of DC.

malusDiaz's picture

GM & Chrysler will never 'FAIL', they feed the MIC.

Atomizer's picture

Very surprised to hear Cramer send out a distress call today. Good for him on IMF warning. Let's hope he's sincere & not acting like a assclown.

5.7+ million viewers think alike. winks - The Fibonacci in Lateralus

Tool- Lateralus


Atomizer's picture

Looks like Cramer read my post & junked me. Do you mean a clown car or flea circus? We can't shutdown taxpayer funded revenue services. The fleecing must continue by supporting Ponzi revenue streams.

Atomizer's picture

BTW.. I use to post this video on MW spanning a course overtime. Would always ask posters for feedback & the interpretation, no one ever understood the blatant content. This grand finale is inching forward and precisely on schedule.

For your viewing pleasure.

Ministry Messiah

Q: What do ZH posters see in puzzling vision created so long ago?

tahoebumsmith's picture

QE is the big circle jerk that has been funding our deficit. If Bernanke pulls out, who's going to buy the debt? The primary dealers will bail because their purchases won't be backstopped by the FED and they will no longer have their 3 week flip that bond revenue. He has created a ponzi scheme that has allowed for our government to continue it's irresponsible spending. We need to take the pill and let the house of cards fall, until then we will continue to be held hostage by the CRONIES and Main St. and small businesses will continue their decent into the abyss. 

Atomizer's picture

So is Ben reinforcing to the public that he is wearing a condom or is he going to pull out in time without protection? Hoping for the best outcome merely depends on lies cited prior to sexual intercourse.

Yen Cross's picture

Alpha this. What can't go down,must go up! What can't go up must go down! Edit the DXY it's finding a bottom short term.

tek77blu's picture

We will have QE to infinity, and each QE only mean a higher floor for Gold and Silver:

bankonzhongguo's picture

Since there is no open discussion about QE3, then there will be QE3.  Its free money.  Who says no to free money?

The first step is to let QE2 end and then crash the markets.  A big, 'I told ya so.'

Then come back with some ludicrous QE3 plan to purchase whatever assets the banks have and get some more 'get out of jail free cards.'  Of course the coup de grace is to compel the Congress to "sell" massive land tracts and leases to development companies.banks - for the very money the FED has ordered into the "market." In order to make Amerika more energy independent.  Energy Policy = Obama-watts.

What is happening in Amerika is no different that what has happened in countless developing nations since western colonialism.  We are being colonized by Corporations. Coming home to roost.

There is another 20 months of mayhem before the next election.  These guys are just doubling their bets after losing each spin of the roulette wheel - hoping that just one time they will win and call it a night to break even and not have their kneecaps broken by the bookies (us) that staked them.


TaxSlave's picture

Land tracts?

How about all those homes that Fannie and Freddie OWN now, bought with paper that sells your future labor?

Yen Cross's picture

There are no Gambling Knomes out to get you. You need to grow up!

jkruffin's picture

QE is not sustaining or supporting the economy at all, it is only sustaining Wall Street crooks.  There is nothing for Bernanke to be sure of, his policy has failed, and done so miserably.  No matter how many QE's he does, when the money is only going to the bankers and not getting to the people, it's just gonna get worse and worse. The money can't get to the people because they no longer qualify for loans. Duh....Benny Bubbles is not very smart.

The only thing sustaining the economy these past 2-3 months has been massive tax return issuance from all the credits offered. All that money is now gone, guaranteed. Those smart enough to save it, surely are not stock market participants, and they are not going to spend it.

This economy and market are a sham, and they will not be fixed until both crash and a normal recovery is allowed, and not a forced intervention.

HubbleBubbleBenLovesTrouble's picture

Can't follow SA's arguments of rising inflation threats around the US but not in the US itself. Like Michael Steinhart's remark....US thinks it's in a clear blue lagoon while around them the storms are picking ignorance...

XPolemic's picture

OK, question:

Today there are 44.2 million Americans on food stamps, or 14.3% of the US population!

I Am Not An American, so my understanding of the NSP is a little hazy. Can children (minors) be on food stamps? Because if not, that 44.2 million Americans would represent ~29% of the working population.

Which probably means that unemployment + underemployment = roughly 29%

Looks like the great depression is here already.

Hook Line and Sphincter's picture

I am of the opinion that its high time that this 44.2 million people number on food stamps have some sort of heuristics or birth/death like adjustment made immediately.

  1. We can effectively lower the # people on food stamps by instituting a weight quotient. Each person on food stamps will be required to report their weight. Non compliance will err in the 80-96 lb category (.6 of a person). Those who weigh less eat less, and therefore shouldn't be counted as whole persons.
  2. Also, it can be assumed that since those on food stamps will eat less, each month we can lower their weight by a mandatory 3%. We assume that a monthly decrease of 1-2% of all individuals who use food stamps are fraudulent claims.
  3. We integrate a component that subtracts food stamps participants by using projected deaths that aren't yet or ever reported. Say...1.5% per month reduction. We know this must be the case because of the nature of GMO food intake, HFCornSyrup intake, and Vice products purchased with said stamps.

These prompt and effective revisions would make me feel much better.