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Week in Review
The
market re-priced some significant asset classes last week. There was
not that much news behind the big adjustments. So I’m left wondering.
To be sure there has been a growing whiff of a slowdown brewing for a
few weeks. The announced end of QE2 has come at a very inconvenient
time. Tightening monetary policy in Europe (or the threat of it) is part
of the change in sentiment. Then there is the slowdown in China. We
have also come to learn that Japan, (contrary to all the initial bullish
spin) is not going to be anyone’s engine for growth. And finally, we
end the week with what appears to be a very significant step forward to a
restructuring of Greek debt.
Has the economy hit a wall? Again? For me, this is
reminiscent of last summer. That was also a period where there was
evidence of a slowdown. Greenspan scared the hell out of everyone with
his comment, “The economy has hit an invisible wall”.
I’m convinced that the Greenspan comment was the final push
Bernanke needed for him to commit to QE2. It took him another two months
of talking with the other Fed heads, but on 8/27/2010 he gave the infamous famous speech in Jackson Hole that he was going to expand the Fed balance sheet with more QE.
A friend sent me this chart that looks at the equity market and the
history of QE. The pattern is pretty clear. When QE is first announced
stocks catch a bid and bonds trade lower. When QE is ending the opposite
has happened. Stocks work lower and so do longer-term interest rates.
The market conclusion is that without a constant dose of QE the economy (AKA the Stock Market)
will sputter. Maybe the market is right this time. I’m not so sure how
reliable the market “view” is this Saturday given how wrong it was last
Saturday.
One thing I am convinced of; there will not be a QE3 in 2011.
Not even Bernanke can flip flop that fast. Having just announced the
end of QE2, there is no way the Fed is going to sneak in a QE3 over the
next seven months. That’s not going to happen.
If the existence of a QE program is the necessary condition for growth
in the USA we are in very big trouble. We are looking at two dead ends.
One is an economy that can’t grow, create jobs and pay for the $10b a
day we are spending. The other is a monetary policy that will most
certainly kill the country in just a few years.
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You very well might be right, but I'm trying to think outside the box. Speaking of which, Rickards was talking about this a few weeks ago on KWN but his numbers suggested a total of 750b per year of maturing debt, which comes out to roughly 62b per month.
What other tricks do they have? They have a functional printing press and it takes an act of congress or a long legal battle to breech their secrecy so what other hidden ways can they use to keep the banks solvent? I'm guessing that's the overriding goal here.
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One thing I am convinced of; there will not be a QE3 in 2011. Not even Bernanke can flip flop that fast. Having just announced the end of QE2, there is no way the Fed is going to sneak in a QE3 over the next seven months. That’s not going to happen.
###
Bruce, you live in fantasy land.. believe me Mr bernanke is not a fool.. there will be next Qnnnn ..
MR BERNANKE MUST BALANCE FEDERAL BUDGET..
read latest motnhly budget preview by CBO.
revenues up 100 bln y/y but only 1+ trln$.. outlays up
200 bln y/y , and over 2 tlrn $... so deficit is owrse than in 2010.. ( i thought things are getting better :(()
funny thing is that fed income taxes are up obscene +20%, SS taxes down ~4%, corp taxes are flat y/y.. so what does that mean ???
all money comes from fanincial sector( stock/bonds/commds trading), otherwise SS taxes would up ( more people working ++ avg salary is up)..
so now US fed goverment prints 1 $ for each $ in taxes..
so its so japanesque..
alx
QE3 is a given, to my way of thinking.
There will be QE3, they just won't call it that.
The past week has been orchestrated.
One only had to watch the response of PM's and Oil during Bernanke's "press conference" to see the reaction of the real buyers. As a result, the FED and TPTB had to crush commodities to introduce doubt, fear, and to help banks liquidate positions and make more money off of the volatility.
There will be QE to the moon, they just won't call it that.
What were low rates and the FED and SEC looking the other way in the mortgage/equity CDS, MBS debacle of 1998-2008? QE by another name. What was raising rates starting Summer 2004 through October 2007? Why it was more QE for the banks and pain for the individual household.
Get ready for round two.
Now that they collapsed the markets, used generations of future debt (+$14 Trillion) to reflate equities, ignore accounting rules and the rule of law, and crush the individual household - next is raising rates again over "inflation fears" and to "reward the savers and investors of society".
*cough*
This game, this see-saw of zero interest to ramped rates (but 0.25% for banks at the FED back door) is the same game; enrich the TBTF banks and bleed the individual household that is here legally, works, pays bills, insurance premiums, and taxes and is still stuck in the "USA = good, me work hard = me good" mule meme.
This is an asset bleeding scheme, they care NOTHING for the families or the nation, it is the hegemonic endgame of fools and megalomaniacs whose sole lust is for MAMMON.
They either believe their own lies or have an escape plan.
"They either believe their own lies or have an escape plan."
Neither. The lies are for us. Escape from what, exactly?
As in Hank Paulson buying an island in the Caribbean and having enough money for private security and avoiding the "complications" of being stateside.
+100. The escape plan should they choose to use it = worldwide market crash (with them holding all of the short side specs of course).
Pretty good summary, that.
Yes, it is. The game will be over when there is not an ounce left to loot.
The machinations of FOREX, COMEX, et al., are mere illusions. Just keep an eye on the fountain of real wealth still available (401ks anyone?) to know when the merry-go-round is about to come off its axle.
"The market re-priced some significant asset classes last week. There was not that much news behind the big adjustments. So I’m left wondering."
-Er, what? Left wondering, seriously? It's called a co-ordinated attack on commodities, via a collusion, a conspiracy of the criminals running this show. Margin hikes, threat of margin hikes, stories to give the dollar strength, everything was unleashed last week. Obumma even said he would stop oil speculators, so, once again the government crooks intervened in the 'free markets'. All these markets are nothing but intervention by the fascist controllers... giving their criminal 'pals' fore knowledge to front run events and you don't see that Bruce, seriously?
Imagine a world without America, imagine what the daily world-wide markets would be if the U.S. didn't open up each day and the fascists started intervening in everything, every minute of everyday. Bliss. The sooner it implodes the better i say.
All true. But these markets are global. O talking tough with specs is just noise. Yes the market is rigged for PM's (as evidenced last week) but it is tough to rig the global oil markets. They were down 15%. So I don't think the things you point to are the real reasons for last week.
I think the markets(s) came to the conclusion that things were slowing down and the "growth trade" was off for the time being. The other things just added to the violence of the correction.
Bruce, you don't get it. See FunkyMonkeySpank, the commenter you responded to above, is one of the Republicans who wants to blame Bernanke/Obama on Tuesday for hyperinflation, then wants to bitch on Wednesday there is a Government conspiracy to hammer commodities and silver. It's the new trend sweeping the nation: Privatize my trading successes, socialize my investment fuck-ups. Coming to a theatre near you.
"it is tough to rig the global oil markets."
LOL
Bruce, Thank for posting this since it stimulates other views. My sector view is net zero growth. Latency views are catching up to the true paradox is about all we are really seeing. Again thanks Bruce and all for supplied information.
I suspect Soros got wind of the Greek debt " adjustment " and the ECB rate hold. Then he figured out the resulting weakness in the Euro and started the dump on SLV, which spilled over to the other commods. He is still considered a fortune teller by worldwide commod and currency speculators. The chain of events leads me to believe he led the herd to the exits. But what do I know...??
No QE soon and a stronger dollar will lead to more unwinds.
Soros finished selling weeks ago, with zero negative impact on the market. Only after the orchestrated takedown of metals began was 'Soros Sells!' trotted out as a 'Reason'.
What I don't get is what was new about the Euro? Nothing changed substantially, just the news coverage. The rapid rise then drop in the Euro looks like manipulation as much as the movement in silver, but how can such a massive market be manipulated even by the likes of Soros. I clearly don't get the forex market.
I don't get it either. Only thing I "get" is the momo of the herd.
I've always thought you had to be fairly sophisticated to play at Forex so it's hard to see them as a bunch of braindead momos. This last couple of weeks somebody has made some serious change so who were the chumps that lost that change in the zerosum game. It boggles the mind.
I think the tipoff or lead in to the Tricket backdown and get short the Euro with limited risk came from Mervyn King the day before when King expressed obvious concern over just marginally rising rates not being realistic in the context of the consequences of higher rates for over indebted debtors.
Trading forex is not really rocket science and has become less about fundamentals and more about trading the nuances of central bank speak.
What yield edge did the Euro have over the Canadian dollar prior to the ECB statement on Thursday AM?.....not much is that answer.
Silver was probably the most obvious early sign to look to get short as it was parabolic on a weekly chart with an RSI that was begging for a selloff - I think I made that comment on a BK post when price was very close to $50.
Also from a fundamental perspective if silver had broken decisively higher the inverse was likely a collapse of the dollar.
Consequence of that; chaos of a disorderly unwind?
Again a low risk short trade with stops over the parabolic and RSI highs.
It is all water under the bridge but my guess is if you listen to the central bankers then easy money is far from done. All of the talk from the FED faux hawks is just that, nothing more than talk and no walk.
And the drop in OIL price cannot be all bad for the equity markets, right?
O talking tough with specs is just noise.
sorry, I don't see that
what I do see is O talking tough on specs then certain specs taking a bath shortly thereafter, especially the key oil specs
There must be QE3. If not, the stock market will correct. O.K. That's the plan. Let everything grind lower for the summer. Some more Goldman downgrades. Consumer sentiment drops with the market and then more sprinkle dust.
Green shoots are withering as we speculate what's next. Sell in May and Go away is alive. Or.....Short the hell out of it now.
I will past this here that I put on another thread. An additional view on this.
Nice piece by andy xie - Caixin on-line
The one thing the Fed cannot afford to let start falling is the stock market. He has no success anywhere else. I am quite certain once it becomes obvious there will be no 2011 QE people will start taking profits ASAP.
When they pumped the markets with Fed hot air they made a rod for their backs. They have to keep the flow coming somehow.
They might give it a try but as soon as things start to look worrisome the pump will come in.
Leverage? will only allow for the bonuses to continue for so Long they need QE 1 thru infinity as a revenue source so that the Bonus Monies may flow like a Giant River! all courtesy of the Tax Payer Trough and Back Stopped by "We the Sheepeople"!
MORE!! Leverage!
MORE!! Risk!
MORE!! Bonus Monies!
MORE! QE to Infini-Timmy and Beyond!!!
0.04% skin in the game you say? v. 0.4% which still sucks you say?
how dare you cut into the bonus pool of monies, they are not making loans.. they have to show income some way! why not leverage the shit out of the cash already on hand! YAY!
****** "Who has an incentive to increase debt relative to equity in really big ways? Again, it’s the largest banks. The executives in these companies are paid based on their return on equity -- and the easiest way to increase that is to add leverage. Of course, this increases returns only when times are good. It also increases the potential losses when markets tumble. In other words, greater leverage increases risk." ******
http://www.bloomberg.com/news/2011-02-17/jamie-dimon-s-biggest-disaster-is-waiting-commentary-by-simon-johnson.html
Investment Bankers’ Culture of Ownership?
Sanjai Bhagat
University of Colorado at Boulder - Department of Finance
Brian J. Bolton
University of New Hampshire
August 24, 2010
Abstract:
We study the executive compensation structure in the largest 14 U.S. financial institutions during 2000-2008. Our results are mostly consistent with and supportive of the findings of Bebchuk, Cohen and Spamann (2010), that is, managerial incentives matter - incentives generated by executive compensation programs led to excessive risk-taking by banks leading to the current financial crisis. Also, our results are generally not supportive of the conclusions of Fahlenbrach and Stulz (2009) that the poor performance of banks during the crisis was the result of unforeseen risk.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1664520
Why not More! RISK!! I mean Leverage?
****** "Dimon also wants JPMorgan to become more global, especially by expanding more into emerging markets. U.S. Treasury Secretary Timothy Geithner endorsed this approach in an interview he gave to the New Republic, effectively arguing that we should want big, highly leveraged U.S. banks to make large bets on highly volatile emerging markets." ******
Thank you for the Links all.
http://www.econ.ucla.edu/arielb/welfare.pdf
aggregate productivity remains roughly unchanged
As of late - aerospace players are looking for supply chain bolt on acquisition's as always so nothing new there again.
trade barriers in response to a foreign government's subsidy on an exported product I would think will hit critical mass sooner than later. I guess how many may be tossed under the bus to central planning is my thought only. Latency of effect to cold calculation reality's
http://www.deepcapture.com/the-miscreants-global-bust-out-chapter-one-was-the-united-states-attacked-by-financial-terrorists/
Knife in the back
http://finance.yahoo.com/blogs/daily-ticker/america-middle-class-crisis-sobering-facts-141947274.html
Bleeding to death
“The economy has hit an invisible wall”.
What outrageous nonsense !
The economy is in the final stages of collapse from:
1. Outsourcing American jobs. It used to be manufacturing (the platform upon which America prospered) now telephone services, engineering, etc are offshored.
2. In lieu of rolling up our sleeves and getting to work, since there is none, we have Benny the printer creating the mirage of economic growth. The only people that cannot see this fraud is Benny. His Puppetmasters certainly see their fraud.
3. Glorifying Debt. What happened to Thrift ? And don't give me the stupid argument that consumption trumps savings. Savings are supposed to be the basis for Investment thru the old banking system.
4. Visible, untouchable criminal activity. No one has gone to jail for the collapse of the financial system.
I could go on but this open contempt for the middle class cannot be any more visible.
Kayman
P.S. Lets dispense with the term "leverage" with regards to the Feds friends. Since the conjured up debt has ZIRP cost, there is no fulcrum for leverage. It is welfare, plain and simple.
Open contempt and impoverishment of the middle class was Lenin's first step, followed by drawing the very wealthiest close and being their friend concluding with destruction of the currency. None of this is an accident. Change we can believe in....
I'm pretty sure this change has been in the works for a long time....
First; I am no fan of Obama. Are you saying that Lenin wanted to insure that the destruction of the wealth of the Russian middle class (did such a thing even exist in Russia at the time of Lenin?) would redound to the giant capitalist banks (were there any such entities in the Russia of Lenin?)? So Lenin wanted to deregulate the banking sector so that they could better plunder the middle class? Please enlighten me, Mr. Historical Parallels.
well here is the quote from Lenin via the New York times dated april 23, 1919.:
http://investmentwatchblog.com/bernanke-is-not-copying-keynes-he-is-copy...
He wanted to destroy the merchant class. Small business owners are hard to control. It's easier to control a few large corporations and the masses who work for them.
Ever hear of the Kulaks?
Stalin did them in... It was Lenin who instituted limited capitalism for the farmers. Later on Trotsky and Bukharin realizing the sucess of the program wanted to continue their special status and we know what happened to them...