Earlier this morning, strategically timed just in advance of the Chairman's tacit admission that everything attempted to date has once again failed to stimulate the economy as now both housing and soon employment have resume their drop, New York Fed released a note titled "Prospects for the U.S. Labor Market" which in not so many words explains why there are none. While the analysis is the same that has been presented here over and over, confirming that the jobs recovery has been anything but, and thus setting the stage for today's Bernanke preannouncement to either a March NFP miss or more QE at the April FOMC meeting as Bill Gross tweeted yesterday, it has one chart that shows why when it comes to restoring a virtuous cycle this time is different, and why endless central planning may have finally broken traditional economic assumptions. The chart below is perhaps the only one worth noting. Spot the odd "recovery" out.
Treasuries have rallied on the hope being handed out by Bernanke, recovering overnight losses after gains from last week moving more Goldman muppets back into pain. What's different this time from last week's rally is the notable underperformance of the long-end relative to the front-end. While still red from Friday's close, 2s through 7s are almost back to unchanged and 4-5bps off overnight high yields. 30Y however is still +4.5bps and only 1.5bps off the high yields overnight. 2s10s30s has fallen notably (which should be risk-negative) but for now - all the equity market can see is a centrally planned equity market rally to float all boats. It seems to us that the long-end remains stuck in the mud on long-run worries over the print-big-of-go-home attitude that was just reaffirmed.
Decrypting the subtle nuances of Bernanke's speech this morning was hardly a surprise. The key is 'unemployment' and whether its structural or cyclical - we'll ease anyway (just in case). Debase first or most or lose... 86 mentions of 'unemployment', No mention of 'inflation', and no mention of 'oil-price-inspired-consumption-slump' or 'debase'. 'Structural' 16: 'Cyclical' 8
Futures, Precious Metals Soar As Bernanke Says More "Accommodative" Policies Needed, Hints At "The New QE"Submitted by Tyler Durden on 03/26/2012 - 07:15
Curious why futures and PMs both soared out of the gate at 8am? Look no further than the Chairman of the Federal CTRL-Preserve who is speaking at the National Association for Business Economics and just made a very strong hint that the New QE (or is that the NEWER QE) is coming. And there are those mocking Bill Gross for saying the April FOMC would lead to the next QE announcement (something we expounded on extensively yesterday). And here is the most idiotic statement uttered by the Fed: "If this hypothesis is wrong and structural factors are in fact explaining much of the increase in long-term unemployment, then the scope for countercyclical policies to address this problem will be more limited. Even if that proves to be the case, however, we should not conclude that nothing can be done." Recall what JPM said about central planning breaking the virtuous cycle just two days ago. The Fed has just admitted it... but it does not mean that the Fed will be forced to print print print infinitely more. After all, it's all there is.
Confirming once again that when it came to last year's LTRO desperation, the operation was nothing but the latest attempt at filling liquidity holes at insolvent banks, and nothing to do with facilitating lending, is the interview by Helsingin Sanomat with ECB council member Joerg Asmussen, according to which there would be no more LTROs until the ECB found out what it is the LTROs actually do. From Bloomberg: "The European Central Bank won’t provide more long-term loans until it has studied how the funds are distributed into the economy, council member Joerg Asmussen told newspaper Helsingin Sanomat. “We need to see how this liquidity feeds through over the next few months,” Asmussen said, according to a transcript of an interview with the Finnish newspaper on March 24 and published today." Well supposedly this means that with everyone now looking the ECB squarely in the eyes while also looking askance at $10/gallon European gas, there will be no more LTROs "for at least a few months" as the ECB actually figures out what it has done. Which also explains why the need to redirect from one bailout process, now topped out as the LTRO no longer is pushing the European economy higher, to another: the old narrative of EFSF+ESM expansion, so prudently picked up over the weekend by Angela Merkel.
- BOJ Crosses Rubicon With Desperate Monetary Policy, Hirano Says (Bloomberg)
- Europe’s bailout bazooka is proving to be a toy gun (FT)
- Monti Signals Spanish Euro Risk as EU to Bolster Firewall (FT)
- Merkel set to allow firewall to rise (FT)
- Banks set to cut $1tn from balance sheets (FT)
- Supreme Court weighs historic healthcare law (Reuters)
- Spain PM denied symbolic austerity boost in local vote (Reuters)
- Anti-war movement stirs in Israel (FT)
- Obama to Ask China to Toughen Korea Line (WSJ)
- Pimco’s Gross Says Fed May ‘Hint’ at QE3 at April Meeting (Bloomberg)
Remember all those European PMIs which imploded over the past month, destroying any hopes of a rapid rebound from Europe's technical recession? You can forget them now because the one indicator which tracks the level of the manipulated stock market more than anything else, German IFO business survey, just came better than expected, at a whopping 109.8 compared to expectations of 109.6 print, same as the previous one. And that is all it takes for futures, and the EURUSD to ramp, which in turn plants the seeds for another confidence ramp next month and so on. Here is Goldman's take: "The assessment of current conditions remained unchanged at 117.4, while expectations increase to a level of 102.7 after 102.4. Looking at the different sectors it shows that confidence in the manufacturing sector was broadly stable on a high level (14.0 after 14.3), while construction saw a small decline after a surge over the last couple of months (2.3 after 3.3; confidence stood at -13.2 in October). Confidence in the retail sector also recorded a strong gain (106.6 after 3.7), while wholesale saw a decline (12.8 after 15.0). This is a strong report with business conditions remaining significantly above their long-term average of 101.1. The rebound in business conditions after a soft spot during October to January is indicative for a rebound in the underlying momentum in the economy." Well, no, if anything it is indactive that Germans were happy to reap the benefits of a few trillion in liquidity which in turn pushed markets higher, and making Germans even more confident despite the big miss in German PMI in March. But for now a big drop in the market is unwelcome so let's focus on reflexive, Catch 22 indicators. Even Goldman is perplexed on the spin: "Only the release of the 'hard' data in the coming weeks will show which survey is giving the correct signal with respect to the underlying momentum of the German economy. But in any case, the March IFO argues against taking, at least for now, the PMIs at face value."
The enigma that is eccentricity can be unravelled by grasping of this single statement; that which you perceive is both a matter of the object of your perception (in this case; the eccentric person) and your apparatus of perception. Eccentricity, then, is as much a quirk of the popular mind as it is of a particular person. So with the assumption that you seek creativeness and intrigue — here’s how to think eccentrically, find your edge and risk little for lots.
Yesterday afternoon, Barack Obama who is currently in South Korea, briefly was within bullet range (if behind bulletproof glass) of North Korea when he stood on the edge of the DMZ separating the two feuding countries. A few minutes later he left and told the world that "Bad behaviour will not be rewarded" referring to the imminent launch of North Korea's Unha-3 rocket scheduled for a test launch in April. He added that "I will also note that every time North Korea has violated an international resolution, the Security Council resolution, it has resulted in further isolation, tightening of sanctions, stronger enforcement. I suspect that will happen this time as well." Alas, we doubt that Obama's warnings will have much of an impact and that in a few weeks NK will go ahead and hit the launch button undeterred, in the process forcing Japan to scramble its Aegis destroyers and take other countermeasures as discussed last week, in case the missile "veers of course." But just what is the trajectory? Courtesy of North Korea Tech, we now know the secret path the North Korean rocket is expected to take. All we can say is there better not be strong Westerly winds.
Last week, Bernanke's first (of four) lecture at George Washington University was entirely dedicated to attempting to discredit gold and all that sound money stands for. The propaganda machine was so transparent that it hardly merited a response: those away from the MSM know the truth (which, simply said, is the "creation" of over $100 trillion in derivatives in just the first six months of 2011 to a record $707 trillion - how does one spell stability?), while those who rely on mainstream media for the news would never see an alternative perspective - financial firms are not among the top three sources of advertising dollars for legacy media for nothing. Still, for those who feel like the Chairman's word need to be challenged, the following extensive and annotated reply by QBAMCO's Paul Brodsky makes a mockery of the Fed's full on assault on gold, and any attempts by the subservient media to defend it. To wit: "Has anyone asked why so many powerful people are going out of their way to discredit an inert rock? We think it comes down to maintaining power and control over commercial economies. After professionally watching Fed chairmen cajole, threaten, persuade and manage sentiment in the markets since 1982, we argue this latest permutation is understandable, predictable and, for those willing to bet on the Fed’s ultimate success in saving the banking system (as we are), quite exciting.... Gold is no longer being ignored and gold holders are no longer being laughed at. “The Powers That Be” seem to have begun a campaign to discredit gold."
Next week will be relatively light in economic reporting, and with no HFT exchange IPOs on deck, and the VVIX hardly large enough to warrant a TVIX type collapse, it may be downright boring. The one thing that will provide excitement is whether or not the US economic decline in March following modestly stronger than expected January and February courtesy of a record warm winter, will accelerate in order to set the stage for the April FOMC meeting in which Bill Gross, quite pregnant with a record amount of MBS, now believes the first QE hint will come. Naturally this can not happen unless the market drops first, but the market will only spike on every drop interpreting it for more QE hints, and so on in a senseless Catch 22 until the FRBNY is forced to crash the market with gusto to unleash the NEW qeasing (remember - the Fed is now officially losing the race to debase). For those looking for a more detailed preview of next week's events, Goldman provides a handy primer.
Back in late 2006 and early 2007 a few (soon to be very rich) people were warning anyone who cared to listen, about what cracks in the subprime facade meant for the housing sector and the credit bubble in general. They were largely ignored as none other than the Fed chairman promised that all is fine (see here). A few months later New Century collapsed and the rest is history: tens of trillions later we are still picking up the pieces and housing continues to collapse. Yet one bubble which the Federal Government managed to blow in the meantime to staggering proportions in virtually no time, for no other reason than to give the impression of consumer releveraging, was the student debt bubble, which at last check just surpassed $1 trillion, and is growing at $40-50 billion each month. However, just like subprime, the first cracks have now appeared. In a report set to convince borrowers that Student Loan ABS are still safe - of course they are - they are backed by all taxpayers after all in the form of the Family Federal Education Program - Fitch discloses something rather troubling, namely that of the $1 trillion + in student debt outstanding, "as many as 27% of all student loan borrowers are more than 30 days past due." In other words at least $270 billion in student loans are no longer current (extrapolating the delinquency rate into the total loans outstanding). That this is happening with interest rates at record lows is quite stunning and a loud wake up call that it is not rates that determine affordability and sustainability: it is general economic conditions, deplorable as they may be, which have made the popping of the student loan bubble inevitable. It also means that if the rise in interest rate continues, then the student loan bubble will pop that much faster, and bring another $1 trillion in unintended consequences on the shoulders of the US taxpayer who once again will be left footing the bill.
As we pointed out about a month ago, in "While You Were Sleeping, Central Banks Flooded The World In Liquidity" as the world was focused on headlines whether or not the Fed would step up as it always does when the market is sliding, and unleash the monetary floodgates, it was not Ben Bernanke, but eveyrone else that hit CTRL+P and took the place of the Fed, of note the primary central banking peers among the Final Four - the ECB, the BOE and the BOJ. And why not: after all the hope was that since electronic money is electronic money, and can be moved from point A to point B at the push of a button, it would be used primarily to reflate stocks around the world, but mostly where the path has least resistance - the US. What was not accounted for was that money would also be used to inflate commodities such as oil - a key factor when delaying further US-based easing in an election year. However, more than even record for this time of year gas prices, there was one even more important outcome from this chain of events. As the following chart from Willem Buiter shows, in its fake attempt to show monetary restraint, the Fed has gone straight into last place in the "race to debase." Needless to say, in a world with $25+trillion in "excess" debt (debt which would need to be eliminated simply to reduce global debt/GDP to a "sustainable" 180% per BCG), last is a very bad place to be...
Firstly, Britain’s ‘safe-haven status’ is a fallacy. It is no more safe than many of the other major economies who are choking on debts that cannot be paid off. The only reason it HAS that status currently is because of the very Achilles Heel that will ultimately prove to be its demise - the ability to print its own currency. By NOT being a part of the euro experiment, Britain has kept control of its fate and has been able to print its way out of trouble - so far - while its neighbours to the east have all been lashed to the deck of the same sinking boat, but the day is coming when Britain’s profligacy will become important again. As I keep saying; none of this matters to anyone until it matters to everyone. Secondly, interest rates may have ‘fallen to a record low’ but they have done so in the same way heavily-indebted gamblers often ‘fall’ from hotel rooms - with a big push (only this time from the Bank of England and not a guy called Fat Tony). Like US Treasurys, the price of UK gilts would be nowhere near these levels without a captive and very friendly buyer in the shape of the central bank.