RobertBrusca's blog

There appears to be a somewhat interesting controversy afoot in explaining the reason for the emerging markets panic and in establishing a solution for it. The approach of Gavekal would simply like to keep the Ponzi scheme of past years rolling forward.

We will explore how QE and the new Fed plan might work- might work...So far what the Fed is putting in front of us and what Paul Krugman has written about are two wholly differnt things. It makes me wonder if there is any stucture behind QE besdies prayer...

Jose Manuel Barroso, President of the European Commission, thinks Europe needs a unified banking system.

But how can financing be a solution for a Zone with a fatal fundamental flaw? Banking cannot save the euro-Zone. This proposal is only the distraction du jour.

Europe continues be unable and unwilling to look at the core problem in the Zone which has morphed into huge competitiveness differences that are creating havoc.

The easiest fix for this is a break up. For the Zone to survive this will require a lot of cooperation and frankly it does not seem close to doing it.

While the WSJ article on the Fed paints a picture of controversy enshrining the usual hawk Vs dove sort of frame work ( or is that Hatfields Vs McCoys? Montague Vs Capulet)… what strikes me is the sense of agreement I get in reading this thing. Everyone at the Fed is on the very same page. John Hilsenrath is correct in concluding that there is a policy dilemma, but he does not connect the dots and say that it is a dilemma without much consequence. Yet it is quite clear that even those who would like the Fed to do more, are very disappointed with the results from what they already have done. If you ordered dessert and it was bad would you order more? The Fed would.

The G-8 Summit. What a kick. Why do they hold these meetings?

The declaration is an embarrassment. Here we lay it bare for what it is... Polemics. Boilerplate. Sophistry. Subterfuge. Empty promises. Oxymorons. And more… 

It is not a question of whether a country preserves the value of its currency. It is whether the currency has helped to promote the business within that country. Business is the objective not the preservation of value. A currency that is sufficiently elastic for business may not hold its value relative to gold. That does not make it a bad currency. Indeed, I see one of the big problems with EMU as being that countries are undergoing all sorts of pain to preserve a currency while that currency is doing nothing for them but causing them pain. EMU has it backwards. Setting an economy up on gold might preserve the currency values but might do it at a cost of growth and higher unemployment. How is that good?

Did JP make a huge blunder or was was it gaming its TBTF status?

Rod Serling is not doing the narration for the e-Zone unravel. And he will never turn the control of your television set back to you. It’s just going to start getting weird and keep getting weirder. Europe is the Twilight Zone.

In France, Hollande has the rep of having no backbone like a jelly fish (or flan). We will see what he really stands for and what he can achieve. Moreover when he tries to govern we’ll see if this election was more about picking him or dumping Sarkozy. I suspect it was more the latter... Greece is just a mess and I don’t know what model you apply to understand it. It may take a number of election iterations before the ‘people’ figure out they have a bitter pill to swallow and pick someone to figure out what it will look like.

In this recovery consumer services bought/supplied have grown by 3.2 percent from their level at the end of recession as of the 33rd month of the expansion. It is the weakest performance we have seen by a long shot in the last eight recoveries that lasted this long. The previous low point at this point in the cycle was in the 2001 recovery at 6.5% before that it was the 9.2% rise in the 1990 recovery. In those comparisons you get the sense of structural change as it is in the most recent recoveries that growth has become progressively weaker. The average for this point of the expansion cycle would be an 11.4% gain in services output if we had normal service sector growth. IF we had that, we would have had 5.5 million MORE jobs even after discounting for productivity growth in the sector and the loss of goods sector jobs from that demand shift to services. That means about 165K more jobs per month than what we have had all recovery long. This not a trivial problem it is a huge problem. And no one seems to be thinking about it.

The April jobs report was 'worse than expected'. While some will tell you that with revisions is was 'as expected is say: Huh? Do they mean that now that March job gains are stronger at +154K it is more likely that we would have projected a slowdown to +115K jobs in April? Really? As expected net of revision? On what planet? No We think you should look at the headline numbers and revisions as separate events to some extent. When you do you learn a lot more. On balance we think there may be room for optimism in this dismal-seeming report. But it's guarded and speculative optimism.

Bernanke’s legacy is still to be made. But he has put the US economy in a position from which it can succeed. If Europe falls apart, it will be more difficult. If we fall of the fiscal cliff we will have our own Thelma and Louise moment. The Fed Chairman has already said he can’t save us from that shock. It’s really time for fiscal policy makers to step up. As long as they refuse it makes Bernanke’s job all the harder. And the pressure on him is intense.

Bernanke is under a lot of pressure and is given little credit for what have been remarkable achievements. Do risks remain? They sure do. But that result is yet to be decided. Meanwhile risks elsewhere are at least as pressing. Look at his successes...

It is curious how people hang on the day to day detail of European debt auctions when logical analysis of the situation tells you quite clearly that the plight of Europe is hopeless.

Rooting for Europe is worse than being a Chicago Cubs fan. The Cubs might win the pennant.

We know that LTRO is creating a great moral hazard by tempting each peripheral euro-nation's banks to buy its own country's bills, bonds and notes. And when they do that the world seems good. But after they have done that the world seems more at risk. And when they do some more things seem fine again, and so on and so on. But step back from the day-to-day grind and ponder how it's going to end. LTRO is buying time so the crisis can get worse and banks can double up on their exposure to increasingly indebted sovereign lenders. How can this be good or end well regardless of 'how the auctions seemed to go today?'

beware and read on...

Today Tyler put up a video of the revered Mr. Biderman of Trim Tabs fame. Mr. B was making an absolute fool of himself while trying to be critical of government reports. The video is embarrassing to watch. In this report I show all the many mistkes Biderman makes as he tries to lampoon retail sales and dis the governement. In the end he winds skewrering only himslef. Hoist on his own petard.  Follow him and use his methodolgy at your own risk. 

Between the erratic housing starts report and the sputtering industrial output report with its various headline and multi-layered trends acting in confusing ways, the one thing we can admit is that assessing the US economy is not so easy anymore. That nice period of unbridled strength has taken a backseat to the economy that raises question marks - again. Growth pessimists can revel in the new developments while optimists can begin to work on what's left of their fingernails. Meanwhile, we are back grasping at straws as data-trends turn erratic and inconsistent even more than they have turned weak. But there is some of that too. A little something for everybody but not enough for optimism...