Consumer Prices

A dispassionate discussion look at the rally in US Treasuries

We do not need “monetary policy” any more than we need a paintbrush policy, a baseball bat policy, or an automobile policy. We do not need a monopoly institution to create money for us. Money, like any good, is better produced on the market within the nexus of economic calculation. Money creation by government or its privileged central bank yields us business cycles, monetary debasement, and an increase in the power of government. It is desirable from neither an economic nor a libertarian standpoint. If we are going to utter monetary truths, this one is the most central and subversive of all.

• The Fed can't print trade? World Trade Flows Fall in First Quarter (WSJ)
• PBOC’s Zhou Says China May Have Housing Bubble in ‘Some Cities’ (BBG)
• ECB's Weidmann - Reviving ABS market not task for central bank (Reuters)
• LOL: Fitch upgrades Greece by a notch to 'B'; outlook stable (Reuters)
• LOL x2: Spain Sovereign Debt Rating Upgraded by S&P (BBG)
• China Will Vet Tech Firms After Threatening U.S. Retaliation (BBG)
• US to claim victory over China in WTO car dispute (BBG)
• Obama urges Democrats to vote in midterms, attacks Republicans (Reuters)
• U.S. Military Pushes for More Disclosure on Drone Strikes (WSJ)

Central banks see their main role now in supporting asset markets, the economy, the banks, and the government. They are positively petrified of potentially derailing anything through tighter policy. They will structurally “under-tighten”. Higher inflation will be the endgame but when that will come is anyone’s guess. Growth will, by itself, not lead to a meaningful response from central bankers. No country has ever become more prosperous by debasing its currency and ripping off its savers. This will end badly...

Underappreciated risks to electronic bitcoin and all forms of investments and savings today, including gold, that are held electronically come in the form of modern warfare - involving as it does cyberwarfare and electromagnetic warfare. No electricity and no computer or internet access and you cannot access your savings, investments and money ...

Dispassionate discussion of the investment climate.  

Once upon a time Wall Street Journal reporters were economically literate. Now, apparently, when they muster-in for the job they get a Keynesian chip implant while signing their HR forms. Otherwise, how can you explain the bullshit penned this morning by Brian Blackstone on the EU’s “disappointing” Q1 GDP report. He didn’t say Keynesian economists say you need more inflation to get jobs and growth. He just declared it!

Goldman, it would appear, are desperate to not be forced to admit they are wrong once again. On the heels of their dramatic and humiliating swing from expectations of a +3.0% Q1 GDP growth rate at the start of the year to a current -0.6% expectation, the hockey-stick-believers are out with their latest piece of guesswork explaining how growth will explode to 3.9% in Q2 (a full percentage point higher than their previous estimate).The platform for this v-shaped recovery - "consumer spending will probably grow strongly, while the housing market should gradually improve." So 'probably' and 'should' it is then.

It has been a very quiet session so far, and despite the slow-mo levitation in the USDJPY, its impact on US equity futures has been minimal if not negative. In fact, following yesterday's latest late day tumble, which Goldman summarized as follows, "Equities tried and failed again to break 1885, it continues to be the level that we can’t escape"... it would appear we are increasingly changing the trading regime, and as Guy Haselmann explained simply, markets are slowly but surely coming to the realization that the Fed's crutches are being taken away (that they may well return following a 20%, 30%, or more drop in the S&P is a different matter entirely) and that the economy will not grow fast enough to make up for this. Perhaps the most notable "event" is the sheer avalanche of banks pushing up their forecasts for an ECB rate cut (and or QE start) to June following Draghi's yesterday comments. And so the 1 month countdown begins until the end of forward guidance, or until the ECB "shatters" its credibility as expained yesteday.

The still-dominant consensus view that America’s economy is poised to single-handedly yank the world out of its lethargy is likely to be disappointed once again with the odds high that our economy will remain burdened by growth-inhibiting monetary policies. In addition, it will continue to be negatively impacted by various other impediments, including a populace that is increasingly under-employed, an unwieldy and inscrutable tax code, a Rube Goldberg-like healthcare system, an increasingly ossified infrastructure, and a regulatory apparatus that congests the lungs of our economy, small businesses... weaning the stock market off of casino capitalism promises to be anything but pain-free. But did any responsible adult really believe there would be no pay-back for all these years of the Fed’s force-fed gains? If you do, you probably also believe foie gras grows on trees.

If one needed a flurry of "worse than expected" macro data to "explain" why European bourses and US futures are up, one got them: first with UK Q1 GDP printing at 0.8%, below the expected 0.9%, then German consumer prices falling 0.1% in April, and finally with Spanish unemployment actually rising from a revised 25.73% to 25.93%, above the 25.85% expected. All of this was "good enough" to allow Italy to price its latest batch of 10 Year paper at a yield of 3.22%, the lowest yield on record! Either way, something else had to catalyze what is shaping up as another 0.5% move higher in US stocks and that something is the old standby, the USDJPY, which ramped higher just before the European open and then ramped some more when European stocks opened for trading. Look for at least one or two more USDJPY momentum ignition moments at specific intervals before US stocks open for trading. But all of that is moot. Remember - the biggest catalyst of what promises to be the latest buying panic rampathon is simple: it's Tuesday (oh, and the $2-$2.5 billion POMO won't hurt).

More stimulus is coming and when combined with rising wages, it should push inflation higher. But this risks a bond market rout.

It seems every bubble is coming back. 5 Years after Zimbabwe abandoned the Zim Dollar (in favor of the US Dollar) after inflation surged to 500 billion percent the year before (according to the IMF), Bloomberg reports that Robert Mugabe's ruling party is considering reintroducing the local currency as it struggles to meet its monthly wage bill. "If they bring back the [Zim] dollar it will quickly deteriorate to worse than then, we’ll have nothing," warns one businessman as the appeal of reviving the Zimbabwe Dollar - allowing the government to print money to meet its needs - is surely outweighed by the lessons of the past. "We'll just die - we can't go back to 2008," but it seems governments never learn and memories are short. Get long wheel-barrows.

“Why does Obama suck?” If you’re not sure, ask Google. It seems that millions of Americans already have asked this question, along with: “Why does the government want to kill us?”, and “Can the government take your gold?” These are among the jewels of Google autocomplete - instantly displaying results from the most popular searches. The institution of government is now viewed as the problem, not the solution. And this represents a complete breakdown in the social contract. We suspect that if Google had been around in the mid-1780s, autocomplete would probably tell us things like “Why does the King Louis” suck? And, “Will France” collapse?

European leaders may have felt a momentary brief lapse in the wary feeling of disdain that has existed between them for years now, but that was once exacerbated by the financial crisis and the entire PIGS- story that ensued, with the debt crisis.