Christine Lagarde of the International Monetary Fund has told the European Central Bank that they need to consider Quantitative Easing if inflation continues to remain low, which it will. She stated: “If inflation was to remain stubbornly low, then we would certainly hope that the ECB would take quantitative easing measures by way of purchasing of sovereign bonds”.
Fed economists say they don’t think inflation rates are rising. They think the most recent reading is a fluke. But why does anyone take them seriously? Prakash Loungani, an economist working for the IMF, undertook a study (published in 2001 in the International Journal of Forecasting); there were no surprises in it. “The record of failure to predict recessions is virtually unblemished,” he reported. That was in 2001. Surely, by 2014, the experts had managed to stain their pathetic record with some success? Nope. Loungani and a colleague, Hites Ahir, took another look. They examined 77 different national economies, of which 49 were in recession in 2009. In 2008, how many economic forecasters saw the recessions coming a year later? Go ahead, dear reader, take a guess. The answer is zero.
While Japan's Trade balance missed expectations once again (bigger deficit than hoped or expected), the flashing red headlines of the night belong to Japan's 1.6% QoQ GDP print (better than expected) - the 'best growth' since Q3 2011. The initial reaction was JPY weaker, which meant Nikkei higher (and oddly JGBs rallied too). But... and it's a big but... Japanese consumer spending shot up by 2.2% in Q1 - the biggest on record... matched only by Q1 1997, the quarter before Japan's last tax-hike decision. What happened the quarter after that? Take a look...
Thumbnail sketch of an overview of next week.
If predicting yesterday's EURUSD (and market) reaction to the ECB announcement was easy enough, today's reaction to the latest "most important ever" nonfarm payrolls number (because remember: with the Fed getting out of market manipulation, if only for now, it is imperative that the economy show it can self-sustain growth on its own even without $85 billion in flow per month, which is why just like the ISM data earlier this week, the degree of "seasonal adjustments" are about to blow everyone away) should be just as obvious: since both bad news and good news remain "risk-on catalysts", and since courtesy of Draghi's latest green light to abuse any and every carry trade all risk assets will the bought the second there is a dip, the "BTFATH mentality" will be alive in well. It certainly was overnight, when the S&P500 rose to new all time highs despite another 0.5% drop in the Shcomp (now barely holding on above 2000), and a slight decline in the Nikkei (holding on just over 15,000).
Dispassionae look at the several events in the week ahead.
Just as we can't eat iPods, we can't subsist on official reassurances that the Fed and inflation are both benign.
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.