In its effort to maintain a weak recovery the Fed has created the worst environment possible = stagflation.
While the February personal consumption expenditures (aka personal spending) - that all important data about the well-being of the US consumer - was in line with expectations rising 0.1%, it was the January revision that was striking. From a 0.5% increase reported a month ago, it was now revised to a paltry 0.1%. In nominal dollar terms, this means that instead of US consumer spending a whopping $67.5 billion more in January, the increase was a paltry $14.7 billion, a delta of $52.8 billion!
Simple Janet should have the decency to resign. The Fed’s craven decision last week to punt on interest rate normalization is not merely a reminder that she is clueless and gutless; we already knew that much. Given the overwhelming facts on the ground - 4.9% unemployment, 2.3% core CPI and a 23.7X PE multiple on the S&P 500 - her decision to “pause” after 87 months of ZIRP actually proves she is a blindfolded monetary arsonist - armed, dangerous and lost.
The FOMC used to say that a hike would be “good news” because it represented great confidence that economic conditions were so good. Now the Fed wants us to believe that their dovish stance is good news as well, because it means greater levels of accommodations. It is a stretch to believe that both can be true. Financial intermediation between savers and investors has hints of trouble due to negative rates. A news story yesterday said that Munich Re is experimenting with storing cash and gold. The time has come to end NIRP and ZIRP, and other forms of aggressive central bank experimentation and the dangerous consequences that come with them. It time they take a giant collective BURP, I mean BIRP (Basic Interest Rate Policy).
Following last month's inflation 'jolt' to the marketplace, Core CPI increased 2.3% YoY in Feb - the biggest jump since October 2008 (led by the biggest monthly surge in apparel prices since 2009). Bond & Stock markets are dropping in the news as it corners The Fed further into a hawkish stance, despite the recessionary warning signals screaming from the manufacturing (and increasingly Services) sector.
Housing Starts Beat Expectations, As Slowdown In Rental Permits Suggest Further Rent Increases In Coming MonthsSubmitted by Tyler Durden on 03/16/2016 08:50 -0400
Coming at the same time as an inflationary report which showed Core CPI rising at 2.30%, or the highest rate since October 2008, and one which will put further pressure on the Fed to hike rates as shelter inflation is now simply too big to sweep under the rug, we also got February's housing starts and permits, which while painting a mixed picture of the US housing market suggested further strength in the US housing sector in the past month.
As noted yesterday morning, "Goldman does it again" when just hours after Goldman said the "bearish cash for iron ore was intact," the commodity recorded its biggest surge in history crushing anyone short, and soaring 20% across the globe. That however has not dented Goldman's conviction that the commodity rally is overdone (we actually agree with Goldman for once) and just hours ago the head of commodities at Goldman Jeffrey Currie doubled down on Goldman's bearish commodities call saying "market views on reflation, realignment and re-levering have driven a premature surge in commodity prices that we believe is not sustainable.
For those wondering whether we’ll be riding the short squeeze euphoria wave higher, Goldman’s answer is definitively “no.” In a note out this morning, the bank says short covering and positioning have fueled the bounce and that a sustained rebound is exceptionally unlikely until either valuations get significantly more attractive or inflation expectations stabilize.
Not only don't we have economic activity driving inflation, the reality is that any inflation today is coming from just three places: 1. Obamacare; 2. Minimum wage hikes; 3. Real estate aka shelter
Inflation targeting has been a giant cover story for a monumental power grab. The academics who grabbed the power had no idea what they were doing in the financial markets that they have now saturated with financial time bombs. When these FEDs (financial explosive devices) erupt in the months and years ahead, the central bankers will face a day of reckoning. And they will surely be found wanting. The immense social damage from the imploding bubbles dead ahead will be squarely on them.
Everything went from bad to worse once Europe opened, and things started going "bump in the morning" across the European banking sector, where not only has it been more of the same with CDS spreads for major banks - most notably Deutsche Bank - continuing their surge wider, but also EM spreads to Bunds all following, with the Portugal-Germany Yield spread blowing out above 300 bps for the first time since 2014, and other peripheral nations following.
"... When stocks are falling this much, it's hard to justify not acting"
"... Davos - where he mingled with central bankers such as ECB President Mario Draghi and leading company executives - likely prompted him to pull the trigger"
"The BoJ actions should lead to further intensification of global currency wars with central banks around the world trying to engineer sustained competitive devaluation against the background of slowing global trade and growth as well as persistent commodity price disinflation. With its latest measures the BoJ will allow Japan to borrow more growth from its trading partners and limit the severity of the imported disinflation."
At this point, the longer China does nothing, the greater its problems will become. As such Beijing needs to choose: either collapse the economy in a deflationary wave, leading to a debt crisis and widespread social unrest, or devalue massively overnight in hopes of stimulating inflation, leading to collapsing profit margins, and even more widespread social unrest.In short, our condolences China: having decided to adopt Western neo-Keynesian economics, with the typical monetarist bent, you too are now trapped with no way out. But don't worry: so is everyone else. Good luck.
"The trouble is that rents are running high not because house prices are booming and/or construction is sawing but because structurally new entrants to the housing market are renters not owners. This is reflected in the very low first time homebuyer rate, less than 30 percent."