Bernanke gives a speech today in Boston beginning at 4:10 PM entitled “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future”. There will be a post-speech ‘Question & Answer’ period. This is an ideal time for him to fine-tune the Fed’s complicated message to markets. He can use this opportunity to send up a trial balloon for next week’s semi-annual report to Congress. We suspect Bernanke could even have his staffers leak questions to ask to those in the audience in order to frame and direct the conversation. We believe the Fed has drifted toward acceptance of tapering because of concerns about: 1) financial instability, 2) asset bubbles and 3) amassing difficulties for its exit strategies, not because economic nirvana has been reached. Therefore, we believe the decision to taper at one of the next two meeting is almost a certainty.
As the EU agrees to fund another bailout deal to help Greece rise from the ashes, providing them with another $8.7 billion in financial aid, the question that begs an answer is: will this have any effect on the austerity that is being imposed on the country. Throwing good money after bad?
"If central banks keep tacking and trimming as they edge away from accommodation, it may come to pass that none of their statements will carry much credibility. They could then lose control of long rates or, at best, stability in long rates might call for ever greater market intervention on their part. The end-result would be to render monetary measures largely useless as instruments of policy because central banks, with their controls jammed open, could never be sure of effecting any intended plan. Mr Bernanke and his co-thinkers may soon discover that, in taking a different line in coping with the current depression from that followed in the 1930s, they have fallen unsuspectingly into a trap from which escape will be painful."
- MSM discovers that soaring dollar hurts corporate profits: P&G to Apple Hurt by Strong Dollar Keep S&P 500 Profits in Check (BBG)
- China Posts Surprise Drop in Exports (WSJ) - lol: "surprise"
- Plan Reins In Biggest Banks (WSJ)
- European Commission Seeks Authority to Wind Down Banks (WSJ) - and Germany just says 9
- U.S. Banks Seen Freezing Payouts as Harsher Leverage Rules Loom (BBG)
- Brussels sets up clash with Berlin over banks (FT)
- EU to Toughen Creditor-Loss Rules at Failing Banks From August (BBG) - or September, or October, but definitely November... 2023
- China's crude, iron ore imports falter as demand cools (Reuters)
- Obama pushes economic case for immigration as House eyes next steps (Reuters)
If the worst Chinese trade data in years (and by that we mean unmanipulated, because what was released last night is merely China offsetting blatantly BS Q1 trade data), and yesterday's S&P downgrade of Italy (which has sent BTPs lower although the EURUSD drop was offset by buying pressure resulting from Stolper closing out his EURUSD long) doesn't send the Stalingrad & Poorski 451 to new all time highs, then all the Chairman's efforts to make a complete farce of the "market" will have been for naught. But while the Fed keeps pushing mom and pop into stocks, he may want to tell his friends at the CME to hike WTI margins, because this morning's latest surge in crude to over $105 will really start hurting refiner margins, and due to the overall energy complex roaring higher, gas prices too, which incidentally just crossed $3.50 in the wrong direction this morning.
Giant Banks Take Over Real Economy As Well As Financial System … Enabling Manipulation On a Vast ScaleSubmitted by George Washington on 07/10/2013 01:37 -0400
Big Banks Move Into Uranium Mining, Petroleum Products, Aluminum, Ownership and Operation Of Airports, Toll Roads, and Ports, and Electricity
The U.S. economy weakened appreciably in the first quarter of 2013. But what if this weakness persists into the second quarter just completed, and worsens still in the second half of this year? Q1 GDP, as reported on June 26th, was revised lower to just 1.8%. And various indications suggest that Q2 could come in slightly lower still, at 1.6%. Might the U.S. economy be guiding to a long-term GDP of 1.5%? That’s the rate identified by such observers as Jeremy Grantham – the rate at which we combine aging demographics, lower fertility rates, high resource costs, and the burdensome legacy of debt. After a four-year reflationary rally in just about everything, and now with an emerging interest rate shock, the second half of 2013 appears to have more downside risk than upside. Have global stock markets started to discount this possibility?
If you’ve wondered what the next recession might bring in the way of U.S. corporate earnings, you don’t have long to wait for an answer. Analysts expect the 30 companies of the Dow Jones Industrial Average to post a meager 0.7% top line growth for the upcoming Q2 2013 reporting season. If recent history – think all the way back to Q1 2013 – is any guide, that means we’ll actually see a decline in revenues for the just completed quarter once all the numbers are out. And with Q1 posting an average negative 0.6% top line comparison to last year, that will constitute a “Revenue recession” for these large and generally well-managed multinationals. If that makes you question why U.S. stocks are still up 15% on the year, look to both corporate profits (still at record highs) and the anticipation for a better second half. Hope may not be a strategy, as the old saying goes, but it certainly moves markets.
In case you missed the late announcement, Ben Bernanke is scheduled to deliver a speech on Wednesday afternoon, covering the Federal Reserve Bank’s track record through its 100 year history. Presumably, he’ll also spend time defending current policies, in both prepared remarks and the question-and-answer session to follow.
In advance of what could be a market-moving talk, it seems appropriate to consider what’s been said in the past about the Fed’s policy record. I suggest seeing if you can name the source of each of the following excerpts...
It can't happen... It can't happen...It can't happen... It just happened.
The trick so far has been to create massive inflation, export the effects of it to other trading partners, and end up with a lot more money here in the USA, or the illusion of more money. Well, loans, for houses, cars, and college tuitions. In a word: debt. Let’s call it “Rainman Economics,” because it begins to resemble the behavior of a severely autistic human being who performs a small range of obsessive actions over and over and over, often centered on numbers. Rainman Economics is the policy of the Federal Reserve and, indirectly, the government under Mr. Obama. This is the eeriest summer. The coordinated effort to devalue gold - so as to maintain the sagging reputation of the world’s re$erve currency - has had the effect mainly of funneling it out of weak hands in the west to strong hands in the east, to countries that at one time or another we regarded as adversaries. In these games of currency war, there are too many moving parts for comfort. Something’s in the air this hot, soggy summer and it smells like the loss of faith.
In principle, holding gold is a form of insurance against war, financial Armageddon, and wholesale currency debasement. And, from the onset of the global financial crisis, the price of gold has often been portrayed as a barometer of global economic insecurity. In fact, the case for or against gold has not changed all that much since 2010 - it makes perfect sense to hold a small percentage of your assets in gold as a hedge against extreme events. As Ken Rogoff explains, the recent collapse of gold prices has not really changed the case for investing in it one way or the other. Yes, prices could easily fall below $1,000; but, then again, they might rise; but he warns, policymakers should be cautious in interpreting the plunge in gold prices as a vote of confidence in their performance.
On occasion of an address to economists at a conference in France, Bundesbank president Jens Weidmann reminded the audience that 'the ECB cannot solve the crisis', because it is due to structural reasons and therefore requires structural reform. Weidmann rightly fears that governments will begin to postpone or even stop their reform efforts now that the ECB has managed to calm markets down. In a Reuters article on the topic, a number of people are quoted remarking on ECB policy. What is so interesting about this is how far removed from reality general perceptions are when it comes to judging current central bank policies. In short, Weidmann wants to end the three card Monte, whereby commercial banks buy the bonds issued by governments because they don't have to put any capital aside for the purpose, which bonds they then can in turn pawn off to the central bank for refinancing purposes. Weidmann wants to see the connection between banks and sovereigns severed, a connection that has been fostered by governments over many centuries in order to enable them to spend more than they take in through tax revenues.
When mistakes are made, lawsuits happen and lawyers, and guys with capital make money.
With spot gold prices down 28% year-to-date, it appears John Paulson's Gold Fund has managed to create some epic high-beta losses. In a letter to investors, Paulson explains his fund fell 23% in June, is down 65% in 2013; but do not fear - as he concludes time and time again, the gold fund will "produce outsized returns in the long-run".