"...financial markets, far from accurately reflecting all the available knowledge, always provide a distorted view of reality. The degree of distortion may vary from time to time. Sometimes it’s quite insignificant, at other times, it is quite pronounced. When there is a significant divergence between market prices and the underlying reality, there is a lack of equilibrium conditions. I have developed a rudimentary theory of bubbles along these lines..."
Yellen's recent indignation at (and manipulation of the inputs to) The Taylor Rule, "gives the appearance that one is changing the rule or the inputs to the rule to get an answer. I do not think that reason would go over well in Congressional testimony," exclaimed the rule's creator. And yet, so many of Taylor’s peers in the economic community continue to feed policymakers’ penchant for contorting the world into a fantastical one that only exists in those leaders’ dreams. Is it any wonder so many of today’s leaders in central banking sport God complexes?
Following an abysmal quarter for investment banks around the globe, which saw salary cuts across the board as a result of sliding revenues in virtually all product areas, we forecast that the next logical step will be ongoing major layoffs of some of the world's highest paid employees. This morning none other than the most insulated from global financial troubles bank confirmed just this when Bloomberg reported that Goldman had quietly cut investment banking jobs in the last few weeks, joining securities firms that are adjusting to a slowdown in deal activity.
In what may be one of the least relevant payroll reports in a long time as the Fed already knows the labor market is doing better quantiatively (qualitatively it has been all about low-paying jobs gaining at the expense of higher paying manufacturing and info-tech positions) and as has further demonstrated it is no longer jobs data dependent, here is what Wall Street consensus expects: total payrolls +200,000, down from 215K in March; a 4.9% unemployment rate; average hourly earnings rising 0.3% (last 0.3%) M/M and 2.4% Y/Y (last 2.3%); on labor force participation of 63%.
For those who thought that the world's biggest company losing over $40 billion in market cap in an instant on disappointing Apple earnings, would have been sufficient to put a dent in US equity futures, we have some disappointing news: with just over 7 hours until the FOMC reveals its April statement, futures are practically unchanged, even though the Nasdaq appears set for an early bruising in the aftermath of what is becoming a disturbing quarter for tech companies. Instead of tech leading, however, the upside has once again come from the energy complex where moments ago WTI rose above $45 a barrel for the first time since November after yesterday's unexpected 1.07 million barrel API inventory drawdown.
Unfortunately, when central-planners "drag forward" future consumption today, you leave a "void" in the future that must be filled. That future "void" continues to expand each time activity is dragged forward until, inevitably, it can not be filled. This is currently being witnessed in the overall data trends as seen in the deterioration in corporate earnings and revenues. The only question is whether Central Banks can continue to support asset prices long enough for the economic cycle to catch up. Historically, such is a feat that has never been accomplished.
Every day there is more confirmation that the casino is an exceedingly dangerous place and that exposure to the stock, bond and related markets is to be avoided at all hazards. In essence the whole shebang is based on institutionalized lying, meaning that prouncements of central bankers, Wall Street brokers and big company executives are a tissue of misdirection, obfuscation and outright deceit. And they are self-reinforcing, too.
America’s ongoing labour productivity slump has created a new impossible trinity – policymakers can only choose two of the following three desirable outcomes: higher nominal wage growth, steady inflation and high corporate profits. The theory behind this new ‘impossible trinity’ is intuitively simple. If workers’ wages rise faster than their productivity, the companies paying those higher wages face two choices. They can either pass on the extra costs to customers, thereby leading to higher overall prices and rising inflation, or they can absorb the extra costs resulting in lower profit margins.
At the end of the day, Trump has petrified the Wall-Street Washington establishment for good reason. He loudly rejects the War Party consensus on foreign intervention. And he has tapped into a deep vein of main street alienation from the phony recovery and economic fixes promulgated by the Fed and its beltway henchman.
"Cheap oil has become “too much of a good thing” for growth", according to Goldman which in an "analysis" concludes "that the net effect of cheap oil on growth has probably been negative so far, with the capex collapse outweighing the consumption boost. Which is a confirmation of everything we have said since late 2014.
Not too dovish (upgrade uncertainty), not too hawkish (lowered rate hikes), a goldilocks statement, with just a little less inflation and just a little less GDP growth, and just two more quarter of near-ZIRP rates is what it takes for the world to get it all together.
If it sounds like history repeating itself, it most surely is. The coming recession will again obliterate the sell side hockey sticks, which this time started last spring at $135 per share for 2016 and are already being reduced at a lickety-split rate not seen since the fall of 2008. But this time there is one thing that decisively different, and it will make all the difference in the world. As will be reinforced once again by the post-meeting contretemps on Wednesday, the Fed has painted itself into a deathly corner and is utterly out of dry powder. It has nothing left but to hint at the prospect of negative interest rates. And that will be usher in its thundering demise.
Former Federal Reserve Chairman Alan Greenspan resurfaced this week. We couldn’t recall the last time we’d heard from him. But, alas, the old fellow’s in desolate despair. Any remorse he now has is too little too late. Like a pickled cucumber, his actions, and the actions of his predecessors, can never be undone. Today we’re all living with the exacting consequences of Alan Greenspan’s pickled economy.