Jan Hatzius

Hatzius On The Three Reasons The Recovery Is Overstated

Economic Surprise Indices have been rolling over for a month or two now. The trend of US macro data has also disappointed in a period when it would be expected (empirically) to accelerate. However, taken anecdotally or cherry-picked managers can find plenty of ammunition to support the to-infinity-and-beyond Birinyi forecast (though often it relies on the most manipulated and adjusted government provided time-series). Overnight's concerns on China show just how quickly confidence can be upset but Goldman's Jan Hatzius sees three main factors for why their GDP-tracking estimate is weakening already (more like 2% than 3-3.5% growth) and that we are seeing slightly softer data already. The end of the inventory cycle, the pulling forward of demand thanks to the warm weather aberration, and the already clear impact on consumption from higher gasoline prices will likely shift from an overstated economic trajectory to more muddle-through or worse for Q2 onwards.

Dallas Fed's Fisher Exhibits Peak Cognitive Dissonance And Self-Delusion

For today's definitive example of peak cognitive dissonance and self-delusion among those who determine the monetary fate of the world no less, look no further than the Dallas Fed's Dick Fisher, who just said the following according to Reuters:

  • No one presently believes that the Fed is going to proceed with QE3

Funny considering earlier, we got this from Goldman's Bill Dudley:

  • No decision yet on QE3, New York Fed's Dudley says

And that is why central planning always fails. Because a room of these terminally confused people sits down and determines the fate of the world based on their naive academic interpretation of what they perceive is reality.

Here Is Why Everything Is Up Today - From Goldman: "Expect The New QE As Soon As April"

Confused why every asset class is up again today (yes, even gold), despite the pundit interpretation by the media of the FOMC statement that the Fed has halted more easing? Simple - as we said yesterday, there is $3.6 trillion more in QE coming. But while we are too humble to take credit for moving something as idiotic as the market, the fact that just today, none other than Goldman Sachs' Jan Hatzius came out, roughly at the same time as its call to buy Russell 2000, and said that the Fed would announce THE NEW QETM, as soon as next month, and as late as June. Furthermore, as Goldman has previously explained, sterilization of QE makes absolutely no difference on risk asset behavior, and it is a certainty that the $500-$750 billion in new money (well on its way to fulfilling our expectation of a total $3.6 trillion in more easing to come), in the form of UST and MBS purchases, will blow out all assets across all classes, while impaling the dollar. Which in turn explains all of today's action - dollar down, everything else (including bonds, which Goldman said yesterday to sell which we correctly, at least for now, said was the bottom in rates) up. Finally, as we said, yesterday, "In conclusion we wish to say - thank you Chairman for the firesale in physical precious metals." Because when the market finally understands what is happening, despite all the relentless smoke and mirrors whose only goal is to avoid a surge in crude like a few weeks ago ahead of the presidential election, gold will be far, far higher. Yet for some truly high humor, here is the justification for why the Fed will need to do more QE, even though Goldman itself has been expounding on the improving economy: "The improvement might not last." In other words, unless the "economic improvement" is guaranteed in perpetuity, the Fed will always ease. Thank you central planning - because of you we no longer have to worry about either mean reversion or a business cycle.

Jon Hilsenrath Is Scratching His (And The NY Fed's) Head Over The Job Number Discrepancy And Okun's Law

A month ago Zero Hedge, based on some Goldman observations, asked a simple question: is Okun's law now terminally broken? Today, with about a one month delay, the mouthpiece of the New York Fed (which in itself is nothing but a Goldman den of central planners, and Bill Dudley and Jan Hatzius are drinking buddies), Jon Hilsenrath shows that this is just the issue bothering his FRBNY overseers. In an article in the WSJ he ruminates: "Something about the U.S. economy isn't adding up. At 8.3%, the unemployment rate has fallen 0.7 percentage point from a year earlier and is down 1.7 percentage points from a peak of 10% in October 2009. Many other measures of the job market are improving. Companies have expanded payrolls by more than 200,000 a month for the past three months, according to Labor Department data. And the number of people filing claims for government unemployment benefits has fallen. Yet the economy is barely growing. Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate." Hilsenrath's rhetorical straw man: "How can an economy that is growing so slowly produce such big declines in unemployment?" The answer is simple Jon, and is another one we provided a month ago - basically the US is now effectively "printing" jobs by releasing more and more seasonally adjusted payrolls into the open, which however pay progressively less and less (see A "Quality Assessment" Of US Jobs Reveals The Ugliest Picture Yet). After all, what the media always forgets is that there is a quantity and quality component to jobs. The only one that matters in an election year, however, is the former.  As for whether Okun's law is broken, we suggest that the New York Fed looks in the mirror on that one.

Is The CBO Merely Another Manipulated Front For Wall Street To Dictate Washington Policy?

In the past, when discussing the goalseeking C-grade excel jockeys at the Congressional Budget Office (or CBO), we have not been technically full of reverence. After all when one uses a phrase such as this one: "What do the NAR, Consumer Confidence and CBO forecasts have in common? If you said, "they are all completely worthless" you are absolutely correct", it may be too late to worry about burned bridges. We do have our reasons: as we pointed out last year, following the whole US downgrade fiasco when the Treasury highlighted the CBO's sterling work in presenting a US future so bright, Timmy "TurboTax" G had to wear shades, we said "according to the same CBO back in 2001, net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion." As we know now they were off only by a modest $17.5 trillion on that debt forecast. Yet we never attributed to malice and bias and outright corruption, what simple stupidity and gross incompetence could easily explain. Until today that is, when following a WSJ article, we are left wondering just how deep does the CBO stench truly go and whether its employees are far more corrupt than merely stupid?

Goldman Previews The Fed's Statement, Plays Down Expectations Of A "Dovish Surprise"

As widely expected by Zero Hedge, barely a few months after the arrival of former Goldmanite Mario Draghi to head ECB, the ECB's balance sheet exploded by nearly $1 trillion. Naturally, such is the way of central banks infiltrated by tentacles of the squid: no surprises. Which brings us to the first Fed meeting of 2012 and its public manifestation: the FOMC's January 25 statement. As is well known, while the Goldman addition to the ECB is a recent development, its agent at the Fed, the head of the FRBNY Bill Dudley has been there for a quite a while - in fact ever since the tax-challenged Mike Judge character impersonator left to become Treasury Secretary. As was suggested on Zero Hedge, it was the meetings of Bill Dudley with Goldman's Jan Hatzius at the Pound and Pence, and of course elsewhere but these are the only public recorded ones, that have shaped monetary policy more than anything. In other words, if anyone can predict, not to say define, US monetary policy, it would be Jan Hatzius. Below are his just released "thoughts" on what to expect on Wednesday. What is odd is that whereas a month ago Goldman was convinced that an LSAP version of QE was imminent, now the firm has become substantially less optimistic. Is it time to manage down expectations? To wit: "Given the improvement in the economic indicators and the easing of financial conditions that has occurred in the meantime, we believe it is less central now. While Fed officials are certainly not targeting a tightening of conditions, we doubt that they will "bend over backwards" to deliver a dovish surprise relative to current market expectations." So just how much QE3 is priced in if Goldman is already doing disappointment damage control. Or did Goldman finally wise up and realize that the only effective Fed statement is the one that surprises. So if Goldman does not publicly expect QE3, and we do in fact get a notice thereof, it will have an immediate knee jerk reaction on risk, and of course, Gold. These and many more questions shall be answered at 12:30 pm on Wednesday.

Goldman On The Five Key Questions For 2012

As US markets remain in hibernation for a few more hours, Goldman picks out the five critical questions that need to be considered in the context of 2012's economic outlook. Jan Hatzius and his team ask and answer a veritable chart-fest of crucial items from whether US growth will pick up to above-trend (and remain 'decoupled' from Europe's downside drag), whether inflation will find its Goldilocks moment this year and if the US housing market will bottom in 2012 (this one is a stretch). Summarizing all of these in a final question, whether the Fed will ease further, the erudite economist continues to expect an expansion of LSAP (focused on Agency MBS) and an official re-adjustment to an inflation targeting environment. Their view remains that a nominal GDP target combined with more (larger) QE improves the chances of the Fed meeting its dual mandates (unemployment target?) over time but expectations for this radical shift remain predicated on considerably worse economic performance in the economy first (as they expect growth to disappoint). We feel the same way (worse is needed) and recall our recent (firstly here, then here and here) focus on the shift in the balance of power between the Fed and ECB balance sheets (forced Fed QE retaliation soon?).

Goldman Says Good Riddance to 2011

"Not many market participants will lament the passing of 2011" is how Goldman starts a brief note today looking back at a year full of adverse shocks in order to judge the year-ahead's potential to destroy forecaster's perspectives. The 'shocks' as well as the known unknowns are summarized effectively as the experience of 2011 suggests that the global economy remains at a delicate juncture as we head into 2012. They note that by definition, shocks are unpredictable. But slowing growth (and in places outright contraction), public sector cuts, and a renegotiation of the social compact between state and society in different parts of the world is an environment ripe for political turmoil, and this may well be a source of more shocks as the year progresses.

"A Markets Carol" - Goldman Scrooge Gets A Visit By The Three Ghosts Of The Global Economy

In its "pre-Christmas" note, it is somehow appropriate that Goldman's Jose Ursua reprises the role of Ebenezer Scrooge, and explains how, in this contemporary Christmas Carol, "The world economy is struggling: to begin with. There is no doubt whatever about that" and, logically, gets a visit from the three ghosts of the world's past, present and future. However, while the narrative is similar for the most part to the Carol morality play, where it diverges is in the Hollywood ending: "As in Dickens’ story, avoiding this outcome will require decisive actions. Unlike Ebenezer Scrooge’s overnight redemption, however, we believe the solution to the current global problems will potentially take much longer. So, although some steps are clearly visible in the right direction, the post-holiday environment will likely continue to be challenging for both policymakers and markets alike." And that's only for the macro; the "micro", as Morgan Stanley explained yesterday, is already slipping regardless of how long the US pretends that Europe is irrelevant for the big picture. The only question is whether the macro follows suit (which in Morgan Stanley's case was left as the optimistic case with full resolution), in which case the ghost of the coming "Great Stagnation" will be one scary dude.

Goldman's Economists Score 7 Out Of 10 For 2011

Since the 2012 Outlooks have now slowed to a drip, its appears retrospectives are the stocking-filler of choice for the week. Goldman's economist group reflects on their '10 Questions for 2011', released at the end of December 2010, and finds they were correct seven times. The tricky thing about judging the 'score' is the magnitude of the error - or more importantly the magnitude of the question's impact on trading views. Jan Hatzius and his team have had their moments this year, for better or worse, in economic sickness or health but they have largely been accurate at predicting Fed policy (or should we say 'directing/suggesting' Fed policy), but were significantly off (along with emajority of the Birinyi-ruler-based extrapolators from the sell-side) on growth (high) expectations and inflation (low) expectations. Nevertheless, the lessons learned from over-estimating the speed of healing from the credit crisis and the disin- / de-flationary effects of a large output gap (which BARCAP would argue is not as wide) when inflation is already low and inflation expectations well anchored are critical for not making the same overly-optimistic mistake into 2012.

Exclusive Interview With Diapason's Sean Corrigan

Zero Hedge has the pleasure to bring its readers this extensive Q&A with one of the most prominent voices of "Austrian" economic sensibility, and foremost experts on capital markets and commodities: Diapason's Sean Corrigan, who has repeatedly graced our pages in the past and who always provides a much needed 'on the ground' perspective on his native Europe. Among the numerous topics discussed are the Eurozone, its collapse, its insolvent banks, and the EFSF as the Swiss Army Knife ex Machina; the 3rd year anniversary of Lehman's failure and what lessons have been learned (if any); how to fix the US economy; on Goldman's relentless attempts to intervene in, and define, US monetary policy; what the Fed's role should be (if any) in the economy and capital markets; his views on the Occupy Wall Street movement; his advice to an inexperienced 25 year old looking to make their way in the world; And lastly, the $64K question: what is the endgame. A fascinating must read.

Goldman: "Some Lessons From The Past Four Years"

This is the boilerplate: "The following is based on remarks at the University Club in New York at the ceremony for the 2011 Lawrence R. Klein Award for the most accurate forecast over the prior four years to the Goldman Sachs US Economics team. The award was sponsored by the W. P. Carey School of Business at Arizona State University and Blue Chip Economic Indicators, Inc., and was presented by Dr. Lawrence H. Summers, Charles W. Eliot Professor of Economics at Harvard University." Hmm. We assume the University Club in New York did not read the following post. No matter. The attached analysis, ignoring that it is from the team that was 100% wrong less than a year ago, and is 120% wrong now with its ridiculous Nominal GDP targetting proposal, does have its "finer points", and as such is worth of mockery by ZH readers.

Bill Gross Was Right: Fed Board Member Tarullo Calls For Restart Of MBS Monetization

When we first reported on Bill Gross' massive surge in duration and accelerated purchase of Mortgage Backed Securities a week ago, we said, "That's either what is called betting one's farm on Operation Twist, or, betting one's farm that the next thing to be purchased by the Fed in QE3 or QE4 depending on how one keeps count, will be Mortgage Backed Securities." It was the letter. Confirmation that Bill once again frontran the Fed comes courtesy of Daniel Tarullo who in a speech at Columbia University, talking about the labor market of all things, just said the following: "I believe we should move back up toward the top of the list of options the large-scale purchase of additional mortgage-backed securities (MBS), something the FOMC first did in November 2008 and then in greater amounts beginning in March 2009 in order to provide more support to mortgage lending and housing markets." And there you go: watch as the market rips on the expectation that the US will bail out China all over again. Oh wait, at this point China couldn't care less what happens to the GSEs stack. So unfortunately as can be expected, this is nothing but yet another bailout of US banks, which lately have been buying up MBS like crazy (Gross is not the only one with the hotline), and expecting to flip right back to Brian Sack: after all something has to be done to save the poor things from a total pancaking of the Treasury curve.