Jan Hatzius

Goldman: "We Think That Payrolls Will Likely Disappoint"

For all those unable to sleep tonight without the knowledge what Goldman thinks about this week's most important economic release, Friday's Nonfarm Payrolls number (and the unemployment rate, which is guaranteed to continue the previously observed divergence from GDP in a centrally-planned and completely "brokun Okun" environment), read on for your trivial Ambien. From Goldman "Our forecasts for the US dataset to be released this week will likely be mixed for rates... we think that payrolls will likely disappoint market expectations." As a reminder, consensus expectations are for a 165K print, declining from May's 175K, while Jan Hatzius now expects 150K. And with that the second great US renaissance which Hatzius forecast in late 2012 is being "tapered" away the same way his 4% GDP prediction in late 2010 devolved into sheer nothingness.

The Toxic Feedback Loop: Emerging <-> Money <-> Developed Markets

Extreme Developed Market (DM) monetary policy (read The Fed) has floated more than just US equity boats in the last few years. Foreign non-bank investors poured $1.1 trillion into Emerging Market (EM) debt between 2010 and 2012 as free money enabled massive carry trades and rehypothecation (with emerging Europe and Latam receiving the most flows and thus most vulnerable). Supply of cheap USD beget demand of EM (yieldy) debt which created a supply pull for EM corporate debt which is now causing major indigestion as the demand has almost instantly dried up due to Bernanke's promise to take the punchbowl away. From massive dislocations in USD- versus Peso-denominated Chilean bonds to spiking money-market rates in EM funds, the impact (and abruptness) of these colossal outflows has already hit ETFs and now there are signs that the carnage is leaking back into money-market funds (and implicitly that EM credit creation will crunch hurting growth) as their reaching for yield as European stress 'abated' brings back memories of breaking-the-buck and Lehman and as Goldman notes below, potentially "poses systemic risk to the financial system."

Goldman's FOMC Expectations

With 45 minutes left to go, only one thing matters: what does Goldman think (the other issue of whether Jan Hatzius shared a meal with Bill Dudley at the Pound and Pence will remain unknown until the next batch of Dudley daily "minutes" are released in a few months). So for all those scrambling for an edge in a centrally-planned world, here it is, via Goldman's Francesco Garzarelli : "Turning to today’s FOMC announcement and press conference, our US Economics team expect Chairman Bernanke to stick to the same message on ‘tapering’ of bond purchases used in previous pronouncements on the matter, but also emphasize that reducing the expansion of the balance sheet does not imply that the Fed is anywhere close to hiking rates. We think this is broadly what bondholders are also expecting to hear."

Confusion Reigns: 6 Weeks Of Hawkishness And 4 Dovish Expectations For This Week's FOMC

In the six weeks since the last FOMC meeting there has been almost uninterrupted relatively 'hawkish' chatter from Fed members. However, the consensus remains convinced there will be no 'Taper' anytime soon - as somewhat evidenced by the following summary of FOMC expectations from Goldman's Jan Hatzius. So the question is - if, based on the 'economy' there is a belief that no Taper will occur - why has the Fed been so 'hawkish'? We suspect, as we have noted numerous times, the decision to 'Taper' (or at least jawbone 'Tapering') is not economically data-driven but more a growing concern over technical impacts on the Treasury (fails and excess ownership) and mortgage (non-economic spreads crowding out private money and huge build in convexity) market and the bubble-like rational exuberance across every asset class that they have created.

This Last 30 Minute Hilsenrally Brought To You By Your Favorite Fed Mouthpiece

The last time Hilsenrath tried to be relevant, back on May 22, he essentially said to ignore anyone who tried to time the Taper (but don't call it a Taper) when he said: "when the Fed shuts off bond buying, it won’t be abrupt and it won’t be predictable." So just to make sure market expectations of tapering are actually very predictable, if at least on the short end, moments ago Hilsenrath once again hit the tape with the following: "Fed Likely to Push Back on Market Expectations of Rate Increase: Federal Reserve officials have been trying to convince investors for weeks not to overreact when the central bank starts pulling back on its $85 billion-per-month bond-buying program. An adjustment in the program won’t mean that it will end all at once, officials say, and even more importantly it won’t mean that the Fed is anywhere near raising short-term interest rates. Investors aren’t listening." So here comes the Hilsenrally to save the day by making investors listen, even if not so much for the benefit of stocks this time, as for bonds, which little by little are starting to lose it.

Goldman: "Our View Is That Tapering Is Announced At The December FOMC Meeting"

"The most notable statement made by Bernanke during the Q&A session was that the FOMC could potentially cut the pace of QE purchases "in the next few meetings," although this was predicated on a continued improvement in the outlook for the economy and confidence in the sustainability of that improvement. He also stated that the purchase pace will depend on incoming data and that the FOMC could either raise or lower the pace of purchases in the future. Our view continues to be that the December meeting and subsequent press conference is the most likely time that the Committee would announce QE tapering, although September is a possibility if the economy picks up more than we expect in coming months."

Goldman Issues Q&A On Tapering: Says "Not Yet"

On one hand we have bad Hilsenrath sending mixed messages saying the Fed may taper sooner (with good Hilsenrath chiming in days later, adding it may be later after all), depending on whether HY bonds hit 4% YTM by EOD or mid next week at the latest. On the other, even resolute Fed doves are whispering that a tapering may occur as soon the summer, so in a few months, and halt QE by year end. Bottom line - confusion. So who better to arbitrate than the firm that runs it all, Goldman Sachs, and its chief economist Jan Hatzius, who issues the following Q&A on "tapering." His view: "not yet." Then again, Goldman is the consummate (ab)user of dodecatuple reverse psychology, so if Goldman says "all clear" the natural response should be just as clear.

Goldman Throws In The Towel On A 2013 "Recovery" As Does Bank Of America

Back in 2010, Goldman's Jan Hatzius, fresh on the heels of QE2, committed rookie Economist mistake 101, and mistook a centrally-planned market response to what then was a record liquidity infusion, for an improvement in the economy (a move we appropriately mocked at the time, as it was quite clear that the Fed's intervention meant the economy was getting worse not better). It took him about 4 months to realize the folly of his ways and realize no recovery for the US or anyone else was on the horizon. He then wised up for a couple of years until some time in December he did the very same mistake again, and once again jumped the shark, forecasting an improvement to the US economy in 2013, albeit in the second half (after all nobody want to predict an improvement in the immediate future: they will be proven wrong very soon) based on consumer strength when in reality the only "reaction function" was that of the market to the Fed's QE4 (or is it 5, and does it even matter any more?). Four months later we get this...

Overnight Sentiment (And Markets) Drifting Lower

In what may be a first in at least 3-4 months, instead of the usual levitating grind higher on no news and merely ongoing USD carry, tonight for the first time in a long time, futures have drifted downward, pushed partially by declining funding carry pairs EURUSD and USDJPY without a clear catalyst. There was no explicit macro news to prompt the overnight weakness, although a German 10 year auction pricing at a record low yield of 1.28% about an hour ago did not help. Perhaps the catalyst was a statement by the Chinese sovereign wealth fund's Jin who said that the "CIC is worried about US, EU and Japan quantitative easing" - although despite this and despite the reported default of yet another corporate bond by LDK Solar, the second such default after Suntech Power which means the Chinese corporate bond bubble is set to burst, the SHCOMP was down only 1 point. The Nikkei rebounded after strong losses on Monday but that was only in sympathy with the US price action even as the USDJPY declined throughout the session.

Overnight Levitation Returns As The Elephant In The Room Is Ignored

With every modestly positive datapoint being desperately clung to, now that even Goldman's Hatzius has once more thrown in the economic towel after proclaiming an economic renaissance in late 2012 just like he did in late 2010 only to issue a mea culpa a few months later (and just as we predicted - post coming up shortly), the key prerogative is to ignore the elephant in the room. That, of course, is that the JPY 1 quadrillion bond market had to be halted for the second day in a row as the Japanese capital markets are fast becoming a very big and sad joke. The resulting flight to safety from Japanese investors, who sense that their own bond market is on the verge of breaking down completely, has managed to send French and Belgian bonds to record lows, the Spanish 2 Year to sub 2%, the German 6 month bill negative in the primary market, the US 10/30 year constantly bid and so on. The immediate result is that the bond-equity disconnect continues to diverge until one day we may get negative 10 Year rates coupled with an all time high stock market. Gotta love the fake New Normal market, in which the Japanese penny stock market was up another 2.8% to well over 13,000 even as the Shanghai Composite plumbs ever redder territory for 2013 on fears the birdflu contagion will hurt the already struggling economy even more.

Phoenix Capital Research's picture

 

I disagree with the “addiction” metaphor because it implies that the markets/ addict could potentially become healthy if the dealer stopped dishing out the drugs. This ties in with Bernanke’s claims that everything is under control and that he can remove the excess liquidity anytime he wants to.

 
clokey's picture

As Mark Grant so poignantly reminded us yesterday, the Fed is printing $188 million per hour. That is the cost of Dow 14,000 -- that is the price we pay to see Jim Cramer and company consecrate the new bull market via impromptu CNBC specials. This hourly rate is of course implied by the $85 billion of assets the Fed now buys each and every month.

Is Micro Weakness Smelling A Macro Collapse?

Last week we suggested a reason why the market was unable to hold on to the Bernanke bid. The relative plunge in Goldman Sachs 'bottom-up' Analysts Index (GSAI) suggested that the macro 'strength' that market-savants were so focused on, could perhaps be election-biased (blasphemy). It seems this macro 'strength' divergence (highest since 1996!) from micro 'weakness' reality was enough to get the Goldmanites thinking - and unfortunately for all the cautiously optimistic managers out there, they are not hopeful. As Jan Hatzius explains,  "the GSAI remains closely correlated with other bottom-up measures, including the S&P 500 sales guidance diffusion index; and while one possible explanation is that S&P 500 companies are more exposed to non-US demand than the US economy at large, and the US has been a relative outperformer. But it is unclear whether this accounts for all of the weakness, or whether the bottom-up weakness also holds some additional leading information for the macroeconomic data."

FOMC Preview: Nothing Now, Moar Later

Last month, hours after the announcement of QEternity, we said that in validation of the 'Flow' model taking over from the Fed's flawed 'Stock' model, the Fed will have no choice but to continue the long-end $85 billion in monetary flow addition to the market, if not economy (i.e. expand the QE program from $40bn per month to $85bn per month starting in January - in order to maintain the 'flow' post-Operation Twist). Last night, Goldman has officially agreed with us (as has Bloomberg's chief economist Joe Brusuelas). It appears that starting January 2013 Ben is really going to town. But don't expect this to be announced today. It will, as Goldman speculates, be disclosed at the Fed's December FOMC meeting. For now, two weeks ahead of the election, expect more "autopilot" from Bernanke as coming up with any surprises 'now' would be seen as beyond political.