More Conflicting Disinformation: Fed's Fisher Says May Vote To End QE2 Before June, As Lockhart Says QE3 May Be NeededSubmitted by Tyler Durden on 03/07/2011 09:23 -0500
More purposeful confusion out of the Fed this morning after Fed's Fisher just hit the tape saying he may vote to end QE2 before the June deadline, even as Lockhart says QE3 is possible if the US faces another downturn. The purpose of all this constant conflicting disinformation is to keep market participants on edge as the marginal economic improvement is finally starting to reverse as Goldman's Jan Hatzius insinuated last night. In other words, should the Libyan conflict not be resolved for another few weeks, QE3 is pretty much guaranteed.
Brent Over $118, Crude Passes $107, EURUSD Above $1.40, Futures Up, Silver And Gold At Highs, Dollar In Flight To Safety FreefallSubmitted by Tyler Durden on 03/07/2011 07:18 -0500
It is one of those days when the flight to new reserve currency is on, with gold and silver trading near overnight highs, same for the oil complex, yet futures are also at the highs of the premarket session, purely on the ongoing monkeyhammering in the dollar, which has now completely given up the ghost as the reserve currency on yet another bout of QE3 concerns, following last night's very cautious note from Jan Hatzius. At last check the DXY was at 76.135 and plunging. As for why oil will continue whacking bits and pieces of Q1 GDP, and why Goldman will have no choice but to push for another round of dollar rape, here is Reuters with the skinny: "Brent crude rose to $118 a barrel and U.S. oil hit the highest since September 2008 on Monday as fighting in Libya disrupted its supplies and renewed concern of wider disruptions in the Middle East. While the Libyan crisis has cut supply from a country that normally provides almost 2 percent of world output, the prospect of unrest spreading to larger producers such as Saudi Arabia is a far more bullish scenario for oil markets. "The major risk remains the prospect of the political unrest spreading to the Gulf producing region," said Caroline Bain, economist at the Economist Intelligence Unit. "However, even if there is civil unrest in Saudi Arabia, it is not a given that oil production will be affected." Wrong: it is a given.
One of our key predictions from early this year has been that Goldman Sachs' formerly crack economic team (and now considered by some to be nothing but a propaganda team on crack) will in the coming weeks and months materially downward revise its dramatic economic upgrade from early December (just coincidentally coinciding with the minute the Fed released previously secret bank bailout records), which ended the firm's skeptical stance on the US economy, and launched it into all out Kool-Aid mode on nothing but one-time adjustments courtesy of a last gasp attempt at fiscal stimulus. While we are still scratching our heads why Hatzius would totally discredit himself by doing nothing more than what momentum traders do at an inflection point, and calling for a paradigm shift in his outlook when the most recent bout of gains is not driven by any recurring fundamental improvements, frankly we don't care. What we do know is when Goldman turns outright bearish again, some time in late March, early April, it will be time to buy QE3 with both hands, following a dinner or two between Hatzius and Bill Dudley at the Pound and Pence. Tonight, Hatzius issued his first and very vague intro to the coming mea culpa: "The increase in oil prices is emerging as a more meaningful downside risk to growth later in the year. At this point, we emphasize that this is just a risk, not a change in the forecast, as our commodity strategists expect part of the near-term price increase to reverse if the situation in the Middle East stabilizes. But we are now clearly moving into riskier territory" and "eventually, fiscal policy will need to tighten anyway because the current structural deficit is much too large to be sustained over the longer term. But if this tightening occurs more quickly than expected, that would likely weigh on near-term growth and, in turn, reduce the likelihood of tighter monetary policy." We are certain that today's note is the first whisper to those who read between the lines on what is coming from Goldman as soon as a few weeks from today, perfectly in line with Zero Hedge expectations. To be certain, it wouldn't be a Goldman report without the now traditional comic interlude: "Going forward, we expect employment to continue growing at a healthy clip, but participation is likely to flatten out and may rebound a bit, as word about the improvement in labor demand gets around more widely." Come again? Goldman is blaming the lack of propaganda media penetration for what will be a rise in unemployment? Frontal lobe hemorrhage to commence in T minus 5...4...3...
During his presentation to the Senate yesterday (to be followed promptly by another presentation before Congress shortly), Bernanke discussed the impact of the $61 billion spending cut on GDP. In doing so he referenced a report published by Goldman strategists Jan Hatzius and Alec Phillips. He did so incorrectly. And the first thing Hatzius did this morning is to correct the Chairman: "Some have wondered—e.g. in the Q&A portion of Fed Chairman Bernanke’s monetary policy testimony on Tuesday—how such seemingly small cuts could have such a noticeable impact. But it is important to remember that we are talking about a hit to the quarter-on-quarter annualized growth rate of spending here, not about a hit to the level of GDP. For illustration, it is useful to go through a simplified version of the calculation underlying our estimates for the House-passed spending cut." Hatzius clarifies further: "We estimate that the $25bn cut in our budget projections reduces growth in Q2 by around 1 percentage point (annualized); this effect is already incorporated in our forecast that real GDP will grow 4% (annualized). In addition, we estimated that the $61bn cut passed by the House would reduce growth in Q2 and Q3 by 1½-2 percentage point (annualized) in Q2 and Q3. (In other words, relative to the assumptions currently embedded in our forecast, the House-passed package would imply an additional ½-1 percentage point drag on growth in Q2 and an additional 1½-2 percentage point drag in Q3.) Spending would then be maintained at that lower level thereafter, and the effect on GDP growth would dissipate quickly in Q4 and would be essentially neutral by 2012 Q1." So perhaps the Chairman will keep this in mind as this report is surely reference once again today.
Albert Edwards On The Resurgence Of The "Conspiracy Of Optimism" As Groupthink Is Back To Record LevelsSubmitted by Tyler Durden on 02/26/2011 14:01 -0500
As regular readers know too well, one topic Zero Hedge enjoys ridiculing with the disdain it deserves is groupthink of any form. The phenomenon, which is nothing but transference of laziness by those who manage other people's money with complete disregard for the consequences of their actions, was among the main reasons for the Great Financial Crash. As nobody was willing to engage in any form of critical thought, and with the market "only" going up, any investment thesis was predicated solely on what the "other guy" was doing. Of course when it all blew up, it was time to blame the evil rating agencies. After all, heaven forbid someone actually think about the logic behind the credit ratings of hundreds of billions in synthetic CDOs, or worse still, take responsibility for their own stupidity and laziness. We are now precisely in the same place we were when the market peaked last time around, with groupthink rampant, with any attempt at opposing thought squashed for fears it will end the party early, with sellside analyst optimism at all time highs, and with the administration actively encouraging rampant lies and perpetuation of the myths that take hold in the market with no factual footing whatsoever. The "conspiracy of optimism", as dubbed once by James Montier, has once again fully taken hold. As SocGen's Albert Edwards points out "despite another post mortem on forecasting failure, nothing has or will change": this is true... until the next crash. Then the finger pointing will begin anew, theatrics about the change in the Status Quo will resume, and once again the Fed will attempt to reflate the latest bubble crash. Only this time there will be no reflation, as the central planning committee's reign of terror will be over, and the fiat monetary system will have ended. Below we present Edwards' most recent solemn and very troubling thoughts on the latest break out of the great groputhink malaise, which will only last as long as the great chairsatan has some control over events. Luckily, with the amplitude from a stable market equilibrium shifting ever greater in either direction, and as the Fed's very existence (remember: the whole point of the central bank is to contain price stability) is repudiated, the time until the reset is now shorter than ever before in history.
The week ahead is light on data releases with probably the key prints at the start and the end of the week. On Monday, the focus will be on the flash PMIs out of Euroland and the German IFO. Japanese CPI will be important and the US Q4 GDP print will be watched for revisions. Otherwise, attention will continue to be paid to the DM/EM rotation theme, the events in the Middle East and the European Sovereign issue. Also, lots and lots of POMOs.
Jan Hatzius is the bellwether of the sellside economist crowd. When he was bearish (2009), most were bearish, when he turned bullish (early half of 2010), everyone else followed suit. Then he turned bearish again (early August 2010) and convinced his friend and former co-worker Bill Dudley to launch QE2. Then, in December, he turned very bullish again. And now we are here. We expect Hatzius to be fake bullish for another 3 months max, at which point he will have no choice than to start telegraphing to Jon Hilsenrath that it is time for QE3. In the meantime, for those who are not too familiar with his work, here is an extended interview with Bloomberg TV, in which the GS head economist talks about Goldman's call for 18% gain in stocks this year as well as trends in jobs, inflation and other data indicators.
First it was "Get Ready For Higher Food Prices" going mainstream... Now, logically following, it is "Get Ready For Margin Collapse." As Zero Hedge has long been warning, the one immediate consequence of surging commodity prices as a result of endless liquidity, is a collapse in corporate margins. Now, about 6 months after we first broached the topic, it has finally hit the mainstream media. The WSJ highlights what is so obvious, it is no wonder no sellside "strategist" is willing to touch the topic with a ten foot pole: "This earnings season has seen a much-welcomed return to revenue growth, giving investors another reason to push stocks to two-year highs. But beneath the surface lurks a fresh worry: For many companies, the cost of raw materials is rising at a faster pace than revenue. Blame it on soaring prices of everything from cotton to copper and corn. That has squeezed profit margins more markedly than many analysts anticipated—and is serving as a worrying sign for future earnings." But yes, aside from the painfully obvious collapse in margins, and thus plunge in net income (sorry, companies can't fire their skeleton crew workers any further) which will mean 2011 S&P 500 EPS will come far, far lower than prevailing consensus, everything is fine...and don't forget to BTFD.
Albert Edwards (And Goldman Sachs) On "The Biggest Scandal Of The Last Decade": Plunging Labor Force ParticipationSubmitted by Tyler Durden on 02/12/2011 15:20 -0500
Seven months ago, when the horrendous August 6 NFP print set the stage for Jan Hatzius to lower his outlook for the economy (and all the other sellside lemmings to follow suit), resulting in the announcement of QE2 three weeks later at Jackson Hole by our dangerous monetary Dr. Moreau (not our definition: Sean Corrigan's - more on that later), we dubbed an article titled "Real U-3 Unemployment Rate When Adjusted For Labor Force Participation: Around 14%" in which we warned that the unemployment rate presented for public consumption is really one big lie. Fast forward to today, when we now read that the topic of labor force participation, and specifically the massive plunge therein, is now seen by one of the brightest strategist minds, that of SocGen's Albert Edwards, as "one of the scandals of the last decade." We thoroughly agree. In fact, we are certain that the labor force participation rate is the greatest scam the government is attempting to pull in order to create the impression that QE is working. The threat of this issue being comprehended by the broader population is finally so big that it necessitated Goldman Sachs' Sven Jari Stehn to come out with yet another extremely humiliating apologist piece of drivel, explaining how the labor force participation rate is really not at all concerning and that one should welcome the fact that less people are in the "labor pool", as a percentage of the total population, than at any time in the last 26 years. Nothing could be further from the truth, and in fact it underscores Bernanke's latest Catch 22 - the "lower" the unemployment (U3) rate is, the worse the economy is, as more and more workers get terminally disenchanted with their labor prospects, thereby validating just how ugly the truth behind the scenes truly is.
Can A Sovereign Debt Crisis Happen Here? A Case Study Of The 1995 Debt Ceiling-Precipitated Government ShutdownSubmitted by Tyler Durden on 01/16/2011 21:49 -0500
Lately there has been a lot of chatter among the supposedly smarter-than-mainstream media that even should the debt ceiling not be raised, it would not mean the bankruptcy of America as interest payments would still be satisfied. While that technicality is absolutely true, it is even more absolutely irrelevant. What propagators of such theories forget is that lately there are just two exponential curve trendlines that are worth noting: that of the cumulative debt issuance, and of the US cumulative deficit (see chart below). Each month, the US issues around $50 billion more debt than is needed to just fund the deficit. This is debt that is on top of the debt that is needed to plug the different between revenues and expenditures. As Zero Hedge has pointed out repeatedly before, that ratio is already roughly 1 to 2, meaning for every dollar in revenue the US government issues more than one dollar of debt just to fund the deficit. And then some. As the chart below shows, in December alone the government issued $84.4 billion on top of the budget funding shortfall ($80 billion deficit and $164.4 billion in debt issuance)! So yes, while the Treasury can fund interest expense at record low interest levels, that is completely irrelevant. Unable to fund incremental expenses to the tune of hundreds of billions per month, the US government will shut down (a point when nobody will accept US government IOUs, not Social Security which passed the point of being self sustaining last year, and certainly not Medicare and Medicaid, and most certainly not private sector Defense Vendors) just like it did in 1995. Below, we present the key charts and the full report from a must read SocGen report on the sovereign debt crisis, titled Can It Happen Here? We urge all those who pretend to have an educated opinion on the US funding crisis to read this report before they open their mouths in public and once again validate their critics.
Ever since his transition from a critical, respected and objective economist to the third coming of A Joseph Cohen, Goldman's Jan Hatzius has become an increasingly irrelevant second fiddle-cum-broken record, and as such his observations have merited less and less attention. His latest spin piece on why the centrally planned US economy will grow within the parameters of "perfection pricing" is merely more confirmation of this sad transition. To wit: "2012 is still a long way off, and the uncertainty surrounding any forecast is large. But if we are right, the implications of this forecast are reasonably benign for the US Treasury market and very benign for the equity market. Indeed, our strategists expect only a moderate increase in 10-year Treasury note yields to 3¾% at the end of 2011 and 4¼% at the end of 2012, as well as an increase in the S&P 500 index to 1500 by the end of 2011." In other words: the debt-fueled Frankenstein of a Goldilocks monster, currently rampaging around on government-funded steroids, is really completely under control. It appears that all the gloves have come off in this last attempt to reflate the global ponzi, and sadly credibility once relevant, is now completely out of the window.
We present two takes on the NFP number: first from Knight Capital, and second from most recent entrant in the ridiculous propaganda drama queen race, Goldman Sachs, which is most gladly selling ES as its customers are buying with visions of S&P 1,500 as per David Kostin's latest chartmongery.
The biggest spin master in the Obama administration, Press secretary Robert Gibbs, who obstinately had refused to answer Zero Hedge questions about the economic "recovery" in his daily tweetersessions , has joined pretty much everybody else in dumping the titanic that is the Obama administration. There is one thing we can be sure of, however, Tim Geithner, the only man who is officially on economic retainer (yet gets about 1% the use of Goldman's Jan Hatzius when it comes to monetary and fiscal policy) will be forever by Obama's side.
Contrary To The IMF's Lies, The IEA Finds That Surging Oil Price Actually Will Be A "Threat To The Recovery"Submitted by Tyler Durden on 01/04/2011 18:47 -0500
Can they please at least keep their lies straight? While two months ago the IMF said that "Oil price rise not threat to global recovery", we now get an FT article with the following title: "Oil price ‘threat to recovery’" based on a quote from the IEA." H.M.M.M.M. we wonder whose opinion is more accurate: an organization run by idiots (who subsequently matriculate into modestly coherent people whose only job is to bash their former employer), whose only purpose is to destroy economies under mountains of debt (or is that the World Bank?) and to bail out insolvent PIIGS... or the International Energy Agency? We'll have to get back to you on that.
It was the night before Christmas Eve, and CNBC trucked out TrimTabs' Charles Biderman to a de minimis audience, knowing full well that a man with his understanding of money flows would very likely repeat his statement from last year, that there is no real, valid explanation for the inexorable move in stocks higher, as equity money flows in 2010 were decidedly negative, and any explanation of the upward melt up would need to account for Fed intervention (and no-volume HFT offer-lifting feedback loops but that is a story for another day). A year after the first scandalous report was published, TrimTabs is sticking with its story: "If the money to boost stock prices by almost $9 trillion from the March
2009 lows did not come from the traditional players, it had to have come
from somewhere else. We believe that place is the Fed. By funneling
trillions of dollars in cash to the primary dealers in exchange for
debt, the Fed has given Wall Street lots of firepower to ramp up the
prices of risk assets, including equities." And, wisely, Biderman, just like Zero Hedge, asks what happens when the buying one day, some day, ends: "...stock prices will be higher by the time
QE2 ends, but economic growth will not be sustainable without massive
government support. Then even more QE will be needed, and stock prices
could keep rising for a while. In our opinion, however, no amount of QE
will be able to keep the current stock market bubble from bursting
eventually." Ergo our call earlier that Bernanke has at best +/- 150 days to assuage the market's fear that QE2 is ending (not to mention that we have a huge economic recovery, right Jan Hatzius? We don't need no stinking QE...). Therefore the best Bernanke can hope for is to buy some additional time. At the end of the day, the biggest problem is that the massive slack in the economy means that LSAP will have to continue for a long, long time, before the virtuous circle of self-sustaining growth can even hope to take over. By then bond yields may very well be high enough that Ron Paul will demands someone finally bring Paul Volcker out of the fridge.