How We Got Here: The Fed Warned Itself In 1979, Then Spent Four Decades Intentionally Avoiding The TopicSubmitted by Tyler Durden on 10/30/2015 17:45 -0500
At least parts of the Fed all the way back in 1979 appreciated how Greenspan and Bernanke’s “global savings glut” was a joke. Rather than follow that inquiry to a useful line of policy, monetary officials instead just let it all go into the ether of, from their view, trivial history. But the true disaster lies not just in that intentional ignorance but rather how orthodox economists and policymakers were acutely aware there was “something” amiss about money especially by the 1990’s. Because these dots to connect were so close together the only reasonable conclusion for this discrepancy is ideology alone. Economists were so bent upon creating monetary “rules” by which to control the economy that they refused recognition of something so immense because it would disqualify their very effort.
We would say today's main event is the culmination of the Fed's two-day meeting and the announcement slated for 2 pm this afternoon, however with the 90 economists polled by Bloomberg all expecting no rate hike, today's Fed decision also happens to be the least anticipated in years (which may be just the time for the Fed to prove it is not driven by market considerations and shock everybody, alas that will not happen). And considering how bad the economic data has gone in recent months, not to mention the recent easing, hints of easing, and outright return to currency war by other banks, the Fed is once again trapped and may not be able to hike in December or perhaps ever, now that the USD is again surging not due to its actions but due to what other central banks are doing.
Update: DRAGHI SAYS ECB DISCUSSED A FURTHER LOWERING OF DEPOSIT RATE
Draghi hints at December QE expansion, noting that "the degree of monetary policy accommodation will need to be re-examined at our December monetary policy meeting."
As part of his UN speech seeking to restore a crumbling Pax Americana, president Obama, eager to cover up US involvement in the Ukraine presidential coup of early 2014 (who can forget Victoria Nuland "strategy" interception in which she laid out the post-coup lay of the land, while saying to "fuck the EU"), just said that "America has few economic interest in Ukraine." Few, perhaps, but quite substantial.
China’s islanding building on the four-mile-long and two-mile-wide Subi Reef in the South China Sea has put The US in a tight spot. To protect its ally from China’s aggression, The US will be left with little choice but to constrain China by military means. However, the US won't directly engage China in the war in the foreseeable future, because the US dominates China with its superior naval and air force and the only way for China to level the playing field is to apply nuclear weapons. The nuclear nature of Sino-American warfare will make both the world no.1 and no.2 economy the fallen giants. So there is a possibility that The US might use its oil weapon instead to strike at the core of China’s weakness - it’s huge dependence on oil import.
DRAGHI SAYS ISSUE SHARE LIMIT FOR QE RAISED TO 33% FROM 25%
ECB CUTS EURO-AREA INFLATION FORECASTS FOR 2015-2017
Mario Draghi holds court (on his birthday, no less) in a closely watched post-meeting presser as markets hope collapsing inflation expectations, heightened volatility, EM chaos, and China turmoil will be enough to force the ECB's hand.
The IMF failures in Greece bring back vivid memories of the Asian Financial Crisis of 1997-98... As the Indonesian episode should teach us, the IMF’s management can be very political and often neither trustworthy nor competent. Greece offers yet another chapter.
Last week was a complete dead zone for US macro, however with the peak of Q2 earnings season there was more than enough commotion for everyone. This week US macro starts to pick up again, with Durable Goods on Monday, followed by Case Shiller, Q2 GDP, the Chicago PMI, various consumer confidence indices, and of course, the July FOMC meeting on Wednesday.
We suggest ECB President Mario Draghi has his work cut out for him today. As the entirely political catalyst for Greece's crescendo-like bailout capitulation, he will - we hope - be questioned long and hard on his actions over the last 2 weeks (and going forward) with regard the increasingly 3rd world nation. As Bloomberg's Richard Breslow notes, Draghi needs to help calm a still tense situation. The only way he can do this is with as much tranquility as he can muster, make sure everyone knows he is still prepared to do whatever it takes. It appears the markets (FX and equities for sure) are anticipating uber-dovishness and as we noted in the preview, he will likely crow of the lack of contagion from Greece, how well his tools have worked, and how Q€ is working... we wonder if the Greek reporters will be blocked from the press conference?
In the race to get to the top what does it matter that we destroy the planet along the way?
Between 1974 and 2009 there were 62 magnitude 3.0 or stronger earthquakes in Oklahoma. In the past five years there have been 1,070 M3.0+ quakes. The chart of Oklahoma's quake surge correlates perfectly with the amount of wastewater injected into the state. And when it comes to Oklahoma's "induced seismicity" there is nobody more responsible for either Oklahoma's "shale miracle" or the resultant earthquake epidemic than David Chernicky, CEO of Tulsa-based New Dominion.
Economic events and data in the week ahead.
Did you know that if you took every single penny away from everyone in the United States that it still would not be enough to pay off the national debt? Today, the debt of the federal government exceeds $145,000 per household, and it is getting worse with each passing year. Many believe that if we paid it off a little bit at a time that we could eventually pay it all off, but as you will see below that isn’t going to work either.
As the economic calendar slowly picks up following the NFP lull, we are looking at a busy week both globally and in the US, where an army of Fed speakers culminates with a Yellen speech on Friday at 1pm in Rhode Island.
As first Bill Gross and then Jeff Gundlach suggest shorting German bonds, so it appears the message has sunk in that at 4.9bps 10 days ago, 10Y Bund yields were the short of a lifetime. Since then they have soared, with a dramatic doubling today from 14bps to over 29bps - the highest yield in 7 weeks. As Commerzbank warns, "a cascade of small events is creating a large splash in a structurally ever-thinner market," which has led to a plunge "similar to US Treasury flash crash of Oct. 15."