While it is just as perplexing that Goldman still has clients, what is most surprising in this week's David Kostin "weekly kickstart" is that Goldman's clients have shown a surprising lack of stupidity (this time around) when it comes to the impact of QEtc. Shockingly, and quite accurately, said clients appear to be far more worried about the inflationary shock that endless easing may bring (picture that), than what level the S&P closes for the year. Incidentally with Q3 now over, and just 3 months left until the end of the year, Goldman's chief equity strategist refuses to budge on his year end S&P forecast, which has been at 1250 since the beginning of the year, and remains firmly there. From Goldman: "QE has succeeded in increasing asset prices and inflation expectations but has not convinced investors to raise their US growth expectations. Instead, equity investors have expressed concern about inflation risks while both gold prices and implied inflation rates show similar shifts."
Bizarrely, and even after slapping my screens several times to make sure things were working, real opening levels in EGBs very quite simply FLAT. All flat! Haven’t seen that in ages!
Had to slap my screens again tonight, given the tons of “unchanged” data in EGBs. Have decorrelated from equities, as has the USD (closing about unchanged).
Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, L.P. and one of the most successful hedge fund managers of all time told Maria Bartiromo last week that he owns gold and that he sees no “sensible reason not to own gold”. The interview was part of the Council on Foreign Relations (CFR) Corporate Program's CEO Speaker Series, which provides a forum for leading global CEOs to share their priorities and insights before a high-level audience of wealthy and influential CFR members. The respected hedge fund manager suggested that a depression and not a recession was likely and warned of social unrest and the risk of radical politics as was seen with Hitler and the Nazis in the Depression of the 1930’s. Dalio spoke about how “gold is a currency” and when asked by Bartiromo “do you own gold?”, he smiled and said “Oh yeah, I do.” The admission elicited a laugh from the CFR audience. Dalio’s interview is important as it again indicates how slowly but surely gold is moving from a fringe asset of a few hard money advocates and risk averse individuals to a mainstream asset. Wealthier people and some of the wealthiest and most influential people in the world are slowly realising the importance of gold as financial insurance in an investment portfolio and as money. This will result in sizeable flows into the gold market in the coming months which should push prices above the inflation adjusted high of 1980 - $2,500/oz. The interview section where Dalio is asked about gold by an audience member begins in the 43rd minute and can be seen here.
The acquisition of CRBC by FMER provides a stark illustration of the fundamental conflict between the Fed’s “dual mandate” and its legal responsibility to supervise the nation’s banks.
Suddenly the delicate balancing of variables is once again an art and not a science, ahead of a week packed with binary outcomes in which the market is already priced in for absolute perfection. Per DB: We have another blockbuster week ahead of us so let's jump straight into previewing it. One of the main highlights is the German Constitutional Court's ruling on the ESM and fiscal compact on Wednesday. On the same day we will also see the Dutch go to the polls for the Lower House elections. Thursday then sees a big FOMC meeting where the probabilities of QE3 will have increased after the weak payrolls last Friday. The G20 Finance Ministers and Central Bank Governors will meet on Thursday in Mexico before the ECOFIN/Eurogroup meeting in Cyprus rounds out the week on Friday. These are also several other meetings/events taking place outside of these main ones. In Greece, PM Samaras is set to meet with representatives of the troika today, before flying to Frankfurt for a meeting with Draghi on Tuesday. The EC will also present proposals on a single banking supervision mechanism for the Euro area on Tuesday. If these weren't enough to look forward to, Apple is expected to release details of its new iPhone on Wednesday. In summary, it will be a good week to test the theory that algos buy stocks on any flashing red headlines, no longer even pretending to care about the content. Think of the cash savings on the algo "reading" software: in a fumes-driven market in which even the HFTs no longer can make money frontrunning and subpennyiong order flow, they need it.
Where does the AUD.USD go from here?
Upcoming calls from Ben and Mario to the governments?
Get your act together, there’s just so much that can be done.
Odd and contradictory ROn / ROff close
Following a series of bad economic news (Eurozone unemployment, rising inflation, plunging retail sales in Germany, Spain and Greece) out of Europe, and the usual sound and fury out of the ECB signifying nothing (was there finally news that Weidmann and/or the Buba are endorsing anything Draghi is doing - instead of seeking to potentially quit his post leaving the ECB in limbo? No? Then stop flashing red headlines which are completely irrelevant), the EURUSD has decided to go on its usual countersensical stop hunt higher in hopes an algo or two will push it even higher on nothing but momentum, with has one purpose only: to allow the pair enough of a buffer so that when it does fall after the J-Hole disappointment, it has more room to drop. And as European newsflow fades into the periphery, everyone is once again focusing on Wyoming where Bernanke is now broadly expected to do absolutely nothing. What else are market participants focusing on? Here is the full ist courtesy of Bloomberg daybook.
In November 2008, President Barack Obama won the popular election for President by 9.5 million votes. A burgeoning financial crisis and weakening economy helped his candidacy at the time, but four years on the sluggish pace of economic recovery is a headwind to his re-election. Consider, for example, that there are currently 12.8 million people unemployed in the U.S., or that an estimated 8 million adults entered the SNAP (Food Stamp) program since November 2008 (total increase in enrollment: 15.6 million). Presidential elections are won in the Electoral College, of course, so in today’s note ConvergEx's Nick Colas parses out this employment/food security economic stress for the key “Battleground” states.
Seven of the 8 swing states this election year are more economically stressed than the national average in terms of unemployment and/or food stamps, while 2 of the 3 states “leaning” toward Obama are worse off than the national average. Romney, behind in the electoral vote count by most analysts’ figures, theoretically stands to gain from a weak national economy, but he’ll have to earn the vote of an estimated 4 million Americans in 14 key battleground states to have a shot at the White House.
Jacques Wajsfelner of Weston, Massachusetts is a criminal mastermind. Big time. Like Lex Luthor. But rest easy, ladies and gentlemen, for this nefarious villain is about to face some serious jail time thanks to the courageous work of US government agents. 83-year-old Wajsfelner was finally caught and convicted of a most heinous crime: failing to disclose his foreign bank account to the US government and is now looking at FIVE YEARS behind bars in a Day-Glo orange jumpsuit. Sentencing guidelines suggest that he will get some combination of jail time and supervised release to the tune of several years. Then there's Eric Higgins of Port Huron, Michigan, who was recently busted for major possession of child pornography and engaging in sexually explicit conversations with juveniles online. He was given 20 months. Oh... and Mr. Higgins was a US Customs & Border Patrol agent. This is what justice means in the Land of the Free today. Have you hit your breaking point yet?
When Ben Bernanke launched QE 2 in 2010 he outlined a third mandate for the Federal Reserve - the boosting of consumer confidence. He stated that the goal of QE 2 was to boost asset prices in order to spur consumer confidence through the "wealth effect" which should translate into economic growth. In 2010 he was right, and QE 2 not only boosted asset prices sharply, but kept the economy from slipping into a recessionary spat. As Friday's speech from the economic summit in "Jackson Hole" draws near - Bernanke should be taking a clue from today's release of consumer confidence in considering his next move.
Weidmann rejected suggestions that he was isolated on the ECB Governing Council in having such reservations. "I hardly believe that I am the only one to get a stomach ache over this," he said. Alexander Dobrindt, a senior German politician who has been the Executive Secretary of the Christian Social Union of Bavaria since 2009, was more direct, saying Draghi risked passing into the history books as the "currency forger of Europe". A conservative ally of Merkel, Dobrindt echoed Bundesbank’s Weidmann that Greece should leave the currency bloc by next year. The comments show the huge divisions in Germany over the debt crisis now in its 3rd year and the understandable concerns of inflation and even hyperinflation. The Bundebank and senior politicians and allies of Merkel may thwart Mario Draghi’s big plans to do “whatever it takes” to solve Europe’s financial collapse. One way or another, the euro is certain to fall in value in the long term.
- Merkel's Dilemma: Risk Euro Zone or Her Government (WSJ)... as first suggest by ZH 2 months ago, with only one resolution: referendum
- Russia warns West over Syria after Obama threats (Reuters)
- Consider keeping Bernanke, Romney adviser Glenn Hubbard says (Reuters)... Glenn Hubbard is the star of the movie Inside Job
- Spain Deficit Goals at Risk as Cuts Consensus Fades (Bloomberg)
- Czech Austerity Revolt Threatens Cabinet as Slump Bites (Bloomberg)
- Greek cuts to be deeper than trailed (FT)
- Akin rebuffs Romney, Republican calls to quit Senate race (Reuters)
- Obama Leads Romney in Poll Showing Disdain for Congress (Bloomberg)
- Greece needs more time to reform, PM Samaras tells paper (Reuters)
- UK banks face scandal over toxic insurance products (Reuters)
- Iceland Shelves Monetary Tightening as Krona Seen Appreciating (Bloomberg)
- India Considers $35 Billion Debt Revamp After Biggest Blackout (Bloomberg)
Markets taking any negative news as additional must-have accelerators of a bail-out.
Time being of the essence.
But what if things just drag on?
University of Michigan Consumer Confidence came modestly higher than expected and limped higher off the lowest levels of the year. However, aside from this apparently positive event (accoding to some media pundits), there are two worrying things shifting rapidly. Consumer outlook for the economy (as opposed to current conditions) dropped to their lowest of the year with the largest 3-month drop in 11 months (so much for hope?); and inflation expectations soared by the most in 17 months.