- Bernanke: A Chance To Talk About Fiscal Policy? (Hilsenrath)
- Bernanke seen stopping short of pledge for QE3 (Reuters)
- Fed Policymaker Says QE is ‘Most Potent Weapon’ (FT)
- El-Erian: Bernanke Must not Push QE3 at Jackson Hole (FT)
- Bernanke Scholar Advises Bernanke Fed Chief to Be Bold on Policy (Bloomberg)
- Bailout for Greece Falters Over Demand for Collateral (WSJ)
- Japan’s Kan Resigns as Party Leader (WSJ)
- European shorting ban extended (FT)
While all eyes will be on Bernanke at around 10 am, the first GDP revision will be quite a stressful number too should it come below 1% as many (but not the Wall Street consensus) predict. Elsewhere, millions of East Coasters will be feverishly hitting F5 on weather.com to see how much closer they are with insurance company busting destiny.
After 3 months ago everyone was convinced there was no QE3 imminent ever, all it took for the lemming majority to scramble to the other side of the boat was a 20% drop in stocks. Since then, following a brief stabiliziation in stocks, based precisely on beliefs that Bernanke would once again pull something from this bag of goodies, the lemmingrati once again shifted back, and the majority now pretends it does not expect anything out of Jackson Hole tomorrow, even though it obviously does, as otherwise the market would resume its plunge. UBS earlier conducted a survey among money managers, finding that 50% of the 82 respondents expect Bernanke to limit Jackson Hole remarks only to reviewing the rationale for the Fed to pledge ZIRP until mid 2013. Then there are those who actually told the truth, such as Goldman which, in a note yesterday, says that $1 trillion in QE3 is an absolute minimum if the Fed wants to get GDP higher by at least 0.5%. To wit: "Taken together, our analysis suggests that QE3 is unlikely to be a panacea for growth. Nonetheless, our estimates suggests that $1trn of asset purchases–or an equivalent increase in the duration of the Fed's balance sheet–might increase GDP growth by up to 0.5 percentage point in the first year after any announcement of QE3." And since we are talking the truth here, why not stop pretending you care about GDP - just think of the marginal impact on Wall Street bonuses...
The ridiculous war between Obama and S&P, which escalated last night following disclosure by the NYT that S&P was being investigated for its muni ratings, has just taken another turn for ths surreal after S&P announced that it would most likely downgrade munis as soon as the final US budget is finalized. Granted that could very well mean never. To quote S&P: "In our opinion, the longer-term deficit reduction framework adopted as part of the Budget Control Act of 2011 (BCA) could undermine the already fragile economic recovery and complicate aspects of state and local government fiscal management. Either of these outcomes could potentially weaken our view of certain individual credit profiles of obligors across the sector." The sector being the US munis. And from Bloomberg: "The company, which said earlier this month that states and local governments could remain AAA even after the U.S. cut, said in a report today downgrades could come after reductions in federal funding or changed policy. Ratings changes would come based on “differing levels of reliance on federal funding, and varying management capabilities,” and, after the Budget Control Act of 2011, will be felt “unevenly across the sector,” S&P said. "Experience tells me I would expect there to be some downgrades,” said S&P credit analyst Gabriel Petek in a telephone interview. “These cuts are coming in addition to the losses of revenue that already came during the recession."" Bottom line: the longer this downgrade over up to 7000 issues is deferred, and it is very much overdue right now, the bigger it will be when it finally arrives, and the greater the gloating by Meredith Whitney will be when it finally arrives.
- Fed Dissenters Say Pledge Gives Appearance of Targeting Stocks (Bloomberg)
- U.S. Inquiry Eyes S.&P. Ratings of Mortgages (NYT)
- 6 dead in string of attacks in southern Israel (CNN)
- ECB’s Nowotny Says Italy Not Greece, Too Early for Euro Bonds (Bloomberg)
- France, Germany Push for Sanctions (WSJ)
- Breaking Europe’s cycle of enfeeblement (FT)
- Biden tells China's Xi that cooperation key for global stability (Reuters)
- Hong Kong Exchange in Venture Talks With Shanghai, Shenzhen (Bloomberg)
Both Consumer Confidence And The Labor Participation Rate Are At A 30 Year Low ... That's Not A CoincidenceSubmitted by George Washington on 08/12/2011 17:31 -0500
But the administration - despite its rhetoric - is doing nothing to decrease unemployment, and is solely helping the super-rich at the expense of everyone else ...
Markets are currently rallying in reaction to the short-sale bans enacted in Europe. Time will tell if these bans ultimately prove effective seeing as how when the US banned the short-selling of financials in 2008, they proceed to collapse over the next few months. Investors are usually correct in estimating that a trading ban is nothing more than formal confirmation that there is indeed a problem. With banks borrowing more from the ECB in recent days and less from each other, we have yet another sign that European banks are getting nervous of each other’s risk. But at least for today, equities are solidly in the green.
Relevant news (better late than...)
Volatility continued across European equities in early trade supported by a short-selling ban imposed by countries including France, Italy, Spain and Belgium. However, prices came under pressure following news that Chancellor Merkel may not be able to keep her promise of getting changes to the EFSF before end-September, together with lower than expected GDP data from France. As the session progressed, appetite for risk emerged as the dominant theme as equities moved higher, led by financials, whereas the Eurozone 10-year government bond yield spreads tightened across the board, with aggressive narrowing witnessed in the French/German spread. This was supported by market talk of the ECB buying in the Italian and Spanish government debts, with the 10-year yield in Italy falling below 5% and France below the 3% level. Elsewhere, CHF weakened across the board partly on the back of market talk that the SNB was conducting currency swap operations via small Swiss corporate banks. Also, a weakening USD-Index supported EUR/USD and GBP/USD, whereas the latter received further boost following an upward revision to the UK's construction output data, which is said to add 0.1% to country's Q2 GDP. The release of Project Merlin data showing an enhanced lending by UK banks in Q2 as compared to Q1 helped the GBP currency further. Moving into the North American open, markets look ahead to key economic data from the US in the form of retail sales, business inventories, and University of Michigan confidence report. Fed's Dudley and President Obama are also scheduled to speak later in the session.
Today's economic docket includes retail sales and consumer sentiment and business inventories. Bill Dudley makes more remarks on iPad edibility although he may provide some critical insight as to what we may expect two weeks from now at Jackson Hole.
Those looking for an optimistic early look of this Friday's NFP (nobody cares about the ADP any longer) should probably avoid the Challenger lay off data just released. As Bloomberg summarizes, U.S. planned firings up 59% Y/y in July to 66,414, led by pharma, retail; largest number in 16 months. The number includes Merck’s plan to cut ~13k jobs. This 3rd consecutive increase; “seems to provide additional evidence” recovery has stalled, according to CEO John A. Challenger. New Jersey (where MRK is based) led states, with 13,330 cuts, followed by Michigan. Employers also announced plans to hire 10,706 after prior month’s 15,498: this is just barely better than the lowest number this year printed in May when just 10,248 businesses announced intention to hire, and well off the 72,581 highs in February. Bottom line: subzero NFP print coming?
Several important releases today, including the advance report for Q2 GDP, which consensus sees at 1.8% and Goldman is materially lower at 1.5%. A QE Lite POMO closes at 11:00 am. Chicago PMI and UMich consumer confidence round out the data, which will again be vastly inferior in market movery to headlines out of Europe and the US.
As we enter the overnight futures market open, there is still no resolution on the ongoing debt ceiling open question. Which is why we present SocGen's handy summary of the three scenarios that are currently in the running for a consensual resolution, together with the possible market reactions to each. The three plans are the McConnell-Reid plan, which as per latest news is in the frontrunning currently, not least (and probably only) due to the immediate beneficial impact it would have on stocks. The 2nd plan is a large deficit reduction plan, whose primary impact would be a significant drag on GDP. Stocks, and bonds, are likely to both rally on the news of this plan, at least in the short-term until the market realizes that some economic growth is actually necessary for the hopium illusion to continue. Lastly, the worst case outcome is no increase in the debt limit, which, logically, would mean that every illusion collapses and the emperor is finally exposed to be naked.
Economics Professor: "[We’ll Have] a Never-Ending Depression Unless We Repudiate the Debt, Which Never Should Have Been Extended In The First Place"Submitted by George Washington on 07/20/2011 11:01 -0500
There's regular debt honestly incurred - which people shouldn't be deadbeats on. We should be responsible and repay our debts! Tut then there's "odious" debt ... a different animal altogether
You don't need a degree in macro economics to understand an economy. Just because an economy is complex, the analysis need not be. I've been studying the change in GDP from Q4 2010 to Q1 2011 to get a sense of where the economy is regarding contraction or expansion. I have a sense the economy stands today where it stood in December 2007 the very month the great recession began. I've shared various technical charts showing striking similarities with the 10 year treasury market and equity markets comparing the price action between May 2011 to present and October 2007 through December. The big component though was the macro picture. You could easily argue it is far closer to recession now than it was in 2007 when Q4 07 GDP was 2.9% only to print (.72)% the very next quarter. With Q1 2011 GDP at 1.9% the margin for error is far less than in 07. But that is not enough to base an investment decision upon.