- European equities traded higher supported by news of a coordinated action by various central banks to enhance USD liquidity in order to ease funding concerns surrounding European banks
- EU’s Juncker said that the Eurogroup discussed collateral issue, and collateral will be given for Greek loans at an appropriate price
- EU's Rehn said France, Italy, Belgium and Spain have all ratified more flexible EFSF, adding that the first step in Eurobonds is a feasibility study which the Commission will present this autumn
- Moody’s and S&P placed UBS ratings on review for a potential downgrade
Data trumps rumors and QE3 or whatever stimulus we get trumps everything else...
Good af'ernoon, as enny fool kin plainly see. ah's delighted t'be in th' Twin Cities an''d like t'thank th' Economic Club of Minnesota fo' invitin' me t'kick off its 2011-2012 speaker series.
The embargo has been lifted and here are the headlines, which are eeriely reminiscent of the Jackson Hole speech, courtesy of Bloomberg:
- BERNANKE: POLICY MAKERS SHOULDN'T DISREGARD ECONOMY'S FRAGILITY
- BERNANKE SAYS FED HAS `A RANGE OF TOOLS' FOR MORE STIMULUS
- BERNANKE SAYS SUBSTANTIAL FISCAL TIGHTENING COULD HURT RECOVERY
- BERNANKE SAYS FED PREPARED TO USE TOOLS `AS APPROPRIATE'
- BERNANKE SAYS INFLATION `EXPECTED TO MODERATE' IN COMING Q'S
- BERNANKE SAYS FED SEES `GREATER DOWNSIDE RISKS' TO OUTLOOK
- BERNANKE: POLICY MAKERS SHOULDN'T DISREGARD ECONOMY'S FRAGILITY
- BERNANKE: U.S. FINANCES COULD `SPIRAL OUT OF CONTROL'
We end this busy day of economic buffoonery with Goldman's scorecard for August ("the US economy has not fallen off a cliff", which we translate as a B+, and "far better than expected"), which in turn explains why Goldman, and everyone else, now assumes QE3 (yes, Op Twist is QE3; get over it) is not only a given, but why in Goldman's esteemed opinion, the Fed has at least 3 rationales for pushing for more QEasing. Incidentally, these are as follows: "First, unemployment is far above the Fed’s long-term forecast in the low 5% range; the longer high unemployment persists, the greater the risk that an erosion of skills and labor force attachment will result in permanent supply-side damage. Second, economic growth has been woeful this year and there is no convincing sign of the second-half pickup in growth that the majority of Fed officials seem to expect. The payroll report in particular will weigh heavily in the minds of many Federal Open Market Committee members. Third, there is limited prospect for near-term fiscal stimulus from a gridlocked Washington." The only thing Goldman is avoiding, of course, is the wipe out in stocks that will make QE3 a virtual certainty, as we have been predicting ever since March. Goldman is also avoiding to mention that the only outcome of more QE will be another record year of Wall Street bonuses, all at the expense of more joblessness, higher gas prices, a 120% debt/GDP ratio, and overall sovereign insolvency. Oh well - in the meantime we continue, as we have for the past 2.5 years, to buy gold... or spam for the Econ PhDs out there.
Every now and then it is easy to forget that the one or two "better than expected" data points blasted by flashing headlines do nothing that merely mask what is an otherwise quite deplorable and deteriorating reality. For the disconnect between America and the rest of the world look no further than this chart showing the dramatic divergence between the DJIA, which has just gone positive for the year, and every other major global stock market. Yet for those who require a narrative to go with their numbers, here is The Economic Collapse with the latest of their traditionally comprehensive bulletins, this time summarizing the "25 signs that the financial world is about to hit the big red panic button."
During the last FOMC meeting, we learned that the number of dissenting hawks at the Fed has increased to a whopping 3. Well, make that 2 after Minneapolis Fed's Kocherlakota just basically stuck his tail between his legs. To wit: "the disinflationary pressures of 2010 should soon reappear in the form of a sharp decline in current and expected core PCE inflation rates. In that eventuality, increasing policy accommodation might well be appropriate." One dissenter down, two to go. This also means that as we have been saying forever, all that would take for QE3 is another "deflationary" market flush: not a low-volume algo driven levitation, not a sideways move, a plunge. And when that happens, the Fed will do QE3. The rest is just posturing.
Quiet day with FOMC minutes due out in the afternoon, Case Shiller confirming more worsening in housing, and Conference Board consumer confidence plunging in August. European headlines may once again reappear.
The consumer driven recession has begun. Keeping it very simple of the four GDP components (consumer, fixed investment, government and net trade) the consumer has simply rolled over. In Q1 2011 the consumer contributed 1.46% to the 0.4% total GDP. In other words if it was not for consumer growth or even if .5% of that growth was removed the economy contracted in Q1 2011. Fast forward to Q2 where the consumer component is now 0.3%. In other words the trend of the consumer is deteriorating. Representing roughly 70% of total GDP the consumer is the economy. Confidence drives the consumer, the consumer drives demand and demand drives the economy. Well judging by the epic fall in University Of Michigan Sentiment, now at multi year lows the economy is in serious trouble. To get a sense of the economic reality facing the US look at the historic correlation between sentiment and real GDP.
Word Cloud Of Trichet's Disappointing Jackson Hole Speech: "Inflation" Mentions: 10; "Deflation" And "Gold": ZeroSubmitted by Tyler Durden on 08/27/2011 15:07 -0400
- Markets focus on Fed Bernanke’s Jackson Hole speech in anticipation of getting a glimpse into the Fed’s monetary policy stance going forward
- S&P sovereign ratings head, David Beers, said that the AAA rating for the US is not likely in the near term, and S&P is looking very carefully at France’s evolving fiscal strategy
- Speculation that the German Chancellor Merkel may be ousted as early as September weighed on the DAX future
- RBA’s chief Stevens said that the central bank may act to lessen the upward pressure on inflation, which helped AUD
- CHF weakened on the back of market talk that the SNB may announce further measures to curb the currency's strength
- 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...