"Why after several decades of 0% rates has the Japanese economy failed to respond? Why has the U.S. only averaged 2% real growth since the end of the Great Recession? “How’s it workin’ for ya?” – would be a curt, logical summary of the impotency of low interest rates to generate acceptable economic growth worldwide. "
While the biggest news of the night had nothing to do with either oil or China, all that mattered to US equity futures trading also was oil and China, and since WTI managed to rebound modestly from their biggest 2-day drop in years, rising back over $30, and with China falling only 0.4% overnight after the National Team made a rare, for 2016, appearance and pushed stocks to close at the day's high, US E-minis were able to rebound from overnight lows in the mid-1880s, and levitate above 1900. Whether they sustain this level remains to be seen.
When asked that question last year at the New Orleans Investment Conference Greenspan had two words for the interviewer.
Yield “fatigue” may be overtaking yield “euphoria”. The further central banks go down the rabbit hole of unique monetary policy, the greater the fear factor of how normality will eventually be restored. And asBofAML's Michael Hartnett highlights, the risk of “quantitative failure” in markets grows.
To an economist, the economy can bear no recession. In times of heavy central bank activity, an economy can never be in recession. Those appear to be the only dynamic factors that drive economic interpretation in the mainstream. And they become circular in the trap of just these kinds of circumstances – the economy looks like it might fall into recession, therefore a central bank acts, meaning the economy will avoid recession; thus there will never be recession. The risks are all still there, and economists are still determined to downplay if not miss them entirely.
It certainly does feel like groundhog day today because while last week's near record oil surge is long forgotten, and one can debate the impact the result of last night's Iowa primary which saw Trump disappoint to an ascendant Ted Cruz while Hillary and Bernie were practically tied, one thing is certain: today's continued decline in crude, which has seen Brent and WTI both tumble by over 3% has once again pushed global stocks and US equity futures lower, offsetting the euphoria from last night's earnings beat by Google which made Alphabet the largest company in the world by market cap.
Ten years ago this week, Alan Greenspan left his post as head of the US Federal Reserve, facing disgrace among hard money advocates, which largely persists to this day. However gold investors can learn an important lesson from how little influence Greenspan, one of the gold standard’s most eloquent backers, had during his 18-year tenure.
There will be two key themes for investors seeking to shake off the abysmal "as goes January" blues: buybacks, which are set to return in February, and central banks, which are poised to do absolutely nothing to calm investor nerves in the next 4 weeks.
When Draghi speaks (or releases his statement), the algos obey.. and sell EURUSD. No new news at all - just a repeat of the same statements that "QE is deemed effective' (by whom we ask), and a recalibration is in order (as the situation has changed since December). His biggest problem from what we can tell is the fact that the banking industry's collapse augurs very badly for industrial production and an economic recession across Europe.
Haruhiko Kuroda admitted QE cannot generate GDP growth. Even more astounding, his actions are supporting his words.
After last week's relatively quiet, on macro data if not central bank news, week the newsflow picks up with the usual global PMI survey to start, and end the week with the US January payrolls report.
- Stocks cautious after rocky China data, bonds fly high (Reuters)
- Oil falls on China data, fading prospect of OPEC action (Reuters)
- Republican Vote in Iowa Caucus Hinges on Newcomer Turnout (WSJ)
- When Trump tells supporters not to donate, they mostly listen (Reuters)
- Goldman Sachs Employees Shift to Rubio as Bush Support Fades (BBG)
- Four Theories on How Oil Has Hypnotized the Global Stock Market (BBG)
It didn't take much to fizzle Friday's Japan NIRP-driven euphoria, when first ugly Chinese manufacturing (and service) PMI data reminded the world just what the bull in the China shop is leading to a 1.8% Shanghai drop on the first day of February. Then it was about oil once more when Goldman itself said not to expect any crude production cuts in the near future. Finally throw in some very cautious words by the sellside what Japan's act of NIRP desperation means, and it becomes clear why stocks on both sides of the pond are down, why crude is not far behind, and why gold continues to rise.
"Cash had a pretty good run for 4,000 years or so. These days, though, notes and coins increasingly seem declasse: They're dirty and dangerous, unwieldy and expensive, antiquated and so very analog.... Much depends on the details, of course. But this is a welcome trend. In theory, digital legal tender could combine the inventiveness of private virtual currencies with the stability of a government mint."
Ten years ago, all this would have been written off as the stuff of an insane mind or conspiracist. Now, it is just normal and economists would have you think it the only option. At what point do we accede back to logic and rational thought?