Rate of Change
“...parts of the U.S. jobs report for January seem fishy...”
What’s a Keynesian monetary quack to do when the economy and markets fail to remain “on message” within a few weeks of grandiose declarations that this time, printing truckloads of money has somehow “worked”, in defiance of centuries of experience, and in blatant violation of sound theory? In the weeks since the largely meaningless December rate hike, numerous armchair central planners, many of whom seem to be pining for even more monetary insanity than the actual planners, have begun to berate the Fed for inadvertently summoning that great bugaboo of modern-day money cranks, the “ghost of 1937”.
We may not yet have final confirmation that a recession is imminent, but so far nothing suggests that the danger has receded.
While the President will do his best to put a positive spin on the current economic environment, and the success of his policies, when he gives his “State of the Union” address, it would be worth remembering whom he is actually addressing. It is also worth considering that much of this is likely the reason that Donald Trump is surging in Conservative polling. As with all things – it is the lens from which you view the world that defines what you see. For Wall Street, things could not be better. For Main Street, most everything could be better. The President has a lot of “convincing” to do if he expects to change voter’s attitudes between now and the 2016 Presidential election.
The risk of a fracture in risk markets when lower liquidity meets forced selling, is high in our view. Should this weakening of spread sectors in fixed income continue, we will see a further rally in Treasuries – back in Aug/ Sep, 10y USTs broke below 2%, and there is no reason we can’t get there later this month.
Today, we bring our readers another RealVision excerpt of a reflexive "interview" in which Pal himself is in the hot seat, and goes into detail explaining the indicators he will be watching throughout 2016 that will suggest that a liquidity crisis is imminent.
All we can do is point out the risks, so that people can at least prepare on an individual level. A major lesson everybody should take to heart from the Cyprus experience is this: when the next crisis strikes, do not believe any of the promises uttered by government or central bank officials. You will be lied to in the critical moments, and you could stand to lose a lot if you believe the lies.
Wishful thinking is not a solution. The world of work has changed, and the rate of change is increasing. Despite the hopes of those who want to turn back the clock to the golden era of high-paying, low-skilled manufacturing jobs and an abundance of secure service-sector white collar jobs, history doesn't have a reverse gear.
It is widely assumed that the gold price must decline when the Federal Reserve is hiking interest rates. It seems logical enough: gold has no yield, so if competing investment assets such as bonds or savings deposits do offer a yield, gold will presumably be exchanged for those. There is only a slight problem with this idea. The simple assumption “Fed rate hikes equal a falling gold price” is not supported by even a shred of empirical evidence.
Since 1929, there have been only eight such instances, and each one was followed by bear market losses of 30% or more...
While much of the financial media and Wall Street analysts continue to ignore the risks of a recession, there are some important warning signs that suggest this might be a bad idea. As Charles Gave noted earlier, "We are swimming in an ocean of ignorance... It seems all the painful economics lessons learned over the last 300 years have been forgotten"
Update: PSPP extended to March 2017 "or beyond", regional debt added to QE-eligible asset pool
Having just let everyone down with a less-than-spectacular 10 bps depo rate cut, Mario Draghi will now try to appease a spoiled market by announcing an expansion and/or an extension of PSPP.
While it is hoped that the economy can continue to expand on the back of the "service" sector alone, history suggests that "manufacturing" continues to play a much more important dynamic that it is given credit for.
The cries for going totally crazy are growing louder... the lunatics are running the asylum. One shouldn’t underestimate what they are capable of. The only consolation is that the day will come when the monetary cranks will be discredited again (for the umpteenth time). Thereafter it will presumably take a few decades before these ideas will rear their head again (like an especially sturdy weed, the idea that inflationism can promote prosperity seems nigh ineradicable in the long term – it always rises from the ashes again). The bad news is that many of us will probably still be around when the bill for these idiocies will be presented.