In a speech which on the surface is meant to convey the skepticism of the Charles Plosser over QE2, the Philadelphia Fed president admits that much more QE may ultimately be needed. "If the economy grows more quickly than I currently anticipate, the purchase program will need to be reconsidered and perhaps curtailed before the full $600 billion in purchases is completed. On the other hand, if serious risks of deflation or deflationary expectations emerge, then we would need to consider whether expanded asset purchases should be used to address these risks." And much more deflation will eventually emerge especially for large scale purchases which rely on credit procurement (coupled with increasing inflation in commodities which are first degree liquidity derivatives): after all, the collapse in the shadow banking system, and the M3, are all the matter, and the Fed has no control over these (now that European greater fool securitized investors are extinct). It is precisely the Fed's QE3 response that should start being factored in. As everything else is noise, we will immediately present the latest meltdown in the shadow economy when the quarterly update is posted at noon on December 9.
Following yesterday's completely non-arbitrary release by Jan Hatzius of his about face economic upgrade at precisely 4 minutes ahead of the Fed data dump, Goldman has released the first 5 trades of its top 2011 trades. Hopefully these trades will perform far better than the basket of 2010 trades which left Goldman clients flat at best (especially the FX component which was a total disaster and which Thomas Stolper apologized for yesterday). On the basis of its suddenly rosy outlook for the economy (as always, Goldman by definition is buying whetever a client is selling and vice verse) here are the first five trades that Goldman believes will be the best money makets for the next year.
1. Short $/CNY via 2yr NDFs, currently at about 6.4060, target of 5.9, expected potential return 6%
2. Long US large-cap Commercial Banks (BKX), at 44.76, target of 57, expected potential return +25%
3. Long US High Yield (Selling protection on the CDX HY index), at a current spread of 528, target of 450, expected potential return of 8%-9%
4. Long Nikkei 225 (NKY), at 9,988, target 12,000, expected potential return +20%
5. Long a Basket of Crude, Copper, Cotton/Soybeans and Platinum (‘CCCP’), indexed at 100, expected potential return 28%
A victory lap for the Armageddon crowd. The hard core faithful who suffered a 20-year bear market in hard assets are now wearing better tailored suits.
Goldman Jumps Shark, "Fundamentally" Shifts Its "Bearish" Outlook On Economy: Goes Bullish, Hikes OutlookSubmitted by Tyler Durden on 12/01/2010 13:23 -0400
Here comes the kitchen sink: just in case there was a chance the Fed's historic disclosure had a chance of pushing the market lower, almost to the dot at noon Goldman has completely sold out and has released a surprising (in its own words) report, changing its outlook on the US economy from bearish to bullish. Goldman's take on the dramatic nature of its perception shift: "This outlook represents a fundamental shift in the thinking that has
governed our forecast for at least the last five years... Five years ago, we became very pessimistic about the US economic
outlook. This was because we expected downturns in the housing and
mortgage markets to trigger a substantial increase in the private sector
financial balance—the gap between the total income and total spending
of US households and businesses. In turn, we thought this weakening in
private-sector demand would cause an economic slowdown as the government
and foreign sectors failed to take up the slack. So why do we now expect growth to pick up? In a nutshell, it is because
underlying demand has strengthened significantly, as shown in Exhibit
3. This chart plots the growth rate of real GDP (dark line) alongside
the growth rate of underlying demand (light line). After a deep
downturn from 2007 to mid-2009 and near-stagnation from mid-2009 to
mid-2010, underlying demand is now accelerating sharply. Currently, it
is on track for a 5% (annualized) growth rate in the fourth quarter." Much more hopium inside. This is unfortunate. Jan Hatzius used to have credibility.
The Irish government is doing its citizens a disservice by accepting a bail-out. The “National Recovery Plan 2011-2014? intends to save EUR 15bn (“front-loaded” 6-5-4bn for the years 2011-13) by cutting expenses (10bn) and raising taxes (5bn) in order to reduce the budget deficit to less than 3% by 2014. The budget plan sees GDP increasing by 1.75%, 3.25%, 3% and 2.75% in the years 2011-14. Can anybody explain to me how an economy, which was shrinking by 11% (GNP) last year, that will be saddled with austerity (demand-reducing) measures of another 10% of GNP is supposed to grow? Not only have government tax revenues declined by 33% since 2007 but also will increased interest burden (because of the bail-out loans) eat up 20% of revenues by 2014 (up from 8% in 2009).
The sanity of the authors of this “recovery plan” has to be questioned.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. … the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
Frederic Bastiat (1801-1850)
After a nice Thanksgiving spectacle of turkey, pumpkin pie, relatives, cool days of bright California sunshine, and college football, it's time to turn back to the serious business of the economy. Here is a review of the latest data. This is stuff you should know.
The increasingly fragile American Empire has been built on a foundation of lies. Lies we tell ourselves and Big lies spread by our government. The shit is so deep you can stir it with a stick. As we enter another holiday season the mainstream corporate mass media will relegate you to the status of consumer. This is a disgusting term that dehumanizes all Americans. You are nothing but a blot to corporations and advertisers selling you electronic doohickeys that they convince you that you must have. Propaganda about consumer spending being essential to an economic recovery is spewed from 52 inch HDTVs across the land, 24 hours per day, by CNBC, Fox, CBS and the other corporate owned media that generate billions in profits from selling advertising to corporations schilling material goods to thoughtless American consumers.
The upcoming week will be dominated by the same key themes as last week. News on the European sovereign debt crisis, China tightening, the Korean conflict and macro data will remain in the limelight. However, with key US releases including Chigaco PMI, ISM and payrolls data watching may become relatively more important in the coming week. Then again, there is always the trust old FRBNY, which kicks off the reflation trade with not one but two POMOs tomorrow: altogether $39 billion in monetizations coming up in the next week.
"The federal government is subsidising state and local debt servicing costs with their BAB program. The Fed is subsidising the federal government’s debt servicing costs with “security purchases” (aka QE2). While the US political and financial establishment is desperately trying to distract Americans with as many overseas “crises” as they can contribute to, the fiscal situation in the US careens towards the cliff." William Buckler, with his Privateer report, once again establishes that in the pantheon of newsletters, he and Kiril Sokoloff are untouchable at the very top. In his latest piece, Buckler deconstructs geopolitics, finance, economics and explains the plutocrats' behavioral modeling in a way fre else seem capable of doing. For anyone confused what all the recent events out of Korea, China, Europe, and the US mean, read the following.
The dominoes are starting to fall ...
Next year, IMHO, we are going to see a further sharp decline in residential home prices as the tide of foreclosures begun in the past year starts to clear the courts and move to market via involuntary sales. The same thing is happening in Spain, by coincidence.
Guest Post: Please, Santa, Let This Be the Last Christmas in America (That's Supposed To "Save" The U.S. Economy)Submitted by Tyler Durden on 11/23/2010 16:20 -0400
My Christmas wish to Santa: please let this be the last Christmas in America that is dominated by the propaganda that holiday retail sales have any more impact on the $14.7 trillion U.S. economy than a moldy, half-eaten fruitcake left over from 2007.
If you think the World's Most Complicated Securitization Chart was complicated, get a load of this baby!