One chart as usual does more to convey a simple message than all the Fed speeches equating the economy with the Russell 2000 ever could. Below we demonstrate the performance of three key market data points since the August Woods Hole speech: the performance of the S&P (via the ES), the price change in the 10 Year bond (TY1 inverse scale), and of course the change in non-farm payrolls (remember that old-school Fed mandate about full employment something something). Bottom line: the S&P is up over 30%, the 10 Year has plunged from over 126 to 118, while NFPs have added 392k, or 78.4 per month, nowhere near enough to even keep up with the natural growth of the labor force. So has QE been a success? We leave it up to you.
According to some analysts, the "recovering" U.S. economy is poised to enter a phase of explosive growth. Other analysts see evidence that the bogus "recovery" (all Fed stimulus "hat" and no organic growth "cattle") is teetering on the edge of implosion from any number of causes: high inflation, declining home values, high oil prices, etc. My view? Whatever. The real economy is so detached from the one presented by official data and the stock market that "growth", explosive or modest, is a matter of managed perception, not reality. As for the implosion, Central State intervention and massive spending/credit creation has already limited it to a decline heavily smoothed by extended unemployment, food stamps, zero interest rates, Federal Reserve purchases of Treasuries and mortgage instruments, and massive Federal spending on everything from fighter jets to Medicare. The relentlessly managed perception is that the "spot of bother" circa 2008-09 is history, and the situation has been restored to normalcy, i.e. a rising stock market, super-low interest rates and unlimited Central State borrowing...Put very simply: the U.S. economy is now totally dependent on unlimited expansion of debt and credit creation by the Central State and its proxies. Withdraw those and the gap between the managed-perception economy (the propaganda facade) and the real economy vanishes: reality trumps perception.
Over the past 3 days America has been battered by one after another apologist explaining just how good the employment data is if one strips out all the "bad", and how all the "bad" can and should be stripped out by all patriots, and attributed solely to bad weather. For those who are beyond sick and tired of listening to this tripe, here is David Rosenberg once again telling it how it is. In summary: "The data from the Household survey are truly insane. The labour force has plunged an epic 764k in the past two months. The level of unemployment has collapsed 1.2 million, which has never happened before. People not counted in the labour force soared 753k in the past two months. These numbers are simply off the charts and likely reflect the throngs of unemployed people starting to lose their extended benefits and no longer continuing their job search (for the two-thirds of them not finding a new job). These folks either go on welfare or they rely on their spouse or other family members or friends for support."
The concept of a foreign tax repatriation holiday is nothing new to Zero Hedge, and has been discussed extensively before (here and here). There are those who believe that this "holiday", should it be allowed by Congress, will have a far greater stimulus on the economy than the ongoing "QE to infinity" rolling fiat destruction, which does nothing for real asset values and merely revalues prices in nominal terms. Today we present the thoughts of Citi's FX strategist Steven Englander on the topic of a second "Homeland Investment Act" which soon enough may be the last trump card to jump start a once again sputtering "recovery" despite the ongoing impact of QE2 and the unwind of the SFP program. And just like Goldman 10 days ago, Citi is the second major bank to reach the conclusion that louder whispers of a HIA2 will be broadly dollar positive (something to keep in mind considering net USD spec non-commercial bets are at multi-year bearish positions), with the following key differences from HIA1: "1) Be more front-loaded; 2 ) Result in much higher volumes; 3)… And maybe a higher USD component; 4) But will result in more selling flows from reserve managers into the buying by the private sector."
The man who once actually had some credibility, and has over the past two years become, very deservedly so, the biggest one-sided propaganda joke on Wall Street, Joe "Snow" LaVorgna, is out with yet another career reputation killer note. In his commentary on the BLS, the Deutsche Bank cheerleader dares to go where not even the Comcast-GE schizos fear to tread, namely in the most ridiculed never never land of Green Shoots. Because heaven forbid seasonal adjustments take account for snowfall in the deep of winter. Have no fear it is all good, and just like that other administration rag Mark Zandi, it is all back end loaded, and as a result we will see a 250k pick up in February payroll, February showers excluded... and in fact, should the weather dramatically vary by more than +/-0.01 degree from the median temperature, all bets are off. They don't call it the priced to perfection, Tungstenilock recovery for nothing. But here is the killer: while saying don't believe the bad news from the NFP report, the curly haired, CNBC sideshow Jow says: "However, the sizeable and unexpected drop in the unemployment rate was legitimate." In other words - let's pick and choose the data points he likes from any economic report going forward, blame the bad ones on ridiculous things, and pray that people are so dumb to not see the utter contempt for their intellgience that infuses the entire "analytic" process.
There are two reasons why I think the Fed will be loathe to remove QE. The first is the huge benefit (from the government’s perspective) of creating an inflation problem for China which will eventually force the Chinese to strengthen the Yuan. Congress has been pressing for harsher measures to force the Chinese to strengthen the Yuan (link here) for years and QE2 is turning out to be exactly the kind of pressure that just might work. I’ve long argued that this is a case of be careful what you wish for because the second the Chinese allow the Yuan to strengthen materially, the prices for everything that we buy from China (which is basically every single item on Walmart’s shelves) will rise an attendant amount. The other reason why QE is going to be with us for a long time is the ongoing need to support the massive size of monthly Treasury issuance. With the US expected to run a $1tr - $1.5tr deficit this year and another $2.5tr in maturing bonds to roll, there is very little chance that the US could continue to issue bonds at the current low rates without huge support from Mr. Bernanke’s POMO operations. Our total new borrowing and refunding needs will be greater than $300bn per month which is simply astronomical. Even bond investing legend Bill Gross is calling the US Treasury a ponzi scheme. If Bill Gross isn’t buying Treasuries who is?
"There is no doubt that the weather exerted a major impact — wouldn’t the consensus have realized that ahead of time? It’s not new news that January was a terrible weather month and that the data would be impacted. Then again, yesterday all we heard on CNBC was how the chain store sales data were unaffected by the inclement weather, but somehow the labour market was! Go figure. Maybe instead of looking for work, people were choosing to stay warm in the malls and spend their extended unemployment insurance cheques and newly received payroll tax deductions. What an economy!" - David Rosenberg
What are the chances of another banking crisis, this time emanating from Europe? Let me count the ways, but not using Goldman's math of course.
Morning Gold Fixing: Bernanke: “Catastrophic” Implications for U.S. Economy If $14.3 Trillion Debt Ceiling Not RaisedSubmitted by Tyler Durden on 02/04/2011 07:59 -0500
Gold and silver have given up a small bit of yesterday’s strong gains in all currencies (especially the euro – see chart below) but are up more than 1% and 3% respectively on the week. Asian equity indices were higher overnight and are higher for the week, except for India where there are growing concerns about surging inflation and interest rates. European indices are higher today and most are up by some 1.5% to 2% on the week – as are US indices...Gold’s price surge yesterday was likely a combination of short covering, the very bullish demand figures out of China, accommodative monetary policy sounds from Trichet and Bernanke. The geopolitical situation in Egypt and the Middle East likely also led to buying.
Goldman's Andrew Tilton dissects today's NFP number, explaining why if it is weaker than expected (+146k) it is due to snow, and why if it stronger than expected, it is entirely due to the "economic recovery" (and not Bernanke's hyperinflationary mandate). Bottom line: win-win, while North African (and soon Middle East) regimes: lose-lose.
Every now and then, Standard Chartered has a knack for coming up with that one report that is miles ahead of the competition and promptly becomes the definitive guidebook for the industry. Its most recent one: "Inflation: illusionary, inflammatory" is arguably one of the most detailed and comprehensive reports to come out from an institutional entity in a long time, dealing with the ever so sensitive topic of, you guessed it, inflation. And while it is guaranteed that the Fed will read neither this report, nor today's earlier announcement that food prices hit another all time high in January, we urge all readers to at least familiarize themselves with the contents herein. In addition to providing a case by case geographic atlas of which the next riskiest Tunisia-like countries are, the report includes a unifying thematic overview that explains not only why the global liquidity glut is long overdue to be pulled back, but what the next (and last) steps available to central bankers are before a wave of global unrest undoes 100 years of failed Federal Reserve policies. An absolute must read.
Five years ago, when I showed up on the doorstep of Nouriel Roubini’s RGE Monitor, I was in the minority of macro economists who saw a financial tidal wave coming. For the rest of the world, including Wall Street’s financial analysts, Fed bankers, Politicians, or even Moses himself, none of them could see how the contagion from subprime loans could cascade into a systemic crisis. A crisis that would then expose larger problems that would eventually lead to a complete financial meltdown. Similar to the subprime loans and the subsequent credit crisis, we face a new tsunami of what on the surface appears to be of minor financial relevance, but what will be the final straw that breaks the camel’s back if not politically achieved. What it is is ownership and accountability, from a political standpoint, for ALL of the politically fueled economic decisions being made as well as their side effects. For investors, it would be a catastrophic misjudgment to not escalate these macro political views into the analysis of economic work. (This is starkly different then a political debate, but rather a true non-partisan skyview of policies and rhetoric and their overall effects on the psyche of the economy.) For a financial system that is running on the fumes of confidence, we need to properly analyze this new dynamic.
Housing Armageddon: 12 Facts Which Show That We Are In The Midst Of The Worst Housing Collapse In U.S. HistorySubmitted by ilene on 02/03/2011 17:03 -0500
We are officially in the middle of the worst housing collapse in U.S. history - and unfortunately it is going to get even worse.
The lies come hot and heavy:
- Initial claims for unemployment insurance have generally been trending
down, and indicators of job openings and firms' hiring plans have
- QE 'Effective at easing financial conditions'
- Recovery likely to be 'more rapid' in 2011 than 2010
- 'Overall inflation remains quite low'
- Recovery in consumer, business spending may be solid
- Economy seems to have strengthened in recent months
But here's the only one that matters:
- Unemployment, inflation likely to defy Fed mandate
Which mandate is that Genocide Ben: would that be the mandate to kill off half the world with your revolutionary policies before the Russell hits 36,000?
That's right folks - MORE FREE MONEY! This is just what Egypt needs, I guess. Europe too