In a few minutes, Janet Yellen will address a lunch session in her native SF Fed (the same place that last week finally figured out what debt is) during a conference whose topic is The New Normal for Monetary Policy (the typo from "Paranormal" is easy to make). The informal agenda will be Yellen's explanation of how she plans on achieving the yield curve which we predicted back in 2010 is just a matter of time.
If normalisation is the result of economic recovery we will be familiar with the playbook. However, The Fed has to face the possibility that, for whatever reason, highly suppressed interest rates are not working, and an escape from the zero interest rate bound without economic recovery may have to be contemplated. If interest rates cannot rise, then the dollar itself is ultimately exposed to loss of confidence in the foreign exchanges. The dawning realisation that after recent strength, the dollar is vulnerable after all can be expected to be reflected in a positive sentiment towards gold, which once under way could drive the price up dramatically due to the lack of available bullion.
"The contribution of housing to US GDP continues to run at some of the lowest levels since the end of World War II. New construction of single- and multi-family homes, renovations, broker fees and the like still only make up a bit more than 3% of current GDP, well below the post-war average of 4.7%. Not only has the level of lift from housing come in low, but it has bounced out of the last official recession slowly, too," Deutsche Bank says.
"This market is dumber than a mule, and the nation’s central bank and its counterparts around the world have made it so."
When the phantom wealth evaporates and risk assets go bidless, cash will once again be king, for the simple reason there will be so little of it.
It's a day of ‘master of the universe,’ central bank speeches as both Bank of England governor Mark Carney and Fed chief Janet Yellen preach their ultra loose policies and certain market participants lap up the Gospel according to Mark … and Janet ...
So much for the "self-sustaining", "escape-velocity" recovery. Again. After rising at an annualized pace of 4.6% and 5.0% in Q2 and Q3, the final Q4 GDP estimate (a number which will still be revised at least 3-4 times in the coming years), slid more than half to 2.2%, the same as the second estimate from a month ago, and below the consensus Wall Street estimate of 2.4%.
- Google's new CFO to make $70 million (WSJ)
- Senate passes Republican budget with deep safety net cuts (Reuters)
- With Yemen strikes, Saudis show growing independence from U.S. (Reuters)
- Banks Slash Dividends as Loans Sour From Beijing To Pearl River (BBG)
- North American Railroads Caught by Speed of Crude-Oil Collapse (BBG)
- Japan’s Zero Inflation a Setback for Abenomics (WSJ)
- Cooperman Says U.S. Seeks Information About Omega Trades (BBG)
After a few days of dollar weakness due to concerns that the Fed's rate hike intentions have been derailed following some undisputedly ugly economic data (perhaps the Fed should just make it clear there will never be rate hikes during the winter ever again) the USD has resumed its rise, and as a result risk assets, after surging early in the overnight session driven by the Nikkei225 and the Emini, the "strong dollar is bad for risk" trade has re-emerged, with the Nikkei dropping almost 500 points off its intraday highs, with US equity futures poised to open lower once more, sliding nearly 20 points in the overnight session, and surprising the BTFDers who have not seen five consecutive days of "risk-off" in a long time.
“If you’re unhappy with what you’ve had over the last 50 years, you have an unfortunate misappraisal of life... should all be prepared for adjusting to a world that is harder..."
If there is one chart that most clearly captures the unsustainable US home price appreciation bubble, it is the following which was released overnight from RealtyTrac: home price appreciation nationwide has outpaced wage growth by a 13:1 ratio!
With Washington throwing its full faith and credit behind a new Ukrainian bond issue, it appears it’s time for Moscow to play spoiler to current debt restructuring talks between Kiev and its creditors. Russia holds some $3 billion of Ukraine's debt and doesn't think it should have to incur losses as part of any deal because Vladimir Putin is no average joe private creditor.
The political pressure on Germany is rising in Europe. The country faces a choice: Continue business as usual or change the strategy? Only the latter option may give it real influence on shaping the future course of economic and political affairs in Europe. Playing defense is the comfortable choice, but it may be the wrong strategy. What needs to be done? Below is a proposal for saving the Eurozone in a way that would safeguard Germany’s interests, too
Doing what it does best, a month after the fact and long after the black swans have left the stable so to say, Mario Draghi's ECB has finally asked Eurozone banks "to detail their exposure to Austria and provisions they plan to make after the country halted debt repayments by a "bad bank" winding down defunct lender Hypo Alpe Adria," financial sources told Reuters.
- Saudi Arabia, allies launch air strikes in Yemen against Houthi fighters (Reuters)
- Pilot on Crashed Jet Was Locked Out of Cockpit, NY Times Says (BBG)
- Why Bombing This Tiny Oil Producer Is Roiling the Energy Market (BBG)
- U.S.-led coalition, Iraqis pound Islamic State in Tikrit (Reuters)
- Munger Says Prepare for Harder World as Buying Power Slides (BBG),Mocks Greek ‘Idiotic Idea’ You Can Vote Yourself Rich (BBG)
- The Central Banker Who Saved the Russian Economy From the Abyss (BBG)
- Bank of Canada says foreign buyers complicate housing market (Reuters)
- Investors Scoop Up Companies’ Bonds (WSJ)
- Espirito Santo Probe Turns Mariana Mortagua Into Portuguese Star (BBG)