America is now exactly 5 months away from the day the US Fiscal cliff will crater the economy unless a Congress which has never been as partisan as it is currently agrees to collaborate and delay the day of reckoning. This is very unlikely to happen before the presidential elections for obvious reasons, and it is even more unlikely to happen after the elections when politicians demonstrate just why the term "graceful loser" has never existed when describing what happens in D.C. So what would happen to the US economy if and when January 1, 2013 rolls in and nothing has changed, and how does this differ from the consensus? The chart below from BofA answers that particular question, and brings up a new one: even if the Fed goes ahead with more NEW QE today or in September, if the "cliff" consensus really is as wrong as it very well may be, will the Fed have no choice but to follow up its easing at this FOMC meeting or the next with another one immediately following? And is this precisely the one consideration for Ben Bernanke, who realizes very well that if financial conditions, read the Russell 2000, are relaxed just in time for the crucial decision on Bush Tax Cut extension, then absolutely nothing will happen, forcing the Fed to continue being the sole source of "stimulus" in America. Of course, in that case expect nothing from the Fed not only in in August and September, but well into 2013.
Over a year ago we penned "QE 2 Was A Disaster: Here Is Why US Fiscal "Stimulus" Was A Complete Failure As Well", because, well, QE2 was a disaster, which is important to remember as we are about to set off on the NEW QE as per Hilsenrath, because apparently creating 80,000 jobs per month (with the S&P a whopping 5% off multi-year highs) "Leaves Door For Fed Wide Open" even though the Fed has shown beyond a shadow of a doubt it is incapable of creating jobs and at best can ramp the Russell 2000 for a few months. But more importantly, a year later it is obvious that the ARRA just kept on being wronger and wronger with each passing month, until we get to today. We will spare readers our conclusion about ARRA architect Christina Romer's (long gone from the administration for obvious reasons) predictive powers, suffice it to say they are on par with those of the Fed itself. Simon Black, using AEI data, reminds us how the ARRA chart looks, one year later.
The financial elite - using academe for intellectual cover - want you to believe that markets are efficient, as defined by the Efficient Market Theory (EMT). Neoliberal economic philosophy is based on the belief that neoclassical economic theory is correct. That is, that “markets are efficient”. Wall Street touts markets as trustworthy and infallible, but that faith is misplaced. Gullible US politicians believe that markets are efficient and defer to them. Therefore, US politicians abdicate their responsibility to manage the overall economy, and happily for them, receive Wall Street money. Mistakenly, the primary focus during the 2008 credit crisis is on fixing the financial markets (Wall Street banks) and not the “real economy.” The financial elite are using this “cover-up and pray” policy—hoping that rekindled “animal spirits” will bring the economy back in time to save the status quo. This is impossible because the trust is gone. The same sociopaths control the economy. A Federal Reserve zero interest rate policy (ZIRP), causing malinvestment, and monetizing the national debt with quantitative easing by the Fed, and austerity for the 99% to repay bad bank loans has not worked—and doing more of the same will not work—and defines insanity.
It would be nicer to have seen greater extremes in bearish sentiment at the bottom as this leads to stronger future returns.
Curious why the Fed chairman has officially long given up on focusing on housing (and of course generating jobs, or worrying about inflation) as the main source of US household "tangible" net worth creation, and is mostly focusing on the Russell 2000 as per his own words? Wonder no more: as the chart below shows, as of Q1 2012, over two-thirds of household assets, or 68.8% to be specific, was financial assets, or $52.5 trillion: assets who value is dependent primarily on the S&P 500.
One of the problems with the Hispanic Pandora's box unleashed by a now insolvent Bankia, which as we noted some time ago, is merely the Canary in the Coalmine, is that once the case study "example" of rewarding terminal failure is in the open, everyone else who happens to be insolvent also wants to give it a try. And in the case of Spain it quite literally may be "everyone else." But before we get there, we just get a rude awakening from The Telegraph's Ambrose Evans-Pritchard that just as the bailout party is getting started, Spain is officially out of bailout money: "where is the €23.5 billion for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring (FROB) is down to €5.3 billion."... And in an indication of just how surreal the modern financial world has become, none other than Bloomberg has just come out with an article titled "Spain Delays and Prays That Zombies Repay Debt." We can only surmise there was some rhetorical humor in this headline, because as the past weekend demonstrated, the best zombies are capable of, especially those high on Zombie Dust, or its functional equivalent in the modern financial system: monetary methadone, as first penned here in March 2009, is to bite someone else's face off with tragic consequences for all involved. What Bloomberg is certainly not joking about is that the financial zombies in Spain are now everywhere.
There was a time, late in the winter, that not a day passed without some headline announcing Israel's preparedness to attack Iran, culminating with the grotesque - a show on Israel TV detailing the actual invasion plans. All these daily updates did was guarantee one thing - that absolutely no war could possibly break out for two simple reasons:
i) you never declare war when the opponent is expecting you, instead you habituate them to news about imminent invasions which never happens, and,
ii) Brent was over $120, which would guarantee no re-election for Obama as outright war would send the energy complex soaring, gas prices surging, and the world economy, but most importantly the Russell 2000, tumbling.
Over the past 2 months two things have happened: chatter of "imminent" war with Iran has died down to barely a whisper, and WTI is now trading 20% lower than 2012 highs. Which means there is far more capacity for a run higher. So putting all that together, does it mean that the prospect of war with Iran is now gone? Below we present the latest naval update map courtesy of Stratfor, and leave readers to make their own conclusions...
Like my whiny children, who after 30 minutes into a 6 hour car drive, investors are asking themselves, "Are we there yet?"
If you "buy the f---ing dip" make sure you "sell the f---ing rip".
We doubt many tears will be shed over the now official departure of Europe's most embarrassing political figurehead: the head of the Euro-area finance ministers, one Jean-Claude Juncker, whose presence did more documented damage to the credibility of Europe than... well, we would say virtually anyone else, but then again since everyone else in the European pantheon is a shining example of DSM IV-level sociopathology, we are kinda stuck. But anyway: Juncker is finally gone "he’s tired of Franco-German interference in managing the region’s debt crisis." And while the decision was known for a while, the ultimate catalyst is rather unexpected, and exposes just how frail the entire Eurozone is: “They act as if they are the only members of the group,” Juncker said today at a podium discussion in Hamburg." If this is coming from the man who admittedly lies for a living, we can't imagine just how bad the truth about the internal fissures within the Eurozone must be. Actually, we can.
It's all good, and no doubt this can only mean one thing. It's clear sailing ahead. But not so fast.
The good days are over, at least according to Goldman's Jan Hatzius. Now that "Cash For Coolers", aka April in February or the record hot winter, has ended, aka pulling summer demand 3-6 months forward, and payback is coming with a bang, starting with what Goldman believes will be a 125,000 NFP print in April, just barely higher than the disastrous March 120,000 NFP print which launched a thousand NEW QE rumors. But before you pray for a truly horrible number which will surely price in the cremation of the USD once CTRL+P types in the launch codes, be careful: from Hatzius - "Despite the weaker numbers, we have on net become more, not less, worried about the risks to our forecast of another round of monetary easing at the June 19-20 FOMC meeting. It is still our forecast, but it depends on our expectation of a meaningful amount of weakness in the economic indicators over the next 6-8 weeks. In other words, our sense of the Fed’s reaction function to economic growth has become more hawkish than it looked after the January 25 FOMC press conference, when Chairman Bernanke saw a “very strong case” for additional accommodation under the FOMC’s forecasts. This shift is a headwind from the perspective of the risk asset markets....So the case for a successor program to Operation Twist still looks solid to us, and the FOMC’s apparent reluctance to deliver it is a concern."
Update for those who don't see more easing - bad news:
BERNANKE SAYS FED PREPARED TO TAKE MORE BALANCE SHEET ACTIONS
BERNANKE SAYS `THOSE TOOLS REMAIN ON THE TABLE'
One hour ago, the Fed launched on a big stop hunt, sending gold first much lower, then much higher, even as it released no incremental data, but merely confirmed that with every other central bank still "easing" (by which we mean devaluing their currencies of course, most recently seen in India and Brazil, and shortly, in Japan and of course Europe, once again) it can delay injecting cash until after the president is reelected. So with everyone at least superficially pretending there may be a question about ultimate Fed strategy, Ben will take the podium shortly to answer Steve Liesman's and several other fawning 'journalists' questions on what the Fed sees for the future, which in turn will be driven by the just released revised Fed forecasts (see below). Our question is why does the Fed not sell one or more ad spots on its livestream? Each can sell for at least a few millions - the money could then be used to pay down the debt.
The top can best be described as a period of discussion. Is the economy sputtering? Will the European contagion effect the US economy? Will the fiscal cliff be realized? And of course, the #1 topic of discussion and the only one that matters: will there be QE3?
While one can talk until one is blue in the face about the pros and cons of the current central bank's (mis)deeds over the past 7 years, the reality is that most people are backward-looking (i.e., economists), not forward (which of course explains the prevalence of speculation as to whether the Fed's exponentially rising balance sheet will result in hyperdeflation or hyperinflation). As such, one can, for now at least, judge the Fed merely in the context of what it has achieved to date, not by the seeds of destruction it has planted. So how has Ben Bernanke performed so far when compared to his previous 4 predecessors, at least based on those two now completely irrelevant, but still oddly believed mandates: inflation and unemployment (because by now we all know that even the Chairman himself admitted the only thing that matters to the Fed is the Russell 2000 closing value). Below we present the Fed's accomplishments in the arena of inflation and jobs in the context of the past 60 years split by Chairmen starting with Martin (remember the 1951 Accord?), then going to Burns/Miller, Volcker, Greenspan and finally Bernanke. So who has been the fabbest among the Fed-est? You decide.