David Rosenberg: "Does The Fed Matter?"

Tyler Durden's picture

Nothing materially new here from David Rosenberg's latest letter, but it is useful to keep being reminded over and over how central planning has totally destroyed the primary function of capital markets: discounting, and replaced it with a dumb terminal which only responds to red flashing headlines reporting of neverending liquidity.

Does The Fed Matter


It must. Maybe not so much for the economy, but for influencing relative asset values and investor risk appetite.


If the Fed really had its way, the economy would be booming. But it is sputtering. For all the talk of one month's employment report — look at the entire quarter for crying out loud. Looking at total labour input, aggregate hours worked, it eked out a tepid 0.8% annualized gain in Q3. We know looking at margins that productivity is softening. So put the two together and we are still talking about an economy that is barely expanding at a 1.5% annual rate or basically one-third the pace of what would be considered normal in the context of a recovery that is in its fourth year. As for profits, third-quarter earnings of S&P 500 companies are forecast to have fallen 2.4% from a year ago, which would mark the first decline since 2009 (just three months ago, the consensus was for +1.9% profit growth. And Q3 expectations have been sliced by 450 basis points over this time frame. as analysts respond to a negative/positive pre-announcement ratio which the WSJ states is the highest it has been since the height of the tech bubble - burst in Q2 2001).


That the stock market is up 16% this year (on track for the best year since 2009) with earnings contracting underscores the major success of Fed policy in 2012 — managing to deflect investor attention away from negative profit trends and towards its pregnant balance sheet. So welcome to the new normal: the Fed has managed to negotiate a divorce between the economy and equity market behaviour.

And some other observations.

Clear Sign of Global Cooling


Global central banks have certainly been able to manipulate equity prices but they simply can't do much to disguise the weak state of the global economy. Usually after these QEs, commodity prices would surge, but this time, what really stands out is the sharp decline in oil — down almost 10% since mid-September as a vivid sign of decelerating global demand growth.


The hallmark of Friday's employment data was the unwillingness of companies to take on full-time staff and the low diffusion measures showing low dispersion in terms of job growth. Goods-producing employment is contracting. Monster's employment index sank to 153 in September from 156 in August. The NFIB (National Federation of Independent Business) jobs index softened as well (-0.23 in September from -0.05 in August). According to Bloomberg, job postings in the financial sector are down 17% year-on-year. The ECRI leading economic index fell for the first time in nine weeks. And on the international front. German industrial orders slumped 1.3% in August, worse than the 0.5% decline penned in by the consensus. The German data, as bad as they were, at least looked good relative to the horrible 5.2% slide in U.S. factory orders.


And let's face it, if the U.S. consumer was alive and well, we wouldn't be seeing only 1.46 million square feet of strip mall net leasing activity in Q3, down sharply from 2.2 million square feet in Q2 (Reis data). Only 569,000 square feet of new space was open — according to the Investor's Business Daily, and this was the second lowest figure since the data first began to be collected in 1999. With vacancy rates stubbornly stuck at 10.8%, rent increases have all but stagnated.

All that said, we are looking forward to the 7.5% unemployment rate report in 3 weeks.

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fonzannoon's picture

They will get back together at some point.

Comay Mierda's picture

dont think so. it has been a messy divorce and the fed will end up owning all the assets

nope-1004's picture

the Fed has managed to negotiate a divorce between the economy and equity market behaviour.


The Fed IS the equity market.  The Fed IS the treasury market.  There is no free market.


Radical Marijuana's picture

The Fed has managed to negotiate a divorce which is one more step in the overall psychotic breakdown of the whole of Neolithic civilization. The Fed was about enabling runaway privatized fiat money to take total control, in ways that were simply FRAUD, BACKED BY VIOLENCE. That was effectively a divorce between the material world operating according to the laws of nature, and the human world, operating according to the organized lies of the FRAUD KINGS.

Fiat money is faith-based money, not backed by anything but the forces of sovereign governments. When the banksters succeeded in privatizing that, then the banksters took all of the benefits, without taking any of the responsibilities. Our money was based on being backed by our taxation powers, backed by murders done by our governments, supposedly for the benefit of We the People. The Federal Reserve Board legislation was a divorce of governmental power from governmental accountability. In the typical Bizarro Mirror World ways, what the Fed actually does is the total opposite to everything it says it is doing! The Fed was a divorce of the money system from the murder system! Privatized fiat money is a divorce of the laws of nature from the laws of man, as well as a divorce of the laws of man from the laws of nature.

Privatized fiat money is a crazy cult that is forced to become a state religion. However, those facts were divorced from themselves. The basic laws of nature still exist. However, they become buried almost infinitely deep under the biggest bullies' bullshit social stories. Money does not truly get made out of nothing, nor returns to nothing. Privatized fiat money is runaway fraud, backed by the force of government. However, the power of the government to force people to accept that fiat money is divorced from them, when it gets privatized, and turned over to the banksters. Thus, the banksters covertly take control of the government, to benefit them, but no longer can be held personally responsible for anything they do. At the core of that divorce is that the money system depends on the murder system, however, the secret covert murder system has taken over the overt public murder system, so that the money that depends upon the murder is PRIVATIZED. Around and around this goes, with the fundamental facts being a divorce from sanity, as human laws and natural laws diverge further and further, as the triumphs of frauds backed by force separate further and further, so that the money and the murder apparently get a divorce, but actually are STILL inside the same overall system! It remains to be seen how much further this psychotic separation of the money from the murder that backs it up can go ... A divorce between the economy and equity market behaviour IS ONE MORE STEP IN THE ERODING GRAND CANYON CHASM OPENING UP BETWEEN THE REAL WORLD, AND THE BULLSHIT SOCIAL STORIES ABOUT THAT!

LULZBank's picture

iMarket and iEconomy Bitchezz!!!

Sixdeuce062's picture

Ha " If the fed had its way" the fed should have two functions if its was allowed to be in existance ( which it shouldnt) Ctrl+P the money supply to keep up with equity based on the hard assets that the US has and Ctrl+I to incenerate the excess unforunately the "I" button has broken and and the bernake is scared of fire and likes to watch presses roll

silver bitchez

steveo77's picture

Gold Futures Net Short Commercials 
Commercials are always "net short" gold. They have the product, they want to hedge the downside to lock in a more steady profit. That is what corporations like...steady profits, rather than big wins and big losses, so they pay for this "profit insurance", i.e. a hedge. 
But lately they have gone REALLY net short. And they are usually right, when gold is "overbought" whatever that means, by whatever measuring stick you are using. 
http://oahutrading.blogspot.com/2012/10/gold-futures-net-short- commercials.html

JPM Hater001's picture

Asking if the Fed Matters is like asking if the guy with the gun standing in front of you matters.

In all the worst ways.

e-man's picture

The Fed is priming the pump with a water cannon.  Whatever the Fed may say its "dual mandate" is, its primary pupose is to support the banks.  It matters not to the Fed if many people lose their life savings, as long as the banks are safe.

venturen's picture

Printing, Printing, Rawhide! It matter if you get the printed money at ZERO!

dbTX's picture

"Does the FED matter" ?

You damn strainght they matter, they have stolen me blind.

RSloane's picture

I don't understand why Rosenberg says if the Fed had their way the economy would be booming. Its very clear to me that the Fed got exactly what it wanted - the appearance of a booming economy as the final driver between the people with money and power and the people without it. Of course there is disjointedness. The largest most damaging disjointedness is the presentation of fantasy as fact and the belief that the words "opportunity to share the sacrifice" mean the same as "forced participation in your own financial destruction".

I don't believe for a second that the Fed is made up of a bunch of stooges. These are people that are executing their agenda with finesse and ruthless attention to detail. Central bankers all over the world are united in one effort - power and money must continue to grow in the hands of people with power and money. To this end, they have remarkably achieved their goals.

Pure Evil's picture

Of course the FED matters, but only if you're looking to stock up on designer toliet paper.

miker's picture

They fucked up big time.  Over the past 3 decades, they have inflated the money supply around 3-5% a year to prime the jobs pump.  They thought they were fucking geniuses but in reality it was the Baby Boom demographics that was really behind the rush.  So now we're seeing the consequences of this crazy policy.  It's not just a few years of a housing boom.  We're looking at 3 decades of outright foolish inflationary policy that is getting ready to collapse in a giant heap of stinking you know what. 

Tommy Gunner's picture

Ben - take a few hundred billion - hire 800,000 people (part time basis of course - each on an hour a day) and have them dig tunnels to London Paris and Hong Kong from NY so that people can drive there.

That will do wonders for the unemployment numbers.