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Today’s Mindless Rally: Its Jackson Hole, Stupid!

Tyler Durden's picture




 

Submitted by David Stockman via Contra Corner blog,

There is no reason rooted in the real world for today’s frothy stock market rally. In every single region of the planet, the post-crisis, central bank fueled expansion cycle—-tepid as it was in the global aggregate—is faltering badly.

Japan’s economy is only a hair bigger than 5 quarters ago (0.8%) before Abenomics supercharged the BOJ printing presses. Meanwhile, even as real wages in Japan plummet to modern lows, the BOJ’s balance sheet has now reached 55% of its GDP—–a ratio that would have been unimaginable even a decade ago.

Likewise, notwithstanding Mario Draghi’s “whatever it takes” bluster, the only thing that has happened in perpetually recessionary Europe is a short lived stampede of the fast money into peripheral debt. And that was on the tenuous predicate that the debt issued by basket cases like Italy and Spain can only go up because Mario might be buying it sometime down the road. Soon it will be apparent, however, that the Euro area economy benefited not a wit from Mario’s monetary magic, and that the hedge fund punters can dump their rented bonds as fast as they piled on.

And the schizoid policy of the comrades in Beijing needs no elaboration. Stabilizing China’s tottering tower of $25 trillion in debt is far beyond the pay and grade of people who believe with Mao that power comes out of the barrel of a gun, and with Wall Street Keynesian’s that prosperity comes out of the end of a printing press.

And now the usual Wall Street suspects are also busily marking down their US GDP numbers for Q2 and their outlook for the balance of the year. What was supposed to be the year of 3%+ “escape velocity” is heading for the lowest rate of GDP growth—about 1.5% at best—-since the 2009 bottom.  And even that depends upon believing that the Commerce Department’s GDP deflator is actually only running at a 1.4% annual rate. There’s not a chance that’s true for households which consume energy, food, health care, transportation and educational services, not iPads.

So with the global expansion cycle faltering, profit ratios at all-time highs and PE multiples in the nose-bleed section of history—nearly 20X reported earnings for the S&P 500—there is only one thing left for the Wall Street robots to do. Namely, vigorously buy the latest dip because the Fed has yet another new sheriff heading for Jackson Hole purportedly bearing dovish tidings. To wit, after 6 years of pinning money market rates to the economic floorboard at zero, Janet Yellen espies an economy still encumbered by “slack”, and will therefore be inclined to keep Wall Street gamblers in free money for a while longer.

This is just more Keynesian bathtub economics, but the Wall Street Journal does have a pretty cogent take on Yellen’s pending utterances. It seems that after $3.5 trillion of balance sheet expansion, the US economy has not yet achieved the performance metrics—especially in the labor market—that was exhibited during the last central bank fueled expansion cycle of 2002-2007:

Consensus is that she will likely highlight that the alternative measures of labour market slack in evaluating the ongoing significant under-utilisation of labour resources (eg, duration of employment, quit rate in JOLTS data) have yet to normalise relative to 2002-2007 levels.

Now that is downright insulting! The phony prosperity that the Fed unleashed through the Greenspan housing and credit bubble was the exact cause of the 2008 financial crisis and recessionary spiral which followed hard-upon it. So why in the world would the Fed want to push its money printing campaign to the edges of sanity in order to replicate its last disaster?

The answer is not hard to find. Yellen has no clue that the US economy has stalled out because it has reached a condition of peak debt saturation. Indeed, the 2002-2007 benchmark now being proffered by Yellen was actually fueled by the final blow-off phase of a 30-year national LBO.

As shown below, between 2002-2007 credit market debt outstanding—-public and private—soared by the incredible sum of $21 trillion while nominal GDP grew by only $3.5 trillion. And that was the end of the road in terms of the Fed’s patented formula of cheap debt fueled expansion of domestic consumption and nominal GDP.

 

Ever since the crisis, in fact, the Fed has been pushing massively on the credit string, but nearly the entire flow of liquidity has never left the canyons of Wall Street. Instead, it is parked in the excess reserve accounts at the New York Fed, having cycled through the money markets and pinned the cost of carry-trade gambling at zero percent.

So the casino is having yet another bullish moment because it expects they new monetary sheriff to keep the gamblers in poker chips for another go-round.

 

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Mon, 08/18/2014 - 15:52 | 5110360 lasvegaspersona
lasvegaspersona's picture

Thank heavens gold is not shooting to the moon. Folks might stop investing in American industry and park their savings there.

That would be a bummer for this market.

Mon, 08/18/2014 - 17:35 | 5110848 Cattender
Cattender's picture

uh huh huh.. Bungholes.. huh huh huh...

Mon, 08/18/2014 - 15:53 | 5110361 Rompoculos
Rompoculos's picture

Look, it just turns out that all of QE was for shit unless you were already rich that's all. But now it's time for a monetary transmission system that will smoothly but forcefully shift the economy into high gear. A heads up for Jacksons Hole (remember to adjust for inflation)  http://www.youtube.com/watch?v=Ac7G7xOG2Ag

Mon, 08/18/2014 - 15:52 | 5110363 Kirk2NCC1701
Kirk2NCC1701's picture

So... Yellen goes to the Jackson Hole.  Sounds kinky and gross at the same time.

Mon, 08/18/2014 - 16:05 | 5110436 peterpilot9
peterpilot9's picture

LOL!!  Thanks for the laugh of the day my man.  Wouldn't have been as funny with the Bernackster in the joke.  Good one.

Mon, 08/18/2014 - 16:50 | 5110650 TeethVillage88s
TeethVillage88s's picture

"Okay Guys, today we got Jackson Hole". "How is this going to turn out, good or bad?"

Well,... er, the Fed is going to Lie again. Bullish.

Buy to the Fu*kin' Moon.

Mon, 08/18/2014 - 15:55 | 5110372 ebworthen
ebworthen's picture

"Indeed, the 2002-2007 benchmark now being proffered by Yellen was actually fueled by the final blow-off phase of a 30-year national LBO."  BINGO! 

C'mon Janet, I dare ya', end QE and put the prime rate at 6%.

She's more chicken than dove, but 100% poultry.

A domesticated egg-layer.

Mon, 08/18/2014 - 15:55 | 5110378 Dungholio
Dungholio's picture

Mr. Yellen, tear down this market!

Mon, 08/18/2014 - 15:58 | 5110393 ekm1
ekm1's picture

Jackson Hole, my ass.

 

Check BATS "glitch" and that's all you need to know.

 

Mon, 08/18/2014 - 15:58 | 5110394 Dungholio
Dungholio's picture

Ouch

Mon, 08/18/2014 - 16:08 | 5110457 Atlantis Consigliore
Atlantis Consigliore's picture

Printing,   to Infinity to the Future....QE squared

Mon, 08/18/2014 - 16:13 | 5110460 lasvegaspersona
lasvegaspersona's picture

We should remember that Mario Draghi's job is to keep the Euro strong. He has ONE mandate. ..keep inflation low.

Folks seem to confuse him with Bernacke/Yellen. Draghi does not seem to be worried about the economies of those 'basket case' countries of Italy, Spain...and... just about every Euro Zone country...but these are not his problem! Eventually they will have to get their act together just like California and Illinois....and just about every other 'basket case' state. 

All Draghi needs to do is to keep the Euro stable as the dollar fails and he will have done his job. His currency is not the money of any single nation and no single president can call him up and demand that he ruin the Euro just so they can get elected. It is one of the features of this new currency.

Observers who look at the Euro and the actions of the ECB, who do not understand this, are confused. The euro is very different than the dollar. The structure of the Euro means that the Euro becomes stronger when the dollar weakens and gold increases!!

It was created for this purpose (in addition to providing the EZ with it's own currency.) It will be there to serve as a medium of exchange for global trade when the dollar dies. It is not positioning it's self to be the next reserve currency. It is making way for gold to be the next reserve asset! 

This is a bit to swallow for the usual ZH crowd which has become convinced that all actions of central banks are evil and are against the interests of ordinary citizens. BUT...Look at the structure of the ECB balance sheet. It's #1 asset is physical gold, 10,800 tons of the stuff! #2 is US treasuries. If the dollar fails then gold will become the defacto reserve asset of what will then be the only international currency capable of functioning as a global medium of exchange. This is worth a long hard Thought!

Mon, 08/18/2014 - 16:21 | 5110519 El Hosel
El Hosel's picture

..... Isn't it more like an "Offical Policy Rally"? Stocks are rigged to go up in order to reflect official "Market" reaction to official economic presentations and events before during and after the fact....  Grandaddy Jacksons Hole must be a green event, no other options.

Looks like the most shorted are leading, the machine knows how to get the best bang for their digital buck.

Mon, 08/18/2014 - 16:28 | 5110536 Ima anal sphincter
Ima anal sphincter's picture

I'll give you a +100 just for the alternative view. I read ZH to take in what I can and form an opinion from the info. There are some extremely bright folks on this site. My white skin needs a bit of a tan.

Mon, 08/18/2014 - 16:30 | 5110548 SeattleBruce
SeattleBruce's picture

"It is not positioning it's self to be the next reserve currency. It is making way for gold to be the next reserve asset!"

"If the dollar fails then gold will become the defacto reserve asset of what will then be the only international currency capable of functioning as a global medium of exchange. This is worth a long hard Thought!"

But, taken together, and that's important, the euro could be positioned as (the next) reserve currency (backed by gold), as the dollar falters/fails.  At some point the debt saturation of the EZ will matter, as will that in Japan.

Mon, 08/18/2014 - 17:23 | 5110793 Jackagain
Jackagain's picture

If the Fed actually has that much gold, then where's Germany's gold?

Mon, 08/18/2014 - 16:14 | 5110489 DOGGONE
DOGGONE's picture

Do you think they will consider ending The Public Be Suckered?
http://patrick.net/forum/?p=1230886

Mon, 08/18/2014 - 16:19 | 5110510 TabakLover
TabakLover's picture

Jack-ass-son Hole's population of jag-offs set to soar...............while the legions of BTFDers listen for utterances of moar.

Mon, 08/18/2014 - 16:21 | 5110521 SeattleBruce
SeattleBruce's picture

"So with the global expansion cycle faltering, profit ratios at all-time highs and PE multiples in the nose-bleed section of history—nearly 20X reported earnings for the S&P 500" - right, and those reported earnings are totally real.  I BELIEVE...

Mon, 08/18/2014 - 16:35 | 5110566 Amish Hacker
Amish Hacker's picture

Never mind the mountain scenery. Show us a picture of the Jackson Hole airport---bet you a nickel there's a pretty nice collection of Gulfstreams that flew in the 0.01%.

Mon, 08/18/2014 - 16:40 | 5110599 drinkin koolaid
drinkin koolaid's picture

David - you're the one who's mindless. Once again for the last 5 years I repeat. This bullshit market is in an uptrend. Deal with it folks!

Mon, 08/18/2014 - 16:43 | 5110621 buzzsaw99
buzzsaw99's picture

there is no market, it's just a bunch of algos playing beer pong

Mon, 08/18/2014 - 18:00 | 5110981 Rouge Trader
Rouge Trader's picture

And the ping pong ball never drops to the floor 

Mon, 08/18/2014 - 16:53 | 5110666 Everybodys All ...
Everybodys All American's picture

I often wonder why these elitist 21st century money changers have to go to Jackson Hole or for that matter Davos? Generally many know they are intending to find a way to continue the deceit of the uninformed. To top it all off only a few extremely well connected and wealthy people (Soros, Buffet, Gates, etc.) can be in on the intended outcomes and decisions. I really believe this goes against are founding principals as a nation.

Why if and we all agree these meetings are so important when defining economic direction are these meetings not public meetings. Why more importantly do we the people put up with it? This is the real rub.

What is disturbing to me is the overall concept that these secretive meetings which affect all of us in the US economically should be only open to the rich and well connected. Decisions made in these meetings also directly impact each and every tax payer in the US and when the negative impact of these decisions are felt years later who do any of us blame? There is no oversight or representation. This is essentially the same grievance the colonist had prior to the revolution. This is just the modern version of no taxation without representation argument.

When the next bailout is necessary you can damn well bet the seeds to the problem were planted at these meetings. Guaranteed.

Mon, 08/18/2014 - 17:08 | 5110721 smcapmachine
smcapmachine's picture

gasping for straws

Mon, 08/18/2014 - 17:26 | 5110782 Squid Viscous
Squid Viscous's picture

Will Yellen be doing shots at the Cowboy Bar?  or just slither back to her room to read some more textbooks about the "economy"

Mon, 08/18/2014 - 19:07 | 5111355 SheepDog-One
SheepDog-One's picture

Gotta have lots of confidence inspiring up days now, or the 'investors' might lose their connedfidence.

Mon, 08/18/2014 - 19:20 | 5111490 Hohum
Hohum's picture

Earth to Stockman: You are right about too much debt, but thinking that eliminating the debt will create prosperity like the old times is ludicrous.  Find some people that actually create wealth (their activity is net energy positive) and we'll talk.

Mon, 08/18/2014 - 19:28 | 5111542 FieldingMellish
FieldingMellish's picture

Janet Jackson's Hole... there is a joke in there somewhere.

Mon, 08/18/2014 - 21:49 | 5112336 Billy Shears
Billy Shears's picture

Complete the sentence:

Each Wall St. banksters home in the Hamptons should be _____________________________________________!

Tue, 08/19/2014 - 00:21 | 5112988 orangegeek
orangegeek's picture

Stocks are a gong show.

 

Bonds are a gong show.

 

Thanks yellen.

Tue, 08/19/2014 - 06:31 | 5113396 AdvancingTime
AdvancingTime's picture

The study of economics is often baffling and confusing. Many economic theories exist but many are full of holes and conundrums. Much of how people react to a policy may have to do with timing and perception instead of reality. Economics is full of loops that feed back upon themselves and unexpected pitfalls based on expectations.

All this can become quite abstract. Economist predict events that never tend to unfold as expected or planned. Many of the "modern monetary theories" in use today have not been proven over time, but reflect an attitude that we can control  economic cycles better than in the past. More on how few people really understand this very important part of our lives in the article below.

http://brucewilds.blogspot.com/2014/03/few-people-really-understand-econ...

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