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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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.

Cattender's picture

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

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)

Kirk2NCC1701's picture

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

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.

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.

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.

Dungholio's picture

Mr. Yellen, tear down this market!

ekm1's picture

Jackson Hole, my ass.


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


Atlantis Consigliore's picture

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

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!

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.

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.

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.

Jackagain's picture

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

DOGGONE's picture

Do you think they will consider ending The Public Be Suckered?

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.

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...

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%.

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!

buzzsaw99's picture

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

Rouge Trader's picture

And the ping pong ball never drops to the floor 

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.

smcapmachine's picture

gasping for straws

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"

SheepDog-One's picture

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

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.

FieldingMellish's picture

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

Billy Shears's picture

Complete the sentence:

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

orangegeek's picture

Stocks are a gong show.


Bonds are a gong show.


Thanks yellen.

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.