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The Market's One-Sided Game Of Chicken
Submitted by David Stockman via Contra Corner blog,
With apologies to Bob Dylan, its clear that the casino does believe that the Fed is the monetary equivalent of heaven’s front door. Ever since QE officially ended last October, the market has been chop, chop, choppin’ higher on the slightest hint that 78 months of free carry trade funding may not end after all. This latest run-up makes the ninth time since the original Bullard rip seven months ago.
That the Fed and other central banks have unleashed the speculative furies is an unassailable and baleful reality. Yet yesterday morning’s instant 40-point Dow drop in response to the posting of “incoming” housing data that looked slightly optimistic at the headline level was unusually absurd. Indeed, that this short-lived (~45 minutes) “housing is back” story spooked the market with fear that the Fed might finally cut off the juice - well, that is a canary in the trading pits that’s worth noting.
What is going on here plain and simple is a one-sided game of chicken. The robo-traders and hedge fund buccaneers on Wall Street press the market higher on virtually no volume or conviction whenever macro-economic weakness presents itself, virtually daring the Fed to maintain is ultra-accommodative stance still longer.
At the same time, the utterly clueless posse of would be monetary central planners domiciled in the Eccles Building invent one new pretext after another to justify delay, which only encourages the gamblers to press their advantage still harder. We have now reached the point where the casino is literally calling the Fed’s bluff, but these academic scribblers and power-drunk apparatchiks don’t even seem to know it.
This condition is especially ironic because the school marm who currently presides claims to be engaging in an unprecedented level of “transparency” with regard to the Fed’s intentions. In fact, however, the Fed’s communications regarding the sign posts it is watching are not simply transparent; they are essentially a content-free blank slate.
Thus, we are at 5.4% unemployment. Despite its flaws as a metric of labor market conditions owing to 91 million adults not in the labor force as reckoned by the BLS, the U-3 rate is a tangible marker; and for decades it was considered tantamount to full employment for government purposes. But it’s no longer any guidepost at all. Its actually more like the proverbial goalpost that has been moved time and again—–in this instance by Fed speakers and post-meeting minutes.
Indeed, Yellen actually has 19 labor market guidposts on her dashboard, and is apparently watching all of them without any indication as to the weighting because she doesn’t know, either. The Fed chairman is just insouciantly making it up as she goes along, using a 40-year old macro-model that bears no resemblance whatsoever to current reality.
Its worse on the so-called price stability mandate because 2% inflation has become a pure rubber ducky. Fed speakers have so obfuscated the issue as to which measure they will use, and for what run-rate over which period of time—–that their inflation guidepost might as well be reduced to this: Look ma, no inflation!
So based on all of this transparent pettifoggery, the Fed has managed to communicate that even a tiny 25 bps June rate hike is off the table and possibly September too. However, upon this morning’s Census Bureau release, the robo traders were shocked by a housing starts number that was higher than expectations, but actually just a tiny wiggle in the sub-basement.
Shown below is what had the market sweating at the Fed’s front door——a three month moving average of housing starts that is still below the bottom of every recession since 1955!
But actually the head fake was even more pathetic. It turns out that the northeast region accounts for barely 15% of US housing starts, but contributed nearly two-thirds of the gain over last April. Stated differently, excluding the aberrant flare-up in northeast region starts last month—-which will surely be revised—there were 87,000 starts in the US this April compared to 84,000 last year.
Yes, a 3.7% gain from last year’s level, which was the third lowest April ever recorded in modern times, was enough to spook the machines. And the reason is straight forward: The “fundamentals” have been abolished and honest price discovery has been destroyed by 15 years of non-stop central bank manipulation of financial markets.
In fact, like all the other “fundamentals” the housing starts and residential investment trend-line has fallen off a cliff. At 3.0% of GDP it is 40% below the historic average and 50-70% below prior recovery highs.
So housing is down in the pits with all of the other important economic fundamentals. Since the turn of the century there have been no new breadwinner jobs; real household median incomes have fallen by nearly 5%; real net business investment is down by 20%; and labor hours consumed by the non-farm business sector have not risen appreciably in 15 years.
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Allow me to summarize; "Full faith and credit".
Now that we live in a "mark to model" (i.e. mark to fantasy) world were money creation is not connnected to real collateral/reality, faith is everything. No more faith, means no more credit motherfucker.
Mark the Model, the best looking model at the meth house.
So what you're sayin' is they would have a crash that no one could see comin' and the boyz pick up assets for pennies on the dollar while the proles cry mommy
There will be a window of opportunity where cash will be king and having a set of balls to pull the trigger will make you wealthy. This is of coarse barring the possibility that the SNAP/EBT cards stop working and total ciaos ensues.
"The robo-traders and hedge fund buccaneers on Wall Street press the market higher on virtually no volume or conviction whenever macro-economic weakness presents itself, virtually daring the Fed to maintain is ultra-accommodative stance still longer. "
My take on the above statement, is aren't the robo-traders and hedge fund buccaneers and the FED pretty much one in the same?
Then there will be the implosion of real estate values in CA from the 1000 year drought there
as logical & rational as that seems, I'm betting a reduction in water will have little impact - a complete cut off of water, yes - but a reduction, even 50/75% will have little impact - because calif real-estate buyers are illogical & irrational to begin with, this will not deter them
the algos are completely confident in the latest chosenite chair occupant, why not you?
What part of the Fed can invent unlimited money don't you quite get? They have already invented between 10 and 20 new american trillions. Why wouldn't they miracle a few more to save the "markets" over and over. Just accept that we are already in the Matrix and enjoy life.
" Then the machines will sell, sell, sell. There will be no credible Fed speakers to stop them."
at which point .gov steps in and suspends all market activities until further notice
"at which point .gov steps in after the Super Best Friends Club positions clear and then suspends all market activities until further notice"
FIFY
The explicit & in your face bullshittery will have to come to an abrubt end at some point...
The douchebaggery is utterly cocktastic!
But remember Janet said the cocks are overvalued, so eat cock at your own risk.
did she really say that?
Think so?
Fooled 80% of the glorified jizzmoppers on Wall Street for 6 years and counting. Yes, I would call that utterly cocktastic douchebaggery!
Diminishing returns eat away at the purchasing value of the fiat. The fiat will fall to zero or the POMO desk will quit rolling the debt. Take your pick which happens first, but either way, the shitastic recovery will come to an end.
There was no recovery, therefore it can not end.
There are times when I honestly think Mr. Stockman does not respect the fine efforts and dedication of the staff of the Fed.
No, really. It's almost as if he's upset with them.
"pettifoggery"
Every article, ONE word I don't know. Not two, not three... ONE. Like clockwork.
Damn you Stockman! I swear you do this just to fuck with me.
+++
Stockman does the lexicon thing good.
hobbit yellen should have crashed this bitch on her first day. now she owns this stock-bond-real estate-bank fraud bubble. she will be cursed for an hundred years when it finally blows up and the bernank will be forgotten.
Thought experiment:
What if she decides to show the world that she does have some balls after all and does a rate hike of some kind at the next FOMC...just to show 'em. There have been plenty of statements by the FED brigade that every meeting is on the table for a rate hike. Indexes are at an all time high. WHat if they decide it is as good a time to try it as any?
I've been thinking that the Ponzi Munchkin will do a tiny rate hike soon.
Not because she has some balls, though.
The Feral Reserve doesn't want to introduce QE4 with markets at all time highs.
If they have a tiny hike, and the markets have a huge tantrum, then that will pave the way for QE4
The stock market and the economy would react negatively, the dollar would reeact positively, fed criticism would increase, and the game of chicken would be taken to a whole new level.
We all know what keeps the markets levitated... and will keep them levitated, as it is a magnificent way for the rich and powerful to launder money (wealth transfer mechanism.)
Now what is going to cause the bottom of the stock market to drop out? Bond crash? Derivatives crash? War? Disclosure by China that they have twice as much gold socked away as we were led to believe come this October's SDR reshuffling?
"We have now reached the point where the casino is literally calling the Fed’s bluff, but these academic scribblers and power-drunk apparatchiks don’t even seem to know it."
Classic Stockman. Yellen and her ilk are either infuriated when they read this truth, or utter a gurgling evil laugh of secreted understanding.
So this is what happens when, instead of pulling the punch bowl when the party gets going, they just keep pouring bottles of vodka in it.
Rookie bartenders.
No inflation to pay off Uncle Sam's debt down the road with 'inflated' dollars. And a stock market crash will wipe out the tax coffers. What's a Fed to do but keep on truckin' ?
Fed Mandates: Employment and Inflation ....not equities.
Who has the responsibility to keep the Fed from spreading their power beyond their mandate?
Loosening monetary policy effects equities and assets in general, but also suppose to make money cheaper so consumers and businesses can borrow more, and "suppose" to produce new businesses.
Fed mandate is Employment and price stability (in their own view of price stability), and that's the problem. Equities go up, so should everything else with loose monetary policy, but the problem with this theory is that it neglects basic economy attributes, savings to facilitate production processes, capital maintenence, financial security, and necessary recession to clean up the bad economic activity and bad debts.
Employment is effected by structural policies, like regulations, taxes that give wrong incentives, etc in addition with attributes above. Savings is defferment of consumption to make room for investments that generate better income in the future. What the Fed is actually doing is engaging the war on savings. Hyper investments into speculative asset investments (like equities) and further incentives to consume more credit. This is a dysfunctional economic model. Savings is essential attribute to economic well being. Wages come from savings. It facilitates the production process, it maintains capital equipment from decaying away or capital maintenence in general.
There is a reason why hyperinflation does not end well, not simply by high prices, but hyper consumerism and hyper investments into non productive activity. Afterall with fast depreciation of currency, why bother saving, you make better deal by buying something as fast as possible which leads to hyper consumption, same goes for speculative hyper investments, which lead to poorer economy of less wealth because capital maintenence has been made impossible. Shortages occur despite creation of new money at a hyper rate.
The field of economics unfortunately has been vandalized by financial extremist, and radical economist who don't really study economics more so than they think how the economy should work. What you see here is a decaying economy. Literally. The only thing to hope for under a rogue central bank is make most of the bubbles they produce. These Keynesianisque economist believe that savings is bad, when savings are important attribute to maintain capitalism for the long haul. They focus instead on aggregate demand. Macroeconomics has been a tool of many lazy economist. Aggregate demand is a overly simplistic view of a economy.
18 May 2015, New York (Reuters)
http://www.reuters.com/article/2015/05/18/us-usa-economy-housing-nahb-idUSKBN0O31EY20150518
Not so much worried about Stockman's prognostications regarding what is ahead. Worried a tad more about what the Fed's reaction will be and what that is going to do to the currency. Then again, that's a 'known' as well, so... I figure when they have a 'cashless' back-up plan ready to implement, that'll be about the time they 'flush it'...