Heeeeere's Goldman... With Renewed Calls For A June QE Announcement

Tyler Durden's picture

Update - And sure enough, as of seconds ago:

The only relevant section from a just released note by Jan Hatzius titled "Still Dreary" (guess what he is referring to), is the following: "we have stuck with our forecast of some additional monetary easing at the June 19-20 FOMC meeting for now, despite the less-than-encouraging noises from Fed officials in recent weeks. However, it is a close call, and we worry about a re-run of the 2010 and 2011 experience—the last two times Fed officials decided to let a purchase program lapse without having put a successor program in place. In both cases, the economy slowed and financial conditions tightened to a degree that pulled them back into the market before long. It is easy to see how this could happen again, given the renewed turmoil in Europe and the possibility that US markets will ratchet up their concerns about the impending fiscal cliff in the run up to the election. In such an uncertain environment, taking out a bit more insurance still looks like the sensible choice for US monetary policymakers." Replace "US monetary policymakers" with "banker bonuses" and you get the picture. And here is our free tip to Goldman: the Fed has finally understood that in order to surprise the market with more easing it has to, gasp, surprise the market with more easing (and banks obviously have to play along and all act like they don't expect more easing, wink wink). Don't worry Jan - Bernanke knows the game plan and will not leave you hanging. However, as has been constantly repeated, there first has to be a deflationary scare before any announcement: such as oil crumbling, gold plunging, and stocks tumbling. Kinda like today. Who whouda think that Greece would serve the role of Lehman... over and over and over. In the meantime keep an eye on Bill Gross holdings of MBS securities when the April update is announced shortly- we fully expect a new all time record high, not to mention an imminent Hilsenrath Op-Ed suddenly hinting that, forget Twist, the Fed is now outright contemplating full blown MBS and UST LSAPs all over again. Because this time it will be different.

Full GS note:

Still Dreary

1. After a few months of stronger numbers, the US economy has slowed back to the dreary pace that has characterized most of the recovery so far. Our current activity indicator (CAI) provides a good summary. It averaged 2% in 2011, picked up to 3% in January/February, but is tracking at only 1.8% for April after Friday’s employment numbers. The main factors accounting for the deterioration are the slowdown in payroll employment (+115k in April vs. an average of +267k in Jan/Feb), the reversal in household employment (-169k in April vs. an average of +530k), and the drop in the nonmanufacturing ISM and Philly Fed. There have been some offsets, including a net increase in the manufacturing ISM, but they have generally been small. The Q1 GDP gain of 2.2%—which does not enter the CAI as GDP is available only quarterly—tells a similar story of sluggish growth.

2. What lies behind the slowdown? Much of it is probably payback for strength earlier in the year that was “borrowed” from future quarters. First, the turn in the inventory cycle is likely weighing on manufacturing, although the pop in the ISM is admittedly a bit of a puzzle in that regard. Second, there may be some seasonal adjustment distortions due to the “Lehman echo” effect (see Andrew Tilton’s piece earlier this year, US Economics Analyst: 12/02-‘Tis the Season for Seasonal Adjustment). And third, the weather is probably responsible for part of the weakness in the employment numbers. We will have a better sense when the state-level payroll numbers become available next week, but at this point our best guess is that the return to more normal weather subtracted 20k-40k from the April payroll numbers, a bit less than the 50k we expected prior to the report. This means that there is probably still some payback “in the pipeline” for May.

3. Beyond these short-term factors, the economy looks sluggish but basically stable. The housing adjustment is making good progress, with another decline in the homeowner vacancy rate in Q1 to 2.2%, the lowest since early 2006. Residential investment is unlikely to repeat the nearly 20% growth pace of Q1 (which probably benefited from weather) but should continue to recover. While consumer spending looks set to slow from the 2.9% pace seen in the first quarter, we expect growth to remain around 2% in coming quarters as the recent decline in seasonally adjusted energy prices boosts real income growth a bit from the current year-on-year pace of just ½%. And we expect business investment to rebound from its 2% dip in Q1 to a moderate positive growth pace.

4. The message from the markets is also consistent with sluggish growth. On Friday, Jari Stehn and I released our new Goldman Sachs Financial Conditions Index. It is built from detailed simulations with a modified version of FRB/US, the Fed’s large-scale econometric model of the US economy. This allows us to include not only risk-free interest rates, equity prices, and the dollar, as in the previous version of the GSFCI, but also credit spreads and house prices. The new GSFCI currently sends an incrementally more negative message than the previous version, mainly because the credit markets have underperformed the equity markets.

5. The most important question about Friday’s employment report is "what is the reason for the continued decline in labor force participation?" In principle, there are three possible explanations, each with different implications for monetary policy. First, the decline might be due to structural factors such as the aging of the population and the increase in school enrollment rates. If so, we should take the unemployment rate at face value as a measure of slack. However, this explanation does not look right; even among 35-54 year olds—where these factors should matter much less—participation is down 0.6 percentage points over the past 12 months, which is actually slightly more than in the population at large. Second, more people might have temporarily given up their job search due to a lack of opportunities. This would mean that they are really “discouraged workers” who will come back into the job market once labor demand improves. In this case, the unemployment rate would understate the overall amount of slack. However, this is only part of the story, as the number of people who say they want a job but aren’t actively looking has not risen by nearly enough to explain the drop in the participation rate. And third, people might be losing their skills and attachment to the labor force on a more permanent basis, which would mean that they will not be available to work even after labor demand comes back. In this case, the unemployment rate would still be an accurate measure of slack at each point in time, but there would be an incentive to run a more accommodative monetary policy to prevent a future decline in potential output (see Chairman Bernanke’s speech at the 2011 Jackson Hole symposium). We suspect that this last explanation is an increasingly important part of the story.

6. Partly for this reason, we have stuck with our forecast of some additional monetary easing at the June 19-20 FOMC meeting for now, despite the less-than-encouraging noises from Fed officials in recent weeks. However, it is a close call, and we worry about a re-run of the 2010 and 2011 experience—the last two times Fed officials decided to let a purchase program lapse without having put a successor program in place. In both cases, the economy slowed and financial conditions tightened to a degree that pulled them back into the market before long. It is easy to see how this could happen again, given the renewed turmoil in Europe and the possibility that US markets will ratchet up their concerns about the impending fiscal cliff in the runup to the election. In such an uncertain environment, taking out a bit more insurance still looks like the sensible choice for US monetary policymakers.

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GOSPLAN HERO's picture

Piss on Goldman.

The Fed will print, print, print, print, print and print more funny money -- a 100% chance.

SHEEPFUKKER's picture

Banksters encouraging other banksters. What a circle jerk. 

Manthong's picture

“taking out a bit more insurance”

Like Legarde’s “little bit of money” for her IMF douche , er.. hand bag?

Popo's picture

What are "Risk Markets"?

If the "ammo" is "coming"... where's the "risk"?

hedgeless_horseman's picture

 

 

"All right, we're gonna be displacing and falling back like crazy sons of bitches. So you got to be Johnny on the spot with the ammo, or we're dead."  - Lord Blankfein

 

Upham Bernanke will come through.  You can bank on it.

Muppet Pimp's picture

Seems like we may have hit a little air pocket.

3rd time's a charm ;-)

hedgeless_horseman's picture

 

 

 

"All right, we're gonna be displacing and falling back like crazy sons of bitches. So you got to be Johnny on the spot with the ammo, or we're dead."

stocktivity's picture

In such an uncertain environment, taking out a bit more insurance still looks like the sensible choice for US monetary policymakers."

motherfuckers! Now they have spent our grandchilren's money and want to start on our great-grandchildren! motherfuckers!  It's all Bullshit!

Dr. Engali's picture

Shit they spent the great grandchildren's money long ago. Now they want the money from the next step in human evolution.

cougar_w's picture

Okay so that was funny as hell.

Just a point of clarification however. If things go as badly as they seem to be headed, then it won't be human generations at all.

I hope the banksters will find rats and cockroaches harder to extort than the primates turned out to be.

rotagen's picture

Fart in the Wind and Piss up a Rope.

ChrisDG74's picture

In other words, "the markets can't sustain the bullshit ponzi without the FED's printing presses".

 

QE to infinity and beyond, bitchez!

Cognitive Dissonance's picture

So predictable.

Everyone knows their dance roles and has studied well.

Dr. Engali's picture

Let the begging begin.....please Ben we can't make it through the election.....we need our fix now....please.

Sudden Debt's picture

IF WE DON'T ACT NOW!!!....

WAITING IS NOT A OPTION CONGRESSMAN!!! WAITING JUST MAKES IT WORSE!!!!

WE... YOU... not me.... YOU!! MUST STEP UP AND CONTRIBUTE!!

Can't wait to see how Dumbo twists his ass out of this one :)

RacerX's picture

"Sluggish but stable".

So our economy is basically like a crackhead passed out on the sidewalk. Nice.

DormRoom's picture

evidence of boom-bust capitalism: lots of consumer goods to choose from, but no one can afford them, because of high unemployment, and stagnant wages /*We are here */

 

communism: everyone has a job, but few consumer goods to choose from.

GetZeeGold's picture

 

 

It's ugly when the Midget Trannys turn on you,

 

ChrisDG74's picture

Dow at -145 right now. Goldman must be selling everything not nailed down to drive their point home.

valley chick's picture

me thinks..game is about over.  keep stacking!

Stoploss's picture

Better hurry the hell up. Nothing but air under 1350.

Cognitive Dissonance's picture

The image merge was perfect. Bravo Banzai7.

Sudden Debt's picture

You've had enough America, let me call you a cab to get you home... 

 

AlaricBalth's picture

Enough to an addict is overdose.

Sudden Debt's picture

The Endless Soft Patch!

To patch of not to patch, QE FOREVER!

5880's picture

pull up a chart of the nikkei since 1980

I see the future

Everybodys All American's picture

QE ... means inflation with higher food and oil prices meaning Obama's election prospects are finished. No way will QE happen until after the election if it deos come imo.

the not so mighty maximiza's picture

But the bankers demand it!!! screw the president of the unted states anyway, they are replaceable.

gmrpeabody's picture

TPTB are not overly concerned about Obama's re-election.

He is only a tool.

AlaricBalth's picture

Obama or Romney. They are the same. The false Left/Right paradigm is is nothing but entertainment for the masses. Just like a Master Magician, those in control rely on diversion, deception and misdirection to keep the audience from seeing the true machinations taking place which allows the plutocracy to maintain the status quo.

death_to_fed_tyranny's picture

FUCK OFF GOLDMAN SUCKS! MAY YOU IMPLODE LIKE ALL YOUR BANKSTER ILK! FUCK YOU BEN BERNANKE! AND FUCK YOU TOO JON CORZINE!

5880's picture

at least you're keeping your wits

death_to_fed_tyranny's picture

fuck you very much. sarc off:}

Village Smithy's picture

I'm not sure if I have the mechanics right but to me if Ben provides QE in June/July wouldn't the debt ceiling be definitely breached just before the election. As it stands now there is some chance (a small miracle to be sure)that the ceiling could hold until post-election. Doesn't Obama need to hope for the miracle?

stocktivity's picture

I'm sure Ben can back hand it off the debt ceiling...the sob knows all the tricks.

HD's picture

Obama NEEDS low gas and food prices. Retail is out, either completely or has stop contributing and sitting on their hands.

S&P 1400 is not as important as $3 gas and $2 milk...

Village Smithy's picture

That's a good point, especially if you have assured TBTF behind closed doors that post election the QE is assured.

Vince Clortho's picture

Although the election outcome is vitally important to Obama and Mittens, it is not nearly as significant to the Central Planners.  They have bigger fish to fry.  The actions of the CBs will be determined by the items of greatest significance to their private interests, and not the career of some paid for puppet politician.

Muppet Pimp's picture

Ben Shalom: please allow the market to correct before you turn the GD firehose back on.  Thanks!

DUNTHAT's picture

NOPE...

BEN'S FUTURE TETHERED TO OBAMA

AND OBAMA'S TO A LOWER UNEMPLOYMENT...

LOOKS LIKE MORE CONFETTI IN THE FORM OF GREENBACKS AND EUROS COMING..

HD's picture

Market falls 1% = QE rumors

Market falls 5% = QE demanded

Market falls 10% = CNBC has special prime time "crisis" reporting every night

Market falls 15% = QE announced

Vince Clortho's picture

How many steps this time?

1) First a mention of qe from a GS.

2) Then a rumor of a rumor.

3) Then a rumor.

4) Then Bernank gives a speech and mentions the Fed has many tools.

Stay tuned.