The open-ended awesomeness of Bernanke's bluster has crushed the spread between mortgages and Treasuries. While the spread had been tumbling in anticipation of Ben's great save, the move from yesterday's announcement is stunning as the already record-low levels have been halved leaving mortgages now under 28bps from being 'as safe as Treasuries'.
There was a time when it took at least some digging to cut through the manipulated headline data. Not so much any more. The latest UMichicagn consumer confidence data point is out, and it being an election year and all, and there needing to be some immediate validation of the massive stock surge in the aftermath of our own Gideon Gono going full retard, posted the biggest positive surprise to expectations in well... ever, printing at 79.2, on expectations of 74.0, up from 74.3. This was the highest print since May, which occurted not on the conditions component, but the expectations, which soared from 65.1 to 73.4. And here is the punchline: why did consumers get more confident? Because in the period from the last month they priced in more... drumroll... deflation! 1 and 5 year inflation expectations declined from 3.6% and 3.0%, to 3.5% and 2.8%. And that's how we know they don't even bother to mask the lies any more.
Ex-Fed Governor Kevin Warsh provided much food for thought during his appearance on CNBC this morning. Over the course of the following clip, he addresses concerns from just how bad the reality of the global economy must have been for Bernanke and his merry men to have gone "all-in" aggressive - reflecting on this as a panic-like reaction during times now where we are not panicking, the ineffectiveness of QE3 "iPhone 5 will do more for the real economy than QE3", fears over how bad this could get as "there is a reason 'exit' is a four-letter word." Warsh notes the paradox of Bernanke "trying to pull a rabbit out of a hat' each time the economy loses control while calling for Washington to do more - as the politicians know "there's not much we need to do, Bernanke has our back." When asset prices are driven less by fundamentals and more by speeches and policies coming out of Washington, you're taking risks. "Risks are highest in the economy when measures of risk are he lowest"
In one more example of why we are going to need more-er and open-ended-er QE from the Fed, today's dismal data rolls on. Industrial Production dropped 1.2% MoM - its largest drop since March 2009 - and missed expectations by the most since December 2008. The market (expectedly) is unimpressed and stable - fully aware that the Fed's new infinite QE will simply be expanded to an infinte-er QE should things go from worse to worse-er. To add more salt to the wound, Capacity Utilization dropped to its lowest of the year and missed expectations by its most in 16 months. 15x P/E multiples here we come - all supported by moar hockey-stick growth trajectories, infinity +1 printing, and a status quo who needs moar commissions. So much for cleanest dirty shirt, eh? It seems 'they won't come' in our 'if we build it' economy - as factories go quiet from the over-exuberant mal-investment of channel-stuffers.
Bernanke took the plunge yesterday by embarking on QE3 or what would be better described as “Currency Debasement 3”. Improving the U.S. job market and therefore economy was the reason given for the extremely radical measures. However, the scale of the open ended monetary commitments suggests the Fed is worried about another Great Depression and an economic collapse. The move was described as "stunningly bold" by some analysts as it is "open ended" with Bernanke pledging to print or electronically create, with no time limit, an extra $40 billion every single month until the labour market improves. This is the frightening vista we have been warning of for some time. It means that should the US economy enter a recession and or depression, which still seems very likely, that the Fed will continue printing money and debasing the dollar thereby leading to dollar devaluation and inflation - potentially virulent inflation on a par with or worse than that seen in the 1970's. We had long said that QE3 was inevitable - the question was when rather than if. Indeed, we had said that given Bernanke's closeness to Wall Street we expected that QE4, QE5 etc. were likely. The "open ended" nature of this new round of QE as enunciated yesterday means that the Fed could if it wished or believes it is necessary print unlimited quantities of dollars.
Consumer Prices Soar By Most Since June 2009, Retail Sales Ex-Autos And Gas Expose Lethargic ConsumerSubmitted by Tyler Durden on 09/14/2012 08:47 -0400
Following yesterday's producer price shock, when PPI soared by the most since June 2009, today's CPI follows suit, with the largest jump in over 2 years, printing up 0.6%, in line with expectations, up from an unchanged print in July. In other words, the food inflation which is already spreading through the economy courtesy of the record drought, is about to be supported by some brand new Fed-generated inflation. Luckily, as yesterday, nobody uses gas or food. And in other news, retail sales posted yet another very disappointing print, when despite a better than expected headline print of 0.9% in August advance retail sales, a number which included gas and auto sales, retail sales excluding these very volatile components, rose by only 0.1%, on expectations of a 0.4% rise, and a downward revision from 0.9% to 0.8%. This was the 5th miss in 6 months, and ugly all around. In other words, the US consumer, revised consumer credit data notwithstanding, is levering up and not generating any real new sales. Expect yet another round of GDP revisions. However, in light of yesterday's Bernanke announcement, it is pretty obvious that no macro economic data for public consumption does the disaster that is the economy in the Fed's eyes, justice, and makes us wonder just how ugly the underlying reality must be. All that said: with inflation spiking, and consumers lethargic, it certainly appears that Bernanke picked the perfect time for more monetary paper dilution.
A $4 trillion Fed balance sheet in 15 months (40% increase) and guess who is not happy. Yup, you got it.
From the Arabian Spring of hope (although technically protesting soaring food prices, something which is about to happen all over again) to the Arabian Fall of anti-American revulsion in under two years: has to be a blowback record. The latest casualty: the German embassy in Sudan:
- Protestors now inside German Embassy in Khartoum, Sudan - RTRS
- Protesters pull down emblem at German embassy in Sudan, raise Islamic flag, Reuters witness says - RTRS
- Protesters set KFC restaurant on fire in Lebanon over pope's visit, anti-Islam film -RTRS
So: Egypt, Libya, Yemen, Morrocco, Tunisia, Sudan and now Lebanon. Did we miss anyone?
It is scant days to the election and we cannot help but think that our continuing trip to the “presses of creation” is an act of contrivance to support “him that must be obeyed” while shameless in its purpose serves not the “greater good” but the lesser path of political contrivance. But in the meantime it is to be commodities up, oil up, gold up but what of the citizens; what of the people and no hooray from us for the abuse of power. It is a bill that will have to be paid and a scheme that has a cost and a stroke for the government and a stroke against those that have to pay for it. The dislocation between the governing and the governed could not be greater and we take no pride in watching the machinations of men with no thought for this generation; much less those who will follow. A shameless rout and ill gotten gains and a certain sadness for America.
Spanish Debt, Bank Borrowings Soar To Highest In Decades As Home Prices Fall By Most Ever While GDP ShrinksSubmitted by Tyler Durden on 09/14/2012 07:57 -0400
If only the Fed or ECB could print another Spain with the same facility that they engage in currency destruction, (and make no mistake: yesterday's "open-ended" Fed easing, is today's ECB "open-ended" intervention, is tomorrow's BOJ, is Sunday's PBOC, etc.), now might be the time. Because things in Spain, no matter what one is told, are getting progressively worse. The reason: on one hand the continuing surge in regions and total debt, both of which jumped in Q2, on the other hand Spanish bank borrowings from the ECB soared to €389 billion in August, a new record, and up from €376 billion, just as TARGET2 liabilities rose to a new record of €429 billion as well, explaining where that surge in German TARGET2 claims went, on the third hand housing prices collapsed by 14.4% in Q2, the most ever, and tying all the hands together was that the Spanish economy contracted. But please ignore the details. Focus on the important things, such as the surge in the Ibex, the S&P, consumer confidence, gold, crude, etc, however long these continue. Because unless there is such a thing as a free lunch, with every incremental injection, all Bernanke proves is that the underlying reality is far worse than what is telegraphed to the people.