St Louis Fed

Several important releases today, including the advance report for Q2 GDP, which consensus sees at 1.8% and Goldman is materially lower at 1.5%. A QE Lite POMO closes at 11:00 am. Chicago PMI and UMich consumer confidence round out the data, which will again be vastly inferior in market movery to headlines out of Europe and the US.

Once again the world will be watching Greece although with far less interest as the parliament is expected to pass the austerity bill with voting expected to commence on each individual point in the mid-term package at about 8 am Eastern. In the meantime there will be quite a bit economic data, such as Initial Claims, the critical Chicago PMI, the Kansas City Fed Index, as well as various Fed speeches. Most importantly, today is the day when the Fed stops adding net liquidity to the market with the last POMO due at 11:00 am. Expect another window dressing meltup into the afternoon at which point anything goes.

We wonder how consumers are expected to contribute to the recovery?

Probably the most imprtant secular trend in recent employment data, one that has a far greater impact on the macroeconomic themes than Birth/Death and seasonal adjustment manipulated month to month shifts in the employment pool per either the household or establishment surveys, is the labor share of national income. In a 2004 paper from the St. Louis Fed, the authors make the following statement: "The allocation of national income between workers and the owners of capital is considered one of the more remarkably stable relationships in the  U.S. economy. As a general rule of thumb, economists often cite labor’s share of income to be about two-thirds of national income—although the exact figure is sensitive to the specific data used to calculate the ratio. Over time, this ratio has shown no clear tendency to rise or fall." It would be wonderful if this was true, and thus if the US population really had a stable distribution of income between laborers and capital owners. Alas it is dead wrong. In fact, as the latest note from David Rosenberg points out, the "labor share of national income has fallen to its lower level in modern history - down to 57.5% in the first quarter from 57.6% in the fourth quarter of last year, 57.8% a year ago, and 59.8% when the recovery began." And here is where the Marxist-Leninist party of the US should pay particular attention: "some recovery it has been - a recovery in which labor's share of the spoils has declined to unprecedented levels."

The idea of turning the EU into a Bankster's Paradise (where you lose sovereignty to your creditors) slapped the Dollar down to it's lows of the day and boosted the EU markets and US futures and gave us our re-shorting opportunity on oil.

New home sales and speeches from several Fed officials. Even with the debt ceiling breached, and retirement funds tapped, it does not prevent the Treasury from issuing new bonds: $35 billion in 2 Years to be auctioned off at 1 pm. But never fear: Brian Sack will pump another $5-7 billion in our daily POMO.

• French government says China backs Lagarde for IMF (Reuters)
• ...but, China has actually not backed Lagarde (WSJ)
• “You Americans Are Funny” — You Start an IMF (Forbes)
• Norquist Emerges as Barrier to U.S. Debt Deal (Bloomberg)
• Scarcity, Usefulness, and Getting an Edge (Hussman)
• Bullard Says Fed May Keep Rates, Balance-Sheet Steady to Assess Economy (Bloomberg)
• For Global Steel Industry, China Poses Guessing Game (WSJ)
• Goldman Finding Third Time a Charm in Russia (Bloomberg)
• Greece Will Accelerate State Asset Sales to Stem Debt Crisis as Bonds Drop (Bloomberg)
• It can go wrong? It will go wrong (WaPo)

The only thing on today's light economic calendar is the FOMC’s April 26-27 meeting minutes, as the Fed proceeds to monetize bonds now that the debt ceiling has been reached. And meanwhile in Washington we get a debt limit discussion, two securitization-related events, and another energy vote that is expected to fail...

Last week’s flow of cyclical data was broadly encouraging. However, cyclical currencies traded weak against the USD. In addition, the Greece situation stood at the forefront of market attention. This week will offer us more on that front with the Ecofin/Eurogroup meetings on Monday. Other than that, we have important cyclical data this week with the Philly Fed on Thursday standing out as the key forward-looking indicator. It will also be interesting to watch trends in initial claims, which has been volatile recently. Finally, Fed Chairman Dudley’s speech will be interesting to follow, together with FOMC minutes.

Jobs, jobs, jobs. A miss will mean QE3 is certain and send the market flying. A beat means the economy is sturdy and will send the market flying.

"Permanent increases in the monetary base foreshadow eventual increases in inflation that can increase, rather than reduce, unemployment."So, the Chairman was....lying?

Data on Personal Income should indicate another reduction in the savings rate, Chicago PMI will miss consensus confirming economy is in Japan-induced freefall, UMichigan will poll a couple of Wall Street CEOs who have never seen Jeeves happier, and lastly Bernanke will speak in some televized conference and not providing any new data as usual.

Homebuilder sentiment and a few speeches from Fed officials. In general week to be quiet as market begins holiday wind-down.

The Fed is in a bind. No matter which way it turns, utter failure is a risk. Putting more money into the system risks no less than the dollar itself. Stopping quantitative easing (QE) risks plunging the economy and financial system into another period of turbulent decline. It looks like they are going to choose the latter. In a recent report, I made the case that pressure was building on the Fed to end its QE 2 program in June, and that if it did, there would be an enormous rout in the stock, bond, and commodity markets. That analysis still stands.

Just the ADP report today on the docket, while the Fed's hawks will be on parade once again after being let out last week, with Hoenig, Lacker and Bullard spreading the anti-QE3 gospel. In the meantime a $6.5 billion POMO will close at 11am EST.