San Francisco Fed

Steve Liesman is quaking in his reporter's boots this morning as the SF Fed & BEA's credibility-crushing "double-seasonal-adjustment" thesis is crushed into statistical neverland by the The NY Fed. A study by economists at the Board of Governors of the Federal Reserve did not find significant statistical evidence for such distortions on the aggregate GDP level, despite meteoroconomist Joe Lavorgna's assertion that Q1 grew 1.2% thanks to the magic of made-up numbers. As The NY Fed concludes, in a tone that suggests "sigh, again, "it will not be surprising if the question of residual seasonality comes up again next year when first-quarter growth numbers are announced."

Although we solved the "mystery" of America's missing wage growth some three months ago, the central planner/ Ivory Tower crowd is still confused. WSJ has taken the time to lay out nine prevailing theories from some of the country’s ‘finest’ economic minds...

Given the rather depressing plight of the average US laborer, it’s little wonder that some workers are inclined to “alter their mood” a bit before punching the clock. Indeed, over the past 24 months, a decades-old trend towards falling workplace drug usage has reversed itself, with 4% of workers now testing positive for either legal or illegal drug use.

Just when you thought Wall Street's best paid, yet worst weatherman couldn't come up with any more gut-busting, roaring humor, he unleashes what is surely today's biggest financial trollery.

"The real disconnect lies in the failure of the economy to grow, as most people assumed that it would, after the Fed's quantitative easing and zero interest rates had supposedly worked their magic. But as I have said many times before, these policies act more as economic depressants than they do as stimulants. As long as these monetary policies persist, our economy will never return to the growth rates that would be considered healthy.... We prefer the ability to manipulate figures rather than allowing the figures to tell us things that we don't want to hear."

Traders looking to get an early start on the holiday weekend will have to wait a bit longer today, as Janet Yellen is set to speak to a sold-out audience at the Providence, Rhode Island Chamber of Commerce’s Economic Outlook Luncheon today.... *YELLEN SAYS RATE RISE AT SOME POINT THIS YEAR IS APPROPRIATE

To preserve any idea that the US is not heading into recession, the FOMC is now wholly reliant on statistical processes within the BEA’s use of the Census Bureau’s updated ARIMA-X13 modeling system. It is amazing to see this policy body that once proclaimed, unequivocally and forcefully, that it could perform the monetary equivalent of sorcery and alchemy reduced to quivering about winter. The latest policy statement, a silly farce of its own accord, is, quite simply, an embarrassment.

"The government agency charged with calculating the nation's growth rate is acknowledging problems with its numbers and pledging a series of fixes over the next several months", Steve Liesman reports, confirming that the BEA is about to do precisely what we predicted two days ago and seasonally adjust its seasonally adjusted data in what might very well be the most blatant instance of goal-seeking in the history of statistical analysis.

When there is so much bullshit floating around that you forget what you wrote just a month ago, and when the central planners can't even agree on what lie to agree to use, then the status quo truly be in jeopardy.

It could go up, or it could go down.

Less than a week ago, fresh from the aftermath of the recent dramatic six-sigma move in German Bunds, one of Europe's largest banks openly lamented that so far the ECB's QE had done absolutely nothing: "two months of QE for nothing." And lo and behold, as if on demand, overnight the ECB confirmed it had heard SocGen's lament when just before the European market open, ECB executive board member Benoit Coeure delivered a speech at the Brevan Howard Centre for Financial Analysis (appropriately named after a hedge fund) at Imperial College Business School (not to be confused with the July 26, 2012 Mario Draghi "whatever it takes" speech which also took place in London) in which he said that the ECB intends to "frontload" i.e., increase, its purchases of euro-area assets in May and June ahead of an expected low-liquidity period in the summer.

The punchline from the most recent San Fran Fed "research" paper is that since Glenn "double seasonal adjustment" Rudebusch is one of Yellen's favorite hometown economists, she now has the green light to completely ignore the weakest economic print since last Q1, and to focus entirely on the best economic print in the US: the surge in part-time senior citizen workers, pardon, the "zero slack" unemployment rate of 5.4%. She also has the justification why to ignore it: the bad data wasn't seasonally adjusted enough (the good data was seasonally-adjusted just right).

If yesterday's laughable lack of volume (helped by the closure of Japan and the UK) coupled with hopes that the end of the buyback blackout period was enough to send stocks surging if only to end with a whimper below all time highs despite what is now looking like three consecutive quarters of Y/Y EPS declines according to Factset, today's ramp will be more difficult for the NY Fed and Citadel to engineer, not least of all due to the headwind of the overnight "incident" by China's stock bubble which saw the Shanghai Composite tumble by 4%, the most since January.

Judging by the recent action in equity futures, the continuously rangebound US market since the end of QE may be entering its latest downphase, catalyzed to a big extent by the recent strength in the JPY (the EURJPY traded down to 2 year lows overnight), especially following yesterday's not one but two statements by Abe advisor Harada saying a USDJPY at 125 isn't "justified" and a 105 level would be appropriate. A level, incidentally, which would push the Nikkei lower by about 20% and crush Japanese pensions which are now mostly invested in stocks. Not helping matters was the pause in the Chinese and Hang Seng stock bubbles, with the former barely rising 0.3%, while the former actually seeing its first 1.6% decline after many days of torrid, relentless rises.

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• Japan’s Zero Inflation a Setback for Abenomics (WSJ)
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