Confused why every asset class is up again today (yes, even gold), despite the pundit interpretation by the media of the FOMC statement that the Fed has halted more easing? Simple - as we said yesterday, there is $3.6 trillion more in QE coming. But while we are too humble to take credit for moving something as idiotic as the market, the fact that just today, none other than Goldman Sachs' Jan Hatzius came out, roughly at the same time as its call to buy Russell 2000, and said that the Fed would announce THE NEW QETM, as soon as next month, and as late as June. Furthermore, as Goldman has previously explained, sterilization of QE makes absolutely no difference on risk asset behavior, and it is a certainty that the $500-$750 billion in new money (well on its way to fulfilling our expectation of a total $3.6 trillion in more easing to come), in the form of UST and MBS purchases, will blow out all assets across all classes, while impaling the dollar. Which in turn explains all of today's action - dollar down, everything else (including bonds, which Goldman said yesterday to sell which we correctly, at least for now, said was the bottom in rates) up. Finally, as we said, yesterday, "In conclusion we wish to say - thank you Chairman for the firesale in physical precious metals." Because when the market finally understands what is happening, despite all the relentless smoke and mirrors whose only goal is to avoid a surge in crude like a few weeks ago ahead of the presidential election, gold will be far, far higher. Yet for some truly high humor, here is the justification for why the Fed will need to do more QE, even though Goldman itself has been expounding on the improving economy: "The improvement might not last." In other words, unless the "economic improvement" is guaranteed in perpetuity, the Fed will always ease. Thank you central planning - because of you we no longer have to worry about either mean reversion or a business cycle.
For all this talk and hype, QE 3 is nowhere to be found. And it won’t be showing up anytime soon unless a full-scale Crisis hits. The reason for this is that the political landscape in the US has changed dramatically with the Fed becoming more and more politically toxic. As a result of this, the Fed (with few exceptions) has begun to shift into damage control mode.
Dallas Fed's Fisher "Perplexed" By Wall Street "Fetish" With QE3 And Disgusted With The Addiction To "Monetary Morphine"Submitted by Tyler Durden on 03/05/2012 14:36 -0400
And now for some pure irony, we have a member of the Fed, granted a gold bug, but a Fed member nonetheless, one of the same people who not only enacted ZIRP, but encourage easy money every time there is a downtick in the market, complaining about, get this, Wall Street's "continued preoccupation, bordering upon fetish" with QE3. The irony continues: "Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery....I believe adding to the accommodative doses we have applied rather than beginning to wean the patient might be the equivalent of medical malpractice." So let's get this straight: these academic titans, who for one reason or another, are given free rein to determine the fate of the once free world with their secret decisions every two or three months, are completely unaware of classical conditioning, discovered by Pavlov nearly 90 years ago, also known as a salivation response. The same Fed is shocked, shocked, that every time the market dips, the red light goes off, and the "balls to the wall" crowd scream for more, more, more free money. Really Fisher? Really? Oh, and let us guess what happens the next time the S&P slides into the tripple digits: will the Fed a) do nothing, thereby letting the market slide to its fair value in the 400 point range, or b) print. Our money, in the form of hard yellow metal, is on the latter, just like we predicted, correctly, back in March 2009 in " Bailoutspotting (Or The Search For The Great Financial Methadone Clinic" that nothing will ever change vis-a-vis the great market junkie until it all comes crashing down.
Last week's manufacturing ISM was a big disappointment, making a mockery of Wall Street expectations, and of course its biggest permabull , Joe Lavorgna who came 10 standard deviations above the final number. Will this weakness continue today? If yes, it is merely a loophole for the Chairman to use at the next FOMC meeting and further goose the market. If not, it likely means that Friday's NFP number will see a record 'adjustment' fudge factor with payrolls soaring well above the consensus, on a last ditch effort to get the economy to sustain a virtuous cycle. Unfortunately when one takes away the $2 trillion punchbowl injected over the past 6 months into the global economy, this is impossible.
On this leap day, we have a busy schedule which includes the second Q4 GDP revision, Chicago PMI (expect another massive beat courtesy of consumers confident that they can have Apple apps, if not so much food, since they still don't pay their mortgages), various Fed speakers, of which most important will be Ben Bernanke who takes the podium in Congress at 10 am for his semi-annual monetary policy report.
Mind versus technicals.
A one-stop shop summary of bullish and bearish perspectives on this weeks news, data, and markets.
Punxsutawney Ben, who just saw the printer's shadow, and predicts six more trillion of free money, will address the House Budget Committee later this morning. We will also get the latest BS from the BLS how thousands of mass layoffs every day result in a drop in initial claims.
Following the Fed's somewhat downbeat perspective on growth, confidence in investors' minds that the US can decouple has been temporarily jilted back to reality. It is of course no surprise and as the World Bank points out half of the world's approximately $15 trillion trade in goods and services involves Europe. So the next time some talking head uses the word decoupling (ignoring 8.5 sigma Dallas Fed prints for the statistical folly that they are), perhaps pointing them to the facts of explicit (US-Europe) and implicit (Europe-Asia-US) trade flow impact of a deepening European recession/depression will reign in their exuberance.
First it was Zero Hedge. Then Ron Paul joined in. Now it is the turn of a former Dallas Fed Vice President, Gerald ODriscoll, to outright accuse the Fed of bailing out Europe courtesy of "incomprehensible" currency swaps, and implicitly accusing Bernanke of lying that he would not bail out Europe even as he has done precisely that. And not only that: by cutting the USD swap spread from OIS+100 to OIS+50, the Fed has made sure it gets paid less than ever for extended Europe the courtesy of bailing it out all over again. Incidentally, O'Driscoll says, "America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here." One thing we can say proudly - it has been noticed loud and clear here...
UPDATE: And then Dallas Fed manufacturing misses (at -3.0 vs +4.8 expectations) as expectations for future finished goods plunge as do current inventories.
As if we needed yet further evidence of the dichotomous macro data that seems to provide as much bearish fodder as bullish decoupling confidence, today sees a near-record two-month jump in conference board confidence at the same time as S&P/Case-Shiller prints at a seasonally-adjusted 103 month low. With the Richmond Fed also missing expectations (though positive), we remain in the miasma of CONfidence uninspiring macro data as the underlying sub-indices of the conference board data show little to no shift in purchasing decisions despite some seemingly incredulous ramp in confidence that incomes will rise more than they decline in the next six months.
Prior to 2008 it was generally understood that the profession hardly merited its claims of its own predictive utility. So the failure to assign enough risk to such a crisis as befell the developed world in 2008 was, frankly, no surprise. But in the aftermath of the crisis, economics, in its professional form, has revealed itself to be damagingly disconnected from observable reality. A glaring example of this is how it cannot come to any agreement as to how the debt crisis occurred, and accordingly remains quite confused in its proffered solutions. Mostly the profession remains curiously naive about the nature of debt, an understanding of which is more critical than ever as the developed world enters a 'slow' to 'no-growth' phase of its history. Indeed, many of the papers, interviews, and op-eds from central bankers and economists in the face of our present-day sovereign debt crisis are little more than an eerie restatement of the discussions which took place about private-sector debt from 2006-2008.
The only thing that matters is the November Employment Report and a few comments from Fed officials.
- According to La Stampa, the IMF is preparing a EUR 600bln loan for Italy, in case its debt crisis worsens, although the report was swiftly denied by IMF officials
- Several papers reported that Germany is considering the option of joining the five other AAA-rated Eurozone member states to issue common bonds. However, the German finance ministry dismissed the report later in the session
- Particular narrowing was observed in the Belgian/German 10-year government bond yield spread partly after Belgian negotiators reached an accord on the country's 2012 budget during the weekend, together with well received OLO bond auctions from Belgium