I am he as you are he as you are me and we are all together
See how they run like pigs from a gun,see how they fly
I’ m Crying
Friday’s U.S. jobs report was stronger than pre-ADP consensus, only because of several pundits pushing the idea of 250,000 non farm payrolls (the whisper number seemed to be around 225,000). Thus, the 203,000 NFP was well within the range of prediction. The falling rate to 7.0% was a stronger sign of growth, especially when coupled with a rise in the participation rate and a fall in the U-6 rate. Average hours worked gained and wages increased by 0.2% per hour. All in all, it was the most positive data in many months. Manufacturing was a pleasant surprise as 27,000 jobs were added along with 17,000 jobs in the construction sector.
1. The Bank of England will announce its rate decision at 6 a.m. CDT and look for the status quo. Governor Carney has been pleased that the U.K. economy is gaining traction and the Brits’ QE program has been tapered for a quite awhile, meaning that the BOE‘s balance sheet has remained at 375 BILLION POUNDS in asset purchases. Inflation has been lowered while growth has increased. The rise in housing prices will be a concern but Carney seems to be comfortable decreasing the lending program to private borrowers while continuing to keep loans flowing to small and medium businesses. The BOE will keep rates at 0.5% and probably use a cautious outlook in reference to Europe so as not to excite STERLING BULLS.
This reference is to Janet Yellen’s testimony in her Senate confirmation hearing as the chairman-to-be cited the benefits of the Fed’s policy of über low rates for the average household. While many Senators challenged the negative effects of the Fed’s policy for savers–financial repression in the words of Carmen Reinhart–Yellen noted that people were not just savers but also consumers. Thus, Fed policy may harm the return on savings, but households may receive the benefit of lower home and auto loans and the Fed’s QE policy may have had the ripple effects of getting their college graduate a job. So financial repression was a very difficult outcome to measure against the broad economic outcomes.
It’s all good, so say the pundits. The tapering discussions have now moved to the issue of FORWARD GUIDANCE as Chairman Bernanke has maintained that at the zero bound interest rate FG may have more influence on rates than quantitative easing. For the Nth time, the FED is at a fork in the road and doesn’t know which path to take. A continuously steepening YIELD CURVE is an indication that the market is signaling its discomfort with the Fed. The rise in the longer end of the curve is causing the Fed a great deal of concern because their model seems to say that continued pressure on the short end will act to keep long rates low (unless, of course, the market is questioning the Fed’s credibility and rolling out of BONDS and into the equities). A key question for the FED: Are equity markets a better long-term investment (hedge) against the success of Fed policies?
In staying in sync with the chairwoman-to-be, Chairman Bernanke spoke at the Herb Stein Memorial Lecture and provided support for Ms. Yellen’s Senate Banking Committee testimony. It appears that the FED certainly wants to reduce the role of large-scale asset purchases (QE) by beginning to emphasize the importance of FORWARD GUIDANCE. In the beginning of the speech Bernanke stated: “Indeed, expectations matter so much that a central bank may be able to help make policy more effective by working to shape those expectations. Experience demonstrates that a useful approach to managing expectations … involves policy makers stating clear objectives as well as their plans for attaining those objectives.” The importance of forward guidance as a Fed tool resulted in the failure of the central bank to hits its previously announced time-based expectations. Each time the Fed put forth a date for possible ending the present policy, the economy failed to adhere to the Fed’s time-table.
1. The Senators should be applauded for dealing with Ms. Yellen in a dignified manner and allowing substance to prevail over theatrics. The questions were about issues of importance, and as I wrote on reading the Wednesday afternoon release of her prepared testimony, heavily oriented on the issue of the Fed’s regulatory responsibility. Yellen made it clear in her response on the issue of the FED‘s policy on deflating ASSET BUBBLES that monetary policy was too blunt an instrument.
Ladies and Gentlemen of the Senate: Just put forward the candidacy of Janet Yellen by acclimation because it is a done deal. It cannot be stopped and so any posturing for the voters back home and any potential donors is a waste of time and energy. Also, don’t provide the idiot talking heads with any “red meat” to keep their empty heads talking. This afternoon’s release of Yellen’s testimony proves that Vice Chairwoman Yellen is a very intuitive politician. HERE IS THE MOST ASTUTE POLITICAL PIECE OF THE STATEMENT (in my opinion):
The fools are alive with the sound of tapering. There’s a constant drone of the CNBC crowd that the fear of Fed tapering has sent emerging markets to nine straight days of losses. While the emerging markets have been responding negatively to tapering, the developed markets have been making new highs. So it seems that the FED removing liquidity will be far more detrimental to the emerging markets than to the developed world’s equity markets. A quick snapshot of the tales of two markets reveals the divergence taking place in the global financial markets. The Mexican ETF EWW is down 12% on the year while the S&Ps are up 27%. Yet, the Mexican economy is heavy dependent on the U.S. market for a large percentage of its exports. If the U.S. consumer is healthy enough to help the U.S. equities to a solid gain on corporate profits, how can the Mexican financial markets be so negatively divergent? It is not only the issue of economic growth but also the health of the overall financial system.