I am very confused by the constant bombardment of the news headlines that tend to contradict each other. One begins to wonder if the “ARMS” race media outlets are running is to craft headlines that have the greatest market impact. In a world of keyword algo readers, the market impact can be immense in a mere TWO SECONDS.
Last week it was the economic lightweight Jon Hilsenrath writing that traders and investors were misinterpreting the Bernanke hints at tapering and the FED’s QE program would remain in place longer than the markets were anticipating. It was thought, as usual, that the Hilsenrath piece was a planted piece by the Bernanke-led communications team.
This afternoon, the Financial Times’s Robin Harding, a Hilsenrath rival, introduced his own thoughts. Mr. Harding wrote that the FED would in fact announce that the beginning of tapering was near as the near 200,000 average job creation during the last past six months has been a much stronger indication of economic growth than previously supposed. The immediate impact was to break the S&Ps, BONDS and COMMODITIES as tapering was NOW ON AGAIN.
If the FED is behind this effort to confuse the market, the FED will pay an enormous price for a central bank with a credibility gap and a huge balance sheet is kicking the hornets nest. I think what is taking place in the world of vacous media headlines–based on algorithmic influence, is to be found in the movie DELIVERANCE. It’s not dueling banjos but dueling journalists in a battle to be relevant.
If that is not to your movie tastes then I offer the scene from ANNIE HALL when the protagonist, Alvy Singer, drags out Marshall McLuhan. I would say to Robin Harding and Jon Hilsenrath: You know nothing of economic theory and you are merely attemting to become the message for in your case both of you prove that the MEDIUM IS THE MESSAGE. Chairman Bernanke, deliver us from this madness and provide clarification so we can end this war of egos … FED CREDIBILITY DEPENDS ON IT.
***As always, the world of politics and economics collide this week. We have the G-8 meeting in Northern Ireland and, of course, the FOMC meeting Tuesday and Wednesday, with a Bernanke press conference following the FOMC interest rate announcement. The G-8 is an irrelevant group and searching for a place like an out-of-date Hollywood starlet. Russian President Putin has out maneuvered the other members of the old G-7 and the entire meeting has been neutered over the Syrian Civil War. Putin never misses an opportunity to stick his finger in the eyes of the U.S. and its allies.
The final coomuinque will be saturated with flowery language and grandiose intentions, but as for traders, MOVE ALONG AS THERE IS NOTHING OF SUBSTANCE GOING ON HERE. The FED meeting will be much more interesting and the rhetoriticians will be out in force parsing every little word.
Tomorrow, I will have more to say on what to expect from Chairman Bernanke but as of now we will have to wait from the next media release from Jon Hilsenrath as he attempts to regain his position as FED keyman. It is wasn’t causing massive volatility and unnerving the retail investors it would be humorous. The damage being done to FED credibility is not a laughing matter for a world saddled with so much central bank activity.
***More politics. There is great intrigue in Australian politics as it is rumored that present Prime Minister JULIA GILLARD is in danger of beings replaced by her predecessor, Kevin Rudd. PM Gillard is leading the Labor Party into September’s election and presently the polls reflect that LABOR would be thrashed by the Liberal-National coalition. Seeing as Gillard used backroom intrigue to remove Rudd from power, there is an effort by Gillard supporters to thwart any movement to reinstate Rudd as Labor’s standard bearer.
The impact on the markets need to be watched as some analysts believe a removal of Gillard and Rudd being head of LABOR going into the election would be a positive for Aussie markets and even the recently weakened Aussie dollar. I don’t subscribe to this view as it seems a conservative party winning election would be far more positive for Aussie stock and currency markets as PM Gillard has continually tried to raise taxes on Australia’s natural resource corporations resulting in a slowdown of capital investment. While Rudd is a known entity, Labor has an uphill battle in trying to sustain itself in a slowing economic environment.
The huge SHORT AUSSIE positions make the currency subject to volatile short-covering rallies. Aussie traders need to be nimble in this realm of great domestic and global political uncertainty.
Tags: Australian dollar, Ben Bernanke, Fed, FOMC, Jon Hilsenrath, Julia Gillard, Kevin Rudd, QE, Robin Harding
June 17, 2013 at 8:34 pm |
Australian politics is fairly predictable. Labor spends and spends and creates huge national debts. The Liberal-National coalition is voted into office to clean up the mess, which it does, then Labor is voted back into office to again start the spending spree. Too bad the American political scene is not as predictable.
June 18, 2013 at 1:24 am |
Thanks for your notes.
Bernanke will have a bit each way again and the media will make up whatever story suits them, nothing will improve and the can will get kicked down the road a bit further.
If Kevin Rudd is a smart politician he will not challenge Gillard. Better to wait till they lose and build a new platform.
June 18, 2013 at 2:19 am |
Though I am the son of an ex-Liberal MP, I think one would be discounting too much the macro-context of Labor’s time in government. Certainly drawing a distinction between Gillard and Rudd in power is not something I think the market will do. Indeed, markets (ex-mining) should be pro-Labor because of their spending bias.
I don’t think their policy (however poor it has been) can be attributed as having been causal to the current climate in Australia, rather; China’s stimulus in 08/09 and current slowdown was and is much more relevant.
If Abbott is elected, one could assume there may be a brief rally in mining stocks due to the likely abolition of the resource tax, that is as long as the situation doesn’t deteriorate further.
June 18, 2013 at 6:23 am |
To the Aussies:Good on ya for the political analysis–very helpful to get thru the Aussie election period and its possible effects on the economy and financial markets.Carl,I want to see if an Abbott election or increased strong polling has a positive impact on the DOLLAR which has been under pressure by design—do you think Governor Stevens has political leanings???
June 18, 2013 at 9:36 am |
I agree with you, an Abbott government signals tighter fiscal policy and might likely be positive for the balance of trade as well as AUD positive.
Albeit, I think the macro factors in China are of and hold too great an influence on the AUD, for me it is an Iron Ore/Steel story.
If the AUD remains range-bound then maybe you will have the opportunity to test/observe it.
When you say the AUD has “been under pressure by design” are you suggesting economic or political motivations?
I would assume Gov. Stevens would have a bias to the right (Lib) from my observations of his speeches and comments, but you know he say’s about assumption… http://youtu.be/PSHCyz163pw
June 18, 2013 at 10:01 am |
Aha! That explains my confusion. As a mathematician, engineer, and computer scientist (and investor – former and reformed stockbroker), I tend toward wanting to understand the logical underpinnings of actions and what led to them. I have for some time now shouted “bollucks!” at the TV and even printed matter (gave up on Economist – just another elitist social progressive rag).
So, since I will not read any entire transcript of these Fed meetings, guess I’ll cancel understanding of the Fed moves as part of my analysis of how to invest, and just do the Bogle thing of buy the general market, walk away and hope for the best.
Re: G8, I pretended to myself to be Putin yesterday, addressing western reporters: “I am not really interested in Mr. Obama’s feelings, and don’t care or worry that he will actually do anything.” This was just an excuse for a summer European vacation.
Aussie politics are of interest and your quick take good input. I am leaning toward becoming more bullish there and in Brazil.
June 18, 2013 at 11:15 am |
Carl–I think a combination as Stevens finally cut in May and offers more.As I argued for the last year,the Aussie yiled curve was signaling problems and Stevens waited and waited and even was somewhat bullish on the economy—the recent “unexpected ” cut caused a significant move in the curve and helped put downward pressure on the currency
June 18, 2013 at 8:56 pm |
I am far more inexperienced than you Yra, but it felt to me that Gov Stevens was watching the equity rally since the August sell-off – which was the beginning of Australian mining stocks sell-off.
I think Gov Stevens interpreted this as a minor correction, whereas the macro observers I talk to regard it as a structural secular shift and the beginning of the end of the commodity cycle. As the slowdown, which restarted in February for miners and mining service stocks; persisted I think Stevens had to make his move to weaken the currency after he saw the correction didn’t bounce.
Perhaps I am too equity focussed… Also how many more cuts do you expect?
June 18, 2013 at 11:34 am |
Yra-Having read The Holy Grail upon your recommendation and seeing what I would call a trend of rising rates across the spectrum and a steepening yield curve, could one make the case that interest rates are rising more on the back of the balance sheet recession in the US coming to an end than just fed speak? Obviously if this is the case it will force the Fed to act, one would hope(not saying I am hopeful) if they are to be responsible, and raise rates. It just seems to me risk appetite could be actually returning to main street US business’ and we could be witnessing the beginning of the end of households and business’ being ultraconservative. I have to admit there will need to be more verification before one can confirm this, but I am seriously considering the possibility albeit, much early then I ever thought I would be. Could this be partly why the recent fiscal tightening with increased taxes and the sequester did not cause the economy to turn down as some expected even in the short-run? The market is pushing me in this direction.
June 18, 2013 at 11:59 am |
And just to clarify when I say “raise rates” I mean start to “taper” slowly and let market rates drift higher.
June 18, 2013 at 12:07 pm |
Where do I submit my market moving articles, can someone share the algo email addresses please?
June 18, 2013 at 3:14 pm |
Dustin L.—You raise a very good point here,but I am not where you are yet.The FT actually has a good piece in dealing with your question in the second section–i don’t have it with me but it comfronts your issue.It is just too early to know and because of all the market dislocation caused by the FED and other central banks,the landscape is so polluted that we can just not be at all certain.If bullshit articles by SECOND RATE scribblers can add or subtract billions from the markets then it is far too early to see through the fog of war.I believe Richard Koo would say we are nowhere near the end of the “balance sheet recession” and as the FT article points out—600 billion budget deficit with a ZIRP FED policy and growth is all of 2%–just doesn’t signal end of debt repair.