Posts Tagged ‘England’

Notes From Underground: Orwell that ends well with Mervyn King and the Bank of England

January 26, 2011

Two central banks issued their statements on interest rate policy. First, the FED STAID the course and left QE2 as it was/is and the language of the FOMC statement was almost verbatim from the December meeting. I am greatly bothered by the second paragraph again and the emphasis on “CONSISTENT WITH ITS STATUTORY MANDATE” (emphasis mine). The FED continues to hide behind the legislative directive of price stability and maximum employment. The FED reiterated that price pressures were negligible but that unemployment is elevated. So for all those in Congress, stop complaining for the Bernanke group is merely fulfilling its legal obligations.



October 26, 2010


The best quote to describe today’s market action after the more robust British GDP numbers comes from the column in the London Telegraphby Jeremy Warner. It is an apropos comment that the FED and all policy makers should take to heart and it comes from that master wordsmith, Mike Tyson:


Today, the markets got hit from the British GDP number and it might have sent Britsh and possibly U.S. quantitative ease reeling to a later time. The market consensus was for a 0.4 percent increase while the actual number printed at 0.8 percent–double the predicted release. The British pound had been trading very soft against the world’s currencies making the highest high since the first quarter yesterday. The EUR/GBP cross, which reversed off the highs of Monday, immediately droppped another 1.5 percent, closing around 0.8750.
The FOOTSIE also was sold as British interest rates moved higher on the better economic data, with the 10-year GILT gaining 15 basis points. Until today the market had convinced itself that the Brits were following the FED into a new round of QE as the British economy remained mired in tepid growth and the Cameron government was embarking on an austerity budget program. The more robust GDP number may mean that the new round of QE may not be needed or that the BOE under Mervyn King may take a wait-and-see approach.
The depreciation of the POUND has given ENGLAND some economic relief as British goods have become much more competitive within the European Union. As Cameron has reminded the markets, the brunt of British trade is within the EU and since the beginning of 2007 the British currency has dropped 33 percent against its major trading partners. Now the question arises: Why does the British GDP have possible significance for the Bernanke FED? The quick answer is that the FED policy wonks openly admit that they are in unchartered waters in the QE realm and really don’t know the impact that all this liquidity enhancement will have upon the economy.
The huge buildup in the FED‘s balance sheet is unprecedented so there is no historical basis on which to rely. Some of the most dovish FED board members admit this. We ask if it would not be better to proceed slowly now that global growth may be picking up and the global equity markets are pointing to better growth ahead. Yes, I know that the EQUITIES are being lifted on a pool of liquidity and may not mean that the growth is sustainable. But that is why it may be better to hold some QE for a later date.
A reader of ours, KM, maintains that it may be better to invoke a type of POWELL DOCTRINE–come with everything you got–but we wonder if it is better to hold back reinforcements in case of another downturn. Let’s remember that five months ago Bernanke and company were on the center stage discussing ways to remove the QE. By August we were back looking for new ways to enhance QE while the FED began reinvesting all the MBSs that had been rolling off. This shows that the FED has gotten it badly wrong recently and they be in the middle of another possible misstep. If the economy were to turn up faster than recent FED missives have predicted the FED could really be in a terrible bind as it moves to retract an enormous amount of money from the system.
The FED meeting of next week will bring high market volatility for the conventional wisdom has been for a dynamic QE move by the FED. New York FED President, DUDLEY, openly stated that a 500 billion QE add would be the equivalent of a 50-to-75-basis-point ease. How he knows that I don’t know but it must emanate from one of his beloved models. The FED has the cover of the recent S&P and equity rally to stay its hand. Yes, the stocks, bonds and commodities will sell off but it will be a good test of where all these markets will find support when left on their own without more FED injections. BEN BERNANKE it is time to test the waters to see if the previous bouts of stimulus have had any real success before you dig the HOLE DEEPER. While markets are an important source of FEEDBACK, policy makers cannot be held captive to the talking heads and the wall street money machine. WHAT SAY YEA BEN?



Notes From Underground: G-20 is waste of time and energy; finreg is just a waste

June 27, 2010

Germany added liquidity but it was all directed at the British goalie David James–nothing austere about their World Cup peformance. The news from the G-20 was as expected: Nothing short of a waste of time and the resulting communique will be the paradigm of vacuousness. The Chinese took center stage in that they spoke up for the developing nations, stating they wanted input in the discussions about global problems. We agree with the Chinese that the G-8 is an atavistic appendage of a past colonial world and is merely the delusional forum for those wishing to hold onto a past that left the arena long ago. Yes, we are sure that Russia, Brazil and the others that make up the most robust members of the emerging world want to advise the likes of Italy, Spain and France who have certainly failed to get their own economic houses in order.