MAYBE. It’s the release of the most important economic data for market watchers, the unemployment report. The JOBS NUMBERS have taken on added importance as the FED has made its data dependent interest rate decision overly reliant on job growth and more importantly, AVERAGE HOURLY EARNINGS. Last month’s nonfarm payrolls were well below expectations and the market reacted in a HOLIDAY-SHORTENED trading session (Good Friday) with a rally in all ends of the interest rate market and the U.S. dollar being sold in response to a FEDERAL RESERVE remaining at the zero interest rate level for longer than previously anticipated.
Posts Tagged ‘QE2’
When Max Planck opined that “Science Advances One Funeral At A Time” it is believed that he meant that when proponents of long-held theories die, science is allowed to advance. In terms of trading I have applied this to mean that long-held losing trades have died a death due to lack of liquidity to support a flawed analysis. The BOND MARKET is going to provide the opportunity to put the wit of Planck to work as we try to examine the ways in which the FED will deal with the vast amount of reserves with which it has flooded the financial system. As traders and investors, the FED‘s decisions will impact the entire spectrum of the GLOBAL MACRO WORLD. Therefore, it is time to embark on thinking about ways the FED can remove reserves in the least disruptive and to anticipate what plans the central bank may have.
Ex-FED Chairman Paul Volcker delivered a speech on May 29, which served as a “shofar” blast, warning the FED and its governors to be cautious in possibly undermining the credibility that all central bankers strive to maintain. Mr. Volcker does not doubt the intelligence of Chairman Bernanke but what he worries about “… is a matter of good judgment, leadership and institutional backbone” (READ THAT AGAIN). “A willingness to act with conviction in the face of predictable political opposition and substantive debate is, as always a requisite part of a central bank’s DNA.” Now, knee-jerk FED supporters (insert name here) will maintain that is what Bernanke did in presenting QE1, QE2 and QE3–but he certainly had the support of a democrat-controlled HOUSE and SENATE in 2010. Also, the White House was a fervent supporter of massive monetary stimulus as he helped keep the economy from sliding into a chaotic state of asset liquidation. The FED may have suffered the barbs of some “tea party” legislators but for the most part the major powers in Washington and Wall Street provided the needed support for the FED.
Jobless claims, GDP, consumer sentiment … all meaningless as the Bernanke speech at 9 a.m. CST takes precedence. The financial world awaits to hear if the FED CHAIRMAN will deliver another gift like last August’s Portfolio Balance Channel speech. While QE2 did not commence until November, the groundwork was laid in August and the plan delivered at the September FOMC meeting. The markets well understood that the intent of Jackson Hole precipitated the equity market rally that began in September.
The week ahead will be waiting for the words of wisdom from Ben Bernanke and his take on where the U.S. is at and where the economy is possibly going. THERE WILL BE NO QE3. IT IS NOT BECAUSE OF RICK PERRY BUT BECAUSE QE2 IS A FAILURE BY ANY METRIC. THE YIELD CURVE IS FLATTER; UNEMPLOYMENT HASN’T IMPROVED; AND THE BELOVED PORTFOLIO BALANCE CHANNEL IS A NON-EVENT– AS MEASURED BY THE S&P/BOND RATIO–FOR THAT BELOVED INDICATOR IS BACK TO WHERE IT WAS AT LAST YEAR’S BERNANKE BLOCKBUSTER SPEECH. What did we get for the $600 BILLION in asset purchases. I know things would’ve been much worse. The FED has locked itself in to a two-year zero rate policy so it makes Bernanke’s task very difficult as the FED has expended a great deal of good will and has very little to show for its effort.
Notes From Underground: The Europeans delivered on a bailout of the Peripherals (Maybe So, Maybe Not)July 21, 2011
After reading through the vast amount of news on the Brussels “emergency” meeting, I am not sure I truly understand what the final outcome of the European resolutions for financial stability entail. There are bond swaps on Greek debt, which will mean a soft default, and then there is an increase in the size of the EFSF funding and a move to allow the buying of secondary sovereign bonds. Again, it is not so easily to understand at this juncture as so much contradictory information is being provided that the final agreement doesn’t appear at this time.
It was time for the FED Chairman to make his legislated appearance to Congress and Mr. Bernanke rightly refrained from being dragged into the battle over the budget. I have criticized the FED Chairman more than a month ago when he offered an opinion on the budget resolution. Fiscal issues are the purview of CONGRESS and the FED risks its independent stature if it wants to opine of the CONGRESSIONAL PREROGATIVE. Congressmen and women tried to get Bernanke to wade into the muddied waters and finally he flippantly said that legislators get paid the “big bucks” to make fiscal policy.
It is very difficult to find the GOOD in the global financial world, while the BAD and UGLY abound. The GOOD could be “found ” in low interest rates on BONDS and NOTES in the U.S. Yet when you scratch below the surface, the fundamental reason for a 3% 10-YEAR NOTE is nothing to crow about. Poor employment data and the fear of a credit crisis in EUROPE is forcing investors to find shelter in the debt instruments of the U.S., even as the Washington budget circus captures the headlines. The subtext of the GOOD is that the EUROPEAN DEBT DRAMA almost cratered the global equity markets but support was found for the EQUITIES and ITALIAN BONDS when the ECB purportedly intervened in the DEBT markets by buying Italian and Spanish debt.
I feel like I’m the odd analyst out in that Bernanke failed to impress upon me that he is a DOVE in HAWKS’ feathers. Reading the FOMC statement over and over leaves me wondering just what made the statement so strong an anti-inflation stance. The FOMC release reiterated that the FED is relying on closing the output gaps, “including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate for an extended period.” This is not the musings of an inflation HAWK.
Before I discuss the Financial Times piece penned by Larry Summers today titled, “How to Avoid Our own Lost Decade,” and tomorrow’s economic releases, Alan Greenspan answers to continued criticism from Notes From Underground in a recent interview in Newsweek:
Yet as the interview neared its end, his tone belied his agitation. “I am as sensitive as anybody. But criticism doesn’t bother me that much. I know with certainty that two plus two equals four, and I don’t need help to make that judgment.”