Sunday, December 15, 2013 Monday, November 11, 2013
“Monetary policy in the United States is likely to remain highly accommodative for some time,” Fed Governor Jerome Powell said yesterday in a speech in San Francisco. Boston Fed President Eric Rosengren backed further easing to “achieve full employment within a reasonable forecast horizon,” while James Bullard of the St. Louis Fed said in an interview on CNBC he wants the Fed to “meet our goals,” singling out inflation. (via Three Fed Policy Voters Signal Prolonged Easing to Stoke Growth - Bloomberg)
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It’s important to note that inflation has been quite muted.  In fact there’s an increasing risk of deflation when one looks at recent data such as the CPI, and 10 yr breakevens.  I wonder whether investors will be surprised yet again (they have been time and time again) by a prolonged period of monetary easing.  

“Monetary policy in the United States is likely to remain highly accommodative for some time,” Fed Governor Jerome Powell said yesterday in a speech in San Francisco. Boston Fed President Eric Rosengren backed further easing to “achieve full employment within a reasonable forecast horizon,” while James Bullard of the St. Louis Fed said in an interview on CNBC he wants the Fed to “meet our goals,” singling out inflation. (via Three Fed Policy Voters Signal Prolonged Easing to Stoke Growth - Bloomberg)

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It’s important to note that inflation has been quite muted.  In fact there’s an increasing risk of deflation when one looks at recent data such as the CPI, and 10 yr breakevens.  I wonder whether investors will be surprised yet again (they have been time and time again) by a prolonged period of monetary easing.  

Wednesday, September 18, 2013
(via In surprise, Fed decides not to ‘taper’ - The Fed - MarketWatch)
Market rocket higher as investors price in a more dovish Fed.  With Yellen becoming the clear favorite, it’s clear that QE is becoming a staple in global financial dynamics.  Emerging markets will likely see some very big gains as well since they were hit particularly hard on fears of tapering.  
The punch bowl has not been taken away.  Party’s on! say the markets.

(via In surprise, Fed decides not to ‘taper’ - The Fed - MarketWatch)

Market rocket higher as investors price in a more dovish Fed.  With Yellen becoming the clear favorite, it’s clear that QE is becoming a staple in global financial dynamics.  Emerging markets will likely see some very big gains as well since they were hit particularly hard on fears of tapering.  

The punch bowl has not been taken away.  Party’s on! say the markets.

Wednesday, April 10, 2013 Friday, April 5, 2013

Weekly Bull/Bear Recap: Apr. 1-5, 2013

This objective report concisely summarizes important macro events over the past week.  It is not geared to push an agenda.  Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases. 

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Bull

+ A healthy trend in U.S. truck sales signals underlying strength in heavy equipment industries:

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  • Manufacturing remains a strong source of growth as per Markit’s PMI, which printed 54.6 for March.  New export orders surprised to the upside, signaling expansion in foreign orders, while order backlogs potend further strength ahead for the sector. The report mirrors strength in the February Factory Orders (ex-defense) indicator, which rose a strong 2.4%, reestablishing a strong uptrend.
  • The housing recovery continues to show traction, evident by a strong construction spending report for February.  YoY, overall construction rebounded to 7.9% vs. 6.1% in January.

+  Global economic activity is stabilizing: 

+ Stocks largely recover from triple-digit losses today despite a sub-par jobs report.  The Fed is “Full Steam Ahead" with QE.  The Fed will continue to aid the the recovery.  Furthermore, today’s job report actually has some bright spots.  Leading indicators of employment, such as temporary help employment and construction jobs, are indicating a strengthening job market and economy.  “‘Jobs day’ chatter is irresistible but almost without content. Monthly jobs numbers provide imperfect portraits of the recent past, and they are very poor predictors of the labor market’s future.”   

 

Bear

- Job creation slowed substantially in March (slowest in 9-months; Labor-force participation at 1979 levels), while corporate layoffs are 30% above year ago levels according to the Bureau of Labor Statistics and Challenger, Gray, & Christmas respectively.  Moreover, an additional spike in Jobless Claims, now at 385K, and a 3rd consecutive decline in the Rasmussen Employment Index further confirms that rose-shaded glasses worn by economists need to be put away quickly.  The U.S. economy is extremely vulnerable to further fiscal contraction and a weakening global economy.

image 

- Markit’s rosy view of U.S. manufacturing isn’t confirmed by the Institute of Supply Management, which reported a significant weakening in growth in March.  The index fell from 54.3 to 51.3.    

- On the global front,

Friday, March 8, 2013
First things first: The Federal Reserve is not going to end QE3 any time soon.
If there were any lingering doubts about the central bank’s commitment to its $85-billion-dollar-a-month bond-buying program, Fed Vice Chair Janet Yellen attempted to lay them to rest in a speech Monday morning at the spring conference of the National Association for Business Economics.
“I do not see any [costs] that would cause me to advocate a curtailment of our purchase program.” 
“We would not consider selling assets off until after the federal funds rate is increased.”
“I view the balance of risks as still calling for a highly accommodative monetary policy.”
For Fedspeak, this is as straightforward as it’s going to get.
(via Ben Bernanke and Janet Yellen are sounding awfully dovish)

First things first: The Federal Reserve is not going to end QE3 any time soon.

If there were any lingering doubts about the central bank’s commitment to its $85-billion-dollar-a-month bond-buying program, Fed Vice Chair Janet Yellen attempted to lay them to rest in a speech Monday morning at the spring conference of the National Association for Business Economics.

“I do not see any [costs] that would cause me to advocate a curtailment of our purchase program.” 

“We would not consider selling assets off until after the federal funds rate is increased.”

“I view the balance of risks as still calling for a highly accommodative monetary policy.”

For Fedspeak, this is as straightforward as it’s going to get.

(via Ben Bernanke and Janet Yellen are sounding awfully dovish)

Friday, November 23, 2012 Saturday, November 17, 2012

Weekly Bull/Bear Recap: Nov. 12-16, 2012

This objective report concisely summarizes important macro events over the past week.  It is not geared to push an agenda.  Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.   

Bull

+ Weak economic data and fiscal cliff concerns have produced a buying opportunity for risk assets.  Firstly, weakness in this week’s economic data is due to Hurricane Sandy.  Data will revert to trend growth soon and surprise investors to the upside.  Finally, we are beginning to see the contours of a resolution as per recent remarks from Obama and Boehner.  Democrats will pile the pressure on Republicans to relent.  Lawmakers understand the consequences of non-action and will naturally act in time to avoid the bearish scenario.  

+ Long-term U.S. economic bullish tailwinds are forming before our eyes.  Shale oil and “fracking” look to make the U.S. an energy powerhouse, spawning a wave of manufacturing investment and job creation.  The U.S. is forecast to be an oil exporter by 2030.  Furthermore, the housing market is on the mend with housing  bellwethers reporting improved earnings trends, economic data showing falling inventory levels, evidence of an improving trend in delinquencies, and leading indicators such as the S&P Homebuilders index and lumber prices signaling increased vigor ahead.  Finally, China continues to show stabilization; a rebound will ensue in 2013.  Longer-term, new leadership will ensure that the country’s important 5-year plan is properly executed.  These bullish tailwinds will grow stronger in the coming months and will cause a further uptrend in Citi’s Surprise Index (a measure of investor sentiment)…      

+ …In fact, sentiment on Main Street continues to improve and U.S. economic growth quietly surprises to the upside in the 3rd quarter.

+ Athens will likely be given additional time to digest austerity cuts.  European leaders understand that they must give Greece time to adjust.  This is a positive step and shows that political will for a unified Europe remains resilient.  Furthermore, GDP data for France, Germany, and Italy print better than expected.

Bear

U.S. companies fear the fiscal cliff and government gridlock is set to continue, all the while bailouts persist.  Falling core capital goods orders (affecting manufacturing), souring small business sentiment, and weakening consumer spending are ingredients for a self-fulfilling prophecy of recession.  Promises of further monetary easing are met with risk markets shrugging.  Monetary policy has become powerless to stop continued economic weakness.     

- Germany will be entering recession soon.  The important ZEW survey implodes in November, falling 4.2 points to -15.7.  A negative balance indicates that more experts expect the economy to contract over the next 6 months.  A political crisis in the Eurozone is increasing in probability.  How can Germany bailout other countries when it now needs stimulus of its own?  That will be a major question on November 20th when the Bundestag votes on the next tranche of aid to Greece.  

- Meanwhile, things are taking a turn for the worse in most if not all of Europe.  For September, Spanish industrial orders collapse almost 6%, while Eurozone industrial production falls the most in 3 years.  In France, recession is knocking on the door and Germany is pondering critiquing the country’s economy (good luck with that).  Meanwhile, most periphery nations are plagued with increasingly violent strikes and protests; the Greek government is beginning to lose control as a GDP print of -7.2% in the 3rd quarter has prompted the Prime Minster to announce that a “Great Depression" has descended on the country.  The IMF and EU continue to spar over the details of a new aid package —wavering IMF support is further fuel for uncertainty.    

- Weakness in Europe is spilling into Asia, with Japan on the cusp of another recession and Taiwan experiencing some intense market declines.  Meanwhile, geopolitics is further clouding the outlook.  Israeli airstrikes   kill the leader of Hamas’s militant wing.  This is occurring within the backdrop of already high  tensions in the region; a report from an U.N. agency fuels further fear of military conflict between Israel and Iran.  

Monday, October 22, 2012
It has been a little over a month since the Fed announced QE3; investors are already looking for an expansion to the program.  It’s becoming clear that monetary easing has lost much of its effectiveness.  Could we soon witness the popping of the moral hazard bubble, as investors realize that the Fed doesn’t always win?  
Caution is warranted.  The parallels between the U.S. and Japan are uncanny.  

It has been a little over a month since the Fed announced QE3; investors are already looking for an expansion to the program.  It’s becoming clear that monetary easing has lost much of its effectiveness.  Could we soon witness the popping of the moral hazard bubble, as investors realize that the Fed doesn’t always win?  

Caution is warranted.  The parallels between the U.S. and Japan are uncanny.  

Thursday, October 4, 2012 Monday, September 24, 2012 Monday, September 17, 2012 Thursday, September 13, 2012 Thursday, August 30, 2012
In 2010, the last time the Fed launched a bond-buying spree in an attempt to boost the flagging U.S. economy, many of the hundreds of billions in excess dollars went in search of better-paying returns in other currencies. This prompted an international backlash against the U.S. while foreign governments tried various tricks to anchor their ascending currencies and restore their exporters’ lost competitiveness. Brazilian Finance Minister Guido Mantega characterized it as a “currency war.” 
Bernanke responded to his foreign critics by declaring that the dollar’s weakness was a byproduct, not the intent, of Fed policy. Interventionist central banks should stop meddling with their currencies and instead worry about domestic inflation, he would say. That was all very well in theory, but developing countries weren’t buying it. Here they were, earnestly pursuing U.S.-recommended free-market policies, and now it seemed the Fed itself was deliberately flooding the world with dollars to lower the greenback’s value. They felt they had no choice but to fight back. (via QE3 and the looming currency war - Michael Casey’s FX Horizons - MarketWatch)

In 2010, the last time the Fed launched a bond-buying spree in an attempt to boost the flagging U.S. economy, many of the hundreds of billions in excess dollars went in search of better-paying returns in other currencies. This prompted an international backlash against the U.S. while foreign governments tried various tricks to anchor their ascending currencies and restore their exporters’ lost competitiveness. Brazilian Finance Minister Guido Mantega characterized it as a “currency war.”

Bernanke responded to his foreign critics by declaring that the dollar’s weakness was a byproduct, not the intent, of Fed policy. Interventionist central banks should stop meddling with their currencies and instead worry about domestic inflation, he would say. That was all very well in theory, but developing countries weren’t buying it. Here they were, earnestly pursuing U.S.-recommended free-market policies, and now it seemed the Fed itself was deliberately flooding the world with dollars to lower the greenback’s value. They felt they had no choice but to fight back. (via QE3 and the looming currency war - Michael Casey’s FX Horizons - MarketWatch)