Oh yes, they did it again. Central Banks won this last battle. They squeezed out all the shorts and non-believers in the markets. Next war I am involved in (hopefully none at all), I don’t want the Pentagon to lead the troops on my side of the conflict. I want the top central bank chiefs in my war room. Napoleon couldn’t have made a better choice of generals. Don Corleone’s consigliere was a “benedictine contemplative nun” when compared to them.
I entirely disagree with their keynesian roadmap -and their ethics-, but I have to respect their professionalism. They all know the content and extent connoted in the expression “whatever it takes”. In fact, doing “whatever it takes” to protect “Aggregate Demand” (and market levels and the actual establishment as a byproduct) is the central wording in their oath. They forcefully implement what they deem necessary to achieve their goals. It was a tremendous coordinated effort this last week. ¡¡¡¡ Bravo !!!! I am impressed.
Now I understand why I will never be named a central banker. I do not have the guts, and my grab bag of principles is bulky. Right or wrong, I say what I think, and I do what I say. In a stable way. Right or wrong, my structural position in financial markets rarely changes, unless there is a changing reality. Flexibility is essential for survival, but one must have a solid theoretical underpinning for his economic thoughts. And my point of view certainly does not change in a fortnight.
On a more philosophical note, in truth the trouble is I disagree with the wording “whatever it takes” in most ambits of life. As a rule, I think the end does not justify all available means. Much less so, when in an area like monetary policy.
Looking back at the last couple of days of trading, you can underwrite whatever option suits you best. Central Bankers are the best market timers in history, or the infamous Greenspan put is alive and well. Maybe it is a combination of both. Trading in top financial institutions must be fun. No more than one or two down days every quarter. How is a provincial economist in the north of Spain going to beat that? It helps me remain humble. ¡Aren’t they smart!
Take the the tough markets of the last trading days, when the “common knowledge game” was under pressure. Some comments on the tape by Williams and Bullard made for an instant read. Surprising, to say the least. Last post, I was nearly dogmatic about the fact that Qeternity was finished for good. I was wrong. QE will be used, together with the rest of the tools in their tool kit, “forever and ever (amen)” -if necessary.
Markets were clearly oversold, but a full 110 S&P 500 retracement, and a complete turnaround in risk spread direction, is a little bit too much for my faith in market technicals. Of course I am always short of faith; I do have to improve that.
Back to our beloved members of the Fed politburó, I found this interesting recap of what they actually said, in a chart by zerohedge.
All this “consistent” wording took place in nine trading days. The bottom line: who cares about credibility, I will be talking my own book as required (private or public book). When you sit back and consider Kocherlakota’s conversion from hawk to dove two years ago (now, that is a miracle), or Lackers’ last year’s conversion in the opposite direction, together with the comments in the chart, you have to think there is something wrong.
But if you go further back and compare Bullard’s actual “just in time” comments, with those I included at the end of my post “follow the money”, you realize it is all really about sex. Any kind of sex, with any kind of partner, anywhere, “whatever it takes”. That is how we got to a population of seven trillion. No principles, just sex as available.
Mr. Bullard: are you for, or against market manipulation “all the time”? If the answer is affirmative, please specify if stealth intervention, POMO directed, and “stop-busting” inspired, is the way you like it done. I will understand a “no comment” reply on this one.
If we take a look at what happened on the European side of the Atlantic, we saw more of the same. More understandable though, because risk premiums for insolvent countries soared, and that was really a desperate action needed for the survival of the “ecosystem”. The central bank rapidly engaged in the pre-announced ABS buying for the first time, and they later reiterated that they would be extending their money printing to the buying of corporate bonds. Jens Weidmann must be thrilled! Nevertheless, no hawks hit the wires on those difficult days. Preserving the common knowledge game, and manipulating markets thoroughly, is the one thing that keeps them together. It is nice to see some human solidarity up above.
I really thought the Central Banks were going to allow the bubble to deflate as gently as possible. And I was wrong: the Greenspan put is alive, and they cannot afford to let go of the common knowledge game. Short term, good news; but awful news in the long run. Deflating this bubble is not going to be done orderly by Central Banks. It will have to be a total collapse of the system when brainless investors understand that debt will not be paid. Let’s forget the possibility that money printing is tempered. It won’t happen. They will prime the pump up till the very end. Some in their families were musicians in the “Titanic” orchestra.
The Sex drive is everywhere. Principles don’t matter any more. Take deflation or inflation as perceived risks. I was naive. It is not only about economic theory. No use debating which is the best option long term. Short term optimization will win, and now we also have to handle a powerful underlying sex drive that makes the different countries adopt the different views that suit them best. They all want the best sex available, “whatever it takes”.
I liked this post by David Marsh in Marketwatch. “Dragui has his back to the wall”
“…the debtor-creditor balance in monetary union has become badly skewed. Debtors hate deflation and want inflation, creditors see things the other way around. The International Monetary Fund’s data base on countries’ international investment positions makes alarming reading. Germany’s net foreign-credit position rose to 48.3% of gross domestic product in 2013 from 34.0% in 2009, the Netherlands’ to 46.2% from 16.7%. Italy’s net foreign-debt position increased to 29.5% from 26.6%, Spain’s to 98.2% from 93.8%, France’s (perhaps the most worrying shift) to 17.0% from 9.4%.”
So it’s not about the best way out of this mess. It is about the actors own convenience. The euro is doomed. Germany will opt out sooner or later (probably as late as possible, “just in time”, but before money printing and asset buying buy the ECB destroy the value of the currency). There is a conflict of interest between creditors and debtors. The first need a hard currency, the second a soft one to devalue their debt. Do you really think they are going to agree on that?
I also loved this chart from Citibank, courtesy of “thedailyshot”. It is a global view on the past and actual consolidated output of the different printing machines. Money printing is the bellwether sector for the next couple of months or years. It does look as if somebody will keep printing “whatever it takes”. If Europe breaks, and Japan becomes unable to print because of yen panic, the Fed might restart the printing presses. But liquidity growth is a must for the survival of this crazy set up.
Yes, once again, I have to insist. This is all about jointly and simultaneously sustaining both money printing, and the common knowledge game. The common knowledge game two main axioms are that debt will be paid, and that there is an implicit (it was explicit last week) central bank put in the risk markets. If those two foundations continue to “fly”, things will remain stable. Printing is up to them, and they have shown us that they will print again if required (Dragui, Williams, Rosengren, or Bullard, to name just a few). Only a loss of faith in the common knowledge game can spoil the fun. And they took good care of “faith” over the last couple of days. Believers are flocking back to mother church in droves.
The last one on sex drives is related to the “trivial” inequality issue. As I said, we should all know that nothing matters but the two concepts previously outlined. But I had hoped this would be something more implicit. I am still wordless on this unimaginable post in Marketwatch by a lady called Furchtgott. Very clear phrasing, to be sure.
“Janet Yellen heads one of the most important agencies in America, the Board of Governors of the Federal Reserve. It has many tasks, but analyzing the state of inequality and education in America is not one of them. Nevertheless, Yellen on Friday returned to her role as professor of labor economics and delivered an address on economic inequality at the Federal Reserve Bank of Boston.
It would have been far better for those on the bottom of the economic heap if Yellen had spoken about how to increase economic growth. Specifically, why have the Fed’s near-zero interest rates and quantitative easing left us with 2% growth and a Carter-era labor-force participation rate? More growth means more jobs and higher mobility.
Instead, Yellen said: “The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression.”
Since 1970, income inequality has increased for a number of reasons that should not concern Janet Yellen.
Raising GDP growth from its current sluggish rate of 2% to 4% would provide new opportunities for millions of Americans. But despite massive monetary accommodation, the Fed has consistently been dialing down its growth forecasts rather than up. Perhaps Yellen can explain why”
I will not mention Cantillon again, people should read a lot more. I am mindful of the need for growth. I am also aware of the need to remain focused on AD and the sustainability of the common knowledge game. Finally, I understand that Janet should not be bothered with minor “frivolous” issues like pervasive poverty. I will just include this graphic from Grant Williams. You can think for yourselves.
Go on Janet, remain focused and concentrated in growing Aggregate Demand, and ensuring market manipulation to uphold the common knowledge game. Do not distract from the task at hand. Just give the poor some food stamps, and that will help keep them quiet. As an aside, it’s good to know that you are at least concerned though. Thank you.
When things get really tough, you just have to lie, says Juncker. If we are looking for a professional liar, state-of-the-art, we should try look inside the PBOC or a similar institution in China. The Chinese are also wholeheartedly cooperating with the common knowledge game. You know the lie scale in economics. Ordinary lies, damn lies, statistics, and “chinese statistics”. Look at this last “growth data” provided by the chinese establishment. If you believe this, you are a valuable client for any religion. I find it easier to believe in Shiva.
A late comment on the latest chinese data by Reuters:
China’s gross domestic product grew 7.3 percent in the third quarter from a year earlier, official data showed on Tuesday, the weakest rate since the first quarter of 2009.
That was slightly above the 7.2 percent forecast by analysts but slower than 7.5 percent in the second quarter, and even then some economists were surprised.
“It’s hard to square the GDP print with the industrial production numbers for the quarter,” said Andrew Polk, economist at the Conference Board in Beijing, one of the more pessimistic research houses on the Chinese economy.
“There are confusing things going on. You have credit growing at the slowest pace since 2002. You have real estate investment slowing on a monthly basis and you have industrial production averaging slightly above 8 percent on a quarterly basis, slightly down from Q2. With that being the most reliable component of GDP on a quarterly basis, 7.3 percent seems a bit high to me.”
Why do they lie to us on growth? Why do they try to increase GDP with some accounting tricks, hookers and drug dealers included? In truth, nothing matters except printing and the pretence that debt will be paid. Deflation, recession, inequality, environmental sustainability, etc only matter if and when related to the perception that actual debt will be paid, and actual balance sheets are valid.
This will only implode when brainless citizens realize that the IOU’s in the global consolidated balance sheet are worthless. We may have to wait a long time for that. Particularly if the average IQ continues to fall, and POMO desks continue to be as ruthlessly efficient as they are proving to be.
So we are in the same inherent situation as last week, but the common knowledge game has recovered hordes of faithful addicts. Central Banks are still in charge. Speculators and permabears have been punished. Central Banks have publicly blackmailed the market, reminding us that any re-pricing temptation will generate a POMO retaliation -Israeli size and style, and refreshing the fact that more QE is always a possibility. They want us scared and compliant. They are succeeding.
I do not think retaliation and repression (real or financial), are sustainable politics for the world. As Ghandi once said, an eye for an eye makes the whole world blind. They are useful only when you have your back against the wall. Or when your sex drive is desperate. They are. The first hints of panic are starting to show, but they won another round.