QE Is Dead, Now You Tell Me What You Know
It seems like every blue moon or so I need to return to Groucho's definition of chaos theory, it keeps on popping up.
The first time I used it in an article goes back to at least May 2009, incidentally for many people the starting date of the financial crisis in their part of the world. This time around, it's there because it's what a lot of people in the financial markets must be feeling. And I mean 'must' in the sense of 'should' be feeling, though I don't think they are. Yet.But if the demise of US QE means anything, it's the end of certainty, of confidence that someone out there would be holding your hand all along the way to riches. The difference between complacency and volatility, in a nutshell. Which is, predictably, going to freak a lot of people out. Ain't nothing feels as comfy as a bearded gnome or a grandma in charge of the mega money machine to do your work for you. Those days are over. Might as well get used to it. First, here's Groucho once again:
Well, art is art, isn't it? Still, on the other hand, water is water! And east is east and west is west and if you take cranberries and stew them like applesauce they taste much more like prunes than rhubarb does. Now you tell me what you know.
So what do you know after Yellen's long and generally awaited announcement yesterday? Quo Vadis? Where are stocks going to go, and bonds, and oil, and gold, and the dollar now the reserve currency meta multiplier machine has been shut down? I know a lot of people, probably most, are thinking 'they' are going to find - other - ways to 'save' the economy and the markets.
If I were you, I'd ask myself a question or two in that regard. If market stability were one of the Fed's priorities, their surest bet would have been to maintain at least some sort and some amount of QE. Meanwhile, their argument that jobs are so greatly improved is simple nonsense.
So again, and I'm asking this a lot and not getting answers, why did they do it, and why the timing?From what I can see,
the Fed is - successfully - fooling Americans into believing their economy is doing well, if not great, and they used Greenspan yesterday to inject some doubt, or realism if you will, that Yellen couldn't have included in her speech lest she's be perceived as doubting her own words.
It's all a message, a spin, a story that they want people, including you,
to believe. It's a certain version, a particular interpretation, of what goes on, but that says nothing about the level of truthiness in that message. Yellen's speech was followed today by the first (preliminary) Bureau of Economic Analysis US Q3 GDP report, which cheered its way all the way into a 3.54% growth rate. So people think: she was right, we don't need QE, we're doing great!
But behind the veil of that growth number lie far less positive ones, as for instance described today by Rick Davis at the Consumer Metrics Institute:
In their first estimate of the US GDP for Q3 2014, the BEA reported that the economy was growing at a +3.54% annualized rate, down a little more than 1% from Q2. "Improving" imports and government spending are the stars of this report. Imports swung into positive territory with a +0.29% contribution to the headline number, up +2.06% from the prior quarter. Similarly, governmental spending contributed +0.83% to the headline, up over 0.5% from Q2 (with Federal defense "consumption expenditures" creating a +0.76% boost to the headline number all by itself even as growth in state and local spending softened).
Essentially all of the other line items were either flat or had a negative quarter-to-quarter impact on the headline. Inventories (as expected) reverted to mean and took -0.57% out of the headline. Commercial fixed investments grew at about half the rate reported during the prior quarter, the growth in exports lost about a third, the growth rate for consumer spending on goods was halved, and although consumer spending on services did increase, the increase was a relatively mild +0.10%.
Inflation (or disinflation/deflation) plays a major part in this report, since during the quarter dollar-based energy prices were plunging. US "at the pump" gasoline prices fell from $3.68 per gallon to $3.32 during the quarter,
a 9.8% quarter-to-quarter decline and a -33.8% annualized rate - pushing most consumer oriented inflation indexes into negative territory.What counts today when it comes to inflation is really just one single factor: spending. By people like you and me.
And that kind of spending is way down, as reflected in velocity of money stats.Why is spending falling the way it is? Unemployment in all its facets including persistently high personal debt, a shrinking labor participation rate, alt-control-deleted benefits and lower wages.========================================================
Note: The GFC actually started well prior to May 2009.