Reflationistas - Fed Jawboning Unleashed
Friday’s hot U.S. payrolls report is spurring renewed bets that U.S. reflation is back in vogue, with market attention focused squarely on this week’s price data. Two titans of the bond market -- Vanguard and BlackRock -- reckon inflation is poised to soon reach the Federal Reserve’s target of 2 percent, citing a tight labor market and momentum in wage growth. While market-implied odds of more tightening by year-end remain below 50 percent, dollar bulls may find more ammunition in the coming days as Fed officials hit the speaking circuit and details on tax reform possibly come to light. A slew of corporate credit investors, meanwhile, are betting the eerie calm in bond markets won't last, with risks ranging from a sharp uptick in yields that awakens volatility, to geopolitical tensions, and the looming deadline on the U.S. debt ceiling.
Remember a couple weeks ago when the Fed got all dovish and worried about not getting its inflation target? Remember when Draghi stated a few days before he too was dovish again? Remember how the markets were caught off guard? Fun times.
Keep this in mind. The Fed's agenda is to reload its gun for the next QE (or worse) and in the meantime end an easy money cycle that has gone on years longer than it should. And any talk is just talk. They are just biding time for the next data piece that will permit them to hike. When the Fed is right, it is merely at the right place at the right time. When it is wrong, it is your fault for not complying. And ultimately, as the Government's backstop, taxpayers will pay to make Fed policies right. From a previous post:
Perhaps the most effective salvos of all were landed by Alex J. Pollock of the R Street Institute, who calculated that monetary policy since 2008 has led to a net $2.4 trillion wealth transfer away from savers. Pollock then went for the knockout blow, challenging the premise of the Fed’s raison d’etre:
There can be no doubt that taking $2.4 trillion from some people and giving it to others is a political decision and a political act. As a clearly political act, it should be openly and clearly discussed with the congress…analyzing the economic and social implications.
And western perception of Gold is the Fed's true barometer of success. To the CNBC, ETF, iphone-buying-on-lay-away-plan public West, it is a failed investment. But to the East, where the physical is going, and the pricing mechanisms are slowly moving it is a successful hedge against currency debasement.
Charts HERE
The Fed Sucks
If you believed that the Federal Reserve had superior knowledge and insight into the economic and financial future, you could plausibly conclude that it should act as a group of philosopher-kings and enjoy independent power over the country. But no one should believe this. It is obvious that the Fed is just as bad at economic and financial forecasting as everyone else is. It is unable to consistently predict the results of its own actions. There is no evidence that it has any special insight. That is in spite of (or perhaps because of) the fact that it employs hundreds of Ph.D. economists.
Moreover, the notion of philosopher-kings is distinctly contradictory to the genius of the American constitutional design. Seen in a broader perspective, the Federal Reserve is an ongoing attempt at price fixing and central planning by committee. Like all such efforts, naturally it is doomed to recurring failure.
U.S. inflation hopes rekindle, OPEC meets again, and new sanctions are imposed on North Korea.
OPEC meets
Representatives from OPEC and non-member nations are gathering in Abu Dhabi for a meeting chaired by Russia and Kuwait to discuss poor compliance on the supply-cut agreement that came into effect at the start of the year. Compliance fell to 86 percent in July, the lowest level since January, according to a Bloomberg survey. West Texas Intermediate prices traded near $49 a barrel after briefly touching $50 at the start of the month, with oil bulls challenged by U.S. production at its highest level in two years, as well as the continued supply glut from OPEC nations and non-members.
Korea sanctions
The United Nations Security Council unanimously approved new sanctions on North Korea, following its test of two intercontinental ballistic missiles last month. China expressed confidence that the move -- aimed at curtailing Pyongyang’s exports by around one third -- will help bring North Korea to the bargaining table. Tensions between Beijing and the U.S. over trade may ease as a result of cooperation on the matter, experts say. U.S. National Security Adviser H.R. McMaster said the administration didn’t rule out the possibility of a “preventative war,” underscoring heated tensions between the U.S. and North Korea over the latter’s nuclear push.
Markets mixed
The euro rose against the U.S. dollar despite an unexpected drop in German industrial production data reported this morning. The MSCI All-Country World Index rose 0.15 percent to the highest on record, while the Stoxx Europe 600 Index declined 0.1 percent as of 05:37 a.m. Eastern Time. Futures on the S&P 500 Index advanced 0.1 percent.
Brexit takes shape
The U.K. will offer 36 billion pounds ($47 billion) to settle the Brexit divorce bill, in a bid to spur discussion toward a future trade deal, the Sunday Telegraph reported over the weekend. Though Brexit Secretary David Davis played down the report, the story suggests the U.K. is looking to get specific on its plan to exit the European Union as details emerge of transitional arrangements the government is seeking ahead of a third round of talks with the EU later this month. As Brexit and inflation bite, the U.K. economy doesn't have much of a buffer. Consumers cut back on spending in July for a third month, putting them in their worst expenditure slump in more than four years, according to data published on Monday , while the household savings ratio fell to a record low.
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