Kudrna's Stock Market Talk

Quote of the Day:

Federal Reserve (Fed) policy appears all too dependent on Fed Chair Bernanke rather than what central banking should be about: the preservation of purchasing power. We hear the latest whim on what trick might work to boost the economy, disguised in the name of transparency.

What the Fed and the SNB have in common is that they are both run by celebrities.

Axel Merk

Macro Overview

The Committee To Pimp Your Wealth

• Yesterday I wrote a rather scathing article on Greenspan the Original Debt-Pimp of Western society. With a generation of easy credit, extended courtesy of an easy monetary policy, was it any wonder that the popularity of Keynesianism and Modern Monetary Theory reached new heights? Debt no longer mattered; it could be permeated on to the sovereign balance sheet and magically printed out of existence without any cost. For so many years it made sense to run expansionary policies as it was facilitated by a once-in-a-lifetime global economic backdrop. Importantly, it was a financial condition of no single party’s creation – as I explained in yesterday’s three tectonic macro factors of our era. Our mind repels the blatantly obvious as being too simplistic, but a large part of the economic propulsion was just fueled simply by fortuitous circumstance not by deliberate engineered construction by mastermind think-tanks.
• Never-the-less, as Axel Merk pointed out in a great piece (Perils of Celebrity Banking), this love for modern monetary policies inevitably led to an obsessive adoration for central bankers. The gallant Greenspan slew “the Beast of Black Monday” with the first of what would be many in a long line of sharp asset-price-sensitive monetary expansion initiatives (which the media later dubbed “The Greenspan Put”). No sooner had he done so, the “celebrity central banker” was born. Not a wonkish, grey-faced committee or collective with a mundane mandate, but the standard-bearers of the economy macro and micro, the wealth protector of the individual.
• Appearing on national TV and the cover of Time Magazine as “The Committee To Save The World” the message rang loud and clear. No longer was one’s 401k subject to the natural, at times destructive, forces of the market such as economic cyclicality and market volatility. Here, in Easy Al, modern America had the guardian angel of middle class savings, a wealth protector for the masses, an insurance policy on asset prices. With this media coverage came great influence, with the influence came great power and with this power came great political interest… … and the rest, as they say, is history dear reader.
• Human psychology is funny, I played a cruel trick on my 3 year old daughter: hiding a remote I managed to convince her that I could change the TV channel with a banana. We are hard-wired to observe patterns and intuitively impute association, even when it is irrational. So it is perhaps unsurprising that decisions of policy makers during the boom decades after the late eighties were perceived as Godly masterstrokes. No matter what the Feds and Politicians fumbled and mumbled out (sometimes even talking down the economy – see Greenspan’s irrational exuberance speech), the economy went from strength to strength, asset prices went higher and higher. Media stories portrayed these relatively irrelevant “banana remote” gestures as intellectual, even courageous, acts of heroic stewardship by a select few economic Maestros – intellectual elitists, moral giants among ignorant men and women like you and I, dear reader.
• We cannot blame the media, it feeds us only what we wish to consume. At the time there was little appetite for the bland hypothesis that the magical growth dynamic would have persisted irrespective of their ineffective tinkering, or even lack thereof. Of course, if you even dared to suggest that their so-called exemplary influence succeeded only in deftly transforming a booming economy with strong fundamentals into the mother of all financial crises you would have been torn apart as a pessimistic kill-joy and your pathetic skinny carcass dragged around Wall Street for the “Smart Money” investors to ridicule and jeer at.
• But we know the real story, dear reader, we know that everything happens for a reason and a purpose.

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Market Overview

Good Bond Auctions (Still) Buoy The Market

• Once again, the bond markets are leading sentiment. But the equity market break out is quite conservative. We need to either break the back of the shorts and trigger a sharp short covering rally. I don’t feel it yet, but they’re squealing a little… trust me, they’re squealing.
• One reason not to be quite so cheerful is the Portuguese situation.Portugal is looking like it is becoming the next Greece… and Greece looks like it’s becoming the next … well… Enron. See Chart of the Day for Portuguese CDS levels.
• That said, the Chinese growth numbers were better than even the bulls like Jim O’Neill were expecting – more from him another time!
• The other reason is earnings, I think if we see a good trend in earnings data then we are off to the races. So far it’s a little ambiguous – if anything disappointing (see Citi earnings missed forecasts)… so it’s a mixed environment. I cannot help feeling that the market needs to digest things a little and latch onto a definitive theme. That theme may well be earnings – Goldman, EBay and a few others reporting tomorrow – given Citi’s clanger it may be wise to keep an eye on GS numbers!

Chart of the Day

Events

Macro Events:

Update:

• Chinese Growth Numbers were good!

Alerts:

• Japan Industrial Production
• New Zealand CPI

Corporate Events:

Results:

• ASML [ASML NA], Bank of NY Mellon [BK], EBAY [EBAY], Goldman Sachs [GS], Charles Schwab [SCHW], State Street [STT], US Bancorp [USB]

Dividends:

• Caterpillar [CAT], General Dynamics [GD], Procter and Gamble [PG],

Reading, Links:

Nothing Significant

Similar Posts:

• TIPSTER: The Original Debt-Pimp – Alan Greenspan
• TIPSTER: Investment Themes To Look Out For in 2012, Part 2: Economic Climate Change – Monetary Global Warming
• TIPSTER: China – The Saviour Of Europe?
• TIPSTER: ESSENTIAL Information For Investors In 2012 – All You Need To Know About Sovereign Debt Auctions In Two Simple Charts
• TIPSTER: The Price Of Growth

Tags: Alan Greenspan, Axel Merk, Bernanke, Bond Market, CDS, Debt, Economy, Fed, Gold, Greece, Growth, Japan, Macroeconomic News, Modern Monetary Theory, Monetary Policy, Portugal, Short, TIPSTER

This entry was posted on Wednesday, January 18th, 2012 at 7:41 PM and is filed under Economy/Macro/Politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.