I sat in a room with these three guys – John Mauldin, Marc Chandler and Christian Menagatti — for an hour yesterday along with a handful of other reporters, and it was completely fascinating, so the 35 minutes you might invest in this video is well worth your time.
Incidentally, we’ll have Mauldin on tomorrow’s Markets Hub, live at WSJ.com at 10:30 a.m.
Good year in 2010 for US stocks, not such good one for Byron Wien’s list of “top ten surprises.” As a strategist, and now Blackstone vice chair, He’s been doing this a long time. Doesn’t mean he’s getting any better at it, though.
By our count, he was completely wrong on eight of his predictions, mostly wrong on his No. 1 (GDP would grow at 5% real rate, unemployment would drop below 9%; S&P 500 operating earnings would come in above $80 — that looks safe.)
Big swing and a miss on the following:
- Fed would raise interest rates, with Fed funds rate at 2% by year end. We’ll be lucky if that one happens by 2012.
- Yield on 10-yr note would go to 5.5%. See above. Equally fanciful.
- S&P rallies to 1300, then falls below 1000 and ends year at 1115. Nice try. Not even close.
- Dollar rallies vs yen and euro, with EUR/USD dropping below $1.30. Briefly correct on that one, but didn’t last.
- Congress would pass bills providing loans and subsidies for new nuclear power plants. Didn’t happen.
- Democrats would only lose 20 House seats in November. Whoops.
- Civil unrest reaches crescendo in Iran, Ahmadinejad gets pushed out. Also didn’t happen.
- Japan’s Nikkei 225 rises above 12000. Not quite. Continue reading…
While we of course have our own opinions and axes to grind, and gleefully grind them away here at the blog, we still publish a wide variety of viewpoints at Market Talk, the version that goes out on Dow Jones Newswires (subscription required for that link there.) The idea is to give our readers an idea of what’s being discussed out there, and we do just that, hitting as many angles on the issues of the day as we can reasonably and responsibly gather.
Why, just today we published this snippet that Steve wrote up, citing Todd Harrison over at Minyanville on the subject of rising interest rates:
Interest rates jumping to three-month highs “smack dab in the face of QE2″ suggest bond investors are merely selling the news or anticipated the Fed would flood the economy with even more than the $600B announced bond purchase plan, Todd Harrison writes at Minyanville. “Prepare yourself. There will be a large contingent of bulls coming out of the woodwork to opine that higher rates are a healthy and natural bi-product of a recovery,” he says. “That’s true; the question, of course, is how ‘healthy’ and ‘natural’ this recovery is given the steady stream of synthetic sweeteners being administered by the government.”
How prescient Harrison was, or is, since not two hours later, we published this snippet, written up by our Treasurys reporter Min Zeng, citing Morgan Stanley on the subject of rising interest rates:
Morgan Stanley is casting a positive light on the recent sharp rise in Treasury yields. In a research note Tuesday, market strategists at the firm says the sharp rise is due entirely to real rates as inflation expectations have declined. Add to that the US dollar rally, and the market may be expecting stronger real economic growth, a view shared by Morgan’s economists, they say. “This may also indicate that growth has taken over from QE as the main market driver,” they say. “In our view, this upside risk is enough to balance out the increased downside risks elsewhere,” namely euro zone debt problems and China tightening monetary policy.
QE2 can create money out of thin air, apparently, but it can’t create jobs of out thin air, evidently, and that is the crux of the limitations of and problems with continuing central-bank tinkering at this state of the game.
ADP, the big check-processing outfit, gave its take on the September jobs picture, and it wasn’t pretty. The firm estimated the economy shed 39,000 jobs in September, below the Street view that it would report a gain of 20,000. Among a work force of 150 million some-odd workers, that’s not a big number either way, although psychologically it hurts more to see a negative number than a positive one. Now, ADP’s methodologies don’t exactly align with the BLS, which reports the “official” numbers on Friday, but they’re not that far off, so you can expect another weak report Friday.
This is the entire problem, Mousketeers. Jobs aren’t being created, not anywhere on the level needed. Jobs are not being created because demand is not there. Maybe, in a world where the 10-year yield is at 7% or 8%, and mortgage rates are running even higher, the Fed can have success in goosing demand by lowering rates. But with the 10-year currently, right now, this morning, at 2.42% — close and getting closer to its all-time low of 2.40% 2% hit at the depths of the crisis — with mortgage rates already at all-time lows, what are lower rates going to do? Not much.
What's he doing in there?
If I were a betting man, if I were in the markets and not just somebody who reports on the markets, I’d be betting hard money that the Fed will do nothing today. If I could find anybody to lay odds on that, of course.
It just seems kind of nuts to think the Fed is going to embark on some major initiative today, at the end of its one-day rate-setting meeting. Isn’t the economy healing? Isn’t the recession over? Haven’t the data points been getting better? Then why are so many people thinking the Fed’s going to jump back in with some big support program?
Of course, on the issue of rates, it’s beyond obvious that the Fed’s not going to raise them, despite the fact that the recession is apparently over and the economy growing again. You want to know when the recession will really be over? When the Fed starts raising interest rates.
But the market isn’t focused on that. The market, and not just the stock market, is focused on whether the Fed’s going to announce a new round of quantitative easing, buy Treasurys in order to hold down interest rates (and, oh, if some of that money happens to trickle down to risky assets like, say, stocks, well, they can’t really help that now.) In the market, this is a real question.
Stocks are hardly moving at all, although Treasurys are rising, as everybody’s waiting to see what the Fed’s going to say this afternoon. (It seems odd to me, because, you know, the recession’s over and all that, but people are actually expecting the Fed to do something material in support of the bond market and economy.)
I wish free money was really free and that there was a painless way to move from severe recession and high leverage to robust and sustainable economic growth, but there is no short cut.
- Kansas City Fed President Thomas Hoenig, arguing the Fed needs to raise interest rates.
Helicopter Ben'll never let us down. He won't, won't he?
The put may be in trouble.
Will the Fed announce today that it’s completely exhausted its effective policy tools, and we’re all just having to pull ourselves up by our own bootstraps and trudge our way out of this hole, or will the central bank assure us it’s got the situation under control, it’s not as bad as you think, and by the way, watch out for that inflation that’s surely coming as soon as things pick up, and by the way, we’re going to dip our toes back into the market.
It’s surprising to see stocks down as much as they are ahead of a meeting of the Fed’s rate-setting committee, the Federal Open Markets Committee, the FOMC. Usually, traders hold tight until the 2:15 p.m. ET statement from the committee. Then, all hell breaks loose for about half an hour. I can’t recall a big sell-off like this preceding the statement. It’s almost like somebody leaked the statement.
First things first: they are going to leave the fed funds rate in this zero to 0.25% band it’s been in for more than a year (note that at any other time, this would be considered absolute, sheer madness, and that is no exaggeration; that’s an indication of the true state of our economy.) Nobody but nobody doubts that. What is up for debate is what the Fed’s going to do next, now that it’s apparent to just about everybody that the economy is decelerating, or rolling over, or stalling, or crapping out, call it what you will.
The problem is, there may not be much more for them to do, and that could put a big crimp in the market’s fail-safe position: that the Fed will always bail them out.
Main Street and Wall Street aren't exactly BFF these days.
Came across a line in a research report today that I wanted to share, because it gets right to the point I was trying to make yesterday in that economic-growth post. Lena Komileva, an analyst at Tuellet Prebon, wrote the following:
With economic confidence flagging in the US factory, housing and consumer sectors where will the growth impetus come from? Two decades on, the BoJ is still trying to answer that question.
So, hey, look, it’s not just me wondering that. It is not an academic question, either. It is also not a very easily answered question.
“I see nothing stimulative on the horizon as far as employment goes,” Invictus writes at The Big Picture. He notes that the durable-goods report is very closely correlated to the nonfarm payrolls report, and tends to lead it by about four months. So if durables are rolling over, and they’ve been down the past two months, well, you can see where that gets you.
Komileva says yesterday’s durable-goods report confirmed that the best growth figures are behind the economy, although at the moment investors seem focused on “short-term liquidity conditions” rather than the longer-term fundamental picture — as in, the Fed and ECB are clearly on hold for the foreseeable future as far as interest rates go, so the easy money’s going to continue to flow.
Does helicopter Ben have something up his sleeve?
US stocks looking to extend their weekly gains on Wednesday, as a slew of corporate earnings is taking a backseat to Fed Chairman Ben Bernanke’s Congressional testimony later this afternoon.
Speculation has been swirling about what measures the Fed may announce to stimulate growth, especially as chatter of the economy double-dipping back into recession keep increasing. Even though it’s unlikely Bernanke will announce anything substantial in his semi-annual testimony before Congress, the prospect of additional support for the economy has helped lift the major averages more than 1% this week.
“There is hope that the Fed will ride in again on its white horse and save the day,” David Carter, chief investment officer at Lenox Advisors, told me yesterday. But he cautioned that potential further loosening of monetary policy or other any other moves by the Fed could have negative long-term implications.
But does the Fed even have a white horse to ride in on anymore? There’s a growing sense that there’s only so much the central bank can do to prop up the stock market and, subsequently, the overall economy. Miller Tabak equity strategist Peter Boockvar hit the nail on the head in his morning commentary today:
What everyone watching must ask is has the law of diminishing returns set in with the actions of the Fed. I believe yes.
It’s a great point and one that has us reflecting on the Fed’s first major interest rate cut during the financial crisis. In January 2008, the Fed instituted a surprise rate cut, slashing its overnight lending rate by 75 basis points to 3.5%, in a move intended to help prevent the economy from falling into a recession.
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