Macro Storm Clouds Gathering
First Macro Cloud
As we all know, The bernanke's most cherished policy measure QE2 comes to a screeching halt at the end of this month. Assuming that the program ends as planned, the Fed will have bought about $600 billion of various Treasury securities since late 2010, in addition to whatever agency debt proceeds were “re-invested” into Treasurys. Once the cruthches are removed from the patient, will he stand on his own two feet? I should think not, afterall, his arms (unemployment) & his legs (Housing values) have not heeled at all. Ask SHJ what happens when crutches are removed prematurely;-)
"The Standard & Poor's 500, the US stock market's benchmark index, could fall roughly 10% from its current level, partly due to the upcoming end of the Federal Reserve's bond-buying program, Credit Suisse's US equity strategist said on Wednesday." Doug Cliggott, of Credit Suisse, told the Reuters 2011 Investment Outlook Summit in New York. "We are of the opinion it is still a big deal," Cliggott said. "We would think an index between 1,170 and 1,200 would be a realistic estimate of where we might be headed."
Although a third round of QE, namely QE3 has been heralded by the lame street media, as a possibility. We all know that inflationary price pressures created by QE1 & QE2 make a new round of QE very remote for now, and most politically controversial, as it is now perceived to have mainly helped the very same bankers whom are largely responsible for the mess we find ourselves in. Of course, the stealth QE of re-investing the interest earned on the hugh amount of crap currently held on the Fed's balance sheet will continue unabated. However, all in, this stealth QE only adds up to a little more than a third of the current monthly POMO. Hardly enough to keep grossly inflated asset prices from rapidly deflating.
Second Macro Cloud
The ever growing amount of discouraging economic data points released over the past month are alarming to say the least. The jobs report was a “disaster”, the housing numbers are dismal, manufacturing has slowed way down and consumer confidence is dropping like a rock. The bad economic news just keeps rolling in. It is almost as if someone has slammed on the economic brakes. The Institute for Supply Management (ISM) said its index of national factory activity fell to 53.5 in May from 60.4 the month before. The reading missed economists’ expectations by a long shot!
Mike Riddell, a fund manager at M&G Investments in London, recently explained to CNBS why he is so alarmed right now….“Initially, we just had bad news from the weekly jobless claims data, but now we’re starting to see a broad-based economic slump. US house prices have fallen by more than 5 percent year on year, pending home sales have collapsed and existing home sales disappointed, the trend of improving jobless claims has arrested, first quarter GDP wasn’t revised upwards by the 0.4 percent forecast, durables goods orders shrank, manufacturing surveys from Philadelphia Fed, Richmond Fed and Chicago Fed were very disappointing.”
Earlier this week it was announced that U.S. home prices have declined 5.1% from a year ago. Sadly, U.S. home prices have now fallen more than they did during the entire Great Depression.
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