Nico Omer

“Somehow many policymakers and citizens have come to believe that money printing is some kind of magical process, that good things can be produced literally out of thin air, and that if leaders don’t create growth from obviously-needed changes in wrongheaded policies, then poof!… printing more money will solve it.  This is pathetic.

“The range of inevitable costs to societies practicing such alchemy is somewhere between “a lot” and “utterly catastrophic.”  The damage is already becoming evident, particularly in the distortion between the rise in financial asset prices and the sluggishness of the real economy.

When consumer prices soar across the board or there are other painful consequences, we wonder what excuses the blameworthy policymakers will make to deny their responsibility.

“A loss of confidence in paper money could result in searing and startling inflation, evaporating life savings and turning every stolid worker into a frantic speculator.  If that were to occur, nobody could possibly say in hindsight that the conditions for such a sorry state of affairs were not in place.  The people who are telling us now that inflation is impossible because there is slack in the global economy, and that central banks can print trillions of dollars more without a significant risk of inflation, are the same folks who not only failed to predict the financial crisis, they did not even have a clue that a crisis of such kind was possible.”

-Paul Singer, founder and CEO of hedge fund Elliott Management Corporation

Kita akan mengakhiri bulan Agustus ini dengan pidato yang sudah sangat diantisipasi pasar, dari the Fed Chairman, Ben Bernanke, di Jackson Hole AS pada hari Jumat. Pada forum yang sama di tahun 2010, Bernanke mengumumkan program Quantitative Easing ke-2 (QE2), namun tidak demikian ketika tahun 2011.  Karena itu para pelaku pasar akan sangat menantikan apa yang akan dikatakannya pada pertemuan tahunan para bankir dan ekonom tersebut di tahun 2012 yang akan diselenggarakan di akhir pekan ini.

Ketika melihat sesuatu, yang terbaik adalah membuka diri dan menerima sudut pandang pihak lain. Memang mayoritas pelaku pasar saat ini memproyeksikan bahwa the Fed akan mengambil langkah  kongkrit pada pertemuan FOMC bulan depan, namun bukanlah seluruhnya.

Menurut Yohay Elam, seorang founder dan chief editor pada Forex Crunch, QE3 jelas TIDAK akan dilakukan pada pertemuan FOMC September. Untuk mengetahui alasannya, silahkan Anda baca laporan terbarunya yang ditulis pada 23 Agustus 2012 berikut ini:

“The FOMC Minutes certainly gave the QE3 camp a lot of ammunition, and dealt a blow to the US dollar. Nevertheless, a decision on more money printing in the September 12-13 meeting is certainly not a done deal.

Here are 7 reasons why markets could be very disappointed on September 13th, and the dollar could make a big comeback. No, it’s not the proximity to the elections.

1) Is there a smoking gun?

From the minutes:

Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.

This is supposedly the “smoking gun”. But many questions rise: How many is many? Is there a clear majority? In addition, these members support “additional monetary accommodation”. This doesn’t necessarily mean QE3.

2) Option of changing guidance

The Fed added a conditional pledge to keep rates low in the summer of 2011. This was extended in the January 2012 meeting and currently states that rates will likely remain low until late 2014.

A change in guidance was also discussed: instead of setting a potential date for tightening, the Fed could tie the tightening to economic factors.

3) Ideas from overseas

The Fed also discussed the British Funding for Lending scheme and the ECB’s cut of the deposit rate to 0% as possible tools for easing. These are new ideas, and the Fed has been quite creative in the past.

4) Easing only if economy doesn’t improve

This is a clear condition for more easing (which isn’t necessarily QE3). Since this meeting was held on July 31st and August 1st, there were some encouraging signs: retail sales rebounded, housing continued improving and most importantly, job gains were significantly stronger. Manufacturing remained weak.

There is one more Non-Farm Payrolls report before the next meeting on September 12-13th. Another positive report could lower QE3 expectations even before the meeting, but this is still to be seen.

In this context, it’s important to note that FOMC member Dennis Lockhart acknowledged the improvement in the economy after showing support for more bond buys during July. Lockhart is a “swing” member – he doesn’t always side with the doves or the hawks. His small shift to the hawkish side is significant. Are other members also acknowledging the improvement?

Update: Also FOMC member James Bullard acknowledged the recent improvement and even said that the “FOMC minutes are a bit stale“.

5) Yields are still low, food and oil are high

QE1 was launched to lower long term interest rates and encourage lending. Despite recent rises, 10 year bonds yield less than 2%. QE2 was launched to counter the potential deflation. Oil and food prices have risen lately. How can more bond buys stimulate the economy?

6) European situation improving

One of the issues weighing on the US is the uncertainty about the European debt crisis. A weaker euro-zone means less economic activity for the US, and a significant event could hurt US banks. The European crisis was also mentioned by the Fed in various papers and statements.

Since Draghi opened the door for QE in Europe, the mood in the markets has improved. With a recent German approval to buying of Spanish bonds, the ECB seems ready to act on its September 6th meeting, as long as Spain officially asks for help.

7) Using expectations to keep yields low?

Since QE2 ended on June 30th 2011, Bernanke and his colleagues always left the door open for more QE, using subtle hints.

Keeping expectations high also contributed to lower yields. Investors buy bonds at a certain price and expect the Fed to buy it for a more expensive price (lower yields). Are these minutes going along the same lines?

It would not be surprising if the Fed refrained from launching QE3 in the September meeting but rather opts to use more moderate tools.

If the Fed does go for more dollar printing, it would be possible to suspect that the Fed is on a new course of monetary policy: inflating debt away.”

Selain itu Graham Summers, Chief Market Strategist dari Phoenix Capital Research, yang memberikan pesan lugas kepada mereka yang masih berharap the Fed dan bank-bank sentral dunia lainnya akan melakukan langkah penyelamatan, serta yakin bahwa bursa saham akan terus naik.

Berikut adalah komentarnya mengenai kemungkinan quantitative easing lanjutan dalam tulisannya yang berjudul “An Open Letter to the MSM: QE3 Is Not Coming.  Stop the Propaganda”:

“Listen up Mainstream Financial Media, the Fed is not going to announce QE 3. You’ve been running the same tired stupid story after every single FOMC meeting since May 2011, desperately trying to spin everything the Fed says into a call for more QE.

The fact of the matter is that only a handful of Fed members have called for more QE. They are Charles Evans and Bill Dudley, both of whom represent financial centers (Chicago and New York). These guys want QE Infinity because they represent the banks and could care less about the average American. Heck, Dudley even went so far as to suggest inflation was under control because iPads are getting cheaper… at a time when food prices were at all time highs!

Those folks have been clamoring for QE all along. This is nothing new.

Let me explain why QE 3 is not coming and why your desperate feeble attempts to spin every Fed statement into a call for more QE are going to bite you in the tail.

The Fed cannot announce QE 3 because:

1. Food prices are already exploding higher towards records
2. Gas prices are sharply up
3. Inflation is actually much much higher than CPI claims
4. The stock market is at or near four year highs

Those are the obvious reasons that anyone with a working brain could figure out. Now let’s explain the more significant reasons that someone who actually grasps how the financial system works knows about.

If the Fed announced QE 3, or decided to monetize everything in sight, the bond market would implode. Every time we’ve had QE, interest rates have risen. More QE now after we’ve already had QE 1, QE lite, and QE 2 would signal that the Fed is willing to monetize everything under the sun. The end result would be an absolute catastrophe (the bond market dwarfs the stock market in size) as bonds would collapse, sending interest rates through the roof.

This in turn would take down many corporations as they’d be forced to default on their debt payments. It would also destroy the US economy as credit card defaults, mortgages, student loans, etc would be defaulted upon.

So no QE, guaranteed.

There’s another reason QE isn’t coming. QE sucks Treasuries out of the financial system. Treasuries are the senior most assets against which banks make their trades. Consider that the top four banks in the US (JP Morgan, Goldman Sachs, Bank of America, and Citigroup) only have $7.12 trillion in assets backstopping over $200 TRILLION in derivatives.

When the Fed “monetizes” debt it is in fact pulling assets out of the system (swapping out Treasuries and other assets for cash). With over $224 TRILLION in derivatives outstanding this is the LAST thing the Fed wants.

Indeed, Bernanke has all but admitted this recently, saying “I assume there is a theoretical limit on QE as the Fed can only buy TSYs and Agencies… If the Fed owned too much TSYs and Agencies it would hurt the market.“

Why would it hurt the market? Because the banks NEED these assets. And QE takes them out of the system.

Trust me… Bernanke knows about this situation in the financial system. This is why he propped up the four TBTFs as well as Fannie/ Freddie and AIG while letting just about everyone else go under: if these firms collapsed it would implode the system.

So QE is not coming. That’s a fact. You can spin the Fed’s language however you want but you’re just making stuff up. You’ve been wrong about QE 3 for over a year now. And you will remain wrong. All you’re doing is propping up stocks with your propaganda.”

Pertanyaan vital saat ini tentunya adalah apakah Bernanke akan memberikan sinyal untuk langkah QE3 pada konferensi tahunan di ‘Jackson Hole’ pada akhir pekan ini.  Tom Fitzpatrick dari Citigroup yakin bahwa “it would be irresponsible to do so and that we need a more ‘responsible fiscal policy’ which will not materialize as long as we have an ‘irresponsible monetary policy’ bailing policymakers out”:

To QE Or Not QE:

“from a Fed perspective

Recent data seems to have been a little more supportive of the economy (on the face of it) and may lead the Fed to stay on hold in the near term (September meeting). This will almost certainly raise the bar to moving extremely high as we head into the Presidential race proper. If this window closes then a move before December will be extremely unlikely barring a major financial/market/economic shock. There is no Fed meeting in November so after the 13 Sept meeting the window likely closes until Dec 12 without an “event risk” scenario materializing.

However this increases the danger of the Fed getting “caught behind the curve” in their objectives.

The reason for not moving is that it could be a mistake, one step too far. What is the consequence of being wrong to move – the likelihood of inflation in a debt laden economy.

While as in the 1970’s this would be painful and likely create a “stagflationary” economic dynamic it is an acceptable outcome in a “debt laden economy” (the lesser of two evils argument).

From a Fed perspective this decision process looks to becoming less linear and more in favor of renewed balance sheet expansion.

Do we believe this is the right way to go? Probably not.

Do we think it will ultimately be inflationary? Yes.

However what we think does not matter.

What we think the Fed thinks is what matters and we are starting to think that a move is becoming more , not less likely, just as the market and possibly even the Fed seems to be thinking otherwise. A move in September now certainly looks less likely but ironically the lack of a move may see the Fed once again “behind their curve” and scrambling to catch up again in late 2012/early 2013.

Succinctly summarized thus:

1.   What we have to pay for is rising in price (oil and food)
2.   What we choose to pay for is falling in price reflecting stresses on the consumer and businesses alike.

This is not a positive dynamic in a very uncertain environment.”

Saat para investor dunia sedang menantikan pidato dari orang-di belakang-layar tersebut pada hari Jumat nanti, SoberLook.com memiliki pandangan yang sangat masuk akal terhadap pidato Bernanke di Jackson Hole tersebut, dalam tulisan yang berjudul “The Jackson Hole “fix” is not coming”:

“Expectations of a new asset purchase program by the Fed continue to persist as various pundits anticipate its unveiled at the Jackson Hole gathering.

CNBC: – Ebullient stock markets are increasingly pricing in the possibility that the Federal Reserve will soon unveil another round of monetary stimulus, Pimco Managing Director Neel Kashkari told CNBC Wednesday.

“The Fed is really in a box right now,” said Kashkari, who was an architect of the Troubled Asset Relief Program that bailed out major banks during the 2008 financial crisis. Inflation expectations and stocks are at levels that appear to be assuming imminent Fed action, he told CNBC’s “Squawk Box.”

“Those indicators have already priced in … that the Fed should act,” Kashkari said. As a result, the fund manager suggested Fed Chairman Ben Bernanke’s “hands appear to be tied” ahead of a closely watched speech on the economic outlook later this month in Jackson Hole, Wyo.

Market participants are looking for a fix, a repeat of the “high” Bernanke delivered at Jackson Hole in 2010 when QE2 was introduced. Markets however are in for a major disappointment because no outright asset purchases will be announced. There are multiple reasons for this, including the fact that real rates are now deep in the negative territory (as discussed here) and the policy as expressed in long-term real rates is far more accommodative than it was in 2010.

But what makes 2012 entirely different is that the key concern that pushed the Fed into asset purchases in 2010 no longer exists. The summer of 2010 was marked by renewed fears of deflation driven by credit contraction. The Fed was afraid of Japan-style deflationary pressures that are extremely difficult to arrest as bank lending shuts down. In the months preceding the 2010 Jackson Hole speech, credit was contracting sharply with banks steadily shrinking balance sheets. As discussed before, just the opposite is true in 2012 – credit is expanding at a decent pace. The chart below compares the trends now and in 2010.

So what should we expect from Bernanke this time around?  It will likely be more of the same things we’ve already heard recently:

1. 1. US economic growth has lost some momentum.  Growth in employment has been slow and the unemployment rate “remains elevated”.
2. 2. Europe poses downside risks.  A slowdown in emerging markets is also a concern.
3. 3. The Fed will remain vigilant and expects to maintain a “highly accommodative stance for monetary policy”.
4. 4. The Fed is to continue with Maturity Extension Program (Twist) and Reinvestment Policy (reinvesting in MBS to maintain constant balances).

That’s basically it. If the markets are pricing in more from Jackson Hole – which the recent equity rally suggests may be the case – we are setting up for a sharp selloff in risk assets.

CNBC: – “If he doesn’t deliver in Jackson Hole … you’ll see these risk markets react and fall back,” Kashkari said. Investors clamoring for more quantitative easing “suggests there’s downside risk from here if the Fed doesn’t move.”

Jadi bagaimana seharusnya kita memposisikan diri?

Dalam tulisan yang berjudul “Crunch Time for Central Banks”, Michael Pento dari Pento Portfolio Strategies menjelaskan dengan ringkas apa yang akan menjadi harapan di bulan mendatang:

“A growing possibility of war in Iran and the worsening economies in Europe and the U.S. have caused central banks to prepare investors for another round of money printing.  The time has now arrived for the Fed and ECB to either follow through on their threats or to sit back and watch as equity shares plummet and bond yields in Europe soar.  If central banks launch the assault on their currencies, I expect gold and energy prices to increase sharply.  In that case precious metal and energy shares should fare the best.  However, in the unlikely event that the month of September ends without any action on the part of the ECB and Fed, I would expect a significant retracement in all global markets and especially in commodity prices.”

Sementara BofAML juga secara singkat menjelaskan apa yang akan terjadi jika the Fed mengecewakan:

“This mixed data outlook makes the Fed call for the September meeting especially close.  There is little doubt for us that if the data resume sliding to the downside, the Fed will step in and ease further this year.  Right now, however, we are in an anti-Goldilocks period in which the data are too hot for clear-cut Fed easing, but too cold to support a sustained rebound – anything but “just right”.

Meanwhile, discussions with investors suggest that the equity markets have not yet priced in the fiscal cliff or resumption of risks from Europe once policy makers there return from vacation.  Our equity strategists have highlighted downside risks to the equity market, now that the S&P 500 index is within striking distance of their year-end target.  Another on-hold Fed meeting – or even an extension of the forward guidance when the market really wants QE3 – could be a catalyst that begets a sell-off, in our view.  Look out below.”

What Do the Charts Say?

Harga bahan bakar tidak pernah naik di pekan ke-3 Agustus! (lihat grafik di bawah ini dari John Lohman).  Jadi apakah ini kemudian dapat menjadi alasan lain untuk tidak melakukan stimulus lanjutan?

(h/t @Not_Jim_Cramer)

Untuk Rabu hingga Jumat pekan ini saya akan absen menulis laporan harian ini karena akan memberikan sejumlah seminar di luar kota, sebelum saya pergi hingga akhir pekan nanti, satu hal lagi akan akan saya sampaikan di sini.  Seperti mungkin Anda telah tahu, seorang permarealist dari Nomura, Bob Janjuah, menjadi perhatian dengan market calls-nya dalam beberapa bulan terakhir.

Oleh karenanya sangatlah menarik untuk selalu mendengar apa yang dia katakan mengenai masa depan bursa AS secara umum, lebih spesifik adalah indeks S&P500.  Berikut adalah pandangan terbarunya dalam tulisan yang berjudul “Bob’s World: Warning over, time for action”:

“This is a very brief update of my most recent note published on July 25th.  Referencing back to this July note the key takeaways were:

Firstly: ‘In terms of markets, the route map I set out in early April and which I affirmed in early June continues to play out extremely well.  After correctly calling the late March/early April 1420 high in the S&P500, and also the early June (1270) low, we have also now fully captured the risk-on rally in stocks and credit that began in early June…’

Secondly: ‘Tactically, we have not yet hit my targets for the risk-on phase I called in early June – my S&P500 target was set at 1400/1450 by late July/early August.  And I also said in June, this risk-on phase was likely to be a struggle due to headline risk and volatility, market illiquidity, and the general lack of strong investor views/willingness to take big risks.  Nevertheless, stock and credit markets have indeed climbed the wall of worry.  Over the extreme short term, over the next two to four weeks, I would not be surprised to see my targets ultimately hit.’

And lastly: ‘However… I now think the correct thing to do – as I also said in April and June – is to prepare for a serious risk-off phase between August and November … over the August to November period I am looking for the S&P500 to trade off down from around 1400 … by 20% to 25% … to trade at or below the lows of 2011.  This coming major risk-off phase will, in my view, also be very USD bullish (my expectation of Fed USD1trn QE in December should eventually alter the bullish USD trend of course) and bullish core government bonds (USTs, Gilts, Bunds) – perhaps we could see10yr Bunds at 50bp all-in yields, with USTs and Gilts at/close to 1%.  By late 2012, based on my Fed December QE view, my tactical call will likely turn bullish/risk-on – let us see about that closer to the time.’

My July note thus held out the prospect of further Risk On over late July and August, where 1400/1450 has been my long-standing target ‘high’ for Q3 2012, but it also warned that in August we were likely to see the beginning of the next risk off phase, which would likely be the ‘biggest’ move of 2012.  Whilst in the extreme short term – days – more risk on is possible, we now feel comfortable in flipping from risk on to risk off and positioning for this major risk off phase.

Just in case something genuinely new and unusual is happening – we note that the risk on phase has, time wise, extended for a few more days than we had originally forecast – and in the interests of prudence, my stop loss on the risk off call effective immediately is a consecutive weekly close on the S&P500 at or above 1450.  As the Global Macro Strategy team is looking for Mr. Bernanke to disappoint markets at Jackson Hole this week, and also because we are confident that markets will soon discover that neither the ECB nor Euro zone politicians will actually be able to deliver on their ‘promises’, we are hopeful that our stop losses will not be triggered.  For now we are happy to risk 30 S&P points against us, in order to potentially pick up 300 S&P points in our favor.”

Terakhir saat saya melihat gambar dari williambanzai7 di bawah ini, saya tidak dapat menahan tawa! terutama pada Hopium Cloud yang terlihat menggoda, bukankah demikian?

Dibuat Tanggal 28 Agustus 2012