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Like a junkie whose dealer came through for him again, the US Equity markets raced to a higher close marking new three-year and some new all-time highs in lower sectors of the market capitalisation structure. Europe is also in rally mode even as the double fists of higher Euro and peripheral debt hang like a loose fitting noose around the necks of the core.
We’ve come to think that Merkel feels comfortable in this outfit, which is good, as it appears that she will be wearing it for some time.
But the core culprit – to bury a lead- is to be found in the US Federal Reserve. In today’s historic meeting decision and concurrent press conference, the most dangerous man in America, Ben Bernanke, proceeded to further crush US purchasing power in the world by signaling no end to lax fiscal policy.
Here are 10 reasons Ben Bernanke is the most dangerous man in the US and in no way a patriot.
1) Banks are still insolvent – he tells you they are not.
2) Continued suspension of FASB and other accounting gimmicks have allowed large financial institutions to sit around with loan portfolios that we believe would render 3 or 4 of the big 5 banks insolvent – that’s great for transparency for shareholder, eh?
3) Bernanke is concerned that without the steep yield curve the financial system runs the risk of shutting down.
4) He will keep monetary policy as loose as possible to keep the yield curve steep and recapitalize the banks.
5) The Chairman doesn’t actually care if the banks lend or not, in fact, better if they don’t then he can claim that they need lower rates.
6) The only way banks lend is in yield curve flattens taking away their spread.
7) Passing off the USD weakness question to Tiny Tim was disingenuous and or further evidence of a lack of understanding of how yield differentials effect capital flows.
8) A weak dollar policy – as the one being currently pursued by the Fed is a dangerous game of global chicken and the EMs along with China might take us up on dumping $s.. Then what… we compete with China to manufacture items and create more $5 an hour jobs?
9) The Chairman was complicit in two early bubbles and bursts.
10) The hubris of his ability to control inflation was crushed when he passed it off on real demand coming from EMs, which simply suggests a normalized recovering economy which would mean he should normalize policy…
And so we are confused. Why are we confused? Because it seems to us that all signs point to a resumption of normal, if not slightly slower, global growth.
Even today’s data suggests that US manufacturing and consumption activity is in decent shape.
The March advance was led by transportation (mainly motor vehicles) but gains were widespread elsewhere also.
Transportation equipment jumped 5.9 per cent.
- motor vehicles advanced 3.7 per cent
- defence aircraft & parts increased 6.3 per cent
- nondefense aircraft edged up 0.9 per cent
The motor vehicles portion is the largest subcomponent by far, making up 60.7 per cent of transportation new orders in the latest month.
Outside of transportation, gains were widespread. On the upside were primary metals, up 3.9 per cent; machinery, up 4.2 per cent; electrical equipment, up 3.1 per cent; and “other” durables, up 1.6 per cent. Declining were fabricated metals, down 2.3 per cent, and computers & electronics, down 1.1 per cent.
Business investment in equipment regained some strength. Nondefense capital goods orders excluding aircraft in March increased 3.7 per cent, following a 0.5 per cent rise the prior month. Shipments for this series jumped 2.2 per cent, following a 0.4 per cent rise in February. The latest boost in shipments will have economists nudging up their forecast for the business equipment investment component in first quarter GDP – which is tomorrow morning!
This is good news indeed because housing continues to sink and without incentives… it seriously falls off a cliff.
See what happens when you remove incentives … the economy drops by the 15% we’ve talked about for months.