Stocks up a tad on the news. So apparently improved odds of not tapering continues to outweigh a weaker economic outlook. Just as what seemed to be an improving economic outlook was out weighed by consequently higher odds of tapering.
Ironically, of course, QE is largely a placebo, merely shifting indifference levels to where the economy holds more $ in reserve accounts at the Fed and fewer $ in securities accounts at the Fed, a pretty much meaningless distinction, apart from the maybe $100 billion per year of interest income the Fed turns over treasury that would have been earned by the economy, etc.
But markets apparently remain in a now inapplicable ‘gold standard paradigm’ where $ in reserve accounts were convertible into gold, rising gold outflows, devaluation/default, etc. and thus fear some sort of undefinable imagined ‘negative consequences’ of QE. And this includes at least substantial segments of the Fed’s open market committee, not to mention pretty much everyone at Jackson Hole, which is pretty much everyone.
And in a ‘good is bad and bad is good’ out of paradigm world, the awakening can be most rude.
If growth is decelerating as I fear because deficits are too small, and stocks rally because they believe that’s all trumped by more QE, the analogy that comes to mind is a giant central Florida sink hole.
Meanwhile, the euro zone is double vulnerable. It’s also sitting on a growing, giant sink hole, where a softening in net exports to a softening US could be the catalyst for implosion.
US we have a problem, and its name is durable goods
By Bob Pisani
Aug 26 (CNBC) — U.S. durable goods have sent a shudder through the market, after July’s headline number checked in much weaker than expected, down a whopping 7.3 percent versus expectations of a 4 percent decline.
Even the much-parsed ex-transportation figure came in far below expectations with a 6.7 percent plunge. Excluding defense and air, the core number was down 3.3 percent, after four consecutive up months.
You can’t even blame it on seasonality or some statistical fluke. This was the most high profile data point this week, and the result greatly complicates the taper talk.
The pressure is really on the nonfarm payroll report for August, due next week. You really need a strong number for the Fed to even flirt with scaling back its bond purchases in September. Consensus for nonfarm payrolls is around 166,000, but that number needs to be really strong —arguably over 200,000.
