The first FOMC press conference led by the President of the Fed Chairman Ben Bernanke was like a updated show theatre and could remove the remains of the credibility of the Fed. Questions from the media seemed to pre-placed and, in the words of a colleague, "it felt too much of Madison Avenue (PR)".
The press conference, can be the catalyst of a real crisis dollar, which, in itself, could start a crisis 2.0. Bernanke, President is walking the tightrope and Fed his the analysis is incoherent:
(Core) inflation is on the rise in the Fed outlook, but it keeps using the word "transitional" to describe points of the inflation and growth downgrades…The Fed does not consider referring to the demotion of S & P, only to say: it is the work of politicians... and we have strong political US dollar... (Please check the charts, Sir!)Growth for Q1 is later this week - revised + 3 pct now 1.75% - that Bernanke almost confirmed in the press conference.
While the idea of a press conference seemed to be a good idea, I think it is sad that the hearing of the Committee of the Senate with Bernanke was better a Q & A session, as the media. I regret to see low and almost apologetic issues and no one went to the heart of the current issues. If I were there I would have asked the following:
"" How can you say that the United States have a strong dollar policy when it is clearly collapsing?""."" How do you explain explosions silver, crude and gold prices to your wording and inflationary expectations on this anchor?"""" What is the end game here?"""" Debt coming to maturity reinvestment - is not that the equivalent of light there?""How is it that you have so much faith in the Fed model when he failed to see the crisis of 2008 entry and almost any major financial event over the last twenty years? »
Fed model vs reality
I could continue a list of questions, but the main problem lies probably with my last question: why y so much faith in the internal model of the Fed, when they have clearly failed in the past? This is the essence of why communication between Fed/FOMC and the market is misleading. Bernanke, Chairman of always based on the book of the Fed projections, recognizing never talk that we live special moments that we have zero interest rates, commodity price boom and rising inflation expectations. The problem being that in model-lingo, this translates to "noise". In other words, these are factors that distort the explanation of the value of the models and hence they become "transitional" Central Bank speak.
I had the pleasure of being an intern in the Department of Economics, Danske Bank - in the 1980s a time where M3 numbers where more important than unemployment, by the way (a sign of pre and Post Greenspan!) - but I learned a few model scary facts (stop smiling - is not what you think!)
To the extent of the current account of the errors and factors not explained are more than 25%-25% of Yes! Any output can be produced by adjusting the numbers. The Outlook for inflation leads to real growth, hence the need to maintain "low measured inflation." These models translates to Fed or, indeed, the ECB projections - deal with NORMAL time.
A crisis of the upcoming US dollar?
The combination of a long period of low interest rates to the United States, while Asia and Europe start rate, hiking is an interesting constellation which could ultimately create a crisis of the US dollar.
We could see accelerated U.S. weakness and, if the volatility begins to creep, we could see 1.70 1.60 and even in the EURUSD. More important still, however, weakness of the dollar should be seen through the eyes of a broader basket of currencies against the USD. We love CHF and JPY versus USD. USD/JPY down is one of my top three trades for 2011 and 2012 with a projection 75.00 medium term and long term of 65.00.
During this time, in the space of the retail FX is cache surprisingly a disbelief continues to the weaker U.S. dollar, mainly against the euro, but also global. The size of the position is currently on the territory of a "grey swan" event and would make even George Soros to smile. But it is not logical: why individual investors are melted?
I imagine my reaction would be: because unlike professional investors that they do not comply with the law first of the Jakobsen of the Bank to look at, which reads: "this is not say policy makers, but what they do."", it is important".
When you look at a potential acceleration in the weakness of the dollar, it is often convenient find an analogy to compare with. The best that I can find is to compare the current momentum with the 1980s. The stock market has been on a roll, interest rate decreased from 16% to 7.5% before fortification to 8.5%, the growth was in the range of 8% less than 2.25%, with a low in 1982 and high in 1984 before we have seen constant erosion in 1990. Two main graphics below. The measured by USD/DEM and SPX vs USD/dem USD.
Source: Bloomberg, Saxo Bank
Let's hope I am wrong because I think that a real crisis of the U.S. dollar would be the point of departure for a crisis 2.0. But for the moment and with the balance provided by T2 and T3, the impact should be: low rate of interest as long; IS3 light initiated with the reinvestment of debt; coming to maturity increase in energy prices, metals and agriculture; momentum high S & P in 1400/1385. We have gathered these thoughts under the theme "" investment under stress: ""
Relatively better fairness in an inflationary environment, but not in facilitating inflationDebasing/Quantitative high metals, energy and agriculture continue to riseBank refinancing creates an opportunity, but firstCredit of pain is rare for those who need and rich for those who don't - look companies emerging market/Asian exhibition with creditRussia, a winner of relative emerging market with its natural gasThemes: model of Amazon (not VAT, free delivery) versus Dell; Energy (coal, LNG); dividend yields. Real estate; EPS cycle peaked. Crude prices average $ 100 plusJapan & winner of medium-long term the Korea allocation FX and EquitiesAsset: income fixed in "tangible stocks" - momentum high S & P (1400.00?)
Staging of theatre by the President of the Fed
Posted by HAMMAD UDDIN on 05:15