The duality of data dependence
Remember the good old days, when Chinese GDP at 8% YOY was considered good news? Despite the fact that the unspoken and commonly held belief in market circles was that at that rate, growth was actually flat or, 0%. But it was ok, because the data was coming out of a centrally planned, command economy and thus had to be taken with a bucket of salt. Fair enough, those numbers couldn’t and can’t be trusted, but someone like the BLS wouldn’t lie to us, would they?
The monthly NFP?
Yeah of course, golden.
Weekly claims data?
Don’t be ridiculous.
Except… then the government shuts down. California can’t install a computer system properly (possibly made by the Obamacare website creators?) PMI numbers print the best they’ve done in 30 years in a black swan event. No one blinks an eye, swallows it whole and moves on. If nothing truly depended on any of this, then meh, seriously who cares, they’re just statistics right?
Forget the fact that traders, money managers, etc all look at this stuff through a microscope lens, run over it with a fine toothed nail comb, employing an almost needle in a haystack diligence, all with the aim of deciphering the true nature of the state of the world, it’s economy yada yada and then of course go and attempt to profit from this knowledge or interpretation thereof.
Yeah, forget all of that. Spare a thought instead, for the muppet central bankers who go and institute expansionary monetary policy, create bubbles, generate false wealth and economies. It’s them I’m most concerned about. I mean these people have gone and tied hurdle rates to the augmentation and cessation of policy based on underlying ecnonmic data. Policy which has seemingly kept us “afloat” for the last few years. The same policies that have led to the SPX trading… well we all know what that beast has done in recent times…
And now… they’re doomed. Victims of their own success is you will. The data they thought would prove to be their saving grace, the Raison d’être for their perserverance in the pursuit of printing cash has now come back and is firmly biting them on the ass. Take those hapless Americans for instance. They’ve decided that once their unemployment rate reaches 6.5%, they’ll strongly consider beginning the hiking of rates over there. Sure, not unreasonable. One little thing got in the way though… the rate has fallen faster and more consistently then they could’ve ever hoped for, pushing them ever closer to soon (ish) hitting those first hurdles… The one thing they dare not whisper (not unlike the Chinese admitting their numbers are garbage of propaganda like proportions) is that the real reason they’re fast approaching these levels is that the participation rate is verging on the lowest levels it’s been in near on 40 years. No one looking for a job, simple, unemployment magically starts falling like the proverbial rock.
Don’t want to admit the books are cooked with unflattering reality, no problem. Get Goldman Sachs’ chief mouthpiece, a one Mr. Jan Hatzius, to tell the anyone prepared to listen that the world’s most influential investment bank has changed it’s base case projection to that of the FED lowering its 6.5% hurdle by 50 basis points and that the FED subsequently won’t move on rates before the numbers get EVEN better. Yes, of course, I haven’t forgotten. How could anyone forget about the 85 yards of cash the FED prints every month. Naturally, before they can push rates higher, irrespective of hurdles, they need to stop doing all that naughty printing. But they (as well us) know, they can’t. They’re hooked, They’ve checked into the Hotel California and ordered room service. So, for whatever economic rationale (far beyond my intellect no doubt) the market takes all of the above as a sign that the printing ends tomorrow and that unemployment hits hurdles about a week later and sometime around Christmas, the FED moves its Federal Funds rate north. Really?! F***cking really?!
Listen, I know I’m not a Nobel prize winning economist, hardly a revelation, I also know that the economics I so diligently studied at university way back in the day is near on irrelevant and not of a level to hold a compteant discourse with say a Mr. Hatzius for instance, BUT I also didn’t come down in the last shower; pushing the hurdle rate lower by 50 points simply moves the goal post, moves it further out on the fourth dimension of time and moves it in narrower in the physical analogy of a football pitch. Point is, it’s easing kids, or rather a continued, steady as she goes captain, hold course. The connection between moving the hurdle and the inferred immediacy of a taper is honestly, nothing short of ludicrous. Perhaps if they had suggested the hurdle went form 6.5% to 7%, then sure, blimey, done! But they didn’t, nor will they. Ever.
I mean, listen, had the FED for instance tied their forward guidance of Federal Funds rates on say, oh I don’t know, the SPX for instance and said when that puppy hits 2000, we’re done! We’ll stop printing cash (which you can then pump straight into the SPX) and we’ll start moving towards higher rates, then yeah sure, I can understand that, that works. Not economically, but in common sense terms, sure. But they didn’t, did they.
And if you think things are any better or different in say Britain, well, think again. They’re even closer to hitting their unemployment hurdle than are the Seppos. Inflation targeting? I laugh at your inflation targeting. They’ve missed that elephant for about the last 2 years running (conservatively speaking) and are nowhere near ever catching up. The shoots may be of a greener shade this side of the pond, but one careless sweep of the back hoe, and they’re gone in the blink of an eye, and doesn’t the charismatic Mr. Carney know just that.
Perhaps I’ll just go back to trusting Chinese data, I mean at least there I know how to account for the bullshit they’re peddling.