Feb 18. Monetization, the only game in town

–G20 gave Japan a pass on currency devaluation so USD/JPY testing new highs this morning.  Japan is racing to the endgame of massive monetization without official objection from the G20, but certainly the heat is turned up regarding currency wars.
–In a way, the US policy response is embodied in an interview Greenspan did with Maria Bartiromo Friday when he said that it all boils down to the stock market, essentially tying the fate of the US economy to paper asset and housing prices. http://www.zerohedge.com/news/2013-02-15/greenspan-ignore-economy-only-stock-market-matters  Although it wasn’t Bernanke speaking, it’s pretty clear that he too, has placed outsized emphasis on the “wealth effect” though one could argue that such policies are a major driver of income inequality.  Ironically, Walmart on the very same day termed February sales a “disaster” as the payroll tax increase took effect.  And Cisco said it’s likely to refrain from buying companies in the US or hiring in the US until moves are made to revamp the tax code.  The Fed is using its last tool of endless QE in an attempt to blunt fiscal paralysis and to inflate away unfunded pension obligations.  The end result has to be inflation and an erosion in confidence in long duration bonds.  And higher prices don’t translate to the same unit sales, made obvious by Makers Mark ill-fated decision to water down their product.  They were hoping to maintain unit sales by cutting quality, and having reversed the decision will now increase price. Fed policies are losing their efficacy, as Janet Yellen alluded to in her speech last week.  For the short term the Fed is probably happy that Japan’s moves have juiced US equities, but the transmission to the real economy will prove illusory.

Posted on February 18, 2013 at 7:38 am by alexmanzara · Permalink
In: Eurodollar Options

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