Roll up, roll up for the Feddy Bears’ picnic

From conservatives to contrarians, an opinion-leader economic consensus is forming

For every bear that ever there was

will gather there for certain because

today’s the day the Feddy Bears have their picnic.


I offer this view to you based on some solid interviews and an exhausting survey of opinion-output from people I respect: the Fed may be in denial about the economic and fiscal outlook, but most people out there earning a living directly based on that output are more Bearish than the Fed.

The smart money – that liquidity-pooled Hedgie money just waiting to pull the trapdoor – is beyond bearish. It could best be described as grizzly bearish.

Meanwhile, the business-as-usual circus continues on its dizzying progress.

‘As part of our annual portfolio reconstitution process, we strive to build forward looking, asset allocation-oriented portfolios based on our internal views of where we believe both the markets and economy are heading for the next year. For your benefit, I have provided our four potential scenarios for 2011, based upon information available to our research team at this point in time, with an internal probability assigned to each’.

So wrote one of the leading lights of a major opinion-influencing US analysis house last Friday. I won’t embarrass these folks by naming names: suffice to say that the Favoured One of the four scenarios on offer was given a probability score of 55%. On the basis of this sort of jargo-bollocks, you’d be hard-pushed to say whether Colonel Gadaffhi/Kaddafi/Qua’dafi/Gadafi/Gadaffi has a 55% chance of having his name misspelt by the Western media. And just as with such a probability, you’d be hard-pushed to find a journalist who gave a monkey’s either way, as the bloke is dead meat anyway.

Reading this sort of drivel confirms one’s view that the makers and modellers in finance (while undoubtedly providing a cheap form of entertainment for English scholars) offer little or nothing in the way of useful insight. ‘Events overwhelm a thousand models’ as somebody once said, and on the whole we would all do well to avoid advice spattered with syntax containing forward-looking, at this point in time, or internal probability.

Sticking to that rule provides a surprising level of consensus – which would be good if it was offering good news. On the whole, it isn’t.

Focusing on Europe, Morgan Stanley’s site says that the eurozone sovereign debt crisis is far from over, and while the reform of the EFSF constitutes a step in the right direction, ‘it is not a silver bullet to contain the crisis once and for all’.

Too right it isn’t. The divergent positions of Berlin, the ECB and the European Commission are all over the place. The MS piece concludes as follows:

‘At the moment, we get a sense that the markets are getting overly hopeful, especially with respect to potential changes to the EFSF, relative to the progress made on questions such as the size, bond purchases, flexible credit lines or even the interest rate.  Due to the close connection between the sovereign debt crisis and financial sector balance sheets, the ECB cannot completely ignore the potential repercussions that renewed tensions in the periphery could have on financial stability in the euro area as a whole’.

Or in more amenable American English, the EU remains mammories skywards, configuration-wise.

So then, the EU will be the catalyst that brings on Crash2 will it? Not necessarily.

If you look at what the Fed’s messenger on Earth Ben Bernanke has to say, then at best the outlook is unclear and somewhat cloudy. Indeed, for those who like their grave humour with a dash of surrealism, the Washington Post just gave out with this latest topics cloud based on Ben’s utterances to date this year:

The maze above puts me in mind of the old Monty Python sketch ‘Confuse-a-cat’, but beyond that it means nothing – which, I rather suspect, was the idea. For Ben would much prefer we had less than a clue about what’s going on, if only because someday he’s going to have to write his memoirs, and rearrange the facts into an unknown shape or pattern.

Others have less of an agenda. Phoenix Capital Research has advice to sell (and thus a vested interest in unpredictable turbulence) but even so, its latest bulletin contains a great deal of horse-sense. Inviting us to ponder whether the market has already digested all the QE hype to the point of realising that additional liquidity has zero effect on the US economy, PCR suggests we are very close to the time when more stimulation doesn’t actually induce a rally any more. And when that point is reached, they opine,  ‘then the entire financial system will collapse in one form or another’.

The Slog’s view remains that this will happen anyway once the inevitability of rising interest rates turns into real action by a desperate Fed; and that predicting it exactly is impossible. But that’s not what the mysterious Robot Trader at Zero Hedge thinks. He/she offers this opinion:

‘Once again, another week rolls by, and the market is hanging by a thread.  Thousands of hedge fund traders are anxious to “make a killing” by being fully invested on the short side and catch the next big bear market selloff so they can call it quits in a couple of months and spend the summer luxuriating out in the Hamptons after “making their year”.  Bernanke has his back up against the wall.  He either needs to let the market fall so he can get a rally in the Treasuries going, or he needs to turn on the Infinite Fiat Firehose and send the U.S. Economy into full blown Zimbabwe mode.’

Robot’s view is that the US stock market ‘topped out’ last week, and thus Gotterdammerung could happen any day now. I think the Zimbabwe reference represents a bit of Doomwatch license there, but that the smart money waits only for the dive-signal is right in the bullseye.

Meanwhile, this is what top UK wealth managers Full Circle had to say last week:

‘Investors believe the recovery is secure and inflation is the risk.  However if the stock market fails, the recovery will really struggle and if the recovery fails, the stock market will be in difficulty…..’

There’s that nasty vicious circle again. I do not believe that Ben Bernanke has two choices with his back to the wall. I think that, after the style of Butch Cassidy & the Sundance Kid,  there is no wall – he has one choice only: to keep on backing and backing until he must face that terrifying leap into the shallow canyon river below. And as Butch said in the movie, “So what if yer can’t swim – the fall will probably kill yer!”


6 thoughts on “Roll up, roll up for the Feddy Bears’ picnic

  1. I know I am being a bit naive but isn’t stock market performance based on solid numbers and reasonable forward projections? How can that be when most of your clients are facing very uncertain times in the short term and impossible situations to forecast in the longer term which must impact onto their buying potentials? The housing market is being synthetically sustained by ZIRP, which in itself has become meaningless in the real world. Speculative finance for business growth is almost non-existent and we are now concentrating on austerity and contraction rather than investment and growth. Lots of people have at last realised their debt millstones and are paying back what they can rather than extend and whilst this is good news normally it is the antithesis of government policy and makes ZIRP even more arcane. We have government figures, and I include Merve and the MPC, ONS, etc. here, who are detached from the realities of life we mere mortals have to adhere to and so their actions become theoretical and rhetorical rather than based on any practical solutions.
    Considering all of that we still seem to be bedazzled by the sleight of hand financiers who can conjure up vast profits from thin air and in turn make themselves even more millions in bonuses. I have a question, if the value of any FIAT money system has to be based on the amount in circulation and that amount has to be carefully controlled, all this ‘virtual’ money as soon as it is solidified into real pounds shillings and pence must produce a corresponding debit amount in the economy, n’est pas? Considering governments willingness to sustain this smoke and mirrors section of our economy we have to expect inflation, real world business contration and a debasement of the currency, and that’s not even considering world trade prices and their impact onto us. This stuff is so odd it would seem too outlandish for a Brian Rix farce yet here we are cuckolded husbands stuck in the cellar while the wives are in the bedroom with the milkmen, or in this case the bank manager!


  2. Mac raises some interesting points. ISTM that Bernanke and Merv – faced with an unprecedented credit bubble which they helped to create – chose to introducing ZIRP and QE to avoid the unavoidable: an economic contraction as people paid down their huge debts and return the economy to some sort of normality.

    But ZIRP & QE have not worked as intended and will not be able to avoid the unavoidable: sooner or later debt has to be paid off and the economy brought back into balance. This will be painful for those who overborrowed but it’s unavoidable.
    The central bankers and politial elites are in denial about the new problems they have created by ZIRP/QE and the price is being paid by millions of ordinary people who are subjected to appalling interest income on their savings and rising inflation.


  3. BT,
    I can’t believe we are letting these people get away with what is happening. Not only have they moved the goal posts they have taken the nets away, pinched the ball and switched off the flood lights.


  4. Meanwhile…MSM in its glorious sycophancy spends its time trawling official numbers for any sign of life in consumer spending or rise in house prices as if they will be our saviour.


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