Here’s the Thing

Greg Ip is wrong.

Yesterday, veteran economics reporter and former Greenspan mouthpiece (he was Jon Hilsenrath before Hilsenrath #GIK) Greg Ip penned a story explaining that the Fed had already tightened. A litany of anecdotal evidence was presented to support the theory. The base idea was: By vocalizing their intent, the Fed had nudged markets to the future event pricing and done the Fed's lifting for them. If only.

In fact, beyond Treasury/Corp spreads widening, there is scant evidence of market "tightening." Futures prices (forward forwards) have been wary to stray far from the well advertised Fed exit plan. Consider a path with NO Fed jawboning - the way things used to be . Markets would have dropped bond prices, widened spreads and flattened the curve. As Europe crumbled for the umpteenth time, oil prices collapsed (because there's too much of it) [causing the large amount of speculative notes issued in the space to falter] and the US data slipped, rates would adjust lower some until a clearer view of the future emerged.

Well I'll be damned. That's exactly what transpired. Never mind that the most basic gauge of "tightening" - the Bank Lending Survey - continued to show accommodative tilt throughout the zigging and zagging. No, Mr. Ip, the Fed has not already tightened by flapping at the lip. Markets have not done the heavy lifting for them. Our core theme of a Structurally Trapped economy continues to evolve as the Liquidity Trapp-ers change their story. And some start to make things up.

Classical Monday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

advance capped by 1.27% level

upside retracements

downside retracements

regression channel

support and resistance
On the economic calendar:-
08:30 Chicago Fed National Activity Index (Consensus 0.15 v Prior -0.11)
11:00 4 Week Bill Announcement
11:30 3 Month Bill Auction
          6 Month Bill Auction

Classical Friday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
upside retracements
downside retracements
regression channels
support and resistance
On the economic calendar:-
08:30 Consumer Price Index (Consensus 0.2% v Prior 0.2%)
10:00 Consumer Sentiment (Consensus 95.0 v Prior 93.0)
          Leading Indicators (Consensus 0.3% v Prior 0.2%)

Martini Musings

Last week, I posted some thoughts on the Minutes that provoked some debate about Fed Exit Sequencing (a fancy way of saying "stuff"). The post led to some exchanges from fun follows like Boes and Klein and "the K." One of the more lucid stances comes from my friend (yes friends have different opinions) Mark Dow, here in his tumbler, Behavioral Macro

http://markdow.tumblr.com/

Mark and I became friends exchanging ideas over Twitter and martinis at Nobu in New York. Although our conversations are more about dogs and the beach these days, he's a brilliant thinker and brings an incredible experience to the table. That said, I see Fed Sequencing risks in a different light.

In the protracted advertised hikes leading up to the Financial meltdown, we (and others) railed against the Greenspan experiment. Bernanke, you may recall, was practically cornered into hiking to start his tenure or risk the Dove label. This hike took place despite high real rates, an inverting yield curve and spiking oil. Because the increment and timing of adjustments had been predetermined, the system was able to avoid de-leveraging despite the above mentioned characteristics. This is key. Although the ghosts of LTCM floated about, the financial institutions were the real geared monsters. Morgan Stanley and Goldman were running at least 15x. Lehman was well north of that. Citi? Well, they were insolvent by many measures. Fast forward to today:

Regulatory changes have plopped assets on the balance sheets of the system. IOER (the Advil of damaged banking systems) has replaced the wholesale funding operations of Fin System 1.0. As Jamie Dimon (and his CFO) have pointed out, these Fed created "assets" are unwanted and relatively useless beyond regulatory filings. What is the logical reaction to raising the funding cost of an unwanted asset? Correct, it is to purge it, and shrink the system by design.

Thus, inching up the Funds Rate faces 2 conflicting pressures not relevant to the old system. On one hand, funds outside the Fed accounts can cap over the raise. On the other, The Death Star, Term Facility and internal term structure funding positioning, could lock up the new system much quicker than the days of the off balance sheet wholesale funded credit orgy. Although, I respect the "risk diffusion" argument, I am skeptical the risks are identical to the last experience. And again, the worst offenders were the system anchors themselves.

I continue to advocate a balance sheet approach to Leaving Wonderland. A quantitative regime needs to operate with quantitative tools. Applying Interest Rate Targeting Regime blunt instruments to multi-trillion dollar balance sheets reeks of Mid-evil Tonsorial blood letting to me.  As I stated last week, Fed flexibility has been their finest attribute. Let's hope the haven't lost it. And keeping reading and listening to the heavily armed Bonobo (Mark Dow) after all, I'm just a dog watching TV.

Classical Thursday

30 minute atr

240 minute atr

daily atr

daily pivots

weekly pivots

upside retracments

downside retracements

regression channels

support and resistance
On the economic calendar:-
08:30 Housing Starts (Consensus 1.040 v Prior 0.897)

Jobless Claims (Consensus 280 K v Prior 281 K)
09:45 Bloomberg Consumer Comfort Index
10:00 Philadelphia Fed Business Outlook Survey
10:30 EIA Natural Gas Report
11:00 3 Month Bill Announcement
6 Month Bill Announcement
5 Year TIPS Announcement
16:30 Fed Balance Sheet
Money Supply

Speaking today:-

13:00 Dennis Lockhart
Stanley Fischer
13:10 Loretta Mester
13:30 Eric Rosengren

Classical Wednesday

30 minute atr
240 minute atr
daily atr
daily pivots
weekly pivots
upside retracements
downside retracements
regression channels
support and resistance
On the economic calendar:-
07:00 MBA Mortgage Applications
08:30 Empire State Manufacturing Survey (Consensus 7.0 v Prior 6.9)
09:15 Industrial Production (Consensus -0.3% v Prior 0.1%)
10:00 Atlanta Fed Business Inflation Expectations

Housing Market Index (Consensus 55 v Prior 53)
10:30 EIA Petroleum Status Report
14:00 Beige Book
16:00 Treasury International Capital

Speaking today:-

09:00 James Bullard
10:40 Stanley Fischer
19:30 Jeffrey Lacker