Home » Posts tagged 'September'
Tag Archives: September
Submitted by W. Ben Hunt of Epsilon Theory
Up to the walls of Jericho
With sword drawn in his hand
Go blow them horns, cried Joshua
The battle is in my hands
– “Joshua Fit the Battle of Jericho”, traditional African-American spiritual
At the outset of World War II, the German Luftwaffe attached an ear-splitting siren – the Jericho Trumpet – to the Junker Ju-87 dive-bomber, commonly called the Stuka. Dive-bombers are wonderful tactical aircraft if you have control of the skies, highly effective against tanks, vehicles of all sorts, even smaller ships, but they simply don’t carry enough ordnance to be a strategic weapon. They can certainly help you win a battle, but they’re unlikely to help you win a war. By attaching the Jericho Trumpet, however, the Stuka became a psychological weapon as much as a physical weapon, striking fear in a much wider swath than the actual bombs. During the early Blitzkrieg days of the war, the Stuka had exactly this sort of strategic effect, crushing the morale of the Polish army in particular.
Because it was a propeller-driven siren, the Jericho Trumpet actually made the Stuka a less effective dive-bomber, slowing its air speed and making it an easier target to hit. This was a trade-off that the German High Command was happy to make so long as the Stuka maintained its mystique as a terrifying harbinger of death from above, but that mystique was shattered once the Royal Air Force started shooting them down by the dozens in the Battle of Britain. By the end of 1940 the Stuka was almost entirely redeployed from the Western Front to the East, and those planes that remained had their sirens removed. As Churchill famously said of the RAF, “never was so much owed by so many to so few,” and it’s the psychological dimension of this victory that is so striking to me. I don’t think it’s a coincidence that the military tides of World War II shifted in the West at exactly the same moment that the Luftwaffe took off the Jericho Trumpet and the Stuka lost its mojo.
Today the financial media – and the WSJ’s Jon Hilsenrath in particular – is the Fed’s Jericho Trumpet. Unlike the Luftwaffe, the Fed is not trying to inspire terror, but they are similarly trying to turn a powerful tactical weapon into a strategic weapon through psychological means. The Fed is now embracing the use of communication as a policy tool in a totally separate manner from whatever concrete actions the communication is ostensibly about, and they use Hilsenrath (and a few others) as a modern-day Joshua to blow the horn. The Fed is now playing the Common Knowledge game openly and directly, making public statements through their media intermediaries to tell you how ALL market participants perceive reality, even though in fact NO market participant has a clear view of reality. In the Common Knowledge game – whether it’s the Island of the Green-Eyed Tribe that modern game theorists write about, the Newspaper Beauty Contest that Keynes wrote about in the 1930’s, or the Emperor’s New Clothes that Hans Christian Andersen wrote about in the 1830’s – the strong public statement of what “everyone knows” creates a reality where it is rational behavior for everyone to act as if they, too, see this reality … even if they privately don’t see it at all.
Here’s the money quote from Hilsenrath’s article last Friday after the November jobs report, titled (self-referentially enough) “Hilsenrath’s Five Takeaways on What the Jobs Report Means for the Fed”:
MARKETS BELIEVE TAPERING ISN’T TIGHTENING: Markets are positioned more to the Fed’s liking today than they were in September, when it put off reducing, or “tapering,” the monthly bond purchases. Most notably, the Fed’s message is sinking in that a wind down of the program won’t mean it’s in a hurry to raise short-term interest rates. Futures markets place a very low probability on Fed rate increases before 2015, in contrast to September, when fed funds futures markets indicated rate increases were expected by the end of 2014. The Fed has been trying to drive home the idea that “tapering is not tightening” for months and is likely to feel comforted that investors believe it as a pullback gets serious consideration.
In truth, the shift in the implied futures market expectations of short-term rate hikes from late 2014 into early 2015 says nothing about what “The Market” believes about tapering. It says a lot about the enormous effort that the Fed is putting into its forward guidance on rates, as a communications policy replacement for its prior reliance on forward guidance and linkage of unemployment rates and QE (a mistake that I wrote extensively about at the time and is now universally seen as a policy error). The Fed, through Hilsenrath, is trying to tell you how you should think about tapering. Not by giving you a substantive argument, but simply by announcing to you in a very authoritative voice what everyone else thinks about tapering.
Hey, don’t worry about tapering. No one else is worried about tapering. You are totally out of step with all the smart people if you’re worried about tapering. It’s duration of ZIRP that matters, not QE. Don’t you know that? Everyone else knows that. Maybe you’re just not very smart if you can’t see that, too. Can you see it now? Ah, good.
This is game-playing in an almost pure form. It’s smart and it’s effective. The siren from above is starting to wail: if you react negatively in your investment decisions to tapering, you are Fighting the Fed.
The bombs are going to drop – increased forward guidance on rates and decreased direct bond purchases – but these policies in and of themselves are just tactical. What’s really at stake is the strategic meaning of these policies, the belief system that takes hold (or doesn’t) around the power of the Fed to create market outcomes.
Over the next three or four months we’re going to see quite a battle for the hearts and minds of investors, with both “sides” employing the Narrative of Don’t Fight the Fed. On the one hand you will have the Fed, with their Jericho Trumpet of Hilsenrath et al shrieking at you a new interpretation of the Narrative: ZIRP is the source of the Fed’s power, not QE, so tapering is no big deal. On the other hand you also have the Fed, but the Fed of the past several years and the way it has trained the market to believe that the portfolio rebalancing effect … i.e., the behavioral impact of QE that Bernanke has directly credited with driving up the stock market … is what really matters. And if that’s your reality, then tapering is a big deal, indeed. I’ll be monitoring all this closely at Epsilon Theory in the weeks ahead.
Importantly, this psychological battle is taking place entirely within the larger Narrative of Central Bank Omnipotence. If the QE meme wins the day and tapering ends up hitting the markets hard … well, it’s Fed balance sheet operations that determine market outcomes. If the ZIRP meme wins the day and tapering is a non-event … well, it’s Fed forward guidance on rates that determines market outcomes. Either way, it’s a Fed-centric universe. Forever and ever, amen.
Dozens died in Sudanese protests against fuel price rises in September [Al Jazeera]
Sudan’s central bank has devalued the Sudanese pound by almost a quarter against the US dollar, the second such move in little over a year as the African country struggles with hard currency shortages.
Sudan’s economy has been in turmoil since South Sudan’s secession in 2011 took away of three-quarters of oil production.
Oil was the driver of the economy and source for dollars needed for food and other essential imports. Sudan produces too little to feed its around 32 million people.
Bidding prices for the Sudanese pound were stated as 5.6871 for one dollar, compared with 4.4 previously, central bank data on Reuters terminals showed on Monday. The official rate was nearer 3 Sudanese pounds to the dollar in 2011.
The central bank has been trying to bridge a ballooning gap with the black market rate where one dollar costs 7.8 Sudanese pounds as import firms struggle to get their hand on hard currency.
The black market rate has become the benchmark for banks and firms.
A central bank official, asking not to be named, said the rate had been already changed in September when the government cut fuel subsides. He did not elaborate.
The subsidy cuts led to mass protests, with dozens of people killed in the capital, Khartoum.
The secretive central bank tends not to announce devaluations, which are embarrassing for the government, which denies there is a shortage of hard currency.
Sudan has sought to offset the loss of southern oil reserves by boosting gold sales, which make up almost 70 percent of exports. But a recent sharp fall of the global gold prices means 2013 revenues will be well below last year’s $2.2 billion.
While some harp on about the growing dangers of yet another housing bubble in the western world, there are other more important things perhaps that are going on in other countries in the world. But, they are of little interest since we are not directly concerned by them. How is it that we only care about what’s actually happening in the back yard while someone round the block might be doing something or on the receiving end of something pretty bad and yet we don’t give a damn about what happens to them? While we are concerned with our bubbles, there are people in India that are suffering from the rise in prices that is drastically changing the way they live.
Over the past year inflation has been driven up by food prices. In September alone food prices were at their highest level for the past seven months and it seems that India is now going through the worst financial crisis that it has ever experienced since 1991.
- The Indian wholesale price index (WPI) rose by 6.46% in September.
- This was largely due to the fact that food prices have increased beyond control.
- Since the start of this year onions have increased by 322%, for example.
- Food prices have increased by an annual rate of 18.4% so far according to data released by the Indian government on Monday this week.
Food prices have been increasing due to supply shortages in India which were brought about to climatic conditions and rain. Today the price of a kilogram of onions amounts to 75 rupees today (or $1.22). One third of the Indian population still earns less than $1.25 per day in the country and that means that buying basic foodstuffs is pretty much out of their price range today. Food prices have hit the political agenda as a result and have been made a key issue in the run-up to the general elections that are going to take place within the next 7-month period.
Traders and shop owners are reaping the rewards of a rapid rise in prices today. But, the shopkeepers will not be able to keep hiking prices to recoup on the price increases as the people will run out of money. The real people are at the short end of the stick and suffering from the consequences of the hike that is almost daily now.
India is not the only one suffering from high inflation today in the world. Other emerging countries have also recently seen highs in their own rates. China had a consumer-inflation rate that hit 3.1%in September. That was also the highest it had been for the past seven months. Food prices in China have increased by 6.1% so far this year. However, in comparison with Indian data, that seems as if it is insignificant.
- India is having immense difficulty increasing economic growth in the country and it has a 5%-growth rate that hasn’t been seen for the past decade.
- The rupee has already hit lows that have rarely been seen before (it has lost 10% since the start of the year against the dollar) and inflation looks as if it will be fuelled by the interest rates that have been increased by theReserve Bank of India.
- There has been a general outflow of capital from India since the start of this year due to the slow-down in the economy.
- Inflation stood at 2.1% in September for India and it’s that which is the most worrying element perhaps today (at least for the population).
While India has problems with its economy and price stability, it’s the people that will be suffering the most. When food prices increase and they get out of control, it’s the third of the population that is living with just over a dollar a day that will have trouble making ends meet more than they already did in the past.
- Is India becoming an inflation nation? (bbc.co.uk)
- Why inflation will remain HIGH in India (rediff.com)
- Onions, diesel push up inflation to 8-month high; another bank rate hike soon? (profit.ndtv.com)
- Indian Food Prices Are Still Out Of Control (businessinsider.com)
- India Central Bank Hikes Rate to Fight Inflation (abcnews.go.com)
Europe Stuns With “Surprising” Record High Unemployment Print, Inflation At 4 Year Low; Euro Tumbles | Zero Hedge
Broken down by country:
And yes, that sudden housing mecca for all rental condo flippers, Spain, was just found to also have a record high unemployment rate of 26.6%. So much for that.
But the worst print for Europe is not in any of the above charts or tables, but is and has always been its youth unemployment, as an entire generation is unable to find a productive life. In this case, the EA17 Under 25 unemployment just rose to a new record high 24.1%, from 24.0% in August, driven by Spain at 56.5%, Cyprus 43.9% (was 28.0% a year ago – thanks template), Portugal at 36.9%, and Greece somewhere in the 58% ballpark.
Finally, rounding out the abysmal picture was the Euro area’s just reported October CPI, which tumbled to 0.7%Y/Y, down from 1.1% in September and below the 1.1% expected. This was the weakest annual inflation print in the continent since 2009, and is a bright red flag for Draghi that everything he has done so far has failed to stimulate inflation, but at least his precious EUR is at 2 year highs against the dollar. Alas, not for much longer as the time to reprice the European currency has arrived.
End result of all of the above:
And going much lower.
Struggles of the young and jobless – Business – CBC News. (FULL ARTICLE)
Friday’s employment figures held a rare spot of good news for young workers – the creation of 15,700 jobs for 15- to 24-year-olds in September.
The burden of unemployment has fallen especially heavily on Canada’s youth over the last three to five years.
Youth joblessness currently stands at 12.9 per cent, down from 14.1 per cent in August, possibly on account of many young people returning to school in the fall. That compares with a Canada-wide unemployment rate of 6.9 per cent.
‘It definitely is a very competitive job market, and when it is competitive, employers have more choices.’– Manjeet Dhiman, job counsellor
Youth participation in the workforce is a scant 63 per cent, and only 48 per cent of young workers have full-time employment, with the rest making do with part-time work, according to Statistics Canada.
And while dismal job prospects have encouraged many young Canadians to stay in school, for many, a master’s degree is no guarantee of employment in any job, let alone in their field of study.
- Ontario facing “chronic” youth unemployment (o.canada.com)
- Young people dropping out of the workforce amid high youth unemployment (o.canada.com)