THE ONLY NEWS THAT MATTERED TODAY
Bernanke is out of bullets. Anyone who can’t see that by now is not familiar with the Japanese history of QE or the most recent impacts of QE (Ben clearly didn’t save the economy with QE1 or we wouldn’t even be having this discussion). He says he will cut interest on reserves or alter the language in his speeches – total non-events in my opinion. They might get the market all excited for a few hours, but soon people will realize that none of these actions will actually fix the recession on Main Street.
Aside from all the jawboning out of the Fed, there was some actual market moving news today. Intel cut its Q3 earnings. According to the AP:
“Intel said it now expects revenue of $10.8 billion to $11.2 billion for the fiscal third quarter, which ends in September. That compares with a previous forecast of $11.2 billion to $12 billion.
On average, analysts surveyed by Thomson Reuters expected $11.5 billion.”
This is big news in my opinion. Not only are semiconductors economically sensitive, but Intel has been crushing estimates quarter after quarter for almost two years. As we mentioned the other day, we could be at a crucial turning point where the economy is slowing substantially and analysts estimates appear high. If Intel is any early indication it would seem to verify this thinking which means we are likely to see more warnings and a lot of analyst cuts in the coming months. Earnings are the linchpin holding this market together. A decline in earnings will certainly put pressure on the markets.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
15 Comments
And yet (and I in total agreement with you) the market goes up…
The market is very confident in Bernanke….
Mkt was a bit oversold and looked for an excuse to bounce back… I wonder how long will it last
Printing money is QE. But when every asset class is going down together then QE is no longer working because then there’s no one who’s is willing to borrow money to go “”long”" and create “”asset inflation”".
You’ve been reading too many scary websites. QE is not money printing. It is an asset swap. They are not adding net new financial assets.
How can you say that Bernanke has run out of bullets, TPC? Can’t he just drop money from helicopters as he promised? And didn’t he apologize to Milton Friedman for the Great Depression because the gov’t didn’t yet know his monetizing theories would work then? Gee, you mean to say that Bernanke can’t just monetize us out of this one also, as he promised he would? Are you suggesting that academic theory may actually be wrong in practice? I’m shocked, shocked.
There is also the Japanese History of Harakiri. If Bernanke is out of Bullets well then maybe he should try the sword.
“The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do.”
A scrawny, dorky looking boy stands on the side of the river bank as his friends are swimming in the water..
“Jump in the river Benny”.
The helpless boy looks down at his friends..
“It’s not like I can’t swim guys. I can”
What happens when you go to kick the can down the road and your foot snaps off at the ankle?
Hi TPC,
I think many investors had already assumed Intel’s earnings would not continue next quarter, so they wouldn’t have been surprised at all by the new Intel guidance. I assume you’ve noticed that Intel has been declining since its excellent earnings report, which reinforces this view… If anything, the guidance adds a little certainty about the extent of the future earnings decline, which would be positive for the market since Intel is a bellwether of sorts (the market doesn’t like uncertainty).
Beyond the semis, I also think that the market has already been expecting future earnings to be less stellar than analysts think. Again, I think recent market performance suggests this, as does the substantial amount of bearishness that currently exists (lots of vocal bears out there, not just on blogs). The big question is whether the market has sufficiently discounted a slowdown to avoid a substantial decline from here, once the current bounce ends; we’ll just have to wait and see.
Bernanke has nowhere to hide. This economy is slowing so fast that even the MSM is talking about it. There really is nothing more that he can do. He talked today and that along with the fake GDP revision ( even the MSM said that it will drop to between 1.0 to 1.5 on the next revision) got him a few days reprieve. But next week we continue the steady downward grind, which will accelerate when any major problems in the EU resurface. That should not take very long.
TPC , see how they defended 1040 s&p again? Black hole approacheth.
I continue to enjoy reading your missives about how the Federal Reserve does not – when it buys Treasuries – create more FRNs. Since you view the two as one and the same, I guess I will also.
In any case, my view of the Bernanke conundrum is that a lot of FRNs have been created recently (for arguments sake lets just say its from deficit spending) and they are held all over the world. And the holders of such have undoubtedly communicated to the Fed their growing unease with the mounting supply of such FRNs (zero hedge has great chart just now showing how much new government emission there is relative to tax revenues). Let’s just summarize this first problem as “nervous nellies” and irrespective of what you and other MMTers think, most every street economist, investor, and central banker thinks currency is, in fact, created by QE, and that more of it that is printed, the less valuable it becomes. Just allow me this.
But now a second problem has emerged. Age old enemy of monopoly money everywhere. And that would be the price of gold. It is going up. And up. And up. All kinds of scare stories on supply failures. Clearly at least some of the “nervous nellies” are,
on the margin, exchanging their store of value FRNs for store of value gold. And they are “winning” as gold keeps going up, and up, and up. So now the “nervous nellies” are starting to see a few, just a few mind you, of their brethren exit “the barn door”. And they are wondering if they should maybe go too, especially given that the Fed Chairman seems to be (wrongly in the MMT world, but rightly in their own) playing with matches on a stack of dry hay. At the very least, the “nervous nellies” are thinking about it. Cmon, admit it. It’s ok.
And maybe the more they think about it, the more they will realize that (1) first defectors from the “FRNs store of value meme” are going to win the biggest, and that all defectors will “win”. Unless FRNs become a popular store of value again, of course (ZIRP, anyone). The game is called the Nash equilibrium. My thanks to FOFOA and JoHn Law for this fascinating game theory application.
Put simply, the “nervous nellies” are eyeing the “barn door”, and the last thing he wants (or anyone, really), is to start a stampede. He doesn’t even want people thinking about it…….
I noticed the Intel update as well. Not only did markets in general go up… even the Intel stock did. Did Intel investors not believe the initial forecast in the first place? Since they are one of the first companies to announce, they are an interesting hint at what happens next.
More of the sky is falling. If you’re so sure this will happen ” ‘soon people will realize…”, why not put a time frame on it, so it’s determinable if you’re right or wrong? Then, if it doesn’t happen in three months or whatever you think, explain what part of our model was wrong and try again. There’s very little scientific about this kind of prognostication.
Who ever said the sky was falling? I said Bernanke’s little QE plan won’t fix Main Street and there is a substantial amount of evidence to back up that claim….