Investment Chart Kondratiev Wave

Investment Chart Kondratiev Wave

Tuesday, 10 April 2012

Bianco: QE3 will arrive, employment growth to deteriorate

On his monthly conference call Jim Bianco showed his bearish feelings again. That has become quite common in the last years, but he warns that you will get a new wave of monetary easing (QE) when the pessism gets rampant and that has been excellent fuel for equity markets and commodity prices.

The FED hast been erratic in the last weeks about QE3. The majority of Fed governors is more and more against even more QE because of its dark influences on (implicit) inflation expectations. But the troika that determines everything (Bernanke, Yellen and Dudley; dthe others are muppets) is addicted to QE and will seize every opportunity to enact a new round of QE. That will not happen as long as Operation Twist is still going on (=until the end of June), so long they can control their selves, but from their meeting on June 25 on it will become exciting.

QE3 don’t has to arrive when they maintain their norms and values for inflation: PCE (personal consumption expenditures, weighted as in the GDP) has to get below 2% (according to their expectations). To keep the interest rates at 0% the inflation must remian below 2%, otherwise they have to write a note like the Bank of England that the inflation is too high at the moment, but, mark my words, the inflation will go down soon, be patient.

The realised PCE inflation in the VS is already for quite some time above 2%, especially because of higher commodity prices. The coming months you can safely bet according to Bianco that the PCE inflation will not decline below 2% thanks to the higher gasoline prices and the higher core inflation. That is no problem for the FED, because of their trick with the inflation expectations of all Fed governers. They revealed all (including the hawks) that the inflation at the end of 2014 will be below 2%. As long as those forecasts will remain low enough the FED has a perfect excuse to perform a QE3 in emergency cases (=when equity markets fall too much).
The track record of the FED inforecasting inflation has been very poor according to many studies, but the rules are for the time being as the troika have instated. .

For the time being, because the bond vigilantes can spoil the party. When they see too many rounds of QE coming they can send implicit inflation expectations to all time highs and then the FED has to listen (otherwise: Bernanke= Von Havenstein, the bank president of the Weimar republic).

QE3 will arrive according to Bianco, because Bernanke is right and the US economy will prove too weak to get a good sustainable recovery. Bernanke had three reasons for that:
1. The employment growth has accelerated, but only unproductive people got work.
2. It is very well possible that the potential growth of the US is overstated; it will not be 2.5% but 1.75-2%. That is a disaster scenario, then all risk on investments are 20-30% overpriced.
3. Because of record hot winter weather (3 degrees C more than normal) 72.000 more people got work in December/February each month (Global Macro Advisors calculations) than normal. That will be a drain on the employment growth in the coming month (March was the first one).

To summarise, economic growth will fall back. Profit growth in the US will be very bad in Q1 and Q2 according to Bianco. The guidance is since January horrible (see chart) and profits are now growing less than inflation. Profits will no longer support equity markets, especially when the GDP growth falls back.
But thanks God, then QE3 will arrive and the S&P500 can get with some luck an all time high over some time.

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