TAE has repeatedly made it clear from early 2011 that QE3 “money printing” would be anything but easy for the Fed to justify launching, and it looks like that thesis still remains firmly in play. The illusion of economic improvment in the U.S. due to its relative status against the backdrop of the crumbling Eurozone and its inaccurate/manipulated metrics continue to ironically destroy market confidence.
In Who Killed the Money Printer, I made the following observation:
I wouldn’t go so far as to say that some scale of QE3 has been “priced in”, but it is clear that the markets are now thoroughly addicted to credible promises of cheap, never-ending liquidity; or, as they would tell you in AA meetings, one sip is too much and one trillion sips are never enough. The problem for them now is that there is very little credibility left underlying the Fed’s “promises”, thanks to the complete joke of a jobs report produced by the incumbent politicians guiding the BLS.
With unemployment data suddenly showing massive improvement above expectations last month (and the non-manufacturing ISM reporting price increases across several commodities), the U.S. government has placed itself back in a position where there is simply no justification for any monetary easing. The Administration will continue to goose any and all economic data it can get its hands on going into elections, which will make it that much more difficult for the Fed to act, which, in turn, will make it very difficult for the market to keep up its appearances.
We could call it the mirror image of 2009-10, when all that mattered to the American political and financial elites was goosing the markets to manage perceptions of economic health and churn trading profits. As housing, jobs and manufacturing data naturally worsened (with exactly zero jobs created in August 2011, later revised slightly upwards) and the electioneering switch was flipped, the politicians have taken precedence over the bankers and are manipulating the source data with the belief that the markets will naturally play along.
Today we get yet another “goosed” data point for the U.S. economy, or what they would call “fine-tuned”, in the Q4 2011 GDP second revision. The first revision took it down from 3% to 2.8%, and now the second revision has taken back up to 3%. These variations may seem trivial and innocent enough, and perhaps they are for the average person analyzing economic data, but they are anything but trivial for the big money managers (a.k.a. dollar liquidity crack addicts) when taken in a broader context. Here is a graph of the second revision along with prior prints courtesy of ZeroHedge:
While this “fine-tuned” revision, along with the ECB’s second LTRO dump of some €530 billion (€311 billion net) onto banks, may be good for a few points on the major indices, it is clear that neither of them will come close to satsifying the markets’ primal thirst for taxpayer blood over the next few months. The second LTRO marks the end of a program that has already been revealed as a dud, generating nothing but unintended consequences, and the positive GDP revisions make it that much more likely that the Fed will be unable to launch another round of asset purchases before the U.S. elections are over in November. And that’s simply too long for the addicts to wait before their withdrawal is kicked up from first and second gears into third, fourth and fifth.