This is the time of year when everyone and their dog puts forth their forecast for the year. Often by year end we realize we should have listened to the dogs. For us on geopolitical themes it seems to be ‘tell me something new’. This is alright because it tells us that we seem to be on top of the major stuff and any black swans at this point are truly black.
On economic matters, it’s somewhat similar. The critical issues are pretty well known to everyone. The problem for all prognosticators is the timing. Statistically, someone will be closest to getting the timing right on any event to become the latest Wall Street darling, only to flame out on the timing of the next event. Jelly beans in a jar at a charity raffle.
There are very few people that we cannot hear enough from, however. One is Charles Biderman, CEO of Trim Tabs. He has an extremely pragmatic view of the American economy and which we think gives him the edge. He is looking at the right data from the right sources, from the right perspective, eschewing the mainstream government sources whose deficiencies he nails.
Here is his first video of the New Year. (Go here for the transcript: When Less Money Starts Chasing More Shares Stocks Will Drop.)
This video in a sense is not predictive, partly because there are no timing milestones and partly because he clearly knows better than to try and time a market correction. What he does do is to look at major areas of the economy that will affect the market this year and describe their current state. The reader is left to decide what the market implications will be and when their impact might be observed. The general picture he paints based on a well documented and argued position is not pretty and certainly contrary to the Fed’s position.
The only point that we disagree on is the presence or absence of liquidity from QE in the market. We believe that we have shown in Summa: The Great Myth that QE has injected no liquidity into the economy and markets. Tapering and indeed an actual reduction in the Fed’s balance sheet will have no effect on the liquidity in the economy. This leaves the impact of QE on markets as purely psychological – the Emperor’s wonderful robes. The Fed will try and skillfully reduce the market expectations of an illusory liquidity effect to the point that the market is functioning without this expectation that the Fed so skillfully created in the first place. We say ‘good luck’ to that.
As we have noted elsewhere, the Fed has only two classes of tools available to it. One is the use of interest rate policy to affect the economy, and these tools are pretty much broken. The other is communication or control of market and investor expectation and psychology. This may have become a Sisyphean task.
But do listen to Charles, he’s one sharp pencil.