Ad Hoc Commentary – Jackson Hole disappointment, European euphoria, Japanese jinx
As we said 2 weeks ago, Europe had solved itself. The ever so influential Medley was said to report that the ECB was close to a bonds program deal. Sep 6 ECB meeting should set a framework, and Sep 12 German Constitutional Court ruling should give the bond buying program the necessary blessings. The Europeans should be buying bills while they plan for the final European ring-fence that should be available no later than early 2013.
In an environment like this, Uncle Ben will likely watch how markets react to ECB actions. Jackson Hole is just premature. So likely a Jackson Hole disappointment, followed by a European euphoria, and followed by a Japanese jinx. Someone commented that QE3 is likely only if EURUSD sells off massively. Yours truly agree. Thus it is possible but not probable that Uncle Ben will tilt his hand on FOMC Sep 12-13.
The European euphoria might bring relief to markets – and thus perhaps exit from gold as a safe haven. But would it lead to secular risk-on? In other words, would the masses then say: “Europe is solved now, let us be happy and merry and gay and buy ourselves a new coat”? Yours truly think not.
The uncertainty of the fiscal cliff during a US election year will scare individuals and businesses into a wait and see mode. Expect velocity of money to decline. But expect food, energy and tax to stay elevated on weather, geopolitics and demographics. Stagflation is the new normal, not hyperinflation.
Good luck in the markets.