Thursday August 26, 2010 - 15:07:17 GMT
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Jackson Hole Rendezvous (FXA)
Jackson Hole Rendezvous
One hundred and seventy years ago Jackson Hole, Wyoming hosted its last Rendezvous of mountain men and Native Americans where fur trading brought numerous tribes, including adversaries, and settlers together to barter mainly beaver pelts. The popular image was whiskey was a large part of the gathering â€“ call it qualitative easing. The Rendezvous lasted about 30 years until the regionâ€™s beaver supply was exhausted and hence the basis for the gathering was forever gone.
In some respects the 2010 central banker (and finance ministry, academic and Wall Street pros) Rendezvous in Jackson Hole (well actually up valley in the Teton National Parkâ€™s Jackson Lake Lodge) should be the lastâ€¦central bankers have exhausted their policy tools in coping with global stagnation and in its ugliest form deflation. Official rates are effectively at zero in most developed economies and the Fed, BOE and BOJ have been deploying quantitative easing to restart private sector activity with varying degrees of success while finance ministers have largely ended major fiscal stimulus programs. There is not really much left in the policy idea arena for the Rendezvous attendees to trade.
Anticipations are high among market participants that policy makers, especially central bankers, will do and say all the right things to restore confidence in the global economy and asset markets, not unlike the tent revival preacher laying hands on the crippled only to have them walk again. Frankly this is really all about confidenceâ€¦market psychologyâ€¦Bernanke and Shirakawa are set with the impossible task of making risk taking popular, inflation a more plausible risk than deflation (early in process this is a game of psychology) and have everyone believe the policy bag is full of beaver pelts when we all know it is empty.
So look for Shirakawa to indicate a willingness to bump up its long-term liquidity facility (3-mo term funds) by JPY10trln and warn against the risks from a disorderly rise in the yen. But this would be like Jim Bridger at the earlier Rendezvous trying to stop a charging Grizzly with a single shot muzzle loading pistol. Moreover, Shirakawa does not really want to do more nowâ€¦his attitude is that policy is appropriately accommodative and if there is anything on the policy side it should come from the governmentâ€¦stimulus is already in the works (what about capital controls PM Kan to constrain speculation?).
Bernanke has an even tougher bargainâ€¦the global recovery may depend on the Fed getting QE2 right and so Friday is all about convincing markets that the beaver bag is spilling over with supply. Marginally higher asset purchases are not my idea of brimming over. But Bernanke like Shirakawa believes the Fed has done enough for now and it needs to sit and watch indicators, still confident the recovery is on track, and not overreacting to the potential soft patch which might inspire a run on market confidence in risk. Unfortunately for Bernanke his remarks will follow the release of Q2 GDP revision which will be a reminder that Q2 GDP hit more than a soft patch (seen 1.4% SAAR down from initial 2.4%).
Low expectations is the best approach heading into these kinds of policy rendezvous. And my best bet is that between GDP revision and the content of the beaver pelt bag, policy makers will be seen as lacking in supply of policy ideas and behind the curve. And I would not embrace risk on Friday.
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