Gold remains range bound above $1300. The yellow metal firmed on today’s U.S. retail sales miss, but was unable to sustain these intraday gains.
U.S. retail sales were flat in July, below expectations of +0.3%, vs +0.2% in June; ex-auto +0.1%, on expectations of +0.4%. This was the third consecutive monthly miss and the lowest since January. In our consumer driven economy, retail sales are a critical component for growth. We’ve already seen a number of negative revisions to both Q2 and Q3 GDP expectations this morning.
But low and behold, stocks are up on the bad news amid heightened expectations that the Fed will push back that first rate hike deeper into 2015. Yields on the 10-year note fell back toward 2.40%.
On Monday, I posted a Bloomberg piece by Barry Ritholtz entitled: Celebrating Greenspan’s Legacy of Failure. The premise of the article was based on Greenspan’s seemingly dichotomous belief in free markets and his incessant interventions in those markets, which according to Ritholtz led to disastrous results.
I pondered whether the tenures of Greenspan’s successors would be judged similarly. After all, Ben Bernanke continued down the über-accommodative trail blazed by Greenspan, marked by bubbles and busts. Janet Yellen is on the same path as well, and new bubbles may indeed be inflating. Perhaps the absence of the ‘free market’ hypocrisy will cast a slightly more favorable light…
But why not extend that examination to Messrs Trichet and Draghi in Europe? With the ECB’s refi rate hovering just above the zero-bound at a record low 0.15% and other accommodative policies in place, the European economy remains in shambles and perhaps on the verge of another recession. The ECB may still engage in full-on QE, but what do they hope to gain, beyond perhaps a forestalling of the inevitable?
The Japanese have been at this longer than anyone. Can the ‘legacy of failure’ be extended to BoJ governors past and present: Messrs Mieno, Matsushita, Hayami, Fukui, Shirakawa and Kuroda?
Today Japan reported a 6.8% decline in annualized GDP for Q2. It wasn’t quite as bad as the -7.0% median forecast, but was far worse than most were expecting when the new consumption tax took affect back in April.
As we noted in yesterday’s DMR the efficacy of Abenomics is already being challenged on a number of fronts. Nonetheless, the likely response of the BoJ to mounting growth risks will be more of the same policies that have failed Japan for decades.
The same can be said with regard to growth risks in Europe and the U.S. Look for the respective central banks to respond with ever-more policy easing.
And let’s not forget the ‘legacy of failure’ at numerous central banks during the various emerging market crises and sovereign defaults over the last twenty-years or so: Argentina, Venezuela, Mexico, Russia, South Korea, Thailand, Malaysia, just to name a handful.
The notion that the central banks can keep all the plates spinning by providing ever-larger doses of monetary accommodations is a false hope. Once the plates start toppling the whole charade could come to an abrupt and disastrous end as confidence in those central banks evaporates. At that point, you’re going to want some gold in your portfolio.