Macro Man's a bit pressed for time this morning, as he has an appointment with his physiotherapist at a time when he's usually pushing the "publish" button to send another edition of his witterings into the cyber-sphere.
It occurred to him this morning that, at the risk of boring readers with another self-indulgent foray into his physical condition, that the global economy and financial system are really quite like a knee with a torn ACL. Consider:
The Problem:
Knee: When Macro Man took his tumble last month, he fell and couldn't get back up. Actually, he did manage to get his skis back on at one point, but when he tried to ski off he knee collapsed and he fell over again.
Economy: When the credit market took a tumble in 2007, the global economy took a long tumble and has yet to get back up. Actually, people did believe the de-coupling Kool-Aid at one point, but then Lehman Brothers collapsed and it all fell over again.
If only the global economy had had Life Call....
The Current State of Play:
Knee: Macro Man is undergoing a battery of exercises in a rehabilitation program, the goal of which is to allow the joint to regain maximum flexibility and to straighten itself out.
Economy: The global economy is undergoing a battery of programs and stimuli in a rehabilitation program, the goal of which is to give lenders and borrowers maximum flexibility, thereby allowing the economy to straighten itself out.
Treatment Options:
Knee: Macro Man can continue with the rehab program and hope for the best, or opt for a full reconstruction, which will entail a more thorough rehab program and a modest lifestyle adjustment.
Economy: The global economy can continue with the current rehab program and hope for the best, or opt for a fuller, coordinated reconstruction (IMF, WB, bank regulation, etc.) which will likely entail some lifestyle adjustment for all concerned.
Post-operative Rehab:
Knee: A long, hard slog that will require a lot of effort and, most importantly, time.
Economy: A long, hard slog that will require a lot of effort and, most importantly, time.
To continue the analogy, the weekend G20 meeting was a lot like Macro Man's last consultation with the ortho: it resulted in a vague action plan for the future, but no immediate solutions.
So for now, focus shifts to the Fed announcement on Wednesday. Despite being the first central bank to ease policy in September 2007, the Fed has now fallen behind the BOE and the SNB in terms of its prosecution of policy. So the million-dollar question will once again be, as it was in January: Will the Fed announce any specific measures, or merely continue offering vague assertions of intent at some point in the future:
"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability...the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets."
Delaying the beginnign of the TALF by two days, so that it falls after, rather than before, the FOMC announcement has raised a few eyebrows: are we in for some shock and awe after all?
The June 10 year contract has been caught in an ever-narrowing wedge for the last couple of months; perhaps we'll get some resolution one way or the other, depending on the outcome of Wednesday's announcement.
Regardless of what the Fed does or does not do, it's important to remember that neither the economy nor the stock market can be fixed with one wave of a magic wand. From Macro Man's perch, both he and the market still have a long way to go yet before we're back to our best.
It occurred to him this morning that, at the risk of boring readers with another self-indulgent foray into his physical condition, that the global economy and financial system are really quite like a knee with a torn ACL. Consider:
The Problem:
Knee: When Macro Man took his tumble last month, he fell and couldn't get back up. Actually, he did manage to get his skis back on at one point, but when he tried to ski off he knee collapsed and he fell over again.
Economy: When the credit market took a tumble in 2007, the global economy took a long tumble and has yet to get back up. Actually, people did believe the de-coupling Kool-Aid at one point, but then Lehman Brothers collapsed and it all fell over again.
If only the global economy had had Life Call....
The Current State of Play:
Knee: Macro Man is undergoing a battery of exercises in a rehabilitation program, the goal of which is to allow the joint to regain maximum flexibility and to straighten itself out.
Economy: The global economy is undergoing a battery of programs and stimuli in a rehabilitation program, the goal of which is to give lenders and borrowers maximum flexibility, thereby allowing the economy to straighten itself out.
Treatment Options:
Knee: Macro Man can continue with the rehab program and hope for the best, or opt for a full reconstruction, which will entail a more thorough rehab program and a modest lifestyle adjustment.
Economy: The global economy can continue with the current rehab program and hope for the best, or opt for a fuller, coordinated reconstruction (IMF, WB, bank regulation, etc.) which will likely entail some lifestyle adjustment for all concerned.
Post-operative Rehab:
Knee: A long, hard slog that will require a lot of effort and, most importantly, time.
Economy: A long, hard slog that will require a lot of effort and, most importantly, time.
To continue the analogy, the weekend G20 meeting was a lot like Macro Man's last consultation with the ortho: it resulted in a vague action plan for the future, but no immediate solutions.
So for now, focus shifts to the Fed announcement on Wednesday. Despite being the first central bank to ease policy in September 2007, the Fed has now fallen behind the BOE and the SNB in terms of its prosecution of policy. So the million-dollar question will once again be, as it was in January: Will the Fed announce any specific measures, or merely continue offering vague assertions of intent at some point in the future:
"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability...the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets."
Delaying the beginnign of the TALF by two days, so that it falls after, rather than before, the FOMC announcement has raised a few eyebrows: are we in for some shock and awe after all?
The June 10 year contract has been caught in an ever-narrowing wedge for the last couple of months; perhaps we'll get some resolution one way or the other, depending on the outcome of Wednesday's announcement.
Regardless of what the Fed does or does not do, it's important to remember that neither the economy nor the stock market can be fixed with one wave of a magic wand. From Macro Man's perch, both he and the market still have a long way to go yet before we're back to our best.
14 comments
Click here for commentsMM - actually the analogy is close enough to be a model imho.
ReplyAnd points to the two other factors missing in our current discussions:
1) not just patience (no magic wands as you say) but disciplined patience (Barry's got a whole 50 days in office and it's supposed to be fixed)
2)lifestyle changes ? oh yeah....yeah. what people are missing out the other side is that as consumers become savers somebody will spend that money - right now it has to be gov'ts 'cause of the liquidity traps. But savings equals investment equals growth if we're smart and we use this to hit the re-boot button
The ideal answer as to "who will spend the money" is, of course, "Asia." Less household demand in the US + more household demand in Asia = a happier, more balanced global economy all 'round.
ReplyMM - I'm worried that your doctor's
Replyapproach has been Trichet when
you need Bernanke, who would have given you several cortisone shots already. Did you press him about it? It will help with the flexibility. (From personal experience with knee sprain.)
all the stuck shorts were happy last nite after an hour of ES NQ being down -1%(seemed like every elliot waver on the planet a week ago sunday called for dow 5000 spx 500's)
Replyso last nite i said, 'you better wait and see what europe does to this thing', and oops you've done it again
USDCHF seems to be honoring support at this moment
good luck with the knee,
-deac
The medical analogy isn't too bad - see also the inability of the general public to understand that there is no quick fix - "the politicians and economists tried all kinds of stuff and it didn't work immediately - they obviously don't know what they're doing, they have no control, we're doomed". Doctors get that reaction all the time - just because some treatments won't catch on or have an immediate effect doesn't mean they're not worth trying or that the guy administering it is an idiot.
ReplyAgreed. I am quite pleased with the progress I've made in the last week, but both of the orthos I've seen have said the same thing: the better shape the leg is in beforereconstruction, the better shape it will be in after...making the rehab easier than if the knee is reconstructed while not flexible, etc.
ReplyThe physio was pleased with my progress and stepped up the program...but said on more than one occasion: "You know that you shouldn't do too much, too soon. You've gotta rebuild the muscles before going all out."
I'd submit that the same holds true for economic growth: far better to rebuild the system for a lasting recovery than to blow the stimulus wad to achieve a quarter or two of rapid growth, which then relapses back into where we are now...
So are you saying your knee injury is the worst medical disaster since the 30s?
ReplyNo, merely that it got bent out of shape and it's an arduous process to put it right again.
ReplyThe analogy does not quite illuminate the problems in solving the predicament of the world economy. We shouldn't be talking about ONE knee. We need to find the remedies for a million knees, thousands of elbows and quite a few hip joints.
Replyhttp://www.youtube.com/watch?v=mVoPG9HtYF8
Buying two week treasury calls seems like a decent trade over the fed. tyj9c 123 cost 30/64, pretty cheap just in case they do announce they will be buying treasuries.
Replydont get knee surgery macro man, seriously, i've been there from my many years of MMA fighting, and its a big disaster to do the rebuild. just rehad it, learn everything you can about knee issues and in a few years you'll be so much stronger/better than you are now you won't believe it. i'm 4 years out and i now squat 500+lbs and if i had skipped surgery i would have done a full recover in half the time..
ReplyNO ACL equals no serious skiing..simple as that. I dont what kind of ultra conservative Harley St. Savill Rd suit you are consulting but my advise is get on a plane go to NYC and get it fixed. Its no big deal...
ReplyUr writings are much good.
ReplyInvitation letter
I have been using a similar analogy (broken leg while skiing instead fo torn ACL) for several months to explain the economy. I always conclude with "instead of letting it heal, governments all over the world are injecting painkillers while screaming 'get back on the slopes.'"
Reply