Like He Said, And He Said, And He Said, and She Said . . .

I mentioned in my last post that I believe the economy would be in a recession in the last half of 2015 and the U.S. stock market will likely crash by the end of the third quarter.  I also opined that while the Fed desperately wants to adjust rates, the ultimate demise of the economy will prevent it from doing so.  On the latter point, Fed Governor Lockhart is quoted this week as saying that it will take "significant deterioration" of economic conditions for them not to raise rates in September.

http://www.philstockworld.com/2015/08/05/fed-yap-vs-futures-bloomberg-vs-cme-eighthpoint-baby-hikes/

I am just of a view that we will in fact see good proof of serious deterioration by then.  Indeed, I am of a view that we see it already.
On these points, I link a recent article by Lance Roberts that addresses some of the sound reasons I believe there is already significant deterioration.



http://seekingalpha.com/article/3406375-the-bea-is-still-overestimating-growth?ifp=0&app=1




His nice piece is obvious on why I think there will be a recession. And I could add a host of other charts and stats as further support a recession is upon us, showing liquidity concerns, rare divergences on market breadth, the debacle in commodity prices, China, Russia, Brazil, Australia, PIIGS, Canada, etc. all falling, Donald Trump combing his hair, etc. but hopefully you get the picture - and they all point to the same picture in my view, which is recession (or in Trump's case receding).




Now the linked Roberts article does note the BEA having a different picture and it does a nice job of pointing out how the BEA has adjusted the focus on its picture of GDP over the past couple of years to try to make it look better.  I believe we all adjust what we see to fit our desired version of reality, so it is no surprise the BEA does it too. 

The point being, however, that the Fed is looking - knowingly - at a number of cooked figures on GDP, unemployment, inflation and the like, and it is using these fake and distorted stats as justification for a hike.  They really desperately want to hike as they know it was stupid not to do it sooner and the rate has been in ZIRP territory far too long.  But they cannot justify the increase for the real reasons as the real reasons are not consistent with their Keynesian playbook, so they have to cook the books on the economic figures to make them fit.



Now I for one also see the need for them to raise the rates.  Indeed, I see the need for the Fed to disappear and stop meddling altogether, but that ain't happening any time soon, so for now them raising rates is the best they can do.  And they do not need to raise them because we have a hot economy that needs cooling, but rather because the low rates have simply encouraged and enabled fools to play with our money irresponsibly building financial bubbles and the only way to end this is to raise the rates. 




But alas I believe the reality of the economy will set in even in the cooked books before mid-September and a rate hike discussion will be history unless the entire Fed decides to use a new playbook and simply raise them because it is stupid to leave them there.  But stupid is as stupid does, so don't wait for this to happen.  Nope ZIRP and probably more QE is in our future, like it or not.  One bubble bursts and the next bubble cometh . . .


Update 8.6.15


I just saw that the Atlanta Fed, which is where Lockhart - quoted above - hails, has just released their third quarter GDP preliminary forecast at a whopping 1% - juuuust a taaad below bluechip concensus forecast that stands over 3%.  Ouch!  I wonder if Lockhart considers this "significant deterioration" from the 2.3 figure the BEA recently gave for the second quarter.  The drop is mostly attributable to that old inventory thingy.


http://www.zerohedge.com/news/2015-08-06/gdp-shocker-atlanta-fed-sees-q3-growth-laughable-1