Shorts Get Dressed In Draghi As Investors Await Invariably Bad August 2012 Non-Farm Payroll Numbers Tomorrow:
Shorts were hit hard today as one of the most telegraphed bond buying programs in history was announced today. The details of the new bond-buying program from ECB President Mario Draghi were leaked yesterday yet some traders continue to believe that easing by central banks doesn’t work and has no effect. This couldn’t be further from the truth. Quantitative easing may be the only thing that has actually helped the stock market rise in the past few years and credit can’t be based on any fiscal policy from Washington.
The ‘QE doesn’t work crowd’ doesn’t understand the goal of easing. It’s to create a put effect that makes shorting riskier and drives up stock prices to create a ‘wealth effect’. Now that same QE doesn’t work, ranting crowd has focused their biases on central banks overseas and are fighting the fed(s) – to no avail. Add the Draghi Put to the Bernanke Put and one gets more liquidity than history may have an equivalent for.
Investors Await Invariably Bad August 2012 Non-Farm Payroll Number
We believe no non-farm payroll number released tomorrow will be a ‘good one’. Investors are now conditioned to believing that even 200,000 jobs is a blowout number but this doesn’t keep up with the population of Americans that are available to work on an annual basis. In our note yesterday we stated:
We don’t believe any number on Friday will be a good number worth bragging about and could bring back speculation of QE3.
Unless 400,000+ new jobs are created tomorrow (which has a zero percent probability), QE3 should not only be back on the table but the suggestion would be strong that Ben Bernanke and company have little forecasting abilities after 42 consecutive months of unemployment above 8 percent. We would prefer to assume they are looking at inflation trends and do have predictive power. Now that general inflation is confirmed to be marginal and deflation could be a bigger worry – politics aside – it’s time for QE3.
We are ignoring ADP data and initial jobless claims today in our assumption QE3 is necessary. The trend of 42 consecutive months of lackluster employment growth is much stronger than today’s trivial data points.