Is the end nigh?

August 4, 2016 03:10 PM

It is not surprising especially in the Senate that folks like Robert Corker (who is also a very successful businessman), Patrick Toomey (a very successful currency trader prior to his political career) and Robert Menendez (a Democrat who has stood up to Barack Obama’s more outlandish positions) all shared views in February that Congress was responsible to create conditions of greater productivity and higher wages, and not the Fed.

However, especially in an election year in the U.S., the chances for any move back from the broader political party highly partisan positions are proverbially “slim and none, and ‘Slim’ just left.” So the central banks keeping their promise to continue to aggressively pursue their programs to whatever degree necessary now joined by governments’ fiscal loosening still leaves little promise of any real improvement in the beyond current mediocre (at best) performances of the U.S. and global economies.

The frustrated flailing of the central bankers may demonstrate the extent of their effort, which is only that much more heartbreaking in its lack of likely results. What is equally depressing is the almost total the lack of any pursuit of the topic in the financial press. Rather than point up the failure of the political class in its abrogation of any structural reform effort to revive economies, the financial "fourth estate" seems content to chronicle the exhaustion of central bank efforts leading to fiscal stimulus as the only alternative.

Getting back to the influences from official circles and the economic data, it seems that in spite of the best efforts of the powers-that-be the global economy is not responding to the latest fiscal stimulation and central bank accommodation. The current and anticipated future fiscal stimuli could prove as relatively useless as what has already transpired, going all the way back to the major Obama administration stimulus in 2009.

It really did not create any new, high-paying jobs, and the President admitted as much a few years down the road. Structural reforms that include taxation, health and especially environmental and business regulation are the only thing that will reinvigorate the international business class’ "animal spirits" to expand and hire.

This all gets back to that key lack of structural reform we have been highlighting since January of 2015. While the nature of it has evolved through the various permutations, they are the same as we predicted in the Jan. 27, 2015 Futures post Data disaster? It’s lack of reform, stupid!

Yet as Ben Bernanke before her, Janet Yellen is very happy to let the political class leave the role of hero to the Fed and then castigate it when Congress fails to do its part (with the notable exception of the limited instances noted above.) 

Fast forward to the present for a brief review of what has transpired out of last week into this week that illustrates the market and economic dilemma. 

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About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.