Central Planners' Futile Fight Against Economic Gravity

Takeaway: What happens when the edifice of omnipotent central planning comes crashing down?

Central Planners' Futile Fight Against Economic Gravity - central banker cartoon 02.02.2016

As the reality of global #Deflation and #GrowthSlowing continues to sink in, investors across the world are slowly awakening to the stark conclusion that central planners cannot fight economic gravity.

The latest case in point? Germany's CPI numbers this morning. Here's an update from our Macro team in a note sent to subscribers:

"German February Preliminary CPI fell to -0.2% year-over-year vs Expectation of 0.0% and 0.4% Prior. This is yet another data point that is going to force the ECB’s hand to act at its next policy meeting (March 10th) as inflation is tanking."

 

Central Planners' Futile Fight Against Economic Gravity - mario draghi

 

Bearing this in mind, it's worth reflecting on the almost frantic capitulation among serially overoptimistic global policymakers:

  • The IMF is now calling for "bold multilateral actions to boost growth and contain risk," while warning that a global growth downgrade from its current 3.4% is "likely."
  • The BOJ has called for greater G7 cooperation to "soothe" market jitters.
  • The ECB "is ready to do its part."
  • Meanwhile, Fed officials hold conflicting views about whether March is a "live" meeting or not for rate hikes.

In a recent Early Look, Hedgeye CEO Keith McCullough put forth a new theory about what happens when macro markets no longer believe the whims of audacious central bankers:

"... My Big Bang Theory for the #CurrencyWar (one of the Top 3 Themes in our Macro deck right now) is as follows:

  1. Japan is no longer able to convince markets that it can burn its currency at the stake on command
  2. Japan’s Yen starts to rise, and Japanese stocks start to crash
  3. Europe then fails to convince consensus of the same
  4. Euro goes up (instead of down) on Draghi’s next central-market-planning day (March 10)
  5. European and US stocks resume their current crashes and go straight down"

It's a troubling scenario...

One thing we're crystal clear on ... when the edifice of omnipotent central planning comes crashing down, it won't be pretty. Don't say we didn't warn you.

Central Planners' Futile Fight Against Economic Gravity - Card house cartoon 12.03.2014