Thursday, 27 June 2013

Does Bernanke Deserve A Raise?

Ralph Shell, Excel Analyst

Does Bernanke Deserve A Raise? Come Monday July the 1st, Mark Carney will begin his new job as the world's highest paid central banker.  It is reported Carney will make £874,000 ($1.340,000), quite a raise from the C$429,600 at his last gig in Canada.  This is also more than his predecessors salary of £305,368, but Mervyn King also receives a pension of £250K per year.

Prior to the salary for Carney, the highest paid central banker was the Reserve Bank of Australia's Glen Stevens.  He was being paid A$ 1,050,000 per year but considering the recent dive in the A$, he has taken a pay cut.  Contrast this to the Fed's Bernanke who is toiling for only $199,700, nearly the minimum wage for a central banker.

Really, it is not fair since, Bernanke has the weight of the world on his shoulders.  Only last week he suggested conditions in the US were improving, and this might result in fewer bond purchases later in the year.  This caused panic in the debt markets, and sent global equity markets lower.

In Market Watch today, Matthew Lynn observed:

"The Fed’s dilemma in the next few months will be this. The U.S. may well be strong enough now for tapering. But the rest of the world isn’t.

A tidal wave of money has swept into Asia, Africa, South America and Eastern Europe in search of higher yields. But as the returns rise in the U.S., much of it will head back into dollars instead."

Continuing, he concludes:

"Most investors are getting this wrong. Whether we see significant tapering doesn’t depend on the U.S. economy - it depends on Europe and Asia. And that means it is not going to happen, at least not in any significant way, and certainly not as fast as anyone thinks."

With all these responsibilities, Bernanke would seem to be a bargain among the Central Bankers.  With the sequester, though, a raise for Ben is probably out of the question.

Yesterday, Wednesday 26th June 2013, was another bad news day that is good for the markets.  The US GDP Annualized Q/Q number was reduced to 1.8%, less than the anticipated 2.4%.  Many had questioned the 1st quarter numbers after the rise in taxes.  It showed up today with the US Personal Consumption taking a drop to an increase of only 2.6%.  Consequently, we have an equity rally and lower yields in the debt markets today.

Today, Thursday, we get the British GDP numbers,  They were higher than expected at the last reported.  The Q/Q was a positive 0.3% and the Y/Y was 0.6%.  Reduction in these numbers would hurt the pound.  There are also a number of USD reports that may influence the markets.

Looking at the pound versus the USD, (GPBUSD, FXB), the pound had a big rally from 1.50 to 1.57.  In our COT reports, we watched as the specs were large shorts during most of the rally.  Three weeks ago in the June 4th COT report, specs were short over 100K contracts.

This position has been reduced to about 24K contracts.  It is our inclination to be short the BP though selling 1.54/5 sounds a lot better than 1.53.

Still, we do have a well paid, super bank star about to make his debut on the policy committee.  He no doubt feels a need to make his mark.  Let Draghi and the Germans continue to talk the euro up, but the best thing that can happen for the British economy is a lower currency.  As always mind your money.
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