Brian Pretti's Blog

A steep interest rate curve is not about to magically appear any time soon, again courtesy of the Fed. So the banks are going to face the reality of meaningful reported earnings pressure.

The US fiscal cliff looms as the level of current political brinkmanship has certainly gone to new highs. Can the US goods sector save the day?

I think the “facts” make a very strong case that Bernanke will not deliver any QE goods at Jackson Hole. There will be plenty of talk about vigilance and a heightened readiness to act if need be, but we’ve heard these words over and over all year long.

In many senses, both macro economic and financial market rhythm in 2012 has been very similar to what we experienced in 2010 and 2011. In each of those years the domestic economy was perking up in trajectory as the year began, only to witness slowing into the second quarter and through both of the last two summers.

Back in 2009 and 2010 I penned a number of discussions regarding the macro economic and investment theme of the “tale of two economies”. In short, what has been so glaring in the current cycle is the divergence in fundamentals between US small businesses and their larger globally oriented business brethren.

You are probably fully aware that the largest US bank, JP Morgan, had a more than noticeable derivatives loss that was announced a few weeks back. In fact, regulators seemed so taken aback that they had JP’s CEO, Jamie Dimon, appear before the Senate Banking Committee to explain.

I personally believe the Fed will not commit to a formal QE at today’s meeting. Why? We have not yet hit a proper “tipping point”. As you’ll see below, as of the moment, the TIPS breakeven inflation rate is well above what was seen at the initiation of QE2 and Operation Twist.

As we move into the summer of 2012, we once again find ourselves in a world of heightened asset price volatility, concerns over European governments and the Euro banking system as a whole, as well as clear economic slowing in the emerging economies.

Over the course of the current economic cycle I have written numerous times about the theme of “the tale of two economies”. In short, large companies have enjoyed a vigorous recovery, record profit margins and all time high nominal profits. But their US domestic small business brethren have seen nothing of the sort.

In a little under 75% of occurrences over the last half century plus, it has not paid to get bearish between May and October of election years. Will it be so again in 2012?