Steven Hawking once said, "One cannot predict future events exactly if one cannot even measure the present state of the universe exactly." I say don't worry about the universe because we can't even get the economy right.
Several months ago, we said our corporate sources had indicated they were leaning toward granting marginal wage increases and dumping employees on the national health care exchanges. Today, Time Warner Cable and IBM announced they would do just that to retirees, no wage modification needed. To be clear, these companies are NOT the ones we consulted with, so expect more and bigger names to follow.
The employment situation and its Fed policy calibration have numbed market participants into a false sense of understanding that solidifies Hawking's thinking. Vocal proponents of high inflation (due to QE) and debt catastrophe (due to large numbers) were misguided in their understanding of the present and thus proved wrong by time on their predictions of the future, which is now.
Labor arbitrage continues to stifle robust improvement from a geographic and technological trade-off. Equity indexes levitate on the near term profitability of the arb. Eventually, the domestic situation atrophies from the reality that the workers are the customers. Logical managerial decisions with regard to benefits will complicate budgetary negotiations already impacting military might. The vast majority of Congressmen against Syrian involvement stated budgetary reasons for opposition.
We continue to see the Hawking Rule most directly in the concept of LSAP reduction, bastardized as "tapering." Modest growth, sequestration and rates rising have altered the supply side of LSAP dramatically. Paydowns and sharply reduced MBS production point to a cut of 40-50% from the present 85B pace by our calculations. Every month at the present pace is in actuality an "increase." Years from now, we predict the catastrophic prognostications of the policy bears- as to both deficit spending and QE - will prove shallow. Their misunderstanding of the present dooming them from the start.