US Economic news/Data/Research

Quote :

Batman Wrote:

I've posted numerous times (here, here, here and here)
about how one-way U-Haul truck rental rates reflect supply and demand
in action and measure household migration patterns, resulting in high
one-way rental prices that reflect high outbound demand (and low
inbound demand), and low prices that reflect low outbound demand (and
high inbound demand).

Now MSN reports on this phenomenon in an article "Where Jobs Are: The U-Haul Indicator":

One
measure of a region's economic health is the relative price of
moving-truck rentals. It has been said that people vote with their
feet. They pick up and go to where the jobs and opportunities are. The
hard part is that it costs more -- a lot more -- to move to where the
jobs and opportunities are than to move to where jobs and opportunities
are limited. My favorite measure for this doesn't come from the Bureau
of Labor Statistics. Nor does it come from any other agency of the
federal government.

It comes from U-Haul, the truck and
trailer rental company. It has on-the-ground evidence and prices its
rentals accordingly. Go to its Web site, and you can learn quickly
where people are going. You can also learn where they are leaving. How
will you know this? Simple..

MP: You heard it here first.

Via SeekingAlpha.com
=========================================================================================

Two Telling Charts

If you had to pick just two charts to look at in trying to gauge the
future of the stock market, you'd be hard pressed to come up with any
two much better than the transports without the rails (TRANQ) and the
Baltic Dry Index (BDI).The BDI is a measure of actual planned
(not speculated) shipping of dry goods and the Nasdaq Transportation
Index, almost devoid of the rails, is a measure of what Dow Theory
wants it to measure - transportation of goods activity. Why do we want
to exclude the rails? Because they have become so heavily levered to
commodity transport and commodities have become so heavily levered to
the U.S. dollar mess. The transport indexes with a lot of rails look
better, but that's just because the poor finances of the U.S. are
driving down the dollar and driving up investor demand for commodities
- the unprintable money. So to get a more honest look at economic
health, it would be good to look at transports with no rails. TRANQ has
just one last I checked.

Here we see what I regard as a ghastly chart. For one thing, it is down
for the year. You could call that a loud Dow Theory non-confirmation of
the S&P 500's lofty new high for the year. Another serious
technical problem in this chart is the fairly well defined resistance
level that was broken just briefly in September only to fade weakly
back below it, breaking the 50 dma in the process.

The BDI has been tracing out a pretty accurate roadmap for us so far
over the last year giving us the forecast 3 months in advance. There's
no guarantee it will continue to do this nice favor for us, but it does
have a history of foreshadowing our stock market. It put in a top, a
consolidation, and then a fairly meaningful decline about 3 months ago.
So the two trusty charts, TRANQ and BDI, agree on the next phase of the
market. It would appear to be a weak consolidation of several months at
best or a smackdown to the economy of the TRANQ at worst.

Couldn't have said it better myself. Spoken like a true bear:

Bill Gross,
co-founder and co-CIO of PIMCO, is to my mind one of the shrewdest
money men around. His monthly newsletter, this month entitled “Midnight
Candles”, therefore always makes for thought-provoking reading. He concludes the newsletter as follows:

Asset
appreciation in US and other G-7 economies has been artificially
elevated for years. In order to prevent prices sinking even lower than
recent downtrends averaging 30% for stocks, homes, commercial real
estate, and certain high yield bonds, central banks must keep policy
rates historically low for an extended period of time. If
policy rates are artificially low then bond investors should recognize
that artificial buyers of notes and bonds (quantitative easing programs
and Chinese currency fixing) have compressed almost all interest rates.But while this may support
asset prices - including Treasury paper across the front end and belly
of the curve, at the same time it provides little reward in terms of
future income. Investors, of course, notice this inevitable conclusion
by referencing Treasury Bills at .15%, two-year Notes at less than 1%,
and 10-year maturities at a paltry 3.40%. Absent deflationary momentum,
this is all a Treasury investor can expect. What you see in the bond market is often what you get.Broadening the concept to the U.S. bond market as a whole (mortgages + investment grade corporates), the total bond market yields
only 3.5%. To get more than that, high yield, distressed mortgages, and
stocks beckon the investor increasingly beguiled by hopes of a V-shaped
recovery and ‘old normal’ market standards. Not likely, and the risks
outweigh the rewards at this point.Investors must recognize that
if assets appreciate with nominal GDP, a 4-5% return is about all they
can expect even with abnormally low policy rates. Rage, rage, against
this conclusion if you wish, but the six-month rally in risk assets -
while still continuously supported by Fed and Treasury policymakers -
is likely at its pinnacle. Out, out, brief candle.”

More Stimulus: No Surprise here

Oct. 28 (Bloomberg) -- Senate Democrats plan to extend an
$8,000 tax credit for first-time homebuyers and allow benefits
for some people who already own residences, a spokeswoman for
Majority Leader Harry Reid said.
The proposal would let homeowners qualify for a $6,500
credit if they have lived in their residence for five years,
said Reid aide Regan Lachapelle. Lawmakers expect to consider
the measure as part of a bill to extend unemployment benefits,
she said. That measure has been held up by a disagreement with
Republicans over other proposed amendments.
The homebuyers’ credit would be available to individuals
earning up to $125,000, or $250,000 for couples, up from $75,000
for individuals and $150,000 for couples under the current law,
Lachapelle said.
Lawmakers want to keep home sales from slipping as the
economy struggles to recover from the worst drop in home prices
since the Great Depression.
“The compromise we have now would expand the credit beyond
first-time homebuyers,” Lachapelle said.
The plan would extend the credit, due to expire Nov. 30, to
home purchases under contract by April 30, 2010, with borrowers
allowed another 60 days to close the sale, according to a person
familiar with the details of the agreement.
The amendment is being packaged with a separate proposal to
extend and expand a tax break for companies with net operating
losses.
Significant Support
More than 1.2 million borrowers through Oct. 9 have claimed
almost $8.5 billion of the $13.6 billion set aside for “first-
time” homebuyer tax credits this year, according to U.S.
Treasury data.
Realtors and mortgage bankers said the credits, which are
available for taxpayers who haven’t owned a home in the past
three years, have helped stabilize housing sales this year.
Reid, a Nevada Democrat, said on the Senate floor today
that there is significant support among both parties for the
homebuyers’ tax credit. He said the other amendments sought by
Republicans are unrelated to the unemployment bill and are
designed to embarrass his colleagues.
Republicans want to vote on amendments on immigration and
to bar funding for the community activist group ACORN.
Senate Minority Leader Mitch McConnell, a Kentucky
Republican, agreed that most lawmakers support the unemployment
and homebuyer measures. “We’re not that far away from an
agreement,” he said earlier today.
The $2.4 billion unemployment measure would extend jobless
benefits by 14 weeks in all states and provide another six weeks
of benefits in states with the highest unemployment rates.
About 1.9 million Americans will exhaust their unemployment
benefits by the end of this year unless Congress acts, the Labor
Department said.

Weekly

Letter From HFN Manager Services: FoFs Are Allocating

Dear Managers,

Based on the feedback we received from last week's letter about my

visit with an investor from our website, my team and I sought to gather more investor

insights with a survey of fund of funds. It was both refreshing and reassuring to hear that

nearly every participant was looking to allocate to managers next year and are in fact

looking at managers right now.

We spoke with a total of 16 fund of funds

ranging from $42 mm under management, to over $3.5 bn. Of these firms, 11 were US

based and the rest were domiciled in Europe. We have to hand it to them, the firms were

amazingly helpful and forthcoming. A table of the survey results are located below but

some of the key points are as follows:

• Nearly 94% of fund of funds surveyed
  
  are allocating in 2010
  
• Almost one third of respondents are open to all strategies, but
  
  half are still focused on Long/Short equity and CTA/Macro
  
• 70% of respondents are either
  
  focused on or are open to investing in emerging manager products
  

One fund

of fund, managing close to $2bn, corroborated our asset flow study

by saying that they saw a significant increase in activity from investors last quarter in the

form of information requests, face to face meetings, and most importantly the first net asset

inflows in over a year. It is likely that this fund of fund is among the earliest recipients

of institutional investor capital in this stage of industry recovery.

As far as

allocation sizes are concerned, there was a great deal of variance from firm to firm due to a

variety of factors, so we left that information off of the table. One mid sized fund of fund

with nearly a half billion dollars under management intends on being very active by deploying

$60 million early next year across all strategies, but will focus on emerging market

funds. Two of the smaller shops were looking to allocate between $2-15 million a piece

depending on redemptions, while another mid sized firm intends on allocating at least $20

million depending on their asset inflows.

We expect to follow up with additional

surveys in the weeks to come, and invite your feedback. HFN Manager Services Fund of Fund

Survey Results

Size of fund of funds surveyed

Size ($mm)	#	%
40-100	4	25%
100-500	7	43.75%
500+	4	25%
Not disclosed	1	6.25%

Do you plan on allocating in 2010?

Yes	15	93.75%
No	1	6.25%

Strategy/Style focus in 2010 (pick more than 1)

All strategies	5
Long/Short Equity	5
CTA/Macro	3
Emerging Mkt	2
Other/Niche	2

Do you focus on emerging managers, established managers, or will you look at

both?

Established	5	31.25%
Emerging	4	25%
Both	7	43.75%

Have you changed anything about your due diligence process between last year and

this year?

Yes	5	31.25%
No	11	68.75%

Have you made any changes to the liquidity/redemption requirements for managers

between last year and this year?

Yes	2	12.5%
No	14	87.5%

Good luck with trading today and have an excellent weekend.


Napoleon T.

Butic
Director, Manager Services
HedgeFund.net


Email:Managerinfo@hedgefund.net

Napoleon T. Butic is

the Director of HedgeFund.net's Manager Services Group, which manages HedgeFund.net's

HedgePlus platform, a service providing managers with premium visibility to over 30,000

registered users. Since 2000, he has helped hundreds of managers with their marketing efforts

through the site. For questions about marketing, HedgeFund.net, or the industry in general

feel free to contact Managerinfo@hedgefund.net.

US economists raise outlook for 2010 growth...Maybe so but I cant believe the economy will stabilize without a housing recovery, inflation of some sort, and reinvigorated consumer demand/confidence. But then again who knows how banks will react in the future if the the Government just nationalizes all of them.



WASHINGTON (Reuters) - A group of U.S. business economists boosted
their forecast for economic growth over the next year, but said the
jobless rate will remain stubbornly high, a survey released on Monday
showed.


The National Association for Business Economists predicted real
growth in gross domestic product for 2010 would be 2.9 percent, up from
its October forecast for 2.6 percent growth.


"Real GDP growth should also be enough to recover losses from the
recession and return output to an all-time high by the end of 2010,"
the business group said in a statement.


For all of 2009, the business group predicted the economy would
contract by 2.4 percent, slightly improved from its October forecast
for contraction of 2.5 percent.


The survey reflected a poll of 48 NABE members from October 24-November 5.


The group saw the jobless rate holding at an average 10 percent from
the fourth quarter of 2009 to the second quarter of 2010 before
dropping to 9.6 percent by the end of 2010.


"While the recovery has been jobless so far, that should soon
change," said NABE President Lynn Reaser. "Within the next few months,
companies should be adding instead of cutting jobs."


Employers have shed 7.3 million jobs since December 2007 when the
recession began; the jobless rate last month jumped to 10.2 percent, a
26-1/2 year high.


The survey found that most of the group's economists were mostly
optimistic that the Federal Reserve's polices will not lead to higher
inflation, NABE said.


The panel expects the core personal consumption expenditures
deflator to rise 1.5 percent in 2010, following an identical gain in
2009.


Inflation will remain low mostly because of substantial labor slack
and further productivity gains will reduce labor costs, the business
group said.


Government spending will likely grow at a 2 percent pace in 2010
because of fiscal stress at the state and local levels, the survey
showed.


The personal saving rate is expected to average 4 percent in 2010, the highest rate since 1998, the group said.

The things one reads in the NY Post. I must say though I do believe Jamie would make a fantastic TS. He has legitimacy among Wall Street and Politicians. JPM remained relatively unscathed during this crisis. Not to mention Goldman is taking all the hits for bonuses. Mr. Dimon is looking pretty good in the eyes of the public. Then again, I never know how markets will react to this type of information...


Jamie Dimon seen as good fit for Treasury



As support for
Treasury Secretary Timothy Geithner wanes on Capitol Hill amid
frustration with the Obama administration's handling of the economy,
JPMorgan Chase CEO Jamie Dimon is emerging as a potential replacement. Sources tell The Post that a number of policy makers have begun
mentioning Dimon as a successor to Geithner, whose standing in
Washington has suffered because of the country's high unemployment
rate, the weakness of the dollar, the slow pace of the recovery and the
government's mounting deficit. Last week, Geithner faced a
withering attack from some Republican members of the Joint Economic
Committee, getting into a testy exchange with one congressman who at
one point asked Geithner if he would step down.


BLOOMBERG



Dimon, meanwhile, has achieved rock star status during the
financial crisis, having navigated JPMorgan through the recession and
being a go-to guy when Uncle Sam last year needed Wall Street's help
during the collapses of Bear Stearns and Washington Mutual. Furthermore, while many bank chiefs are facing heat over outsize
bonuses, Dimon has repeatedly made clear he won't write fat checks to
attract or keep talent. People familiar with Dimon's thinking
said he "would love to serve his country," and in recent weeks Dimon
has had a noticeably higher profile in Washington, making frequent
visits to government officials and earlier this month publishing an
op-ed in the Washington Post that makes the case for letting large
institutions that take big risks collapse rather than receive
government aid. "It is critical to the standing of the United
States in the global financial economy to have a Treasury secretary who
has the full support of the president and Congress; a person who has
earned respect on their own as a result of hard-won battles in finance
to represent this nation," said Dick Bove, a banking industry analyst
at Rochdale Securities who this week will publish a report on Dimon.
"That is not Timothy Geithner. It is Jamie Dimon." The timing
might be right for Dimon to pursue the Treasury post. He recently put
into place a succession plan, and JPMorgan is currently considered one
of the strongest banks in the country, even though it, too, faces a
threat of sizable consumer-loan losses. However, sources said
Dimon also has tried to tamp down enthusiasm for his replacing
Geithner, whom the JPMorgan boss continues to support and thinks is
doing "a good job," according to sources. He doesn't want to
be perceived as gunning for Geithner's job and is said to be keenly
aware of the anti-Wall Street sentiment gripping the country. He has
told people he plans to stay at JPMorgan for another "six or seven
years," according to one source. A JPMorgan spokesman declined to comment. Dimon has long been a big Democratic supporter, and his ties with Obamago back to when he ran Chicago-based Bank One. In addition, White House
visitor logs show Dimon has been a repeated guest there. He also was a
point man during the previous administration, rescuing Bear and WaMu. This isn't the first time Dimon's name has been floated for Treasurysecretary. He was considered a candidate last year and is still viewed
as an executive who could be instrumental as Washington looks to
overhaul the financial regulatory infrastructure.

mark.decambre@nypost.com

As Snapman would say "err on the side of caution"...

===============================================================================

Bullard Says Fed Should Keep Asset Purchase Program Past March

By Michael McKee and Steve Matthews

Nov. 22 (Bloomberg) -- Federal Reserve Bank of St. Louis
President James Bullard said the central bank should retain the
flexibility to respond to any weakening in the economy by
extending beyond March its authority to buy mortgage-backed
securities and agency bonds.
“I would just like to keep them active at a very low level
instead of saying we’re shutting down, shutting down
permanently,” Bullard told reporters after a speech in New York.
“Initially it would do nothing for the economy, but it would
give the Fed the option to react to future news as it comes
in.”
Policy makers reiterated Nov. 4 that they will complete the
Fed’s planned $1.25 trillion in purchases of mortgage securities
by March and said they will buy $175 billion of agency debt,
down from a previous maximum of $200 billion. They kept the
benchmark interest rate in a range of zero to 0.25 percent and
repeated that rates will stay low for an “extended period.”
The Fed has also purchased $300 billion of Treasury securities.
“If the economy came in very weak, let’s say, in 2010,
weaker than expected, we would have the option of doing further
quantitative easing” through additional asset purchases,
Bullard said. “If the economy came in stronger than expected
and inflation expectations started to ratchet up a little bit we
could maybe sell off some of these assets and remove some of the
accommodation from our quantitative easing program.”
The dollar fell to $1.4901 per euro as of 10:41 a.m. in
Tokyo from $1.4862 in New York on Nov. 20.
The Fed president repeated his view that economic recovery
has started in the U.S. while predicting sustained growth in
2010.
Growth Rate
“I think we’ll grow at or above the long run rate of
growth for the U.S. economy in the postwar era, which is about 3
percent,” he told reporters. “If you could get growth up at 4
percent then you could get the unemployment rate down.”
A 4 percent growth rate is “a clear possibility” as the
global recovery is “going quite a bit better than I anticipated
six or nine months ago,” he said.
Concerns among U.S. households about the economy and their
own financial situations “have settled down some, and
consumption spending is growing,” he said. At the same time,
stress in the financial markets has “settled down a lot.”
Bullard said the rate-setting Open Market Committee won’t
necessarily wait until unemployment peaks before raising
interest rates.
“We know the economy changes over time,” he said.
“Everybody’s got very strong opinions and takes the role very
seriously. I don’t think anybody would feel bound just because
we behaved.”

Batman wrote:

As Snapman would say "err on the side of caution"...

===============================================================================

Bullard Says Fed Should Keep Asset Purchase Program Past March

By Michael McKee and Steve Matthews

Nov. 22 (Bloomberg) -- Federal Reserve Bank of St. Louis
President James Bullard said the central bank should retain the
flexibility to respond to any weakening in the economy by
extending beyond March its authority to buy mortgage-backed
securities and agency bonds.
“I would just like to keep them active at a very low level
instead of saying we’re shutting down, shutting down
permanently,” Bullard told reporters after a speech in New York.
“Initially it would do nothing for the economy, but it would
give the Fed the option to react to future news as it comes
in.”
Policy makers reiterated Nov. 4 that they will complete the
Fed’s planned $1.25 trillion in purchases of mortgage securities
by March and said they will buy $175 billion of agency debt,
down from a previous maximum of $200 billion. They kept the
benchmark interest rate in a range of zero to 0.25 percent and
repeated that rates will stay low for an “extended period.”
The Fed has also purchased $300 billion of Treasury securities.
“If the economy came in very weak, let’s say, in 2010,
weaker than expected, we would have the option of doing further
quantitative easing” through additional asset purchases,
Bullard said. “If the economy came in stronger than expected
and inflation expectations started to ratchet up a little bit we
could maybe sell off some of these assets and remove some of the
accommodation from our quantitative easing program.”
The dollar fell to $1.4901 per euro as of 10:41 a.m. in
Tokyo from $1.4862 in New York on Nov. 20.
The Fed president repeated his view that economic recovery
has started in the U.S. while predicting sustained growth in
2010.
Growth Rate
“I think we’ll grow at or above the long run rate of
growth for the U.S. economy in the postwar era, which is about 3
percent,” he told reporters. “If you could get growth up at 4
percent then you could get the unemployment rate down.”
A 4 percent growth rate is “a clear possibility” as the
global recovery is “going quite a bit better than I anticipated
six or nine months ago,” he said.
Concerns among U.S. households about the economy and their
own financial situations “have settled down some, and
consumption spending is growing,” he said. At the same time,
stress in the financial markets has “settled down a lot.”
Bullard said the rate-setting Open Market Committee won’t
necessarily wait until unemployment peaks before raising
interest rates.
“We know the economy changes over time,” he said.
“Everybody’s got very strong opinions and takes the role very
seriously. I don’t think anybody would feel bound just because
we behaved.”

Yea markets are really reacting to the fed's statements today... QE ftw!

Chicago PMI from this morning...Slow but steady indicator of economic growth.

Highlights
Gains in new orders and a slowing in deliveries hightlight November's Chicago purchasers' report, offsetting further losses in employment and further draws in inventories. Chicgao's headline index rose nearly 2 points to 56.1 to indicate a month-to-month increase in the pace of overalll business activity in the area. New orders rose 1.4 points to a very strong 62.8, a plus-60 level that, because of its strength, will be hard to match in the coming months. Supplier deliveries rose 6.7 points to 57.4 to indicate a significant slowing in deliveries and congestion in the supply chain. Production, at 56.1, rose in the month but at a slower pace than October's very strong 63.9. Employment, at 41.9, indicates substantial month-to-month contraction but at a less severe pace than October's 38.3 level. Prices paid showed a mild month-to-month increase at 52.6, a result that raises no concern.

The report is a mild plus for the economic outlook especially the gain in new orders which points to strength in production and hopefully employment in the months ahead. Markets showed no reaction to the results. The ISM, which samples purchasers on a national scale, will post its reports this week with Tuesday set for the manufacturing report and Thursday for non-manufacturing. Note the Chicago report, which has no connection with the ISM, includes both manufacturers and non-manufacturers in its sample.

Market Consensus Before Announcement
The Chicago PMI jumped more than 8 points in October to 54.2. For the month, production surged nearly 17 points. We may see further improvement in November as the new orders index jumped more than 15 points.
Definition
The Institute of Supply Management - Chicago compiles a survey and a composite diffusion index of business conditions in the Chicago area. The survey is conducted by Kingsbury International, LTD. Manufacturing and non-manufacturing firms are both surveyed. Hence, it is not directly comparable to pure manufacturing surveys. Readings above 50 percent indicate an expanding business sector.

Treasury Pushes Mortgage Firms for Loan Relief


By JAVIER C. HERNANDEZ

Published: November 30, 2009

The Obama administration disclosed a plan on
Monday intended to increase pressure on mortgage companies to
permanently reduce monthly payments for troubled homeowners.




Under the guidelines, the government will fine lenders that fail to find ways to increase the
number of homeowners who are given relief on their mortgage bills. The
move is the government’s latest endeavor to reinvigorate a $75 billion
program that promised to stem foreclosures and help hundreds of
thousands of struggling homeowners with their mortgages. So far,
however, only a small percentage of eligible Americans have had their
mortgage payments reduced, and many are encountering difficulties as
they try to make the cuts permanent.The Treasury Department has blamed banks and mortgage companies, which it says have been slow to process documents, for the program’s lukewarm start.
Homeowners participate in the program for up to five months on a trial
basis, and if they make timely payments and provide documents proving
their financial need, they are eligible for permanent reductions.On
Monday, the department said it would require lenders to submit plans
outlining how they will increase the number of homeowners given
permanent mortgage reductions. If they fail to do so, the
department said it would use “any and all authority” to impose fees and
other sanctions. It will also publicly list the worst offenders and
withhold cash incentives until reductions in mortgage payments are made
permanent. In addition, the Treasury Department will appoint staff to
monitor the progress of home lenders on a daily basis.The
government seemed to raise expectations on Monday when it predicted
that 375,000 homeowners would be eligible for permanent mortgage
reductions by the end of the year, pending the approval of paperwork.Many
analysts scoff at the idea that the actual results will come near that
figure. Only tens of thousands of the more than 650,000 borrowers in
the program have had their mortgage payments reduced permanently,
according to estimates by analysts. “That is a pipe dream,”
said Edward Pinto, a consultant to the real estate finance industry who
was chief credit officer to the government-backed mortgage company Fannie Mae
in the late 1980s. “You have to subtract people who won’t be able to
provide documentation, who don’t qualify and who don’t have income to
make the payments.”Meg Reilly, a spokeswoman for the Treasury
Department, acknowledged that the actual number was likely to be lower.
She said, however, the department believed “a significant number” would
still gain permanent relief.Homeowners taking advantage of the
program, known as the Home Affordable Modification Program, have had
their monthly payments cut by an average of $576, according to the
department.The benefits can be significant for those with permanent reductions. Even so, some homeowners get caught in the trial stage, making payments they would normally not make for several months only to be a denied a permanent reduction by their banks.
=======================================================================================================================
I like to see that Citi is not leading the pack. More positive news for my boy Vikram.

Citi group is going some under interesting restructuring, the idea behind merging corporate and investment bank is to improve synergies across divisions just like HSBC does. However we all know citi has a much larger investment bank, though arguably HSBC's corporate bank is better than Citi's. It is interesting as this is still under the "universal banking" model that brought down citi in the first place. perhaps with more vilgilant risk management that is more transparent due to close connections.

Snapman wrote:

Citi group is going some under interesting restructuring, the idea behind merging corporate and investment bank is to improve synergies across divisions just like HSBC does. However we all know citi has a much larger investment bank, though arguably HSBC's corporate bank is better than Citi's. It is interesting as this is still under the "universal banking" model that brought down citi in the first place. perhaps with more vilgilant risk management that is more transparent due to close connections.

Snapman I did some more research on Citi this morning. Fitch has upgraded some of their debt as of November 17. Also many analysts reports reiterate a buy-neutral rating.

If you have money buy a house...

Rates on 30-year mortgages set new record low

Average rates on 30-year mortgages drop to 4.71 percent, setting new all-time low

WASHINGTON
(AP) -- The average interest rate for a 30-year mortgage dropped to a
record low of 4.71 percent this week, pushed down by an aggressive
government campaign to reduce borrowing costs.
The rate,published Thursday by Freddie Mac, is the lowest since the mortgage
finance company began tracking the data in 1971. The previous record of
4.78 percent was set during the week ending April 30 and matched last
week.The Federal Reserve is pumping $1.25 trillion into
mortgage-backed securities to try to bring down mortgage rates, but
that money is set to run out next spring. The goal of the program is to
make home buying more affordable and prop up the housing market.Despite
the government support, qualifying for a loan is still tough. Lenders
have tightened their standards dramatically, so the best rates are
available to those with solid credit and a 20 percent down payment.Freddie
Mac collects mortgage rates on Monday through Wednesday of each week
from lenders across the country. Rates often fluctuate significantly,
even within a given day, often tracking long-term Treasury bonds.The
average rate on a 15-year fixed-rate mortgage fell to a record low of
4.27 percent, from 4.29 percent last week, according to Freddie Mac.Rates
on five-year, adjustable-rate mortgages averaged 4.19 percent, up from
4.18 percent a week earlier. Rates on one-year, adjustable-rate
mortgages fell to 4.25 percent from 4.35 percent.The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.The
nationwide fee for loans in Freddie Mac's survey averaged 0.7 points
for 30-year loans. The fee averaged 0.6 points for 15-year, five-year
and one-year loans.Buyers and homeowners who want to refinance
are picking up their phones. Mortgage applications rose 2 percent last
week from a week earlier, the Mortgage Bankers Association said
Wednesday, driven by a more than 4 percent increase in purchase
applications and a nearly 2 percent increase in applications to
refinance existing loans.

Batman wrote:

If you have money buy a house...

Rates on 30-year mortgages set new record low

Average rates on 30-year mortgages drop to 4.71 percent, setting new all-time low

WASHINGTON
(AP) -- The average interest rate for a 30-year mortgage dropped to a
record low of 4.71 percent this week, pushed down by an aggressive
government campaign to reduce borrowing costs.
The rate,published Thursday by Freddie Mac, is the lowest since the mortgage
finance company began tracking the data in 1971. The previous record of
4.78 percent was set during the week ending April 30 and matched last
week.The Federal Reserve is pumping $1.25 trillion into
mortgage-backed securities to try to bring down mortgage rates, but
that money is set to run out next spring. The goal of the program is to
make home buying more affordable and prop up the housing market.Despite
the government support, qualifying for a loan is still tough. Lenders
have tightened their standards dramatically, so the best rates are
available to those with solid credit and a 20 percent down payment.Freddie
Mac collects mortgage rates on Monday through Wednesday of each week
from lenders across the country. Rates often fluctuate significantly,
even within a given day, often tracking long-term Treasury bonds.The
average rate on a 15-year fixed-rate mortgage fell to a record low of
4.27 percent, from 4.29 percent last week, according to Freddie Mac.Rates
on five-year, adjustable-rate mortgages averaged 4.19 percent, up from
4.18 percent a week earlier. Rates on one-year, adjustable-rate
mortgages fell to 4.25 percent from 4.35 percent.The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount.The
nationwide fee for loans in Freddie Mac's survey averaged 0.7 points
for 30-year loans. The fee averaged 0.6 points for 15-year, five-year
and one-year loans.Buyers and homeowners who want to refinance
are picking up their phones. Mortgage applications rose 2 percent last
week from a week earlier, the Mortgage Bankers Association said
Wednesday, driven by a more than 4 percent increase in purchase
applications and a nearly 2 percent increase in applications to
refinance existing loans.

read an interesting article on calculated risk about QE expanding about up to 300 billion+ earlier in the year and possibly forced rates down to 35-50 basis points. THis is coming from Brian Sack, who runs the markets group of the Federal Reserve Bank of New York. This all suggest " mortgage rates might rise sharply next spring (the MBS purchase
program is scheduled to conclude by the end of the first quarter of
2010)."

This is gonna be hard hit if this is not priced in the markets... or if a jump occurs above expectation.

Espcially if the demand side doesn't pick up, this is very hard considering the lending environement described above!

-snapman

snapman wrote:

This is gonna be hard hit if this is not priced in the markets... or if a jump occurs above expectation.

Espcially if the demand side doesn't pick up, this is very hard considering the lending environement described above!

-snapman

I am not sure the Fed will ever be allowed to truly exit QE. I was watching Bernanke talk to the politicians today about his reappointment. Many are upset that the Fed's role has expanded in the Open Markets. However, Big Ben pointed out that the expansion came out of necessity rather than desire. If you have time Snapman could you post what you read on our new AC database? Thanks.

Batman wrote:

snapman wrote:

This is gonna be hard hit if this is not priced in the markets... or if a jump occurs above expectation.

Espcially if the demand side doesn't pick up, this is very hard considering the lending environement described above!

-snapman

I am not sure the Fed will ever be allowed to truly exit QE. I was watching Bernanke talk to the politicians today about his reappointment. Many are upset that the Fed's role has expanded in the Open Markets. However, Big Ben pointed out that the expansion came out of necessity rather than desire. If you have time Snapman could you post what you read on our new AC database? Thanks.

are you talking about the one clark setup? and btw, I totally agree with it I dont' see QE ending so earily, as usualy its all Rhetoric... markets may take it bad if he does do it though. But in this current econ environment I don't see it viable. But then again the risk of another asset bubble is very high:



"Fed's Between a rock and a hard place"

-the legendary Dr. C




------

snapman

Fantastic quote. Yeah the new google account clark set up.

Good news...Can we sustain this?



U.S. Economy: Production Picks Up, Producer Costs Rise on Fuel
By Bob Willis

Dec. 15 (Bloomberg) -- Factories in the U.S. churned out
more goods in November than anticipated, extending a rebound in
manufacturing that will give the world’s largest economy a lift
into 2010.
Production climbed 0.8 percent, the fourth gain in the
past five months, the Federal Reserve said today in Washington.
Another report showed wholesale prices climbed 1.8 percent in
November, also exceeding the median estimate of economists
surveyed by Bloomberg News, as fuel costs climbed.
Improving global sales and plunging inventories are
prompting companies such as Ford Motor Co. to speed up assembly
lines, putting manufacturers at the forefront of the economic
expansion. The recovery will take time to reduce unemployment
and soak up capacity, one reason why Fed policy makers tomorrow
are forecast to reiterate a pledge to keep interest rates low.
“We’ll continue to see growth in manufacturing, given
strong exports and that consumers are spending,” said Michael
Feroli, an economist at JPMorgan Chase & Co. in New York. Fed
policy makers will probably say “inflationary pressures are
almost non-existent” after viewing the latest data, said
Feroli, a former economist at the central bank.
Stocks fell, pulled down by declining shares of Bank of
America Corp. and JPMorgan Chase after the banks reported
bigger losses on credit cards, and Best Buy Co. said margins
will be lower than anticipated after it cut prices on laptop
computers and flat-panel televisions. The Standard & Poor’s 500
Index was down 0.2 percent to 1,112.33 at 11:28 a.m. in New
York.
New York Factories
A third report today showed factories in the New York
region expanded less than anticipated this month. The Fed Bank
of New York said its general economic gauge, known as the
Empire State Index, fell to a five-month low of 2.6 from 23.5
in November. Readings greater than zero signal expansion.
Industrial production was forecast to increase 0.5
percent, according to the median estimate of 78 economists
surveyed by Bloomberg News. Projections ranged from no change
to a gain of 0.9 percent. The Fed revised the October reading
to unchanged from a previously reported 0.1 percent increase.
The report showed output at manufacturers increased 1.1
percent in November, the most in three months, after a 0.2
percent decline in October. Automobile, furniture and computer
makers were among the businesses that showed production gains.
Auto Sales
Auto sales are climbing again after plunging in September.
General Motors Co., Toyota Motor Corp., Ford and Chrysler Group
LLC all posted November sales that beat analysts’ estimates.
The seasonally adjusted annual sales rate was 10.9 million
vehicles, up from 10.45 million in October, according to
industry figures released this month.
Ford, the only major U.S. automaker to avoid bankruptcy,
plans to boost first-quarter North American production by 58
percent from a year earlier to 550,000 vehicles.
Increasing output is starting to soak up near-record
slack. Capacity use rose to 71.3 percent last month from 70.6
percent in October. The rate reached 68.3 percent in June, the
lowest level in data back to 1967, and averaged 80 percent over
the past two decades. Excess capacity is one reason economists
anticipate inflation will remain low.
Last month’s jump in producer prices was led by a 6.9
percent gain in fuel costs, which account for about 75 percent
of the overall gain, the Labor Department said. Prices have
since retreated, with crude oil on the New York Mercantile
Exchange averaging $73.40 a barrel in the first two weeks of
December compared with $78.14 last month.
Exceeds Forecast
Economists forecast prices would rise 0.8 percent,
according to the median projection in a Bloomberg survey.
Excluding food and fuel, so-called core prices increased
0.5 percent, also exceeding the median estimate of economists
surveyed and followed a 0.6 percent drop in November that was
the biggest decrease in three years.
The increase in core costs mainly reflected a 4.2 percent
jump in light truck prices that followed a 5.2 percent drop in
October. Vehicle costs often become volatile when the
government switches to tracking new models.
“The downward trend in core producer prices is still
quite evident and a lot of that goes back to the low rate of
capacity utilization,” said Joshua Shapiro, chief U.S.
economist at Maria Fiorini Ramirez Inc., a New York forecasting
firm. “There is a huge amount of slack in the economy and in
general that is the driving force as far as what the Fed is
looking at.”
‘Subdued’ Inflation
“Elevated unemployment and stable inflation expectations
should keep inflation subdued, and indeed, inflation could move
lower from here,” Fed Chairman Ben S. Bernanke said Dec. 7 in
a speech to the Economic Club of Washington.
U.S. central bankers meet today and tomorrow for their
final gathering of the year. In November, policy makers
repeated their pledge to keep the benchmark interest rate low
for an “extended period.” They also specified for the first
time, last month, that policy will stay unchanged as long as
inflation expectations are stable and unemployment remains
elevated.

via seekingalpha.com


Tickerguy's translation of the FOMC statement:

Release Date: January 27, 2010 For immediate release Information
received since the Federal Open Market Committee met in December
suggests that economic activity has continued to strengthen and that
the deterioration in the labor market is abating.

We
used the crooked durable goods numbers which were later admitted to be
a "statistical error", and what's better, we think that nearly a
million people leaving the labor force last month was a good thing -
not bad.Don't worry, you don't need jobs - government handouts work just fine.

Household
spending is expanding at a moderate rate but remains constrained by a
weak labor market, modest income growth, lower housing wealth, and
tight credit.

Households are
spending the handed-out money. However, credit is and continues to
contract as households are rejecting the continual bending over they're
taking by the banks, especially on their credit cards.

Business
spending on equipment and software appears to be picking up, but
investment in structures is still contracting and employers remain
reluctant to add to payrolls.

Businesses
are buying boxes to give to their employees so they can box up their
stuff as they're fired and shown the door. We count this as both
"equipment" and "software".

Firms
have brought inventory stocks into better alignment with sales. While
bank lending continues to contract, financial market conditions remain
supportive of economic growth.

We
buy futures in the overnight every time the market threatens to go
down. Oh wait, we're not supposed to talk about that, right?

Although
the pace of economic recovery is likely to be moderate for a time, the
Committee anticipates a gradual return to higher levels of resource
utilization in a context of price stability.

You're going to take it in both holes and like it.

With
substantial resource slack continuing to restrain cost pressures and
with longer-term inflation expectations stable, inflation is likely to
be subdued for some time.

Deflation
is winning. Rates are still zero which denotes an emergency. But after
two years, saying that really pisses people off, especially when we
just got skewered by Paulson in sworn testimony (that bastard!) who
said we printed money.

The
Committee will maintain the target range for the federal funds rate at
0 to 1/4 percent and continues to anticipate that economic conditions,
including low rates of resource utilization, subdued inflation trends,
and stable inflation expectations, are likely to warrant exceptionally
low levels of the federal funds rate for an extended period.

The emergency is not over.

To
provide support to mortgage lending and housing markets and to improve
overall conditions in private credit markets, the Federal Reserve is in
the process of purchasing $1.25 trillion of agency mortgage-backed
securities and about $175 billion of agency debt. In order to promote a
smooth transition in markets, the Committee is gradually slowing the
pace of these purchases, and it anticipates that these transactions
will be executed by the end of the first quarter. The Committee will
continue to evaluate its purchases of securities in light of the
evolving economic outlook and conditions in financial markets.

We
bought $1.25 trillion of securities in a box but when we opened it we
found that it was in fact dead and decomposing fish. The old saying
about "throwing good money after bad" comes to mind.

In
light of improved functioning of financial markets, the Federal Reserve
will be closing the Asset-Backed Commercial Paper Money Market Mutual
Fund Liquidity Facility, the Commercial Paper Funding Facility, the
Primary Dealer Credit Facility, and the Term Securities Lending
Facility on February 1, as previously announced. In addition, the
temporary liquidity swap arrangements between the Federal Reserve and
other central banks will expire on February 1. The Federal Reserve is
in the process of winding down its Term Auction Facility: $50 billion
in 28-day credit will be offered on February 8 and $25 billion in
28-day credit wil be offered at the final auction on March 8. The
anticipated expiration dates for the Term Asset-Backed Securities Loan
Facility remain set at June 30 for loans backed by new-issue commercial
mortgage-backed securities and March 31 for loans backed by all other
types of collateral. The Federal Reserve is prepared to modify these
plans if necessary to support financial stability and economic growth.

We're shutting all the crap down - it didn't work.

Voting
for the FOMC monetary policy action were: Ben S. Bernanke, Chairman;
William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke;
Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo;
and Kevin M. Warsh. Voting against the policy action was Thomas M.
Hoenig, who believed that economic and financial conditions had changed
sufficiently that the expectation of exceptionally low levels of the
federal funds rate for an extended period was no longer warranted.

Tom
Hoenig is the only one with a brain. The rest of us like lying to the
public - "its all getting better but we still have an emergency!" Yeah.

Initial Jobless Claims in U.S. Unexpectedly Climbed (Update2)
By Timothy R. Homan and Bob Willis

Feb. 4 (Bloomberg) -- More Americans unexpectedly filed
first-time claims for unemployment insurance last week,
indicating companies lack confidence the economic recovery will
be sustained. Initial jobless applications increased to 480,000 in the
week ended Jan. 30, the most in seven weeks, from 472,000 the
prior week, Labor Department figures showed today in Washington.
The number of people receiving unemployment insurance was little
changed and those receiving extended benefits increased.

An unemployment rate that’s projected to average 10 percent
this year will likely weigh on consumer spending, preventing the
biggest part of the economy from accelerating. Without
additional gains in sales, companies will be forced to keep
cutting costs, limiting staff in order to boost profits.
“The pace of improvement has slowed significantly in the
last two months,” said Anna Piretti, a senior economist at BNP
Paribas in New York. “This points to downside risk for
consumption and the rest of the economy.”

Stock-index futures extended losses and Treasury yields
fell after the report. The contract on the Standard & Poor’s 500
Index dropped 0.9 percent to 1,086.5 at 8:55 a.m. in New York.
The yield on the 10-year Treasury note declined to 3.66 percent
from 3.71 percent late yesterday.

Initial jobless claims were forecast to decline to 455,000 from a previously reported 470,000 the week before, according to the median estimate of 46 economists surveyed by Bloomberg News. Estimates ranged from 420,000 to 480,000. More Productivity Worker productivity kept surging in the fourth quarter as
companies squeezed more out of remaining staff to boost earnings, another report from the Labor Department also showed. A measure of employee output per hour rose at a 6.2 percent annual rate, capping a 2.9 percent gain for all of 2009 that was the biggest one-year increase since 2003. Labor costs dropped at a 4.4 percent pace last quarter and fell 0.9 percent for all of 2009, the biggest drop in seven years. The four-week moving average of claims increased to 468,750 from 457,000 the prior week. Continuing claims were little changed at 4.6 million in the week ended Jan. 23. The continuing claims figure does notinclude the number of Americans receiving extended benefits under federal programs.

Today’s report showed the number of people who’ve used up their traditional benefits and are now collecting extended payments increased by about 242,000 to 5.86 million in the week
ended Jan. 16. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.5 percent in the week ended Jan. 23, today’s report showed.

Payroll Forecast

The figures raise concern the improvement in the labor market has stalled heading into tomorrow’s monthly employment report. The U.S. may have created 15,000 jobs in January, according to the median forecast of economists surveyed. It would mark the second payroll increase in the past three months. The unemployment rate probably held at 10 percent in January for a third straight month, close to the 26-year high of
10.1 percent reached in October, the economists forecast. A private report yesterday showed companies in the U.S. cut an estimated 22,000 jobs in January. The drop was the smallest in two years and followed a revised 61,000 decrease the prior month, according to data from ADP Employer Services.

More Dismissals

Macy’s Inc., the second-biggest U.S. department-store chain, is eliminating 1,500 store-level positions effective
March 6, two people familiar with the decision said last week. The Cincinnati-based retailer is firing department managers and merchandising team managers, said the people, who declined to be identified because the cuts haven’t been made public. Some stores are losing operations managers, and the remainder will be shared across multiple stores, the people said. In addition, full-time stock positions were cut, they said.

Other companies are adding to payrolls. General Electric Co. is hiring workers in energy, health care and rail
transportation in part because global economic-stimulus policies have created demand, two executives said last week. GE is bidding to supply new passenger locomotives for Amtrak, and in November announced a joint venture in China that would make high-speed rail locomotives that may add 200 U.S. jobs. “We will create jobs in the United States that could not have been created any other way,” John Rice, chief executive officer of GE Technology Infrastructure, said in an interview with Bloomberg Television from Davos, Switzerland, last week.
The loss of 7.2 million jobs since the recession began has been the worst in the post-World War II era.

Bernanke lays out unwinding course

By James Politi in Washington
Published: February 10 2010 15:54 | Last updated: February 10 2010 15:54


Ben Bernanke on Wednesday said the Federal Reserve was discussing whether
to communicate its policy stance through the interest rate it pays
banks to store money at the Fed, as it begins to consider tightening
credit in the wake of the recession.In testimony to the House financial services committee,
Mr Bernanke said that because of the large amounts of reserves in the
banking system, there was less activity and liquidity in the Federal
funds rate, which has been the primary measure of Fed policy for years.

Mr. Bernanke said this raised the possibility that the Fed funds rate would
for a time be a “less reliable indicator than usual of conditions in
short-term money markets”.He added: “It is possible that the
Federal Reserve could for a time use the interest rate paid on
reserves, in combination with targets for reserve quantities, as a
guide to its policy stance, while simultaneously monitoring a range of
market rates. No decision has been made on this issue; we will be
guided in part by the evolution of the federal funds market as policy
accommodation is withdrawn.”The Fed gained congressional
approval in October 2008 to pay interest on reserves, as part of the
$700bn bail-out bill that was signed at the height of the turmoil in
the financial markets. That rate currently stands at 0.25 per cent.Mr
Bernanke was laying out his vision for how the US central bank will
begin to unwind the extraordinary support for the financial system that
it put in place during the crisis, which led the size of its balance
sheet to increase dramatically from $800bn to $2,000bn.

Amid improving economic conditions, the Fed has faced pressure from the
markets and the public to explain how and how quickly this liquidity
would be drained from the system. However, Mr Bernanke made it clear on
Wednesday that while preparations were being made for withdrawing this
support from America’s financial system, a policy shift was not
imminent.“The economy continues to require the support of
accommodative monetary policies,” Mr Bernanke explained. “However, we
have been working to ensure that we have the tools to reverse, at the
appropriate time, the currently very high degree of monetary stimulus.
We have full confidence that, when the time comes, we will be ready to
do so.”Mr Bernanke said access for banks to the Fed discount
window – where they can borrow from the central bank at preferential
rates – would be returning to normal conditions. The Fed chairman said
that “before long” he expected to consider a “modest increase” in the
spread between the discount rate and the Fed funds rate.

He also said further reductions in the maturities of these loans, which have already
shrunk from 90 days at the height of the crisis to 28 days, would be
examined.Over the past few months, Fed officials have been
examining several other tools to use to drain liquidity from the
markets. One idea is the creation of a “term deposit facility” at the
Fed, which would also encourage banks to store more money at the
central bank instead of lending it out.

A second tool Fed officials have been looking at is “reverse repos”, which would allow
the US central bank to borrow from short-term lending markets –
therefore removing liquidity – with its own securities as collateral.Mr
Bernanke said one possible sequence for draining liquidity from the
markets would involve ramping up these tools, followed by an increase
in the interest rate paid on reserves. But he said that the two could
happen simultaneously if a “more rapid exit” was warranted. Overall, he
insisted that the speed and order of measures that would be taken to
tighten credit would depend on economic and financial developments.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQHxy6uzDyTk&pos=7

Fed Officials May Trim U.S. Growth Outlook on Europe Risks
By Scott Lanman








June 16 (Bloomberg) -- Federal Reserve officials may trim
forecasts for U.S. economic growth when they meet next week to
set interest rates as Europe’s debt crisis saps demand for
American goods and roils financial markets.
Central bankers may reduce their 2010 estimates by
“several tenths” of a percentage point and as much as 0.75
point for 2011, said former Fed Governor Lyle Gramley.
That
would mark a reversal from April, when officials raised their
projections for this year to a range of 3.2 percent to 3.7
percent and left 2011 and 2012 forecasts little changed.
The new estimates are likely to reinforce the Fed’s pledge,
in place since March 2009, that interest rates will stay very
low for an “extended period,” said former Fed researcher John
Ryding. Some Fed officials are concerned that results of stress
tests planned for European banks may further shake confidence in
the continent’s financial system.
“If you were a policy maker and you were looking at the
U.S. picture, you’d say that the downside risks have increased
relative to where you thought they were six weeks ago,” said
Ryding, chief economist at RDQ Economics LLC in New York.
The Federal Open Market Committee meets June 22-23 in
Washington. The Fed will release a statement at about 2:15 p.m.
on June 23, followed by minutes and forecasts from the meeting
on July 14.

green lantern wrote:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQHxy6uzDyTk&pos=7

Fed Officials May Trim U.S. Growth Outlook on Europe Risks
By Scott Lanman








June 16 (Bloomberg) -- Federal Reserve officials may trim
forecasts for U.S. economic growth when they meet next week to
set interest rates as Europe’s debt crisis saps demand for
American goods and roils financial markets.
Central bankers may reduce their 2010 estimates by
“several tenths” of a percentage point and as much as 0.75
point for 2011, said former Fed Governor Lyle Gramley.
That
would mark a reversal from April, when officials raised their
projections for this year to a range of 3.2 percent to 3.7
percent and left 2011 and 2012 forecasts little changed.
The new estimates are likely to reinforce the Fed’s pledge,
in place since March 2009, that interest rates will stay very
low for an “extended period,” said former Fed researcher John
Ryding. Some Fed officials are concerned that results of stress
tests planned for European banks may further shake confidence in
the continent’s financial system.
“If you were a policy maker and you were looking at the
U.S. picture, you’d say that the downside risks have increased
relative to where you thought they were six weeks ago,” said
Ryding, chief economist at RDQ Economics LLC in New York.
The Federal Open Market Committee meets June 22-23 in
Washington. The Fed will release a statement at about 2:15 p.m.
on June 23, followed by minutes and forecasts from the meeting
on July 14.

Yeaaaa these guys not raising rates any time soon :p

I have posted this on the blog and I would like to put it here also for discussion:

Quote :

On the fundamental side, there are few things that come to my mind. Gold ended to 1,245.80, which is record high. Paring the fact that investors are seeking safety haven with the drop on CPI, we have some quite strong indicators that the economy might stall here. Now the question is what else the government and the FED can do? Drop on interest rates is impossible as it is already at the lowest point and big stimulus will most certainly not work again because of the strong opposition. Now, from all this information, in my opinion, it is most likely that the interest rates will not be increased any time soon, maybe not even before the Q1 of 2011. Housing data has been quite weak, partially also because of the expiration of the tax break that the government created during the period of recession. Will the government extent the tax break? Very possibly! Another thing that concerns me is related to the safety of the USD. If other countries were to increase the rates before the U.S. does, the USD will undoubtedly be hammered.

What do you guys think the gov. and the FED can do if the economic situation worsen?

quidproquo wrote:

I have posted this on the blog and I would like to put it here also for discussion:

Quote :

On the fundamental side, there are few things that come to my mind. Gold ended to 1,245.80, which is record high. Paring the fact that investors are seeking safety haven with the drop on CPI, we have some quite strong indicators that the economy might stall here. Now the question is what else the government and the FED can do? Drop on interest rates is impossible as it is already at the lowest point and big stimulus will most certainly not work again because of the strong opposition. Now, from all this information, in my opinion, it is most likely that the interest rates will not be increased any time soon, maybe not even before the Q1 of 2011. Housing data has been quite weak, partially also because of the expiration of the tax break that the government created during the period of recession. Will the government extent the tax break? Very possibly! Another thing that concerns me is related to the safety of the USD. If other countries were to increase the rates before the U.S. does, the USD will undoubtedly be hammered.

What do you guys think the gov. and the FED can do if the economic situation worsen?

Why does a drop in CPI lead to risk aversion/flight to quality? Which indicators point to a stalling economy?

And what about the past 2 years? QE? thats a good possible solution to your answer, its what they been relying on in tough situations like this. helicopter money.

and waht about the CAD dollar has weakend relative but from its highs is still strong as ever?

quidproquo wrote:

I have posted this on the blog and I would like to put it here also for discussion:

Please do not hesitate to link your blog posts on the "Fellow Traders Blogs update" forum for discussion. They are more visible there and it will help the traffic on your blog. Thanks

quidproquo wrote:

I have posted this on the blog and I would like to put it here also for discussion:

Quote :

On the fundamental side, there are few things that come to my mind. Gold ended to 1,245.80, which is record high. Paring the fact that investors are seeking safety haven with the drop on CPI, we have some quite strong indicators that the economy might stall here. Now the question is what else the government and the FED can do? Drop on interest rates is impossible as it is already at the lowest point and big stimulus will most certainly not work again because of the strong opposition. Now, from all this information, in my opinion, it is most likely that the interest rates will not be increased any time soon, maybe not even before the Q1 of 2011. Housing data has been quite weak, partially also because of the expiration of the tax break that the government created during the period of recession. Will the government extent the tax break? Very possibly! Another thing that concerns me is related to the safety of the USD. If other countries were to increase the rates before the U.S. does, the USD will undoubtedly be hammered.

What do you guys think the gov. and the FED can do if the economic situation worsen?

The drop of the CPI shows that inflation is stemmed and a more deflationist trend and Gold tends to be considered as a huge against inflation (if it is considered, it IS). So I'm not sure the rise of Gold can be linked to the CPI drop. In a recent post, I've discussed what may drive the gold up (it's over 1260 as I write !)
Inflation vs Deflation that's what the current debate is. On the one hand, in the most developed countries the main risk is deflation. That gives an incentive to govs and central banks to consider inflationists measures. On the other hand, in the emerging countries, the risk is more inflation and over-heating economies.
What can be done by the govs? There's still room on the conventional ways to ease, particularly that "thanks" to the Euro sovereign crisis the USD (and the gold...) strengthen dramtically giving more room to ease : more QE or money printing, devaluation,... And on top of the conventional measures, you've still the "unconventional" ones : market manipulation, change of trading rules etc. The thing is the governments and the Central bankers (what I've called previously the "Sheriffs") have shown that EVERYTHING could be done in the name of the recovery to avoid to fall again in a depression.
Finally don't worry for the USD. For the americans : "that's our money but that's YOUR problem". A weak dollar would hammer the chinese and other countries loaded with USD but not really the US. It would allow them to inflate their debt out and make them more competitive. So all the other countries as you wrote are not ready to increase the rates so soon.

BTW If the USD is worth nothing, the US can still issue a new dollar, they don't care they rule

Quote :

Why does a drop in CPI lead to risk aversion/flight to quality? Which indicators point to a stalling economy?

What I meant was the two factors, the drop in CPI and the increase in the price of gold might indicate that the economy might stall. That is of course in addition to other data such as the housing data or the unemployment claims, which were both disappointing. The reason why I think that it might be an indication of the economy reaching a slow-down-point is because, as far as I know, there hasn't been really a huge change that has been made to fix the economy, except for the huge fiscal policies by the government. It might be just me but I am thinking that the effect of the fiscal policy is wearing off or will be wearing off as the money starts to evaporate without helping the economy to become more sustainable. In my opinion, without the improvements of the unemployment situation, it would be very hard for the economy to recover. Maybe the government should spend the money in something more long term, such as creating new jobs in the green tech. industry. We have seen technology become the drive for our economy, why not invest in it then?!?

Quote :

Inflation vs Deflation that's what the current debate is. On the one hand, in the most developed countries the main risk is deflation. That gives an incentive to govs and central banks to consider inflationists measures. On the other hand, in the emerging countries, the risk is more inflation and over-heating economies.
What can be done by the govs? There's still room on the conventional ways to ease, particularly that "thanks" to the Euro sovereign crisis the USD (and the gold...) strengthen dramtically giving more room to ease : more QE or money printing, devaluation,... And on top of the conventional measures, you've still the "unconventional" ones : market manipulation, change of trading rules etc. The thing is the governments and the Central bankers (what I've called previously the "Sheriffs") have shown that EVERYTHING could be done in the name of the recovery to avoid to fall again in a depression.

Sauros, don't you think that printing money would not be a good idea after the government has already printed so much? Even if the solution takes us out of the hypothetical deflation, something which I can argue against, I think the hyper inflation might kick in eventually and also to be able to print another large amount of money would be very hard on the first place, because of the opposition. Can you clarify on what exactly do you mean by market manipulation? Hasn't the government already been manipulating the market so far?

You are absolutely right about the fact that a weak USD will be bad for other countries holding the USD as reserve or investing in the US bonds. Nevertheless, some countries from the G7 like Canada has already increased their rates. It is possible that Germany and France will follow too as their economy seems to be recovering quite well. If they do, I think it will weaken the USD, not hammer, but weaken and might reverse some of the gains that USD has achieved so far against the other currencies such as the EUR.

quidproquo wrote:

Sauros, don't you think that printing money would not be a good idea after the government has already printed so much? Even if the solution takes us out of the hypothetical deflation, something which I can argue against, I think the hyper inflation might kick in eventually and also to be able to print another large amount of money would be very hard on the first place, because of the opposition. Can you clarify on what exactly do you mean by market manipulation? Hasn't the government already been manipulating the market so far?

You are absolutely right about the fact that a weak USD will be bad for other countries holding the USD as reserve or investing in the US bonds. Nevertheless, some countries from the G7 like Canada has already increased their rates. It is possible that Germany and France will follow too as their economy seems to be recovering quite well. If they do, I think it will weaken the USD, not hammer, but weaken and might reverse some of the gains that USD has achieved so far against the other currencies such as the EUR.

Actually whether I think it's a good idea or not doesn't really matter This said, I've been arguying for more than a year that in my opinion the best way to get out of the crisis is to create artificially some inflation. I guess that to the "Sheriffs"(the US, European and Japanese ones at least), inflation may appear as the lesser of two evils. On the one hand, the tools to stem rising inflation and to avoid hyper inflation are relatively well known and have been developped since post WWI. On the other hand, tools to fight deflation are much less mastered (see Japan). This said, the name of the game notably for the US, Europe and Japan (while unsaid and ) seems still to be to a large extent "who has the weakest currency?" : as a reminder the EURUSD reached 1.60 without any intervention (but a few not so convincing rhetoric : "Yeah definitely, we support a strong USD") from the US to strengthen it and my guess is the weak Euro ultimately favours Germany (that's why I trade on the DAX).

I believe we 100% agree on the manipulations that have been done so far, I've not really idea of what "unconventional" measures can be taken but the idea is just that it seems that they seem ready to do whatever it takes, even if it involves forbidden practices (eg market manipulation)

[quote="Sauros"]

quidproquo wrote:

Sauros, don't you think that printing money would not be a good idea after the government has already printed so much? Even if the solution takes us out of the hypothetical deflation, something which I can argue against, I think the hyper inflation might kick in eventually and also to be able to print another large amount of money would be very hard on the first place, because of the opposition. Can you clarify on what exactly do you mean by market manipulation? Hasn't the government already been manipulating the market so far?

Krugman's view is pretty interesting too, I've to say I tend to agree :

By Timothy R. Homan
June 22 (Bloomberg) -- Nobel Prize-winning economist Paul Krugman said inflation isn’t a threat and the global economy needs more stimulus at a time when governments are concerned about mounting debt.
"The crisis is not behind us if we look at what matters most -- jobs," Krugman said at an economic conference today in Tel Aviv. "Inflation is subdued to say the least. Inflation tends to decline when you have higher unemployment."
Krugman said that a period of deflation, or a general decline in prices, is possible within the next few years.
Federal Reserve policy makers meeting today and tomorrow are projected to commit to keeping interest rates near zero in coming months to help wean the world’s largest economy off government stimulus. The hazard posed by the European debt crisis, joblessness near a 26-year high and a lack of inflation add to the reasons why central bankers will focus on sustaining the economic rebound.
"To short-change stimulus now for the sake of the long-run budget just doesn’t add up," Krugman said in response to a question from the audience. "Now is the time when we really need the government support. Unfortunately, pulling back is what seems to be happening," he said.
Governments across the 16-nation euro region are cutting spending after Greece’s near default sparked investor concern that budget deficits are spiraling out of control. While tighter fiscal policy may slow economic growth, the crisis has also pushed the euro down 13 percent against the dollar this year, boosting some European exports.

Europe’s Exports

"The risks are more on the downside for the euro," Krugman said. Even at the current exchange rate, he said, euro region exporters including Germany are "extremely competitive."
Germany’s cabinet this month backed budget cuts worth more than 80 billion euros through 2014. Chancellor Angela Merkel said she expects to have a "hard time" at the Group of 20 summit in Toronto on June 26-27 as other leaders press her to focus on economic growth. They will tell her "Germany saves too much," she said June 11, adding she’ll respond that "there is no alternative" to cutting the deficit.
"On the inflation side, the Germans do worry a lot about inflation and basically that’s because they’re crazy," Krugman said during the question-and-answer period. "It’s just not going to happen with a massively depressed economy."

Krugman or Paulson: Who You Gonna Bet On?
http://www.businessweek.com/magazine/content/10_28/b4186004424615.htm



Is the sky falling, or the sun up? The Times'
Keynesian forecasts a third depression. Paulson says humbug


History will show that the week before the nation's 234th
birthday, Paul Krugman, Nobel Laureate and professor of economics at Princeton
University, went all in on Keynesian orthodoxy. To regular readers of his
column in The New York Times, this was not a surprise. Since the
financial crisis began, Krugman has been adamant that the federal government
must fearlessly run up deficits to compensate for weak private spending and
keep the U.S. economy from death-spiraling into deflation.


Now his warnings have taken on an even more dire tone. The
threat is not merely the dreaded "double dip." If the leaders of the developed
world hold to pledges they made at the G-20 summit in Toronto and cut
government spending, Krugman argues, we face nothing less than a "third
depression"—perhaps not as singularly devastating as the Great Depression,
which ripped the U.S. economy in half, but comparable to the Long Depression
that followed the Panic of 1873, a grinding period of chronic social need and
dissension.


If that makes you want to head for the hills with your
shotgun and turnip seeds, consider another view, expressed the week prior at
the London School of Economics. The speaker was not a decorated academic with
visions of 1873, he was a profit seeker, pure and simple: John Paulson, the
hedge-fund manager on whose behalf Goldman Sachs (GS)
cooked up those killer collateralized debt obligations designed to pay off
handsomely in the event of a housing crash. He was right about that one, you'll
recall.


"We're in the middle of a sustained recovery in the
U.S.," Paulson declared in London. "The risk of a double dip is less
than 10 percent." The housing market is now, he says, an attractive buying
opportunity. "It's the best time to buy a house in America," he said.
"California has been a leading indicator of the housing market, and it
turned positive seven months ago. I think we're about to turn a corner."


No mention of a third depression.


Paulson's bullishness is not new. Last spring, when Krugman
was arguing that some major U.S. banks ought to be nationalized, wiping out
equity holders, Paulson was busy building a massive stake in Bank of America.
He and Krugman may not have disagreed about the fundamental health of the
banking business—they just disagreed about what it meant. Paulson wasn't buying
banks because he liked their second-lien books; instead, he had grasped that
the Swedish-style takeover Krugman advocated was not going to happen, and that
a tacit federal backstopping of the banking industry took most of the risk out
of going long.


With the American taxpayer covering his downside, investing
in U.S. financial institutions was easy pickings. Paulson's latest 13f filing
with the Securities & Exchange Commission, which records his holdings as of
Mar. 31, indicates nearly $2.995 billion of Bank of America common stock and
$2.052 billion of Citigroup (C)
common. Despite healthy advances from their spring 2009 lows, banks may have
more room to run, particularly if Paulson is correct in the estimate he made to
investors, according to The Wall Street Journal, that housing
prices will rise as much as 10 percent next year.


Since his initial forays in banks, Paulson has ventured into
riskier assets like casino stocks and vacant residential land in the utterly
busted Florida and Southern California markets. As a private hedge fund
manager, Paulson is not obliged to provide a complete picture of his
investments; long positions could be hedged with shorts and derivatives that he
does not have to divulge. But nothing in either his statements or reports about
what he's buying suggests he is anything less than upbeat about the economy
right now.


Some positive currents seem to be gathering force beneath
the choppy stock market. U.S. credit-rating upgrades on corporate bonds
exceeded downgrades this quarter for the first time since before markets froze,
according to Bloomberg News. "I do see more upgrades coming," says
Ann Benjamin, chief investment officer of leveraged asset management strategies
at New York-based Neuberger Berman, where she helps oversee $7.5 billion of
high-yield bonds and $5 billion of loans. "There's plenty of good
companies out there that may be misrated."


Krugman, by contrast, sees darker forces at work. He argues
that the market has already ratified his belief that fiscal tightening will
smother the recovery, pointing to widening bond spreads in Greece and Ireland,
where huge cuts loom. About Ireland, Krugman recently wrote on his Times
blog, "All that savage austerity was supposed to bring rewards...But the
reality is that nothing of the sort has taken place: virtuous, suffering
Ireland is gaining nothing." The markets have been kinder to Spain, he
says, because leaders there have cut less.


The heart of the matter, for Krugman, is unemployment. As
long as it remains at such elevated levels, he says, more and more people
remain out of work for so long they become unfit to hold jobs.


It's hard not to marvel at Krugman's conviction about how
all the pieces fit together, why it's essential to mankind that Germany start
spending and China let the value of its currency appreciate. If the world
economy had a cockpit, Krugman exudes the confidence of a man who could climb
in there, flip all the right switches, and get this sucker airborne.


Paulson has a simpler view: Americans are starting to spend
again, in ways not terribly dissimilar to the ways we did before, buying
suburban homes and stuffing our Social Security checks into slot machines.
There are pitfalls. As we work our way back to the old normal and demand picks
up, the years of superlow interest rates will come back to smack us, fueling
inflation that Paulson sees possibly reaching into the double digits within a
few years. That's why, in addition to Florida property, Paulson is heavily
invested in gold.


As Gregory Zuckerman described in The Greatest Trade
Ever, Paulson rose from obscurity by exploiting the age-old tendency of
investors in flush times to blithely assume risks they don't understand, like
buying the other side of his bespoke CDOs. Now he has flipped, betting that
investors are so gun-shy they can't quantify the potential for upside. Recent
tremors in the stock market bring flashbacks of fall 2008 and the nerve-racking
question: Is this the big one?

The debate over the economy can be thought of as a
trade—Paulson taking one side, Krugman the other. Paulson's got real money on
the table, but for both men, the main risk is reputational. Is Paulson another
Wall Street one-hit wonder? Is Krugman another too-smart-for-his-own-good
academic with no feel for animal spirits? Paulson may have an edge because he
is just playing the market. Krugman is playing history, which is quite a bit
trickier.

Treasuries Showing 12% Chance of Double Dip Recession




http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=agtS_KW00zvg


July 6 (Bloomberg) -- U.S. government bond yields are
signaling almost no chance of the economy slipping into another recession even
as stocks and commodities tumble, according to research from the Federal
Reserve Bank of Cleveland.

The 2.32 percentage point gap between yields on
two-year and 10-year Treasuries is more than double the 20-year average and
about the same as in 2003, just before gross domestic product rose 3.6 percent.
The so-called yield curve suggests growth won’t slow to less than 1 percent and
about a 12 percent chance of a recession in the next year, Joseph G. Haubrich,
head of the banking and financial institutions group at the Cleveland Fed, and
Kent Cherny, a researcher, wrote in a July 1 report…