Friday, August 24, 2012

Weekend links

1--Big Income Losses for Those Near Retirement, NY Times
2--Most U.S. Stocks Decline on Economic Data, Europe Concern, Bloomberg

Equities retreated after a report showed demand for U.S. capital goods such as machinery and communications gear dropped in July by the most in eight months, indicating companies are pulling back on investment.
3--Money Funds Test Geithner, Bernanke as Schapiro Defeated, Bloomberg

There’s real unanimity in the bank regulatory arena about the need to do something about money-market funds,” ....SEC Chairman Mary Schapiro this week abandoned a four-year effort to adopt tougher rules for money funds as three fellow commissioners said they wouldn’t support her proposal. The announcement marks a victory for the fund industry, which had lobbied against the plan.
Former SEC Chairman Arthur Levitt called the decision by three commissioners to block Schapiro’s proposal a “national disgrace” and said the Obama administration should pursue the issue through the Financial Stability Oversight Council, or FSOC, the panel Congress charged under Dodd-Frank with monitoring the country’s financial threats.

4--Venezuela Ramps up China Oil Exports Unsettling Washington, Oil Price
5--Real house prices, woodonfire (great chart)
6-- Don’t Lose Money While Waiting For Market Plunge, TrimTabs

Today there are three reasons why current real time data is so bearish when compared with stock prices. First, wages and salaries are growing nominally at 3% year over year. And that is before inflation. After inflation, there is no growth in final demand and therefore spending. (See the August 16 Daily Edge for more.)

What all this means is that very few jobs are currently being created. Second, no growth in spending means that earnings during the second half of the year are likely to disappoint. Why should companies hire more people and increase production when final demand is flat?

Third, supply and demand of stocks has turned quite bearish. Insider selling this month is at its highest level since May 2011. By the way, May 2011 was the first of three times the S&P 500 approached 1420. In addition, companies are also selling more shares than they are buying. New buybacks in August have been less than company and insider- share sales for the first time since this past May. May 2012 was the second time that the S&P 500 approached 1420. The third time was yesterday before the market turned around.

7--How Goldman Sachs Created the Food Crisis , Foreign Policy
Don't blame American appetites, rising oil prices, or genetically modified crops for rising food prices. Wall Street's at fault for the spiraling cost of food.
8--China's slowdown can no longer be masked by cooked economic data, sober look

NY Times: - After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.

The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.

The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors.

9--Fears of meltdown in Vietnam, NYT
10--Europe marches into recession, macrobusiness
11--Pew Research: “Fewer, Poorer, Gloomier: The Lost Decade of the Middle Class”--New poll, data point to vast social polarization in US, WSWS

12--Foreclosure-rental ABS deals in the works, IFR
13--Euro crisis: Germany is not bluffing, IFR
14--Cooler heads at the FOMC should prevail, avoiding QE3, sober look

Fed's beyond the changes in economic indicators, the FOMC members (hopefully) understand that increasing bank reserves further via QE3 is not going to change banks' behavior. The problem of a number of small businesses and potential homeowners not being able to access credit is not going to improve just because bank reserves rise due to Fed's asset purchases. In fact US banks are not liquidity constrained and are visibly increasing their lending activities (below). Also interest rates are already sufficiently low (near record lows) not to be a constraint when it comes to financing decisions. QE3 will do little to change the credit conditions in the US....
And there are significant downside risks. The latest FOMC minutes contain the following, somewhat disturbing quote: "... some participants noted that a new [QE] program might boost business and consumer confidence". That statement shows how out of touch some of these members are when it comes to the US consumer. Additional unsterilized asset purchases will undermine consumer confidence instead of improving it by raising commodity prices. Gasoline prices have risen considerably already and food prices will rise as drought driven spike in agricultural commodities makes its way through the system. More QE will increase these prices further and aggravate an already difficult situation. Risks of such a program far outweigh the benefits. Cooler heads at the FOMC should prevail and the Fed will "remain on the sidelines".

15--Jews in Iran, CNN and, this from you tube

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