Wednesday, December 12, 2012

Today's links

1---"Mortgage rates have dropped since the Fed announced it would buy MBS in Sept, but home sales are lower than were, refis are lower than they were." , Bloomberg video, The Real Deal's Michael McKee, Bloomberg

Investors do not believe that the fed will  accomplish anything" (with another round of QE)..."Yes the fed can push down interest rates, we've seen that with prior bond purchases. Mortgage rates have dropped since the Fed announced it would buy MBS  in Sept, but home sales are lower than were, refis are lower than they were...The only thing that's happened is the increase of profits at banks as the secondary spread widens as banks pay less for the cost of funds they are lending out to homeowners".

Look at the corporate bond market, we're seeing a rush of corporate bond sales at the end of the year, but not to invest in the economy, but in order to pay special dividends before tax rates go up at the end of the year. Even Fed governor Jeremy Stein, who is a fan of QE, has suggested that another round of bond purchases isn't going to do much to affect corporate investment plans.

2---U.S. Stock Futures Rise Amid Fed Support Speculation, Bloomberg

The Fed concludes a two-day meeting today. The U.S. central bank will announce its interest-rate decision at 12:30 p.m. in Washington, followed by forecasts on economic growth, unemployment and inflation. It will expand economic stimulus by unveiling $45 billion in monthly Treasury purchases in addition to the program to buy $40 billion in mortgage bonds each month, according to a Bloomberg survey of economists.
“The number that people are talking about is the $45 billion worth of medium- and long-dated Treasuries,” Mike Lenhoff, chief strategist at Brewin Dolphin Securities in London, said in a phone interview today. “It will just reinforce the support that it already has for the economy. What really matters is this deal on budget policy.”

3---Mario Monti's exit is only way to save Italy, Telegraph

Rome holds a clutch of trump cards. The one great obstacle is premier Mario Monti, installed at the head of a technocrat team in the November Putsch of 2011 by German Chancellor Angela Merkel and the European Central Bank – to the applause of Europe’s media and political class.

Mr Monti may be one of Europe’s great gentlemen but he is also a high priest of the EU Project and a key author of Italy’s euro membership. The sooner he goes, the sooner Italy can halt the slide into chronic depression.

Markets are, of course, horrified that he will resign once the 2013 budget is passed, opening the door to political mayhem early next year. Yields on 10-year Italian debt spiked 30 basis points to 4.85pc on Monday. “The armistice lasted 13 months. Now the war continues. The world watches us with incredulity,” wrote Corriere della Sera. ...

The latest data confirm that Italy’s industrial output is in accelating freefall, down 6.2pc in October from a year earlier. “We have seen a complete capitulation of the private sector over the last 12 months,” said Dario Perkins, from Lombard Street Research. “Business confidence is back to levels in the depths of the financial crisis. Consumer confidence is the lowest ever. Berlusconi is right that austerity has been a complete disaster.”

Consumption has fallen 4.8pc over the past year as higher taxes bite. “There is no precedent for this in data. The risk for 2013 is that that fall will be even worse,” said consumer group Confcommercio

4---RBA's Glenn Stevens takes on major central banks, sober look

 The rapid expansion of the balance sheets of many central banks has "blurred the distinction between fiscal and monetary policy" and therefore the future exit from these policies which "provide cheap funding for governments may prove politically difficult". Ultimately, while central bank actions have bought government's time to put public finances back on track, central banks cannot solve these longer run challenges.

5---Disappointing Trade Report,  Tim Duy, Fed Watch

 Today's international trade report confirms that sluggish global growth is taking a toll on the US economy. Exports are now barely up compared to last year...
I take little comfort from the import data:
Flat to negative numbers are typically consistent with recession as they reflect periods of negative domestic demand. We can't write off the slightly negative reading as simply a reflection of falling oil imports (down $625 million); non-petroleum imports (down $792 million) also fell slightly compared to a year ago. Unless the pace of import-substitution is happening very quickly, this data seems like something of a red flag. Something to be cautious of as we head into 2013.
Bottom Line: While I do not believe the US economy is in recession by any stretch of the imagination, I am under no illusions about the lack of underlying momentum. Slow and steady, in my opinion. But slow also means more vulnerable; there was more room to absorb an external hit in the late 1990's than today.
6---Jobs, Productivity and the Great Decoupling, by Erik Btynjolfsson and Andrew McAffee, Commentary, NY Times: ...For several decades after World War II ... G.D.P. grew, and so did productivity... At the same time, we created millions of jobs, and many of these were the kinds of jobs that allowed the average American worker, who didn’t (and still doesn’t) have a college degree, to enjoy a high and rising standard of living. ...
But as shown by the accompanying graph, which wasfirst drawn by the economist Jared Bernstein, productivity growth and employment growth started to become decoupled from each other at the end of that decade. Bernstein calls the gap that’s opened up “the jaws of the snake.” They show no signs of closing. ... Wages as a share of G.D.P. are now at an all-time low, even as corporate profits are at an all-time high. The implicit bargain that gave workers a steady share of the productivity gains has unraveled.
7--Is Obama Getting Rid of the FHFA’s Ed DeMarco to Bail Out the Banks?, naked capitalism 

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