Friday, January 4, 2013

Today's links

1--Rosenberg, Myths and reality, zero hedge

So after the worst post-Christmas market performance since 1937, we had the largest surge to kick off any year in recorded history. The Dow soared 308.41 points, or 2.4%, to 13,412.55 with all 30 components in the black. The S&P 500 index climbed 36.23 points, or 2.5%, to 1,462.42, again with all ten sectors participating. The Nasdaq composite added 92.75 points, or 31%, to 3,112.26. Breadth was solid with ten stocks rising on the Big Board for every decliner. And volume reached 4.2 billion shares across the major exchanges....
The myth is that we are now seeing the clouds part to the extent that cash will be put to work. Not so fast.

2---Hedge Fund Blackstone Buying $100 Million in Foreclosed Homes Every Week, firedog lake

Blackstone, the world’s largest private-equity firm, has spent about $1.5 billion on 10,000 foreclosed properties in the U.S. this year, making it the biggest buyer of single-family homes in the country, Gray said. Blackstone has been buying $100 million of houses a week, Stephen Schwarzman, chairman of the New York-based firm, said during an Oct. 18 earnings call.

The investors have all started competing with each other, and suddenly the attractive option of purchasing homes on the cheap and eventually selling them has become less attractive. This is especially true if one firm is buying $100 million in homes EVERY WEEK.

3---Was today's treasury sell-off an overreaction? , sober look
The 10-year treasury note yield has climbed above 1.9% today - a level we haven't seen since last spring...
The selloff in treasuries was triggered by the FOMC minutes, with several members targeting the end of 2013 or earlier as the completion (or at least a slowdown) of QE3. According to Barclays, this sell-off was an overreaction.
Barclays Research: - The FOMC minutes showed few members willing to continue asset purchases until about the end of 2013 and several others considering it appropriate to slow or stop purchases well before the end of 2013. We believe at 10y real yields of -62bp, well above the levels even before the QE3 announcement, the market has over-reacted. Even if the Fed were to stop purchases by middle of 2013, it would have bought ~$460bn in 10y equivalents, which argues for much lower real yields.
Ultimately, the FOMC's approach to asset purchases will be set by the employment numbers (see discussion). The December employment report (Friday morning) will therefore be quite vital in setting the trajectory of long-term rates.
You simply must read this post if you care at all about the rule of law or can stand to see the gory mechanisms by which “regulation” has now become a fig leaf for criminal corporate conduct.

5---Happy New Year? not for bonds, WSJ

For the bond market, it'll be a very tense time for the next several weeks," said David Ader, head of government-bond strategy at CRT Capital Group LLC, Stamford, Conn

Once a budget agreement was reached, "a lot of people who were crowding into the Treasury market as the safe-haven bet saw it as a green light to go back to the risky assets," said William O'Donnell, head of Treasury strategy at RBS Securities.
Still, many analysts don't believe the selloff in Treasurys will last long. They argue that the budget agreement postponed decisions about where spending cuts should be made, setting up more fiscal talks and deadlines in coming months.

6---A Postholiday Letdown for Retailers, WSJ

Cautious U.S. consumers restrained their spending in December, making for a disappointing holiday season for retailers at what is usually their busiest time of the year.

7---Treasury 10-Year Note Yield Touches 7-Month High on Fed, Bloomberg

Treasuries fell for a third day, pushing the 10-year note yield to a more than seven-month high, after Federal Reserve policy makers said they may end their $85 billion monthly bond purchases sometime in 2013.
U.S. government debt fell earlier as a private report showing companies added more jobs in December boosted speculation tomorrow’s monthly employment report may top forecasts...

The comments about discontinuing bond purchases by some members is what really pushed the levels over the edge,” saidSean Simko, who oversees $8 billion at SEI Investments Co. (SEIC) in Oaks, Pennsylvania.
Ten-year note yields rose seven basis points, or 0.07 percentage point, to 1.91 percent at 5 p.m. New York time, according to Bloomberg Bond Trader data. The yield reached the highest since May 10. The price of the 1.625 percent security fell 21/32 or $6.56 cents per $1,000 face value to 97 13/32.
The 30-year bond yield rose nine basis points to 3.13 percent, the highest since May 4.

‘Evenly Divided’

The minutes from the FOMC Dec. 11-12 meeting show a divide among participants on how long the purchases should last. Those who provided estimates were “approximately evenly divided”between participants who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date.
After its December meeting, the FOMC announced Treasury purchases of $45 billion a month in addition to $40 billion a month of mortgage-debt purchases begun in September, bringing the total pace of bond buying to $85 billion a month. The FOMC hadn’t set a limit on the program’s size or duration and said last month the purchases will continue “if the outlook for the labor market does not improve substantially.”

8---Big Banks and Drug Money, counterpunch

9--Premature Austerity, counterpunch

Absent substantial (seemingly remote) additional spending on public investment and transfer payments, the labor market will almost certainly deteriorate this year, regardless of what happens with sequestration and the pending debt ceiling fight.

I recently explained that the fiscal “cliff,” or rather, fiscal obstacle course debate was intrinsically fixated on maintaining anemic growth versus falling into a recession and deeper depression, notmoving toward full recovery. As a rough compass, policymakers need to target real GDP growthabove 2.2 percent (the Congressional Budget Office’s estimate of real potential economic growth over 2012–2022) if this depression is to eventually be ended. Trend economic growth for the first three quarters of 2012 registered only 2.1 percent annualized real GDP growth, which is below this benchmark, meaning that sustaining current economic performance would fail to make progress toward restoring full employment. And this budget deal—indeed expiration of the payroll tax cut alone—guarantees that current economic performance will not be sustained.

If all the major components of the fiscal obstacle course were “turned off,” (i.e., scheduled spending cuts repealed and tax increases prevented), we projected that real GDP would grow 3.1 percent in 2013. If, on the other hand, the current policy baseline were adhered to (in which the payroll tax cut and emergency unemployment benefits were assumed to expire and discretionary spending caps continue ratcheting down), we estimated the economy would decelerate to 1.4 percent real growth. And if the legislated fiscal contraction fully materialized (adhering to the current law baseline), CBO forecasted that real GDP would contract 0.5 percent in 2013.2 So how does the enacted deal stack up?...

This debate was always about averting a recession in favor of maintaining anemic growth rates. That may have been accomplished by the budget deal, although much uncertainty surrounds sequestration and the statutory debt ceiling. But this bar for political horse-trading was always set appallingly low. The United States is still mired in a severe jobs crisis, and it’s a safe bet this jobs crisis intensifies in 2013 because of premature budget austerity and policymakers’ abdication of promoting full employment.

10---Will the U.S. Dollar Lose its Preeminence?, conversable economist

11---In Last Meeting, Fed Officials Debated Length of Program to Stimulate Job Market, NYT

At a meeting in December, several members of the Fed’s policy making committee argued that purchases of Treasury securities and mortgage-backed securities should be reduced or ended “well before the end of 2013,” according to an account of the meeting the Fed published Thursday after a customary three-week delay.
The Fed announced after the meeting that it would keep buying assets until the pace of job creation improved substantially, part of an effort to increase the impact of its policies by announcing economic objectives rather than end dates. But the account shows that many members of the 12-person committee continue to think in terms of end dates, partly because they are worried about the potential costs.
The concerns include the potential disruption of financial markets and the delicate balance between encouraging private borrowing and unleashing speculation. Fed officials professed less concern that the purchases could loosen the Fed’s grip on inflation. They noted that inflation remained low, and that they expected it to stay under control.
“While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased,” the meeting account said.
The stock market declined after the Fed released the account of its deliberations, suggesting some investors were surprised by the cautious tone, but the drop was modest. The Standard & Poor’s 500-stock index lost 0.21 percent of its value at the close of trading
The use of artificial deadlines and phony crises to manipulate the public has become a basic modus operandi for managing the political affairs of the American ruling elite. The so-called fiscal cliff debate was from the start a cynical and stage-managed exercise, reflecting the inability of the political system to address the concerns of the masses and its complete servility to the financial aristocracy.

Part of the process is the creation by the media of a synthetic “public opinion” that has nothing to do with the real concerns and views of the population. Already on Wednesday, the morning news programs were speaking of a groundswell of popular anger over the failure of Congress to enact “real” deficit-reduction measures and serious cuts in social programs—this in the face of repeated polls that show a large majority of the population opposed to such cuts.
The truth is, that as of December 18, there was a record $9.2 trillion in total bank deposits: this is not only the evil 1%-ers money, but money from mom and pops - the public - who have saved cash all their lives, the bulk of it from hard work, and instead of keeping it in cash have decided to hand it over to the banks for "safe keeping." As a reminder, deposits (even savings deposits under ZIRP) are the effectively equivalent of currency in circulation. Or physical money. Money, which in a fractional reserve system is created by the fed and by private commercial banks (sometime it is surprising how much confusion there is about the money creation process: we will address this in a later article) when they create loans.
The problem, as we noted recently is that since the Lehman failure, US commercial banks have not created one incremental dollar in loans, and in fact the total amount of loans outstanding has dipped by some $120 billion in the past 4 years! And yet US bank deposits keep soaring, and as noted above have just crossed $9.2 trillion for the first time ever. Thank you Federal reserve excess reserves and shadow banking system repo (and other) transformations.

In other words, so explicit is the trust in banks and stability of the Fed-backstopped banking system that a whopping $2 trillion in excess deposits over loans have been parked at US banks
Putting the $2 trillion in just excess deposits over loans in perspective (not the entire $9.2 trillion): there is $1.1 trillion of currency in circulation. Should all this money be pulled and enter the broader economy, one can kiss any CPI data massaging goodbye.

13--What’s Inside America’s Banks?, Atlantic

Some four years after the 2008 financial crisis, public trust in banks is as low as ever. Sophisticated investors describe big banks as “black boxes” that may still be concealing enormous risks—the sort that could again take down the economy. A close investigation of a supposedly conservative bank’s financial records uncovers the reason for these fears—and points the way toward urgent reforms.
Abe’s critics have a point. With enormous public debts, Japan is already fiscally stretched, and Abe is promising a big new stimulus program as well as demanding easier monetary policy. If the BOJ were simply put at the government’s command and instructed to finance ever-bigger deficits, the critics’fears could come true.

Abe invoked this possibility when he called for the central bank to buy construction bonds in support of public-works spending. He has since withdrawn that suggestion, which is wise. Outright monetization of government spending at the finance ministry’s direction would reduce the central bank to a printing press -- a reckless notion, to put it mildly.

Yet this doesn’t have to happen. A democratically sanctioned inflation target of 2 percent to 3 percent, together with operational independence and proper accountability for the central bank in achieving that goal, is the right approach, tried and tested elsewhere.

In aiming merely to get inflation of 1 percent “in sight,” the BOJ settled on a bad target and failed to achieve even that. The government is right to complain, to press for a better inflation target and to hold the BOJ accountable for hitting it. So long as it draws the line there, it will not compromise vital principles of prudent central banking, but uphold them
As the New Year begins, there is anxiety in ruling circles over the state of the world economy, increasing geo-political tensions, and the potential for major social struggles. As an editorial in the British magazine the Economist put it: “From a showdown with Iran over its nuclear plans to a catastrophic break-up of the euro zone, it is not hard to think of disasters that could strike the world in 2013.”
The foremost cause of concern is the state of the world capitalist economy. Almost six years after the first signs of financial crisis and more that four years after the crash of 2008, “recovery” in the global economy is more remote than ever.
Once again, in the words of the Economist: “You might think that six years after the global financial crisis first broke, the downturn would be well behind us and the economy would be humming along. Instead, huge swathes of the world seem to be embarking on a Japanese-style experiment with long-term stagnation.”
The euro zone economy is contracting, the UK has experienced a double dip recession and could dip again after its worst “recovery” in more than 100 years, and Japan has seen seven quarters of negative growth out of the last 15. It is a measure of the extent of the crisis that the near-stagnant US, with growth at just 2 percent, is considered something of a “bright spot” among the major economies.

Last year ended with the central banks of the US, the UK, the European Union and Japan, covering more than 60 percent of the world economy, engaged in one or another form of “quantitative easing”—in effect, gambling that by printing endless supplies of money they would be able to stave off a financial crisis.

The ruling classes have no policies to resolve the economic breakdown, but they do have a very definite strategy that is being ruthlessly applied. It is aimed at pumping new wealth into the sclerotic arteries of the profit system by driving down the social position of the working class.
Some regulatory certainty is coming as well. The Consumer Financial Protection Bureau should finalize what constitutes a qualified mortgage in January. This will exempt lenders from certain lawsuits. That will then enable the Federal Reserve and five other watchdogs to define the meaning of a “qualified residential mortgage” that will set standards – such as how much equity a borrower has in a property – for prime loans that lenders won’t need to retain a chunk of. New documentation standards will also improve transparency.

So banks and investors should feel comfortable taking on more mortgage risk. Meanwhile, Congress now has an advocate who wants mortgage reform front and center: incoming House Financial Services Chairman Jeb Hensarling.

19---Is the threat of shadow inventory truly manageable?, oc housing

No comments:

Post a Comment