Ed’s Daily Notes for June 25th   3 comments

Bloomberg: Walking Back Bernanke Wished on Too Much Information

Hedge funds and other speculators dumped more than $14 billion of bullish dollar bets before the Federal Reserve signaled it would pare stimulus, leaving them on the wrong side of a central bank trying to improve transparency.

Futures traders reduced wagers that the dollar would rally against the pound, yen and six other currencies by the most since 2006 in the week ending June 18, according to Commodity Futures Trading Commission data compiled by Nomura Holdings Inc. Fed Chairman Ben S. Bernanke’s comments on quantitative easing at a press conference the following day spurred the Dollar Index to its biggest gains in almost a year.

Macro hedge funds to algorithmic traders misjudged slower inflation and rising bond yields as a sign the Fed would maintain into 2014 the cash it’s pumping into the economy, which tends to debase the currency.

“The market talked itself into expecting a more dovish press conference than it got, and that’s increased the scale of the selloff in risk assets and dollar buying since,” Kit Juckes, a strategist at Societe Generale SA in London, said in a phone interview yesterday. Investors pared dollar bets “into the teeth” of a Fed meeting, said Juckes…

Bernanke said June 19 after the Fed’s policy meeting that the central bank may start dialing back its unprecedented bond-buying program this year and end it entirely in mid-2014 if the economy achieves sustainable growth. The Fed has been buying $40 billion of mortgage bonds and $45 billion of Treasuries to inject cash into the economy.

Markets from currencies to equities to bonds to commodities have gyrated since the Fed meeting.

That’s what happened in the past week. Now for the analysis:

“Will the Fed try to walk back from how the market has perceived its comments?” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said yesterday in an interview…Pimco, based in Newport Beach, California, manages the world’s biggest bond fund.

“The central-bank brand, this notion that the markets had that they were wise, they were powerful and were effective is under assault,” El-Erian said. “The Fed has to be very careful what it does with its reputation here.”

I have to disagree with El-Erian on this point. Does it really matter what people think of the Fed? Admittedly, if they don’t trust what the Fed says, they may ignore what they say. But what the Fed DOES will be ignored at the investors’ own risk.

However…

Two Fed presidents said yesterday that U.S. monetary policy remains accommodative, less than a week after Bernanke’s comments jolted financial markets.

Richard Fisher, president of the Fed Bank of Dallas, said in London that “the word ‘exit’ is not appropriate” for what the U.S. central bank is doing, while Minneapolis Fed President Narayana Kocherlakota said officials must emphasize that policy will remain accommodative “for a considerable time” after the end of QE.

Translation: We’ll keep rates low after QE.

Unfortunately, the liquidity junkies in the markets don’t want to hear that. They want to hear “QE forever, dudes! Party on!”

On the other hand…

Falling stocks and rising borrowing costs could still “derail the recovery” and prompt the central bank to ease monetary policy, according to Jonathan Wright, an economics professor at Johns Hopkins University in Baltimore who worked at the Fed’s division of monetary affairs from 2004 to 2008.

“The recovery is still pretty fragile and hopefully this will have no great impact,” Wright said in a phone interview yesterday. “There isn’t really the option of gradually tightening monetary policy while being transparent about it.”

If you want to know why I am still bullish, Wright nails it. The Fed has no options. They have the choice of tapering and crash the markets and the economy, or they can do “QE Forever”. They have painted themselves into that corner. If you want to know the problem with the Keynesian “controlled economy”, this is it. Eventually, every economy reaches a point where it needs to contract. The controlled economy denies this.

Bloomberg: AT&T Opening Two Research Centers in Bid to Spur More Innovation

AT&T Inc. (T) is opening research centers in Atlanta and Plano, Texas, part of an attempt to shed its stodgy Ma Bell image by innovating in such areas as home security, inventory tracking and in-car online services.

The two new sites bring its total number of innovation centers to five, the company said today in a statement. The Atlanta location, affiliated with the Georgia Institute of Technology, will focus on wireless products such as Digital Life, a home-security service, as well as Internet-connected car technology. The Plano center expands an existing facility where AT&T has been developing what it calls machine-to-machine services, including cargo and inventory tracking.

AT&T and its technology partners, including Cisco Systems Inc., have spent about $100 million trying to jump-start the development of new products, said Abhi Ingle, the Dallas-based company’s vice president of innovation.

That’s great! Now if AT&T could just improve their customer service, I might even consider using some of their new technology. Unfortunately, their customer service is so bad right now, I would rather do without than use any of their services. Needless to say, I wouldn’t touch their stock either, even if the market underpriced it.

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Posted June 25, 2013 by edmcgon in Economy, Federal Reserve, Market Analysis, News

3 responses to “Ed’s Daily Notes for June 25th

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  1. Eh- I think all the talk by the hedge’s is a bunch a bull . The market goes up the market goes down. We went up a bunch really quick which usually means it gives some back and then we go again. The world does not revolve around market and every time it burps we should no expect action.

  2. Coal equities are hitting new 52 week lows — can’t wait to see what the President has to say.

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