Happy Fed Day! Ed’s Daily Notes for September 17th   Leave a comment


Bloomberg: Less Tapering Becomes Tightening Credit No Matter What Fed Says

By just talking about adding stimulus at a slower pace, Federal Reserve Chairman Ben S. Bernanke sent bond yields a percentage point higher. The rout serves as a warning to monetary policy makers that their exit from record accommodation won’t be easy to control.

The jump in yields has pushed up the cost of mortgages for millions of Americans, curbed demand for homes and prompted thousands of job cuts at Bank of America Corp. and Wells Fargo & Co., all at a time when the Fed’s policies are aimed at creating jobs and supporting housing.

Bernanke has stressed that any reduction in the amount of money the central bank pumps into the financial system each month doesn’t mean policy is getting any more restrictive. That message hasn’t been heeded by bond investors, demonstrating how hard it will be for the Fed to control long-term interest rates as it moves toward tightening, according to Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

“Getting out of ultra-low interest-rate policy was never going to be easy, and this is a perfect illustration of why,” Crandall said. “It is possible that this will make it even harder because the market will be even more primed to view inflection points as messy and destructive, and therefore a reason to sell early.”

Fed policy makers meeting Sept. 17-18 will probably lower the monthly pace of bond purchases by $10 billion, to $75 billion, according to the median response of 34 economists in a Bloomberg News survey on Sept. 6. That’s down from expectations of a $20 billion reduction in a July survey.

If you need an example of why central banks should not be tasked with overseeing jobs, this is it.

That point aside, there are two ways to look at this: First, the Fed’s actions have done nothing but hold up an economy which will contract regardless of their actions; or second, the Fed’s QE wasn’t nearly enough (aka “The Krugman View”), and they are ending it far too early. I personally espouse the first view, especially considering the large numbers of Baby Boomers entering retirement, which makes an economic contraction inevitable. The Fed would have to run QE for the next several decades to actually have any kind of a positive effect, and the side effects of that would negate any positive effect (hello hyperinflation!).

The Daily Caller: Feinstein calls for new gun control laws again after Navy Yard shooting

This didn’t take long. We just had the Navy Yard shooting yesterday, and there were already calls for new gun control laws by the evening:

California Democratic Sen. Dianne Feinstein is renewing her call for new gun-control laws because of Monday’s deadly Navy Yard shooting.

“When will enough be enough?” Feinstein said in a statement Monday evening.

“Congress must stop shirking its responsibility and resume a thoughtful debate on gun violence in this country,” she said. “We must do more to stop this endless loss of life.”

Good question: When will enough be enough? When will liberals quit with their silly knee-jerk calls for gun controls?

Time to look at Smith & Wesson (SWHC) as a “buy” again…

Bloomberg: Europe August Car Sales Drop as Demand Lowest on Record

Brussels, we have a problem…

European car sales fell in August, bringing deliveries this year to the lowest since records began in 1990, as record joblessness in the euro region hurt deliveries at Volkswagen AG (VOW), PSA Peugeot Citroen (UG) and Fiat SpA. (F)

Registrations dropped 4.9 percent to 686,957 vehicles from 722,458 cars a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today in a statement. Eight-month sales declined 5.2 percent to 8.14 million autos.

The economy of the 17 countries using the euro emerged from a record six-quarter recession in the three months through June. Aftereffects such as a jobless rate in the area that held at 12.1 percent in July led industry leaders at the International Motor Show in Frankfurt a week ago, including Peugeot Chief Executive Officer Philippe Varin, to stick to predictions of a sixth consecutive annual car-market contraction in 2013.

Explain how Europe emerged from a recession with 12% unemployment and all-time low car sales? Am I missing something?

Financial Times: Risk of default adds to woes for Argentina’s Fernández

If you need a reason NOT to invest in Argentina, here you go:

In the heart of downtown Buenos Aires, it is hard to walk more than 20 paces without being accosted by hawkers buying and selling dollars. Interested customers will be led into an inconspicuous office in a nearby building.

“They’re called ‘caves’, because they’re supposed to be secret. Of course everyone knows they’re there,” said a hawker who called himself Raul. “Illegal? Of course they are! But don’t worry, the police are paid off, nothing will happen to you.”

The thriving currency black market on postcard Florida Street in the commercial centre of Argentina’s capital is a result of strict foreign exchange controls introduced in 2011 to stem capital flight. In the “caves”, dollars can be sold for close to double the official rate of 5.7 pesos.

Argentina’s artificially overvalued currency is one of an array of economic problems facing Cristina Fernández de Kirchner, president. Others include stubbornly high inflation, state subsidies that are sapping resources, and an abysmal business climate that has seen investment all but dry up.

…During Ms Fernández’s second term as president, surpluses in the current and capital accounts have shrivelled into twin deficits. This is especially bad for a country that has outlaw status on the international capital markets and cannot seek financing abroad.

That problem will only deepen if Argentina slips into a technical default, which some observers believe is all but inevitable after a US appeals court last month ruled in favour of the holdouts demanding that Ms Fernández’s government pay the $1.3bn it owes them in full, in the latest chapter in a long-running saga that began when Argentina defaulted on almost $100bn in debt in 2001.

This is what happens when politicians think they are smarter than markets.


Posted September 17, 2013 by edmcgon in Economy, Federal Reserve, Market Analysis, News, Politics

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