Ed’s Daily Notes for March 6th   Leave a comment

Bloomberg: Yellen Says Economy Falling Short of Congress-Mandated Goals

Federal Reserve Chair Janet Yellen said the Fed has more to do to reach its goals for inflation and unemployment, and to repair damage from the financial crisis.

“Too many Americans still can’t find a job or are forced to work part time,” Yellen said at her ceremonial swearing-in event today in Washington. While the central bank’s mandates of full employment and stable prices are clear, “it is equally clear that the economy continues to operate considerably short of these objectives,” she said.

The Fed, in its Beige Book review of regional conditions, said today the economy in most districts grew last month even as harsh winter weather impeded hiring, disrupted supply chains, and kept customers away from stores and auto dealerships. Yellen and her policy-making colleagues are trying to determine whether recent economic weakness stems from weather or fundamental obstacles to growth.

The Federal Open Market Committee will meet on March 18-19, its first meeting led by Yellen since she succeeded Ben S. Bernanke last month. A “significant” change in outlook for the economy might prompt the Fed to consider a change in its strategy of slowing monthly bond buying, Yellen said Feb. 27.

I am tempted to turn bullish on this piece of news. The problem with it is this: What if the economy isn’t bad or good? Then the Fed will continue tapering QE until it’s gone.

In the meantime, avoid emerging markets:

Bloomberg: China Bear Stearns Moment Seen by BofA in Solar Default

The growing risk of default by Shanghai Chaori Solar Energy Science & Technology Co. may become China’s “Bear Stearns moment,” prompting investors to reassess credit risks as they did after the U.S. securities firm was rescued in 2008, according to Bank of America Corp.

“We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start,” Hong Kong-based strategists David Cui, Tracy Tian and Katherine Tai wrote in a note yesterday. During the U.S. financial crisis, it took a year “to reach the Lehman stage” when investors began to panic and shadow banking froze, the strategists added.

The maker of solar cells said March 4 it may not be able to make an 89.8 million yuan ($14.7 million) interest payment in full by the deadline tomorrow…

Chaori’s potential failure to pay investors would mark the first bond default in Asia’s largest economy, highlighting the strain in China’s $4.2 trillion bond market after a trust product issued by China Credit Trust Co. was bailed out in January. There haven’t been any defaults in China’s publicly traded domestic debt market since the central bank started regulating it in 1997, according to Moody’s Investors Service.

I don’t know if I would go so far as to call a $14.7 million default a “Bear Stearns moment”. Perhaps a better description would be “another symptom of a failing financial system”.

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Posted March 6, 2014 by edmcgon in Economy, Federal Reserve, News

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