Ed’s Daily Notes for April 29th   Leave a comment

Bloomberg: Yellen’s Dots Dash Effort for Greater Fed Clarity on Rate Rises

Janet Yellen’s effort to provide clarity on the outlook for the Federal Reserve’s main interest rate by publishing policy makers’ forecasts is instead creating confusion.

Fed officials released projections last month showing their benchmark interest rate rising faster than they previously estimated, pushing bond yields higher. Within an hour, Chair Yellen played down the projections and told investors to instead focus on the central bank’s policy statement, which emphasized keeping the rate low.

Explaining the Fed’s intentions will be crucial as an improving economy brings it closer to raising the rate for the first time since 2006. Further mixed signals risk a surge in bond-market volatility as policy makers begin what will be “an extraordinarily complicated tightening cycle,” said Drew Matus, a former markets analyst at the Federal Reserve Bank of New York.

“The Fed’s communications challenges have gotten worse over time as they’ve tried to become more transparent,” said Matus, New York-based deputy chief U.S. economist at UBS AG. “There’s a problem with being transparent but not being clear, and the Fed has been remarkably unclear.”

…The quarterly projections were first released in 2012 on the recommendation of a Fed subcommittee headed by Yellen, who was vice chairman at the time. They are displayed as a series of dots on a chart, with each dot representing an unnamed official.

The median projection in March showed officials expecting the rate to rise to 1 percent at the end of 2015 and 2.25 percent a year later. In December, the projection was 0.75 percent at the end of next year and 1.75 percent year-end 2016.

Yellen, at her first press conference as chair on March 19, warned against paying too much attention to these forecasts.

“One should not look to the dot-plot, so to speak, as the primary way in which the committee wants to or is speaking about policies to the public at large,” Yellen said.

One drawback: the dots are individual forecasts, while the statement represents the consensus of the committee.

The problem for the Fed is their own data is undermining what they want people to see. The Fed wants people to think rates will be low for a long time, even as the Fed gets closer and closer to raising rates. Is it possible the Fed might be making the next black swan by itself?

I was talking to my dad last night, and he thinks the Fed will raise rates this summer. That makes sense if you consider we have the mid-term elections in November, and the Fed has traditionally (at least under Greenspan, and to a limited extent under Bernanke) avoided making policy moves near elections. If they are going to make a move this year, it either has to be this summer, or after the election.

Watch tomorrow’s FOMC announcement closely: If it looks like the Fed is moving closer to raising rates this year, this summer could be when it happens.

Bloomberg: Samsung Mobile Sales Fall as Chinese Rivals Win Customers

I was surprised by this:

Samsung Electronics Co. (005930), the largest smartphone maker, posted the lowest sales at its mobile-phone business in five quarters as Chinese producers gain in emerging markets with cheaper, feature-packed devices.

Revenue at the mobile division, the company’s biggest business, fell to 32.4 trillion won ($31 billion) in the three months ended March, the lowest since the quarter ended Dec. 31, 2012, Samsung said today. The Suwon, South Korea-based company’s share of the global smartphone market fell for the first time in four years, according to Strategy Analytics. The shares fell.

The sales decline comes as Samsung becomes more dependent on its mobile-phone business for earnings, which now accounts for 76 percent of operating income. Apple Inc. is boosting iPhone sales through China Mobile Ltd. (941) to better compete with Samsung’s high-end Galaxy S series, while Huawei Technologies Co. and Xiaomi Corp. are packing features into smartphones costing about $100 to target budget customers.

“Samsung’s heavy reliance on mobile is rising, posing persistent concern to the market,” said Oh Sang Woo, an analyst at Leading Investment & Securities in Seoul. “The bigger-screen smartphone market is what Samsung pioneered and it enjoyed leadership in that segment, but the company now has to share that pie.”

Apple is said to be readying bigger-screen iPhones, a watch-like wearable device and a new Apple TV set-top box.

So Apple isn’t Samsung’s problem?

I think what we are beginning to see is the Chinese domestic manufacturers beginning to dominate their home market. This is bad news for international companies looking for their growth in China, as well as other emerging markets, where Chinese manufacturers will be better able to compete with their lower priced products.

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Posted April 29, 2014 by edmcgon in China, Federal Reserve, News, Politics, Stocks, Technology

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