Friday night Chairman Bernanke delivered a speech on long-term interest rates at the Annual Monetary/Macroeconomics Conference sponsored by the San Francisco Federal Reserve. The basis of his remarks was that the Fed would continue to maintain its robust monetary accommodation because any early extraction may result in the economy slowing and thus the Fed would have to move to extend the period of aggressive Fed action. It is always important to remember that Ben Bernanke is the main ’37er in the realm of preventing an economic relapse to the deflationary impact of deleveraging. When I say that Chairman Bernanke is a ’37, it refers to the pledge the chairman made to Professor Milton Friedman at the esteemed economist’s 90th birthday party. Bernanke said the Fed made a huge mistake by tightening rates and reserve requirements in 1937 while the U.S. Treasury was instituting an austerity budget at the behest of Secretary Andrew Mellon. It has been Bernanke’s belief that the Fed’s actions coupled with a badly flawed fiscal policy sent the U.S. back into a very severe recession.
Posts Tagged ‘bonds’
Give the pollsters their due. They were virtually perfect in the predictions of electoral outcomes. Can the electoral algos now reduce all that data and tell us the policies that will be produced to deal with the problems that plague the U.S.? The Obama victory was greeted by a market selloff as the investment world woke up to the possibility of tax increases and spending cuts leading to a recession and decreased profits. The elections were widely anticipated as the bookies in London and worldwide had predicted. I am left scratching my head, wondering what caused the steep decline in the U.S. equity and commodity markets? The EURO currency was not sold hard enough to think that the Greek situation was the catalyst. Besides, the Greek parliament passed the austerity budget tonight. There is no way that Europe will not provide the Greeks with the promised funds as the outcome would not be worth the 30 billion euros that are in question. If the Obama victory and coming government standoff should have led to a selloff in the BONDS for one would have to be insane to purchase U.S. bonds priced at FED manipulated risk levels.
As everybody reading and/or listening to financial news all week knows, tomorrow at 7:30 a.m. CST the Bureau of Labor Statistics will release the unemployment report, which has been deemed as the most important data since …….????? The consensus is now for a nonfarm payroll increase of 170,000, the RATE TO STAY AT 8.2% and average hourly earnings to increase 0.2%. After Wednesday’s ADP data, the market has lowered its NFP expectations and thus, a consensus number of 170,000 will be a positive for the EQUITY markets, positive for the DOLLAR and meaningless for the BONDS.
Notes From Underground: A Visit to February 5 (Sometimes A Reminder Is Necessary To Clear The Stain Of Bad Execution)March 15, 2012
The world is carrying on in its design of vast pools of liquidity in a “sea of tranquility” … for the moment. Are Europe’s problems solved as the FRENCH ROOSTER Nicholas Sarkozy has crowed? Absolutely not. The travails of debt plagued economies will begin for the nations living on the IBERIAN PENINSULA. As I have argued for a long time in this BLOG, Spain is a far worse problem then Italy but Italian BONDS suffered as they were the only FUTURES HEDGE AVAILABLE FOR THE PROBLEMS OF THE GIIPS.
Friday saw a continuation of the EURO RALLY as the most despised currency was the subject of massive short covering. For months many analysts have been opining that the EURO was heads to PAR with the DOLLAR. The trade looked promising as 2011 came to a close but in 2012 the EURO has rallied against the DOLLAR. Until last week, the EURO had weakened on many of the CROSSES but even those began to significantly correct as the EURO rally against the DOLLAR continued. The action on Friday saw the EURO rally against all currencies except the SWISS FRANC as that cross hovers near the SNB‘s line in the sand level of 120 EUR/CHF. Late in New York, the EUR/CHF closed at 120.48 so the Swiss National Bank has to be concerned that traders are going to challenge the veracity of the SNB’S SWISS FRANC POLICY.
Sound bites from the left. Sound bites to the right; here I am, stuck in the middle with you (STEALERS WHEEL). The House Budget Committee was in full political regalia as posturing for the home folks and November’s election was in full force. Most of the questions are redundant or ridiculous and in some cases, both. An exception was Committee Chairman Paul Ryan, who asked Mr.Bernanke if the FED‘s policies had corrupted the BOND markets that they stopped sending a credible signal. It has been a consistent theme of NOTES that the BOND market is broken as an indicator of inflation expectations because the FED‘s large scale asset program has created an artificial support to LONG-TERM BOND PRICES.
Notes From Underground: European Leaders Head to Washington for Meetings When Everyone Knows There Is No Sanity ClauseNovember 27, 2011
In one of the best Marx Brothers scenes is from A Night at the Opera, where Groucho and Chico are ripping up a contract and they finally come to the SANITY CLAUSE, in which Chico proclaims there is no SANITY CLAUSE. In tomorrow’s Financial Times, there is a story about France pushing for a Christmas gift from the ECB. The gift that the French are hoping for is a backstop for the European banks that are under severe stress because of the huge amount of EURO sovereign bonds on the banks’ balance sheets. In order for the ECB to act, there would have to be a SANITY CLAUSE invoked and the EUROCRATS would have to attain a measure of sanity. The day-to-day machinations of EUROPEAN politics has left the markets FATIGUED and in a very defensive mindset.
(Another day older and deeper in debt.)
No surprises from the ECB as they held rates at 1.5% as Trichet ended his reign at the helm of European banking by paying homage to the FONZ: Never admit that you were wrong. The ECB did announce that it was extending its policy of providing liquidity to EUROZONE banks at extremely low rates for a period of 12 and 13 months in an effort to prevent any immediate bank run. Also, the ECB announced that it would buy up to 40 billion euro of covered bonds, but that should not be a big deal for covered bonds are the best collateral so many banks will probably not be running for funding posting the highest rated debt.
After Secretary Geithner told the CNBC audience that he was going to Poland as an observer of the ECOFIN meeting on Friday, it seems he changed his mind. U.S. policymakers have woken up to the fact that the European credit crisis is the real deal and risks sending the entire global financial system into a period vicious cycle of asset liquidation. The Obama administration has come to realize that a severe credit crisis can certainly undermine the JOBS PROGRAM AND ANY OTHER STIMULUS PROGRAMS IN THE WORKS. If the world frets of a U.S. renewed recession, then imagine the global trepidation of a simultaneous credit crunch in Europe. A EUROPEAN MELTDOWN WOULD BRING THE U.S. TO INCREASED UNEMPLOYMENT AND A CERTAIN DEFEAT FOR THE OBAMA ADMINISTRATION.
The great economist and bon vivant, Joseph Schumpeter, described the failure of low interest rates to stimulate the animal spirits of businessmen as “PUSHING ON A STRING.” In paraphrasing this concept, high interest rates can stop an entrepreneur from borrowing but ultra-low rates cannot stimulate investment if there is no expected return higher than the cost of capital. Some pundits continue to insist that banks aren’t lending while many of the banks insist that there is no business or consumer demand. It is driving the Bernanke FED crazy that with interest rates at zero, capital investment is just not reaching levels high enough to add jobs.