First, the RBA finally cut the lending rate by 25 basis points to 2.75%. By the close of the market, the Aussie dollar remained weak as some were surprised by the move. As I promised my readers of NOTES it is the 2/10 yield curve where the indicator of further currency and bank action will be found. The 2/10 steepened a slight three points, but the action ahead will be the key. Failure to take out recent steepener highs will be an indicator that the RBA has more work to do if it wishes to give a boost to the Australian economy.
Posts Tagged ‘Larry Summers’
The critics of German policy are mounting a relentless media attack in trying to turn what some have called Germanic fiscal sadism. Many are blaming the culture of BUNDESBANK INFLATION PHOBIA as the neurosis that is beginning to suffocate the economies of EUROPE, including those who are part of the CORE. In today’s Telegraph, Ambrose Evans-Pritchard, jumps on board and blames the Germans and their efforts for fiscal fidelity as causing so much political uncertainty within so many EU nations.
Notes From Underground: Can the Obama Administration Please Find People Who Haven’t Been Responsible For Failed Policies?January 19, 2012
The Obama Administration has taken recycling way too far. There is a rumor that former economic adviser Larry Summers is a potential nominee for President of the World Bank. Is there no one else besides these retreads who have represented and worked for the FINANCIAL-POLITICAL COMPLEX? Summers is a horrible choice as he has been tainted by his work and exorbitant compensation for several Wall Street firms. The idea that the World Bank president has to be an American is a throwback to the times when it was ok to fight anti-colonial wars around the globe and at the same time using the World Bank’s funds to buy friends and influence people no matter how tyrannical the regime.
Notes From Underground: Housing Is Making It As the Foundation of Obama’s Domestic Agenda … Why Hasn’t Geithner Been Replaced?October 24, 2011
The speeches by FOMC GOVERNOR TARULLO and Vice Chair Yellen were followed up with an Obama speech on a “major” REFI operation and many articles in the media. In today’s Financial Times, Larry Summers just happened to have a piece titled, “WHY THE HOUSING BURDEN STALLS AMERICA’S ECONOMIC RECOVERY.” It seems that the administration has awakened to the fact that the credit crisis has been wrapped in a housing crunch that has kept consumer demand lackluster at best. (Also known as the Geithner plan: Aid the banks first and maybe help the debt-laden consumer/homeowner somewhere down the line.)
In Monday’s Financial Times there is a column by Lawrence Summers, the GODFATHER of U.S. economic policy. Mr. Summers offers the Europeans a great deal of advice on “HOW TO SAVE THE EUROZONE IN THE COMING CRITICAL WEEKS.” The article is actually a good policy prospective if there was not the issue of politics that play a large and important role in the EU‘s inability to resolve its fiscal difficulties. Summers wants to believe that the EUROCRATS have the political mandate to negotiate Brussel’s desire for a peaceful, state-supported EDEN of entitlements.
Austan Goolsbee, the chair of the Council of Economic Advisers, announced that he is heading back to the University of Chicago to spend more time with his students. Professor Goolsbee believes that the Midway is a much safer place to be than the chaotic environs of Washington, D.C. It is better to be beloved for challenging the minds of the next generation of leaders than to lead the challenge against the economic buffoons that are generating nothing but red ink and angst. More importantly, this is the second head of the Council of Economic Advisors–and the third from Obama’s economic team (Larry Summers)–that has headed for either the lecture circuit or the safety of the classroom.
In an effort to stay abreast of news and markets while in Boston, the two most interesting items on the global financial stage are causing a push/pull in the market. The Spanish elections certainly impacted the markets. Weakness in the EURO began on Friday as Bloomberg ran a story about the sad state of municipal finances in Spain that would be revealed after the Socialists lost most previously held local governments. It seems that the Spanish authorities have been fudging their local municipal finances and this will put more pressure on Spain to enact austerity budgets even with an unemployment rate above 21%.
In what must be the results of being rendered deaf and dumb by the credit implosion of the last 36 months, the National Bureau of Economic Research has declared that the recession has ended. It must be great to be an employed economist. In what world do these analysts live and the bigger question is why does it matter what they declare?
The labor day period ended and the markets returned to risk-off profile as the media was awash with stories about the European stress tests being flawed. It seems that some analysts have awoken to the fact that the European tests were curved so as not to be overly bogged down by sovereign debt issues. There is nothing new to this as we talked about the flaws in the tests when they were administered, but the market ran with the “story” anyway and so we had a day of risk off. In addition to the Euro stress tests there was some softer German manufacturing data, which aided the equity selloff and, of course, put downward pressure on the EURO and other non-dollar currencies. The YEN, SWISS FRANC and GOLD were the biggest beneficiaries along with the long end of the global DEBT markets.
The Japanese are certainly not happy with the YEN strength but at this time it seems like there is not a great deal that the BOJ or MOF plan to do. In a Wall Street Journal opinion piece by Naomi Fink, who we consider to be a first-rate analyst, argues that the appreciating YEN may well be a blessing for the Japanese. We don’t agree with her analysis at the present time, but we think she raises many interesting points and is certainly worth reading and considering.
In Australia, we heard that Julia Gillard has cobbled together a Labor-led coalition in Australia. If the outcome means that the resource extraction gets watered down, we would view this as a positive for the AUSSIE. The Labor program has yet to be finalized so we are still cautious in our Aussie bullishness. The RBA stood pat on rates and offered a somewhat hawkish statement, but global growth uncertainty tempered any Aussie growth prospects.
Tomorrow morning we will hear from the Bank of Canada. The market is mixed about the probability of a rate rise–overnight rates are currently 75 basis points and it’s 50/50 that they will raised to 100 basis points. As with Australia, we will read the statement carefully. The latest data in Canada has been mixed but the BOC has been desirous of getting ahead of the curve but we want to see if the lack of U.S. growth causes the Canadians to hold rates since they remain cautious because of slowness in the other developed countries.
A reader of ours raised a question about the reason Larry Summers is in China during recent economic policy headlines from the OBAMA administration. The point raised was that Summers may be there to inform the Chinese that there are plans to refinance MBS mortgages and because China holds a great deal of that paper they want to let them know what the plans are and the potential impact the REFINANCE will have on the Chinese. Maybe a mark down of MBS is a far less painful path than to have tariffs and surcharges imposed on Chines imports. Senator Schumer is banging the drums louder for Chinese revaluation, which will benefit no one but send fears of an impending trade war. We stress again that the biggest bang the Obama administration can get would be a massive refinance plan, which would result in much lower monthly mortgage payments and aid millions of people who are currently underwater on their homes but would stay current with a much lower monthly payment.
Renowned investor Wilbur Ross added more support to this argument. Ross, who has invested heavily in the finance business in the last two years believes that the government should aid homeowners to avoid “negative equity rat holes.” In an interview, Ross said “holders of MBS securities should get tax benefits for giving borrowers better terms.” Yes, we know that ROSS and his companies will come out to the good but we only care if the policy makers latch on to this concept. Mortgage relief is what is needed to halt the rise in foreclosures, which is putting even more pressure on bank balance sheets and thus tying up the securitization market. Credit will not flow until banks have some sense of certainty that the downward pressure on residential real estate is abating. The effort to stem the balance sheet recession has to begin somewhere. Why not mortgage relief? Drips and drabs of tax relief will not prevent further write downs or get credit flowing, for as the market asked today: Is that all there is?
There has been very little news this weekend in regards to the financial markets. Reuters reported that the IMF will delay aid to Hungary as the new government is perceived as dragging its feet in installing the fiscal reforms that are needed to meet IMF demands. We don’t think this is a major event yet, as the Hungarians are trying to buy some time for domestic political reasons and the situation is not dire at this time. Also, the IMF has requested another $250 billion in additional commitments in order to boost its lending resources to $1 trillion. IMF officials want to build a larger safety net so it’s prepared to help head off future global crises.