As the markets were heading into the close on Friday afternoon, I noticed that silver and gold were rallying and the newswire failed to provide any headline for the a substantial price rise. (There was no Syria news or any other type of geo-political event.) The weekend news also failed to support the rally at least until a few hours ago when the Washington Post ran a headline announcing that Larry Summers had withdrawn his name for consideration for Chairman of the Fed. Many pundits have been maintaining that Summers would be quick to end the entire QE program and thus would have a negative impact on all asset prices. Nonsense in the first degree, but as a trader, the first rule is to respect prices. The removal of Summers has led to the U.S. dollar selling in early Asian trading as the anticipation is now the Fed will be under a Chairman more in step with the Bernanke method of central bank theory.
Archive for the ‘Obama’ Category
This weekend brought mixed news about the lessening of RISK in Japan, and possibly Bahrain, while increasing the sense of risk in Libya and other parts of the Middle East. It appears that the threat of nuclear catastrophe has been diminished as some power has been restored to the nuclear plants under stress and the needed cooling is proceeding. The Japanese equity market will be a good source to monitor investor sentiment as weekend news publications were filled with articles about the values abound in the Nikkei and other Japan-based indexes. The YEN will be a much more difficult barometer because of the impact of YEAR END and its ability to cause disruptive volatility in currency markets.
Notes From Underground: Notes From Underground: Bill Gross calls for “full nationalization”of the mortgage finance system (REPOST)October 18, 2010
In the wake of the recent housing foreclosure issues, we bring you this piece from August about Bill Gross and his call to fully nationalize the mortgage finance system.
Notes From Underground: Wen to meet Obama Thursday; Zapatero gives the European debt crisis the bootSeptember 22, 2010
As the United Nations convenes for its fall meetings, world leaders gather in New York, which creates the opportunity for traffic jams and face-to-face bilateral meetings for heads of state. Chinese Premier Wen Jiabao will take the time to discuss serious issues with President Obama–and, of course the trade issue will take center stage. Premier Wen will make his case that the Chinese trade surplus is not a question of currency value but rather economic structure. Wen will argue that the huge trade surplus will correct as the structure of China’s economy becomes more domestic demand driven. The Chinese believe that capitalist history is replete with trade surpluses as a part of any capitalist society’s development. The U.S. and Great Britain both ran massive surpluses as their economies transitioned from agrarian-based to industrialized nations.
The markets are very quiet today as the U.S. celebrates Labor Day and Canada has a bank holiday. President Obama was in Milwaukee where he laid out plans for a transportation bill that extends out six years and provides for roads, rail and airport construction. This should have been part of the original stimulus package but its lack of immediacy in job creation raises more questions than answers.
The housing confab was the big story Tuesday as the Obama administration was trying to figure out how to put the biggest slush fund to work. Last Christmas Eve, the U.S.Treasury–under the spell of eggnog and mistletoe–nationalized Fannie Mae and Freddie Mac by removing the caps on the losses that the two GSEs would be allowed to absorb.We don’t know where “PIMCO’s” Bill Gross was but we had assumed that the removal of loss caps was nationaliztion by stealth. Now as the largest holders of MBSs next to the FED, he is openly calling for outight government control of the mortgage market because Gross doesn’t believe there is room for the private sector. Yes, he is correct if the mortgage market reverts to NINJA loans and other zero-down types of nonsense. However, if the originate-to-distribute model were to be restructured so that only deserving loans were made, private lenders would be lining up to get into that business. We caution our readers to understand that today’s conference on GSEs was meant to give some type of cover to an already conceived plan of how Fannie and Freddie can absorb more losses and for the Obama team to gain some political advantage.
In light of Romer’s recent announcement that she’ll be stepping down as the chair of Obama’s Council of Economic Advisers, we at NOTES just wanted to reiterate our thoughts about Romer and her position on taxes and its effects on GDP growth. Here is the post from July 16:
The winds of a global slowdown are blowing strong. Japanese numbers have been weak and the BOJ warned on Thursday that it expects Japanese growth to slow next year as some of the stimulus evaporates. The numbers out of Europe have been better than expected but only in the stronger economies; the peripheries remain weak. The PIIGS’s credit stress has eased somewhat as the Chinese purchase of Spanish debt helped provide some optimism. We point this out because it was the Chinese who decided against buying Greek debt in early December that began the real European debt crisis.
Today’s consumer confidence numbers in the U.S. have caused concern that the U.S. economy remains very fragile, even though we do not give much credence to that University of Michigan survey.
In an interview with Judith Woodruff that’s airing on Bloomberg television today, Sir Alan Greenspan advised that the Bush tax cuts should be allowed to expire. We have not heard the entire interview–only read excerpts–so we are only responding to his key points. Greenspan, who has been wrong for so long is most likely wrong again. We know that he will say that he has always maintained that tax cuts should always be met with spending cuts–his view of PAY-GO. The concept of PAY-GO is based on the concept that every tax cut has to be paid for with spending cuts by Congress. This worked well under President Clinton when the Congress was controlled by the Republicans, so the split-party government created responsibility on the part of both parties. With Geithner and others pushing for the Europeans to forgo austerity until the global recovery is more secure, we find it ill-conceived for Greenspan to be spouting austerity in the U.S.
Christina Romer, the chair of the Council of Economic Advisors (CEA) and the president’s economic tsar, made her academic reputation with her work on the impact of taxes on GDP growth. One result of her work was that a 1 percent increase in taxes relative to GDP results in a loss of 3 percent of growth. This raises serious questions about the coming impact of the tax increases coming in 2011 due to the expiration of the Bush tax cuts. We won’t know the full impact because most of the increases are supposed to be directed against the wealthiest tax payers and we are unsure of Romer’s work in regards to taxes on the rich. If any of our readers can add to our knowledge in this it will be greatly appreciated but we are alert to the FOMC’s most recent fears and Geithner’s cajoling of the Europeans on their austerity measures. If the tax rises that begin in 2011 are greater than 1 percent of the economy, we would expect Romer to raise her voice in opposition to the tax increase.
The inflation/deflation argument is in full force, and, as the FED warned, deflation is not an option. Many are looking at the recent slide in GOLD prices and the selloff in commodity currencies as proof of deflation. There may be some truth to that, but from our standpoint the GOLD break has more to do with the EURO rally. Many investors ran into the GOLD/EURO cross as they feared the demise of the EURO. Now that there has been some stabilization in the eurozone, the safe haven crosses are unwinding. Major support levels are being tested in many of the previous haven plays,and, as we often suggest, get your technicals in order and look for levels to acquire the trades that will perform well when the FED and administration throw caution to the wind and do everything possible to prevent deflation and economic contraction from taking hold. Sir Alan, please gracefully exit the stage.
All eyes are now focused on the release of the U.S. employment data. This has taken on a new level of importance as the inflation/deflation argument heats up. The pundits have woken up to the fact that without robust job growth the U.S. will remain mired in a deleveraging quagmire. All the economic modelers and Greenspan put followers cannot understand how you cannot have growth and an equity rally with zero interest rates … hmmm, they must have been sleeping like MOTHRA while Japan deflated.
There is a Reuters blog making the rounds that the Obama administration is planning a surprise for the 15 million homeowners who are undergoing severe stress on their mortgages. It is surmised that Fannie and Freddie are going to absorb the mortgage losses by writing new mortgages based on the depreciated value of the homes in foreclosure. This will be a major act of forebearance on the part of the two NATIONALIZED mortgage lenders.