Monthly Archives: December 2007

2007-12-20 US Economic Releases

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small 2007-12-20 GPD Annualized

GDP Annualized (3QF)

Survey 4.9%
Actual 4.9%
Prior 4.9%
Revised n/a

small 2007-12-20 Personal Consumption

Personal Consumption (3QF)

Survey 42.8.9%
Actual 2.8%
Prior 2.7%
Revised n/a

2007-12-20 GDP Price Index

GDP Price Index (3QF)

Survey 0.9%
Actual 1.0%
Prior 0.9%
Revised n/a

Above numbers as expected.

small 2007-12-20 Core PCE QoQ

Core PCE QoQ (3QF)

Survey 1.8%
Actual 2.0%
Prior 1.8%
Revised n/a

This is now at the upper bound of the fed’s comfort zone.

2007-12-20 Initial Jobless Claims

Initial Jobless Claims (Dec 15)

Survey 335K
Actual 346K
Prior 333K
Revised 334K

Creeping up.

Fed gets concerned if it gets over 375K.

2007-12-20 Continuing Claims

Continuing Claims (Dec 8)

Survey 2610K
Actual 264K
Prior 2639K
Revised 2634K

Creeping up as well, but not yet a major concern.

2007-12-20 Leading Indicators

Leading Indicators (Nov)

Survey -0.3%
Actual -0.5%
Prior -0.5%
Revised n/a

Pretty much in line with expectations.

2007-12-20 Philadelphia Fed.

Philadelphia Fed. (Dec)

Survey 6.0%
Actual -5.7%
Prior 8.2%
Revised n/a

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it’s about price, not quantity

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It’s about price, not quantity.

CB’s don’t alter net reserve positions – they ‘offset operating factors’ and set interest rates.

Fed to redeem $14.02 bln of bill holdings Dec. 27

Thu Dec 20, 2007 11:20am EST

NEW YORK, Dec 20 (Reuters) – The U.S. Federal Reserve said on Thursday it will redeem the full amount of maturing Treasury bill holdings, amounting to $14.02 billion on Dec. 27.

The redemption, a move to drain liquidity from the banking system, will take place via the Federal Reserve’s System Open Market Account or SOMA.

“The Federal Reserve Open Market Trading Desk will continue to evaluate the need for the use of other tools, including further
Treasury bill redemptions, reverse repurchase agreements and Treasury bill sales,” the Fed said in a statement on the New York Fed’s Web site. (Reporting by John Parry; Editing by James Dalgleish)

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Commercial paper outstanding continues to fall

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Seems to be unwinding in an orderly fashion as lending continues to flow back to the banking sector.

UPDATE 1-US commercial paper in biggest weekly drop since Aug

Thu Dec 20, 2007 10:41am EST

NEW YORK, Dec 20 (Reuters) – The size of the U.S. commercial paper market suffered its biggest weekly shrinkage since late August, after credit market turmoil first erupted, the Federal Reserve reported on Thursday.

The overall U.S. commercial paper sector shrank $54.7 billion to a total $1.784 trillion outstanding in the week ended Dec. 19; a
development that was likely to increase concerns that strains in short term lending markets are intensifying at year end.

“The data are likely to add to anxieties about credit conditions,” wrote Tony Crescenzi, chief bond market strategist, Miller, Tabak & Co. in New York in an email note.

The U.S. asset-backed commercial paper market, which has been hard hit by its exposure to subprime mortgage securities gone bad in the U.S. housing slide, shrank for a 19th straight week.

The asset-backed commercial paper segment, which had once helped to fuel the housing boom, fell $27.5 billion to $763.5 billion following last week’s $10.3 billion fall. The size of the ABCP market is the smallest since August 2005.

Unsecured commercial paper issuance by financial firms contracted by $28.6 billion the week ended of Dec. 19, a reversal from the $9.0 billion rise in the previous week.

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SOV CDS

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From: ABNAMRO CREDIT SALES (ABN AMRO)
At: 12/20 5:18:53

10YR 5YR
BELGUIM 19/21 11/15
FRANCE 10/12 6/9
GERMANY 8/10 4/7
GREECE 29/31 22/24
ITALY 29/31 21/23
PORTUGAL 26/28 20/22
SPAIN 25 1/2/27 1/2 19/21
UK 9/11 5/8
USA 8/11 5/8

In the Eurozone, it’s probably the case that if one goes, they all go, and the shorter the better as if they don’t go bad, market will continue to think they never will and you’ll be able to reload reasonably. That’s why I bought two-year Germany a while back at maybe two cents. Don’t know where that is now.

And by buying the least expensive, you can buy more of it for the same price.

US and UK look way overpriced, as Japan was. No inherent default risk for the US, though congress could elect to default for political purpose, which happened in 1996 (?), when Ruben tricked them into not defaulting.

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AMT tax reduction passes

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Looks like it adds about $50 billion to 2008 after tax incomes.

Demand can use all the help it can get right now!

Congress Gives AMT Relief For 20 Million Taxpayers

Congress acted in its final hours Wednesday to block growth of the alternative minimum tax, putting off an economic hardship affecting more than 20 million taxpayers and avoiding what would have been a political black mark for both parties.
AP
——————————————————————————–
The House voted 352-64 for a one-year fix of the AMT, a four-decade tax originally meant only to touch super-rich tax dodgers but now hitting millions of middle- and upper-middle income level households. Without that fix, an annual ritual of Congress, those subject to the tax would have risen from 4 million in 2006 to about 25 million in 2007, with the average levy of $2,000 a taxpayer.

“What we are hearing across the country today is a collective sigh of relief,” said Rep. Eric Cantor, R-Va.

The legislation now goes to President Bush, who says he will sign it because, bowing to White House and GOP demands, it does not include tax increases or other new sources of revenue to pay for the $50 billion cost of the tax relief.

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S&P cuts Alt A mortgages

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From Bloomberg:

S&P Cuts Alt-A Mortgage Bonds; Analysts Warn on Prime

Should already be priced in – been talked about for a long time.

Standard & Poor’s reduced its ratings on about $7 billion of Alt-A mortgage securities, citing a sustained surge in delinquencies during the past five months on loans considered a step above subprime.
…
Since July, late payments on Alt-A loans in bonds issued in 2005 have increased 37.3 percent to 8.62 percent, while delinquencies for such mortgages in 2006 securities rose 62.1 percent to 11.64 percent, S&P said.

Not catastrophic yet.

And this is all aging, static pool analysis now that new loans aren’t being made.

The article also has some analyst comments on prime loans:

Prime “jumbo” mortgages from recent years packaged into securities also have rising delinquencies that may create losses among some bonds with investment-grade ratings, according to reports yesterday by New York-based securities analysts at Credit Suisse Group and UBS AG. …

Yes, but those delinquencies are still reasonably low.

This can all deteriorate if aggregate demand falls, the economy weakens, and income and employment falls. But delinquencies don’t cause falling aggregate demand, though they may be a symptom of it and certainly are signs of possible Main Street weakness.

“It’s not just a subprime problem,” Joshua Rosner, managing director at New York-based research firm Graham Fisher & Co., said …

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2007-12-19 US Economic Releases

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Mortgage Applications Past 5 Years

Purchase Applications going back 5 years

2007-12-19 MBA Mortgage Applications

MBA Mortgage Applications (Dec 14)

Survey n/a
Actual -19.5
Prior 2.5
Revised n/a

Looks like it’s still turning up, and continues to be up year over year.

Note the sharp fall off every December into year end and quick bounce back early Jan.

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Inflation Picture has Deteriorated

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He’s on the opposite spectrum from Yellen, but inflation has deteriorated to the point where risks are elevated.

Once the fed has figured out it can control the FF/LIBOR with TAF type or repo and ‘market functioning’ somewhat restored, I expect that the imperative to cut rates will be greatly diminished.

Fed’s Lacker: Inflation Picture has Deteriorated

From Richmond Fed President Jeffrey Lacker: Economic Outlook

Since August … the inflation picture has deteriorated. In September and October, the overall PCE price index rose at a 3.3 percent annual rate, and the core index rose at a 2.6 percent rate. Judging by the closely related consumer price index, the numbers for November will be even worse. Now these numbers do display transitory swings, so I wouldn’t extrapolate them forward indefinitely. Still, I have to say that I am uncomfortable with the inflation picture, and disappointed that the improvement we saw earlier this year was not more lasting.

I am also troubled by the lengthy divergence we’ve seen between overall and core inflation. Some of you may recall that core inflation was devised in the 1970s to filter out some of the more volatile consumer prices to get a better read on inflation trends. For several decades, core inflation seemed to work well due to the fact that food and energy prices had no clear trend relative to the overall price level. In the last few years, though, overall inflation has been persistently above core inflation, and few observers expect oil prices to go back below $20 per barrel. Because the job of a central banker is to protect the purchasing power of currency, it is overall inflation that we need to keep down, not just core inflation. Going forward, markets expect oil prices to back off slightly from their current level, and I hope they are right. If energy prices fail to decline, monetary policy decisions will be that much more difficult in 2008.Lacker isn’t currently a voting member of the FOMC, and last year he voted against holding the Fed Funds rate steady several times: Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.So we need to keep Lacker’s comments in perspective; he is more hawkish on inflation than most of the FOMC members.

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Fed finally gets it?

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The Fed was finally successful in cutting the fed funds/libor spread with a glorified 28 day repo, after failing to narrow the spread with 100 bp of rate cuts.

Narrowing the ff/libor spread ‘automatically’ lowers various libor based funding rates, probably including jumbo mtg rates, which have been a concern of the Fed as well.

Makes me wonder if they would have cut the ff rate if they had used this ‘facility’ and narrowed the ff/libor spread right away back in August?

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