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Archive for February 28th, 2008

Re: GDP/claims

Posted by Sada Mosler on 28th February 2008

(an interoffice email)

On Thu, Feb 28, 2008 at 9:38 AM, Karim wrote:


  • Housing and business capex weaker than originally estimated; exports stronger
  • All above offset to leave gwth at 0.6% annualized in Q4

Yes, nominal growth falls to 3.3% from 6.0% in Q3 as well.


  • More important news is claims, which corroborate recent weak survey data (Conf Board, ISM)
    • Initial now at 373k (prior revised from 349k to 354k)
    • Continuing up 21k on week to a new cycle high of 2807k
    • Higher continuing claims reflect lack of hiring, higher initial claims reflect new layoffs

Yes, up in a new range. Q1 looking near zero as widely anticipated. Exports may be strong enough to keep the economy out of recession, but not much more without a March recovery.

Crude back over $100, $ down some, commodities up some, etc.

Weakness and inflation continue.

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Bloomberg: Calpers to Increase Commodity Assets to as Much as $7.2 Billion

Posted by Sada Mosler on 28th February 2008

And 3% of assets is on the low side. I think most were targeting 4% allocations, and now I’m hearing some are moving north of 10%, which should keep the commodities going for quite a while.

Calpers to Increase Commodity Assets to as Much as $7.2 Bil

by Saijel Kishan

(Bloomberg) The California Public Employees’ Retirement System, the largest U.S. pension fund, will increase investment in commodities to as much as $7.2 billion in the next two years as raw materials prices surge to records.

Calpers, which has $240 billion in assets, agreed at a Feb. 19 board meeting to invest between 0.5 percent and 3 percent of its assets in commodities through 2010, said Clark McKinley, a spokesman for the Sacremento, California-based fund.

“We plan on ramping up the program by hiring additional staff,” he said by phone yesterday. “We are excited about commodities, which have performed exceptionally well for us.”

The fund in March invested $450 million in commodities, its first such investment, by tracking the Standard & Poor’s GSCI index of 24 commodities. The index has returned 10 percent so far this year, adding to a 33 percent gain in 2007, as oil rose above $100 a barrel and wheat breached $13 a bushel for the first time. Gold and platinum also climbed to all-time highs.

Calpers, which covers the benefits of more than 1.5 million California state and local government employees, will set the proportion of assets invested in commodities “depending on market opportunities,” McKinley said.

The fund plans to allow its staff to actively manage some of its commodity investments this year, he added.

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TIPS 5yr 5yr fwd

Posted by Sada Mosler on 28th February 2008

One of the Fed’s favorite inflation expectation indicators continues to look to be breaking out.

All pre/post ‘July 2006 pause’ progress has been reversed.

2008-02-28 TIPS 5yr 5yr fwd

TIPS 5yr 5yr fwd

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Re: Bernanke/data

Posted by Sada Mosler on 28th February 2008

(an interoffice email)

Yes, and he reaffirmed that he’s using the futures prices to predict where prices are going.  He pointed to crude being at $95 in the back months and stated that translates to a forecast for prices to come down from current levels.

Also indicated the lower dollar is useful for bringing down the trade deficit.  This ‘works’ for as long as US labor costs are ‘well anchored’.  Congress didn’t grasp this part, as it no doubt would have evoked quite an outcry if they had understood it.

Bernanke plainly stated he considered export growth a desired outcome versus domestic consumption.

Initial claims telling today.  Other numbers point to surprises on the upside.  This could be partially tempered by Q4 GDP being revised up.

FF futures already discounting cuts to below 2% over the next six months.

While crude inventories are up, markets are saying it’s ‘desired’ inventory as the term structure is still backwardated and WTI is still higher than Brent.

On Wed, Feb 27, 2008 at 12:32 PM, Karim wrote:
All you need to know about BB’s testimony courtesy of the Xinhua news agency:

WASHINGTON, Feb 27, 2008 (Xinhua via COMTEX) — Federal Reserve Chairman Ben

Bernanke told Congress on Wednesday the central bank will again lower interest

rates to boost U.S. economy.


Other highlights:


Commenting on new Fed forecasts from last week:

The risks to this outlook remain to the downside.  The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further.


… financial markets continue to be under considerable stress


Important comment on the time frame over which policy should aim to attain objective inflation rates

The inflation projections submitted by FOMC participants for 2010–which ranged from 1.5 percent to 2.0 percent for overall PCE inflation–were importantly influenced by participants’ judgments about the measured rates of inflation consistent with the Federal Reserve’s dual mandate and about the time frame over which policy should aim to attain those rates.


Concluding comments highlight downside risks to growth and inflation pressures but when addressing ACTION, only mentions supporting growth and providing insurance against downside risks.

A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability in an environment of downside risks to growth, stressed financial conditions, and inflation pressures.  In particular, the FOMC will need to judge whether the policy actions taken thus far are having their intended effects.  Monetary policy works with a lag.  Therefore, our policy stance must be determined in light of the medium-term forecast for real activity and inflation as well as the risks to that forecast.  Although the FOMC participants’ economic projections envision an improving economic picture, it is important to recognize that downside risks to growth remain.  The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks.


Data-wise, more of the same:

  • Durable goods orders down 5.3% after 4.4% rise last month. Core component down 1.4% after 5.2% rise. Capex too small a part of economy and potential rates of change too little to have much bearing on end growth at this stage.
  • New home sales down another 2.8% in January and mths supply makes a new high, rising from 9.5 to 9.9; Y/Y median price drops to -15.1% from -7.8%

Posted in Email, Fed, Inflation, Interest Rates, Oil | No Comments »

New home sales

Posted by Sada Mosler on 28th February 2008

Weak winter sales, but the absolute number of homes in inventory did go down again and is well off the highs.

A modest pickup in the sales rate will now translate into a larger drop in the number of months of inventory.

The median price is more a function of which category of houses are selling.

The first quarter is looking weak domestically. Whether GDP goes negative or not will be a function of export strength.

New Home Sales Take Biggest Fall in Nearly 13 Years

(Reuters) New U.S. single-family home sales fell 2.8 percent in January to the lowest rate in nearly 13 years while the median sales price slipped and the housing overstock shrank, according to a government report on Wednesday that delivered more grim news for the ailing housing sector.

New home sales fell to an annual rate of 588,000 from an upwardly revised rate of 605,000 in December, the Commerce Department said.

Economists polled by Reuters were expecting January sales to fall to an annual rate of 600,000 from the December previously reported rate of 604,000.

In January, the median sales price for a new home fell 15.1 percent $216,000 from $254,400 a year ago.

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