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Archive for April, 2008

2008-04-30 US Economic Releases

Posted by Sada Mosler on 30th April 2008

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2008-04-30 MBAVPRCH Index

MBAVPRCH Index (Apr 25)

Survey n/a
Actual 340.1
Prior 357.3
Revised n/a

Definately looking weak. Winter is over, and tax rebates are in the mail.

2008-04-30 MBAVREFI Index

MBAVREFI Index (Apr)

Survey n/a
Actual 1905.2
Prior 2286.3
Revised n/a

Settling down as well.

2008-04-30 ADP Employment Change

ADP Employment Change (Apr)

Survey -60K
Actual 10K
Prior 8K
Revised 3K

Employment growth continues to slow over time but not yet signaling recession.

Non-farm payrolls muddling through as well.

2008-04-30 GDP QoQ Annualized

GDP QoQ Annualized (1Q A)

Survey 0.5%
Actual 0.6%
Prior 0.6%
Revised n/a

Still in the black, and my guess is it’s likely to be revised up with the March trade numbers that are due in in a couple of weeks.

2008-04-30 Personal Consumption

Personal Consumption (1Q A)

Survey 0.7%
Actual 1.0%
Prior 2.3%
Revised n/a

Also holding up better than expected, and rebates are on the way.

2008-04-30 GDP Price Index

GDP Price Index (1Q A)

Survey 3.0%
Actual 2.6%
Prior 2.4%
Revised n/a

Better than expected, still high, and with crude continuing to move up it’s going up as well.

2008-04-30 Core PCE QoQ

Core PCE QoQ (1Q A)

Survey 2.2%
Actual 2.2%
Prior 2.5%
Revised n/a

The trend is up, and the Fed is monitoring it closely…

2008-04-30 Employment Cost Index

Employment Cost Index (1Q)

Survey 0.8%
Actual 0.7%
Prior 0.8%
Revised n/a

Looks under control, but not a brake on inflation.

2008-04-30 Chicago Purchasing Manager

Chicago Purchasing Manager (Apr)

Survey 47.5%
Actual 48.3%
Prior 48.2%
Revised n/a

A touch better than expected, but still trending lower.

2008-04-30 NAPM-Milwaukee

NAPM-Milwaukee (Apr)

Survey n/a
Actual 48.0
Prior 47.0
Revised n/a

Also not down to recession levels yet.

2008-04-30 FOMC Rate Decision

FOMC Rate Decision (Apr 30)

Survey 2.00%
Actual 2.0%
Prior 2.25%
Revised n/a



Posted in Daily | 2 Comments »

2008-04-29 US Economic Releases

Posted by Sada Mosler on 30th April 2008

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2008-04-29 S&P-CS Composite-20 YoY

S&P/CS Composite-20 YoY (Feb)

Survey -12.0%
Actual -12.7%
Prior -10.7%
Revised n/a

Was still heading down in February.

2008-04-29 S&P-CS Home Price Index

S&P/CaseShiller Home Price Index (Feb)

Survey n/a
Actual 175.9
Prior 180.7
Revised 180.8


2008-04-29 Consumer Confidence

Consumer Confidence (Apr)

Survey 61.0
Actual 62.3
Prior 64.5
Revised 65.9

Surveys show most everyone believes we are in recession, even though we aren’t
that’s how export economies feel.

2008-04-29 ABC Consumer Confidence

ABC Consumer Confidence (Apr 27)

Survey n/a
Actual -41
Prior -40
Revised n/a



Posted in Daily | 1 Comment »

Re: WSJ: Greg Ip’s Article

Posted by Sada Mosler on 30th April 2008

right, it’s a way to keep the ff rate from falling below target, but does nothing for ‘liquidity’ that’s not already being done.

seems fomc maybe still struggling with ‘monetary operations’

From: Adam
Sent: Tuesday, April 29, 2008 3:59 AM
To: a


Greg Ip’s piece in the WSJ received some attention today. The piece is titled “ Fed to Consider Paying Interest To Commercial Banks on Reserves” and states that the Fed will discuss this proposal at todays meeting. There is no suggestion that the Fed are about to immediately change the current standard policy of paying zero per-cent for reserve balances, but given that the press had a very good lead on the introduction of the TSLF and PDCF it’s prudent to pay attention. (

The reason for changing policy and paying interest on reserve balances is not at first obvious, but is in fact a simple way for the Fed to solve the problem of increasing cash liquidity in the banking system without driving down the Fed effective rate. As the Fed take illiquid asset-backed securities from banks they hand over cash in return. As banks get zero interest on reserve balances that are left with the Fed they quickly seek to place their newly raised cash out into the market, earning a coupon on their investment instead of earning nothing on a reserve balance. As the Fed pay nothing it is in every banks interest to lend any excess balances at rates greater than zero, and what typically happens is that the cash market rate falls dramatically as cash rich banks try and find bids, offering at lower and lower rates until we get close to zero. This is an unwelcome development from the Fed’s perspective as the effective Fed Funds rate that results is often significantly lower than the official Fed target rate. By injecting large amounts of cash liquidity into the system the Fed may actually undermine their own target rate.

Paying a coupon on reserve balances would allow the Fed to inject as much cash via asset-backed repo as they like without needing to worry about driving down the Fed effective cash rate. The Fed would effectively sterilize their own cash injection by placing a guaranteed fixed rate floor on reserve funds, and ensuring that something close to the Fed Funds target rate was achieved. This would mean that the Fed could continue to increase the amount of repo’s that they are willing to undertake and to upsize the auctions without concerns about the effects of huge amounts of excess cash

sloshing around in the system.

Some thoughts to go along with this:

  • Great care needs to be taken in setting guaranteed cash levels. Sometimes unexpected consequences result. Central banks like the RBA and RBNZ  have long operated a cash system which guarantees a floor on overnight rates at a margin below the target rate. This ensures that cash generally trades close to the target rate, or slightly rich to it. Generally local market participants prefer to hold an excess of long balances in the knowledge that cash shortages often occur, but they have a defined downside guarantee. In New Zealand’s case the RBNZ found that banks were hoarding cash to such an extent that the short dated market traded significantly above the OCR target because the banks had a 25bp downside guarantee. It wasn’t until the RBNZ reduced the guaranteed floor substantially that rates traded much closer to target.


Banks that get cash from the Fed via the PDCF currently seek to off-load that cash to the street, effectively spreading liquidity to all elements of the banking system, and discouraging the holding of very short term balances which will end of earning 0% if they are not on-lent. If the Fed’s guaranteed rate is not far enough below the FF target rate Banks will simply recycle any excess back to the Fed rather than taking unsecured interbank credit risk. This may leave the smaller regional Banks without direct Fed access short of cash, forcing them to pay a premium instead of getting funds at a discount. The challenge of course is that if the rate is set too far below the Fed Fund’s Target rate the Fed will have the same problem of the effective daily rate printing substantially beneath target. An appropriate margin that the Fed should pay on reserves is likely to be around 50bp below the target rate. This will prevent the Fed effective rate from collapsing, but the 50bp penalty will also incentivise banks to find alternative borrowers wherever possible

Posted in Articles, Email, Fed, Interest Rates | No Comments »

Chicago fed report for march

Posted by Sada Mosler on 30th April 2008

CORRECTION – CHICAGO – RPT-Chicago Fed Midwest factory activity lower in March

by Ros Krasny
Editing by Dan Grebler

(Reuters) The Chicago Federal Reserve Bank said on Monday its Midwest manufacturing index was lower in March, hurt by a slump in auto output.

The index fell 0.7 percent to a seasonally adjusted 107.6 from an upwardly revised 108.4 in February. The February reading was originally reported at 101.0.

Pretty good upward revision.

Compared with a year earlier, Midwest output was up 0.6 percent, trailing the 1.4 percent national increase.

Midwest auto sector production slumped by 5.3 percent in March after falling 1.5 percent in February. Compared with a year earlier, the region’s automotive output was down 7.6 percent.

Other sectors did not duplicate the marked weakness in autos.

Regional steel output fell by a small 0.2 percent after rising by 0.4 percent in February.

Machinery sector output rose by 0.6 percent in March after falling 0.3 percent in February, while resource sector output was up 1.5 percent on the month.

All five segments of the resource sector — food, paper, minerals, chemical and wood production — rose in March.

Compared with a year earlier, the region’s resource output was up 3.0 percent, above the 1.3 percent national increase.

The Chicago Fed Midwest Manufacturing Index is a monthly estimate of manufacturing output in the region by major industries. The survey covers the five states that make up the seventh Federal Reserve district: Illinois, Indiana, Iowa, Michigan and Wisconsin.

Following is a breakdown of the index components and percentage changes compared with previous months:

Mar Feb Mar 08/07
CFMMI -0.7 -0.8 0.6
Auto -5.3 -1.5 -7.6
Steel -0.2 0.4 1.8
Machinery +0.6 -0.3 2.9
Resources +1.5 -0.8 3.0

Index (2002=100)

Mar Feb
CFMMI 107.6 108.4
Auto 79.6 84.1
Steel 110.8 111.0
Machinery 131.4 130.6
Resources 115.8 114.1

Posted in Articles, Fed | No Comments »

More signs of a turn

Posted by Sada Mosler on 28th April 2008

2008-04-28 IG On-the-run Spreads

IG On-the-run Spreads

2008-04-28 IG6 Spreads

IG6 Spreads

2008-04-28 IG7 Spreads

IG7 Spreads

2008-04-28 IG8 Spreads

IG8 Spreads

2008-04-28 IG9 Spreads

IG9 Spreads

Posted in Credit | 5 Comments »

2008-04-21 Weekly Credit Graph Packet

Posted by Sada Mosler on 28th April 2008

2008-04-21 IG On-the-run Spreads

IG On-the-run Spreads

2008-04-21 IG6 Spreads

IG6 Spreads

2008-04-21 IG7 Spreads

IG7 Spreads

Is the worst over?

Posted in Credit | No Comments »

Current Proposals

Posted by Sada Mosler on 26th April 2008

Proposals that Happen to Be
within the Mainstream Paradigm

For the Fed:

  1. In general, don’t use the liability (deposit) side of banking as a source of market discipline.
  2. Specifically, eliminate most of the interbank markets by lending directly to US FDIC insured banks vs any/all ‘bank legal’ collateral in any size at the Fed’s target interest rate.
    1. This would reduce domestic FF/LIBOR type spreads to minimal levels, remove bank funding risks, and eliminate the need for the Fed’s TAF and the lending facility.
    2. Banks are already permitted to own only what is permissible by the OCC and other banking law, and fund it with FDIC (government) insured deposits. Therefore, unsecured Fed lending to FDIC insured banks does not add any ‘taxpayer risk’ that the government already accepts and directly manages.

For the Tsy:

  1. Encourage foreign CB’s to re-engage in ‘currency manipulation’ via buying USD to help their exporters.
  2. Encourage monetary authorities to accumulate their reserves in USD financial assets.
  3. Open a securities lending facility that offers all Treasury securities through repurchase agreements to the primary dealers in unlimited quantities at Fed Funds less 0.25%.

For Congress:

  1. Outlaw biofuels – way too dangerous to human life and may already be in the process of killing more humans than WWII.
  2. Manage the output gap with tax cuts or net spending increases.
  3. Stop worrying about US solvency (including solvency of social security).
  4. Use fiscal policy as a tool to meet real economic goals.
  5. Reduce energy consumption by lowering the national speed limit to 30 mph for private motor vehicle transportation over three years:
    1. Reduces driving.
    2. Decreases energy consumption per mile.
    3. Redirects where people live due to the implied price of travel time.
  6. Eliminate tax advantages for savings plans including pensions and individual retirement accounts:
    1. Savings does not function to fund investment.
    2. There are other viable options to having individual savers and money managers directing real investment.
    3. Outlaw passive commodity strategies for existing pension and retirement funds.
  7. Eliminate income taxes and use a national real estate tax to anchor the currency
    1. I estimate compliance costs at up to 15% of GDP.
    2. Compliance issues reward, encourage, and promote a culture of cheating that extends to all law.
    3. The infrastructure is already in place at the local level for a national real estate tax:
      1. Compliance and legal costs are minimal.
      2. The tax rates can be progressive based on values, efficiency, and other standards that advance public purpose.
    4. Use luxury taxes to moderate consumption that is outside of public purpose:
      1. These taxes function to reduce consumption.
      2. The success of these taxes is judged by how little they collect and thereby serve to reduce the targeted consumption.
  8. Eliminate sales taxes and other remaining transactions taxes as these function as internal tariffs:
    1. Transactions taxes work against internal comparative advantage.
    2. Transactions taxes work against specialization of labor.
  9. Legalize all recreational drugs:
    1. Takes the money out of illegal trafficking.
    2. Eliminates drug-related violence.
    3. Moves the social issue from the police to the churches.
  10. Do not allow healthcare costs to continue as a marginal cost of production (business should not fund healthcare, government should):
    1. Distorts pricing and optimal resource utilization.
    2. Workers do not tend to be less healthy than unemployed people.

Proposals that May Be
a Bit Outside of the Mainstream Paradigm

Offer a national service job to anyone willing and able to work which lets the market determine the budget deficit:

  1. An employed bufferstock is a more effective price anchor than today’s bufferstock of unemployed.
  2. Adds to useful output.
  3. Reduces real costs of negative social issues.
  4. Acts as a countercyclical fiscal ‘stabilizer’.

Drop the Fed Funds rate to zero and leave it there permanently:

  1. Inflation is not a function of the nominal rate set by the Fed.
  2. Output and employment is not a function of interest rates.
  3. Nominal interest rates support the rentier class and thereby reduce real output at the expense of those working.

Posted in USA | 44 Comments »

2008-04-25 Valance Chart Review

Posted by Sada Mosler on 25th April 2008

Twin themes remain:

  • Weakening demand continues from Q2 2006
  • Price indexes continue higher as Saudis continue to hike prices and let quantity adjust
  • Markets are pricing in the end of Fed Funds cuts due to diminished systemic deflationary risk and escalating inflation readings.

    2008-04-25 Capacity Utilization, ISM Manufacturing

    Down, but not out.

    2008-04-25 ISM Non-Manufacturing, Empire Manufacturing Index

    Most surveys are still trending down but not in collapse.

    2008-04-25 Philly Fed Index Deliveries, Chicago PMI Deliveries, ISM Non-Manufacturing Deliveries, ISM Manufacturing Deliveries

    Actual deliveries still on the low side but exceeding expectations.

    2008-04-25 Retail Sales, Retail Sales ex. Autos, Total Vehicle Sales, Redbook Retail Sales

    Weak but could be worse. Looking more and more like an export economy.

    2008-04-25 Non-farm Payrolls, Average Hourly Earnings

    A weak first quarter for payrolls but above previous recession levels.

    2008-04-25 Total Hours Worked, Labor Participation Rate, Duration of Unemployment, Household Job Growth

    Weakness, but not all that bad yet, and jobless claims fell again last week.

    2008-04-25 Conf. Board of Business Conditions Good, Bad

    These kinds of surveys still looking very negative.

    2008-04-25 NAHB Housing Index, NAHB Present Sales Index, NAHB Future Sales Index, Conference Board Home Buying Intentions

    2008-04-25 Housing Affordability, Pending Home Sales

    Housing may have stopped subtracting from GDP as of Q2.

    2008-04-25 MBA Mortgage Applications, Quarterly OFHEO Home Prices, Monthly OFHEO Home Prices

    Applications may be turning up after a slow Q1. Some signs home prices are stabilizing as well.

    2008-04-25 Home Ownership, Rental Vacancy

    Low rental vacancies might support rent increases and the OER calculation in CPI.

    Low home ownership due to negative sentiment means pent up buying demand.

    2008-04-25 Corporate Debt, Household Debt, Consumer Credit, Mortgage Debt

    Households are recharging their debt batteries?

    2008-04-25 Fiscal Balance, Government Public Debt, Government Spending, Government Revenue

    Net Federal spending on the rise this year, with fiscal package kicking in next week.

    March government spending was down due to a timing issue – expect a strong increase in the June report.

    Revenues muddling through at better than recession levels.

    2008-04-25 CPI, Core CPI, PCE Price Index, Core PCE

    2008-04-25 PPI, Core PPI, Import Prices, Import Prices ex. Petro

    2008-04-25 Empire Prices Paid, Empire Prices Rcvd, Philly Fed Prices Paid, Philly Prices Rcvd

    2008-04-25 Gold, Silver, Copper, Iron & Steel Scrap Prices

    2008-04-25 Export Prices, U. of Mich 12 Month Inflation Expectations, CRB Index, Saudi Crude Production

    Inflation is ripping, and we will see next week if the Fed finally considers it the greater risk.

    Many in the mainstream have thought it the greater risk all along with only the threat of catastrophic systemic deflationary risk due to ‘market functioning’ possibly the greater risk.

    With the fear of catastrophic systemic risk fading and the Fed Funds rate below most inflation measures, markets have priced in a higher chance of the Fed not cutting the Fed Funds rate.

    Saudi production remains firm at current prices; so, I expect more hikes.

    2008-04-25 ABC Consumer Confidence, ABC Economic Component

    2008-04-25 U. of Michigan Confidence, U. of Michigan Conf. Current

    Confidence remains very low, as the realities of an export economy and reduced real terms of trade hurt the lower income groups disproportionately.

    2008-04-25 10Y Tips

    Tips are starting to discount higher real rates from the Fed.

    2008-04-25 Trade Weighted Dollar

    The dollar continues under pressure.

    Without the support of the CBs and Monetary authorities, it may continue lower until the US trade gap narrows substantially.

Posted in USA | No Comments »

2008-04-25 US Economic Releases

Posted by Sada Mosler on 25th April 2008

2008-04-25 U. of Michigan Confidence

U. of Michigan Confidence (Apr F)

Survey 63.2
Actual 62.6
Prior 63.2
Revised n/a

From Karim:

Even weaker than expected at 62.6 vs initial estimate of 63.2.

5-10yr inflation expectations move to higher end of recent range from 3.1% to 3.2%

Following changes from March to April:

  • Personal finances 93 to 86
  • Buying conditions for durable goods 124 to 112
  • 12mth economic outlook 46 to 40

Comments below from Survey itself:

  • The Expectations Index, a component of the Index of Leading Economic Indicators, fell by 11.3% from March, by 21.7% from

January of 2008, and by 39.2% from its January 2007 peak. While that steep falloff indicated a recession even before the latest

decline, the accelerated pace of the decline points toward a longer and potentially deeper downturn. Although the tax rebate

will boost spending temporarily, the global rise in food and fuel prices, the declines in home values, and changes in credit

conditions are likely to persist for some time and lengthen the period of stagnation in consumption. Coupled with weaker job

and income growth, these factors have the potential to cause deeper cutbacks in consumption than now anticipated.

  • Never before in the long history of the surveys have so many consumers reported hearing news of unfavorable economic

development as in the April survey. The most commonly heard news was about job losses, rising prices, and the fallout from

the housing and credit crisis. Nearly nine-in-ten consumers thought that the economy was now in recession. When asked

about prospects for the economy during the year ahead, three-in-four consumers expected bad times financially, the highest

proportion since 1980.

  • Long term inflation expectations rose slightly to 3.2% in April from 2.9% in March and 3.1% in April 2007. Unlike the inflationary era of the

1970′s, when nearly all prices posted persistently large increases, the recent increase in inflation has been dominated by fuel

and food prices. It would take significant and prolonged increases in interest rates to quell the impact of the global rise in food

and fuel prices on domestic inflation, increases that may not be either politically possible nor economically justified.

  • Uncertainty about future income and job prospects has had a devastating impact on buying plans, with consumers citing these

uncertainties three times as frequently as they did a year ago. Purchase plans for furniture, appliances, home electronics, and

similar goods fell to their lowest level since the early 1980s, with one-third of all consumers specifically mentioning their

uncertainty about jobs and incomes as their primary reason. Vehicle buying plans also fell to their lowest level since the 1990

recession, with one-third of all consumers citing uncertainty about jobs and incomes as well as the future price of gasoline.

Good report, agreed with all.

A few added comments.

This is a revision of a number has already been out for a while, so it should already be mostly discounted by the markets.

Mainstream economics (not me) would argue that while high food and energy prices are external negative supply shocks, and initially ‘relative value stories’ the Fed has to be careful not to ‘accommodate’ them with low interest rates that support demand as that can cause inflation expectations to elevate and turn a relative value story into an inflation story.

Additionally, mainstream economics assets that low inflation is a necessary condition for optimal long term growth and employment. And while the cost of bring down inflation now may be high, the cost of letting inflation expectations elevate and bringing down inflation later is much higher.

In fact, some in the mainstream argue that had the Fed not supported demand with rate cuts beginning back in August, the cost in lost output to bring inflation back down would have been far lower than the cost to bring it down now after inflation expectations have started to elevate.

It remains to be seen where the Fed stands on this. So far they have been willing to let inflation expectations begin to rise as they focused on keeping the US downturn to a minimum in the face of perceived systemic risk.

Markets are now pricing in the end of rate cuts even as weakness persists, in anticipation of the Fed having reached its tolerance for inflation.

Posted in Daily | 5 Comments »

2008-04-24 China News Highlights

Posted by Sada Mosler on 24th April 2008

Interesting statements here. China can’t afford politically to allow growth to slow sufficiently to cut employment growth, inflation not withstanding. This stance ultimately weakens the currency, one way or another:

(Bloomberg) China should stick with its tight monetary policy unless the economy’s expansion slows to below 9 percent, a National Bureau of Statistics official said. “Below 9 percent, it means the tightening is overdone and needs to be loosened,” Zheng Jingping, the bureau’s chief engineer, said at a seminar in Beijing today. The economy expanded by 10.6 percent in the first quarter. Premier Wen Jiabao is balancing the risk of a slump in the world’s fastest-growing major economy against the threat from inflation that is close to an 11-year high. A 1 percentage point slowdown in the U.S. economy will take 5 percentage points off China’s export growth, the Chinese Academy of Social Sciences said in a report today. “A reasonable combination for this year is 4.8 percent inflation and 9.7 percent GDP growth,” said Zheng. Inflation may be between 4.5 percent and 5.5 percent, he added. The government aims to cap price gains at 4.8 percent.


Shanghai Stock Index Surges 9.3%, Most in Six Years, After China Cuts Tax (Bloomberg)
China Economic Growth Must Stay Above 9 Percent, Statistics Official Says (Bloomberg)
Yuan Declines as Chinese Export Growth May Slow Further, Dollar Rebounding (Bloomberg)
China to Expand Oil Refining Capacity by 24% by 2010, Sinopec Group Says (Bloomberg)

Posted in China | No Comments »

Diversity in action

Posted by Sada Mosler on 24th April 2008

News Headline:

Credit Suisse Writes Down $5.26 Billion

Over the last few years, I’ve been saying that with diversity risk is pretty well spread out.

Seems to have been the case – risk seems to have been well diversified.

Losses seem to be spread around more evenly than in the past with no one major US company failing as of yet due to losses per se.

But that also meant that in the adjustment process total losses would build to higher levels before the ‘cycle’ reversed and might be higher than in previous cycles.

Posted in Banking | No Comments »

2008-04-24 US Economic Releases

Posted by Sada Mosler on 24th April 2008

  • Durable Goods Orders (Released 8:30AM EST)
  • Initial Jobless Claims (Released 8:30AM EST)
  • Continuing Claims (Released 8:30AM EST)
  • Help Wanted Index (Released 10AM EST)
  • New Home Sales (Released 10AM EST)

From Karim:

  • Initial claims down from 375k (revised from 372k) to 342k
  • Continuing claims down from 2999k (revised from 2984k) to 2934k
  • DGO ex-aircraft and defense unchanged and down -2% and -1% in Jan/Feb
  • Claims have been volatile lately due to seasonals, but if they were to somehow stabilize at these levels, would still be in line with 0 employment growth
  • Q1 business capex component of GDP likely to be negative (has never been a recession where business capex did not also contract)

IFO down from 104.8 to 102.4 and retail component down from -0.9 to -10.0

ECB Member Bonello returns fire to Weber:

On the basis of the data we have at hand and the ECB’s rationale for monetary policy strategy it is very difficult to make an argument for higher interest rates.

2008-04-24 Durable Goods Orders

Durable Goods Orders (Mar)

Survey 0.1%
Actual -0.3%
Prior -1.7%
Revised -0.9%

2008-04-24 Durable Goods Orders YoY

Durable Goods Orders YoY (Mar)

Survey n/a
Actual -4.2%
Prior 5.5%
Revised n/a

2008-04-24 Durables Ex Transportation

Durables Ex Transportation (Mar)

Survey 0.5%
Actual 1.5%
Prior -2.6%
Revised -2.1%

2008-04-24 Durable Goods TABLE

Durable Goods TABLE

Not all that bad. Two month total above expectations as Feb revised to a smaller drop.

Not at recession levels, yet.

And fiscal package kicking in soon.

2008-04-24 Initial Jobless Claims since 1998

Initial Jobless Claims (Apr 19)

Survey 375K
Actual 342K
Prior 372K
Revised 375K

As suspected, from the jobless recovery to the full-employment recession.

Labor numbers soft but not all that bad. No where near recession levels, particularly population adjusted.

2008-04-24 Continuing Claims since 1998

Continuing Claims (Apr 12)

Survey 2990K
Actual 2934K
Prior 2984K
Revised 2999K

A lagging indicator, now following initial claims lower.

2008-04-24 Help Wanted Index

Help Wanted Index (Mar)

Survey 20
Actual 19
Prior 21
Revised n/a

Still going south, but a lagging indicator.

2008-04-24 New Home Sales

New Home Sales (Mar)

Survey 580K
Actual 526K
Prior 590K
Revised 575K

Sales still heading south.
Might be because production and inventories are down, and also subject to revisions next month.

2008-04-24 New Home Sales MoM

New Home Sales MoM (Mar)

Survey -1.7%
Actual -8.5%
Prior -1.8%
Revised -5.3%

2008-04-24 Number of New Home For Sales

Number of New Homes for Sale (Mar)

Survey n/a
Actual 468K
Prior 473K
Revised n/a

Actual inventories are down substantially, and remaining inventory is probably not highly desirable.

Looking for regional shortages in the spring/summer buying season to drive up prices.

2008-04-24 New Home Sales Median Price

New Home Sales Median Price (Mar)

Survey n/a
Actual $227.6K
Prior $244.2K
Revised n/a


2008-04-24 New Home Sales Average Price

New Home Sales Average Price (Mar)

Survey n/a
Actual $292.2K
Prior $302.9K
Revised n/a


2008-04-24 New Home Sales TABLE

New Home Sales TABLE

Posted in Daily | No Comments »

Wed am recap

Posted by Sada Mosler on 23rd April 2008

Mainstream economics says:

Get inflation right and that ‘automatically’ optimizes long-term growth and employment.

Adding to demand with a negative supply shock turns a ‘relative value story’ into an ‘inflation story.’

The ECB is following mainstream theory, while the Fed is not.


The Fed sees looming systemic, deflationary tail risk at the door. At least up to now.

The panic of 1907 and the early 1930s deflationary collapse (both previous examples given by the Fed) were gold standard events.

With a gold standard (and/or other fixed rate regimes) there are direct supply side constraints on the reserve currency. Interest rates are market determined, and during a credit crunch rates spike higher ‘automatically.’ Even the treasury must fund itself and faces the same supply side constraints, thereby limiting fiscal responses. This continues in today’s fixed fx currencies.

With floating fx/non-convertible currency there are inherent no direct supply side constraints on bank lending, deposit creation, and credit in general. Any constraints are on the demand side, including financial capital where constraints are also on the demand side. The CB necessarily directly sets rates, not market forces, and government spending is not constrained by taxing, borrowing, etc., hence fiscal packages are subject only to political choice.

Today’s risks are much the same as previous financial crisis type risks like 1987 and 1998, where the government and its agencies have the open option of ‘writing the check’ as desired, with inflation the price to pay, not government solvency as with fixed fx regimes.

Just like the 1970s, the Saudis are acting the swing producer and setting price and letting quantity they pump adjust. This is also necessarily the case when one is single supplier at the margin with excess capacity. The alternative of pumping flat out and hitting bids in the spot market is not a functional option for any monopolist. Only price setting is.

Russia is also a monopoly supplier at the margin and probably is also acting as a swing producer. So crude prices go to where the higher of the two set them.

Mainstream theory has not yet publicly addressed this kind of negative supply shock.

One option is to match the domestic inflation rates to the price hikes to try to avoid declining real terms of trade.

This is both politically impossible, and it can quickly lead to accelerating inflation.

We have two choices, neither particularly attractive:

  1. Watch our real terms of trade continue to collapse as crude prices are continuously hiked.
  2. Try to inflate to moderate the drop in real terms of trade.

Ironically, we will chose the later as we did in the 1970s because inflation is not a function of interest rates in the direction CBs subscribe to.

Increasing nominal rates increases inflation via the cost and demand channels.

Costs of holding inventory and investment rise with rate hikes.

Governments are net payers of interest to the non-government sectors; so, rate hikes also increase government spending on interest to support incomes in the non-government sectors.

Good luck to us!

Posted in CBs, Inflation | 2 Comments »

2008-04-23 US Economic Releases

Posted by Sada Mosler on 23rd April 2008

  • MBA Mortgage Applications

2008-04-23 MBAVPRCH Index

MBAVPRCH Index (Apr 18)

Survey n/a
Actual 357.3
Prior 381.6
Revised n/a

Muddling through in its new, lower range, and banks gaining market share vs mortgage bankers.

2008-04-23 MBAVREFI Index

MBAVREFI Index (Apr 18)

Survey n/a
Actual 2286.3
Prior 2866.0
Revised n/a

Reasonable level of refis.

Posted in Daily | No Comments »

Existing home sales inventory and prices

Posted by Sada Mosler on 22nd April 2008

2008-04-22 Existing Homes Inventory

Existing Homes Sales Inventory

2008-04-22 Median Home Sales Price

Median Home Sales Prices

Looks to me like inventories are still working their way lower, and prices may be stabilizing as well.

Posted in Housing | No Comments »

2008-04-22 US Economic Releases

Posted by Sada Mosler on 22nd April 2008

  • Existing Home Sales
  • House Price Index
  • Richmond Fed Manufacturing Index
  • ABC Consumer Confidence

2008-04-22 Existing Home Sales

Existing Home Sales (Mar)

Survey 4.92M
Actual 4.93M
Prior 5.03M
Revised n/a

2008-04-22 Existing Home Sales MoM

Existing Home Sales MoM (Mar)

Survey -2.3%
Actual -2.0%
Prior 2.9%
Revised n/a

Better than expected.
Might really be a bottom forming.

2008-04-22 House Price Index MoM

House Price Index MoM (Feb)

Survey -1.5%
Actual 0.6%
Prior -1.1%
Revised -1.0%

Up? Who would have thought?

2008-04-22 Richmond Fed Manufacturing Index

Richmond Fed Manufacturing Index

Survey -1
Actual 0
Prior 6
Revised n/a

2008-04-22 Richmond Fed Manufacturing Index TABLE

Richmond Fed Manufacturing Index TABLE

Yes, another number better than expected and not looking so bad?

Fiscal package kicking in soon as well.

Prices firm through the slowdown, wonder what they might do if the economy stabilizes?

2008-04-22 ABC Consumer Confidence

ABC Consumer Confidence (Apr 20)

Survey n/a
Actual -40
Prior -39
Revised n/a

Still constant negative news on TV.

Posted in Daily | 2 Comments »

Bloomberg: ‘Silent Famine’ as Food Soars

Posted by Sada Mosler on 22nd April 2008

Seems they still think it is about money.

Probably an actual shortage at this point.

The political response will be to give people more funds to buy food that does not exist and drive prices ever higher.

`Silent Famine’ as Food Soars, WFP Warns

by Jason Gale and Paul Gordon

(Bloomberg) A “silent famine” risks emerging in some Asian countries where food prices including rice are escalating beyond the reach of the poorest people, the World Food Program warned.

“There is food on the counters and on the shelves in stores but there is a certain population that cannot afford that food,” Paul Risley, a spokesman for the United Nations agency, said today. “There’s a risk of a silent famine.”

Record prices for rice and wheat are ratcheting up the cost to aid agencies of providing relief, Risley said from Bangkok. UN Secretary-General Ban Ki-Moon said yesterday that rising food costs may hurt economic growth and threaten political security.

“In Asia, supply is not the main constraint, but the huge price increases are,” said Rajat Nag, managing director at the Asian Development Bank. “That has a very massive impact on the poor and we need to focus on the huge price increases.”

`We’re Struggling’
“We find we can’t buy as much rice as we thought we would be able to buy,” Risley said in an interview with Bloomberg Television. The agency feeds 28 million of the poorest Asians across 14 countries. “Because of the high prices right now, we’re struggling,” he said.

Posted in Articles, Energy | 1 Comment »

Re: Fannie & Freddie

Posted by Sada Mosler on 21st April 2008

(an email exchange)

>   On Mon, Apr 21, 2008 at 9:55 AM, Russell wrote:
>   Fannie and Freddie now back 82% of all mortgages in the U.S.,
>   up from only 46% in the second quarter of 2007. If they need
>   a bailout – could be a trillion dollars –

Funds are already advanced to the homeowners which supports demand.

A ‘bailout’ would only be an accounting entry between the government’s account and the agency’s account – no effect on aggregate demand.

>   the USA may lose its AAA credit rating.

Like Japan did. Just another sign of incompetance by the ratings agency if it happens.

Posted in CBs, Email, Japan | 2 Comments »

Re: Sauding spending

Posted by Sada Mosler on 21st April 2008

(an email exchange)

>   On Mon, Apr 21, 2008 at 9:23 AM, Scott wrote:
>   Backed by high oil prices, Saudi Arabia is embarking
>   on a massive spending program focused predominantly
>   on infrastructure projects. The value of announced
>   investment projects so far is $862 billion.

Thanks, looks like maybe they’ve figured it out as suspected (jack up price and spend the USD) which improves their real terms of trade while hurting ours and keeps US GDP higher to please policy makers who think it’s all a good thing.

Posted in Email, Oil | No Comments »

FT: Detail of BOE plan

Posted by Sada Mosler on 21st April 2008

Looks functionally the same as direct lending to the banks vs their mortgage-backed securities.

Don’t know why they are taking this indirect route. Maybe because the Fed is also doing a security lending facility vs direct lending, and the BOE doesn’t want to show them up by doing it right as a gesture of solidarity.

Like everyone in Spain talking with a lisp when pronouncing the ‘s’ sound because the king did way back.

Gets stranger by the day.

Treasury and Bank to publish mortgage remedy

by Chris Giles

The government and Bank of England’s plan to unblock mortgage markets will be published today, but its broad outline began to emerge shortly after Mervyn King, Bank governor, met the heads of the main British banks a month ago.

Unlike other European countries, which wanted to change accounting rules to increase the value of mortgage-backed securities on banks’ books, the British authorities have aimed to acquire these assets at a price higher than the current market values but lower than the price that reflects the fundamental risk of default.

Because they reckon a gap between the two prices exists, the intention is to ease the liquidity strains on banks without the taxpayer adopting much extra risk or buying assets that are fundamentally under water.

With Treasury approval, the Bank of England is to swap mortgage-backed securities for government paper for a year, with an understanding that these year-long swaps will be extended for a further two years.

The programme will act as a new Bank of England facility by which banks will be given short-dated and highly liquid Treasury bills with maturities of one year or less. The Bank will accept mortgage-backed securities and other asset-backed securities in exchange. So arrangements will not be counted as new government debt by public sector books.

Posted in Articles, CBs, UK | No Comments »