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Archive for January 14th, 2009

Re: Commodities liquidation

Posted by WARREN MOSLER on 14th January 2009


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Thanks!

>   
>   On Tue, Jan 13, 2009 at 3:51 PM, Joshua wrote:
>   

Commodities Liquidation

No Exit From Commodities as Hedge Funds Return: Chart of Day

by Chanyaporn Chanjaroen

Jan 13 (Bloomberg) — Hedge funds are proving there was no complete exit from bets on higher commodities prices during the worst slump in a half-century and are now starting to return.

The CHART OF THE DAY shows hedge funds and other large speculators increasing their net long positions, or bets prices will rise, in an index of 20 commodities monitored by the U.S.

Commodity Futures Trading Commission. The gauge fell 97 percent from its peak in February to its low last month.

“The massive de-leveraging and exit from indexes appeared to have stopped,” John Reade, a strategist at UBS AG in London, said by phone yesterday. “It could well be about value — prices are very, very low from what they were before.”

The Reuters/Jefferies CRB Index retreated 36 percent last year, the worst performance since it started in 1956, and has fallen a further 3.9 percent this year. Fifteen of the 19 raw materials tracked by the gauge declined last year, led by a 59 percent plunge in gasoline.

Net purchases of agricultural futures for index products have been positive for three weeks, Reade said. Disinvestment peaked at $2.3 billion in the week ended Oct. 7, he said.

“It is a broad indication of what is going in commodity index investment in general,” Reade said.


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Posted in Comodities, Email | 1 Comment »

Goodhart says ‘sack’ DMO to bolster UK economy

Posted by WARREN MOSLER on 14th January 2009


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Professor Goodhart is one of the rare central bankers who fully understands monetary operations and therefore recognizes as obvious that the treasury not selling securities is functionally equivalent to the treasury selling them and then having the Fed/CB buy them, apart from the transactions costs.

This also shows that those that understand monetary operations often have remaining differences on ‘theory’ aspects.

For example, Professor Goodhart sees interest rates as a much stronger force as regards the macro economy, output and employment than I do.

I have proposed that sales of treasury secs should be permanently suspended. They keep long term interest rates higher than otherwise and the long term rate ‘market’ is part of the ‘investment’ market.

However, I don’t see how not issuing treasury securities has any further effect, as Professor suggests, than that of the lower interest rate, as demonstrated by Japan and now the US with their zero interest policies and excess reserves.

In fact, while I support a permanent zero interest rate no treasury securities policy, I further recognize that an additional benefit is that it reduces aggregate demand and thereby allows for a higher federal deficit. Professor Goodhart would likely take the position that lower rates add to aggregate demand and therefore at least partially substitute for fiscal adjustments.

Goodhart Says ‘Sack’ DMO to Bolster U.K. Economy

by Svenja O’Donnell

Jan 13 (Bloomberg) — Prime Minister Gordon Brown should “sack” the UK Debt Management Office and refrain from issuing government bonds as a way of bolstering the economy, former Bank of England policy maker Charles Goodhart said.

“The one single thing that I would like to see, in a sense to get us out of the present problem, would be very simple,” Goodhart told lawmakers on Parliament’s Treasury Committee today. “It would be: sack the Debt Management Office and just not issue gilts for quite a long time so that the huge deficit simply comes into the system in the form of increases in liquidity and increases in the money supply.”

Policy makers are seeking new tools to fight the recession as interest rates approach zero. Brown’s government plans an unprecedented 146.4 bln pounds ($214.15 bln) of debt sales in the fiscal year ending March 31 to finance bank bailouts amid a decline in tax revenue.

“To keep the system sufficiently liquid and monetary growth sufficiently high, the government ought to be under- funding the deficit,” Goodhart said. “When banks are having difficulty in lending to the private sector, there needs to be a much greater expansion of lending to the public sector.”

Underfunding the gap would see the government selling fewer bonds than are necessary to pay for its budget deficit. That leaves more money in the hands of investors who may have spent them on gilts, keeping more money in the economy than would otherwise be the case. Brown forecasts a deficit of 118 bln pounds in the year through March 2010, or 8 % of gross domestic product, the most since modern records began in 1970.

“Under-funding the deficit would be far less damaging to the economy that to force some minimum of lending,” Goodhart said yesterday.


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Posted in Articles, UK | 6 Comments »

Payroll tax holiday under discussion

Posted by WARREN MOSLER on 14th January 2009


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Obama, Democrats Reshape Tax Relief Measures in Stimulus Package

by Katherine Skiba

Jan 13 (US News) — Senate Minority Leader Mitch McConnell of Kentucky said an idea that emerged during the GOP senators’ lunch today was a two-year suspension of the payroll tax. “It would put a lot of money back in the hands of businesses and in the hands of individuals,” McConnell said. “Republicans, generally speaking, from Maine to Mississippi, like tax relief.”


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Posted in Articles | 8 Comments »

Re: Roubini

Posted by WARREN MOSLER on 14th January 2009


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(email exchange)

>   
>   On Tue, Jan 13 at 5:48, Morris wrote:
>   
>   He believes most market participants correctly expect the first half of ’09 to be
>   weak but he thinks most expect a second half recovery which says won’t
>   happen.
>   

Depends on the fiscal package. He could be right.

>   
>   To him the FED is pushing on a string.
>   

He doesn’t realize it’s always pushing on strings.

>   
>   When he first suggested that financial losses would be $1 trillion and then
>   inched up to $2 trillion no one agreed with his analysis; at this point it looks
>   like the actual number for ’08 will be north of $3 trillion.
>   

Only because of a total failure of government. I thought they’d do a Q3 fiscal package.

>   
>   He maintains the banking system is insolvent
>   

Always is on the way down. As soon as things turn up it isn’t anymore.

>   
>   And the credit crunch remains severe. The government will have to contribute >   another $1 trillion to the banking system to enable lending.
>   

No, delinquencies will have to fall and systemic creditworthiness to enable lending.

>   
>   His estimate is that the recession will end in Dec ’09 but in 2010 growth will be
>   a disappointing 1-1 1/2% so the recovery will be very tepid and not help
>   valuations. At present he sees 60% of global GDP contracting and he looks for
>   earnings disappointments out of capital goods and technology companies due
>   to muted spending.
>   

Agreed.

>   
>   China GDP will grow at best 5% in ’09 which is the equivalent of a hard landing
>   and may be worse. Russia will decline 2-3% in ’09. Commodity prices might
>   decline an additional 15-20% and we face deflation pressures.
>   

Not with a real, trillion plus fiscal package.

>   
>   The governments response is aggressive but the markets are overestimating
>   their effectiveness.
>   

Don’t agree. They will be very effective if they are large enough.

>   
>   This is a solvency not just a liquidity crisis.
>   

Usually is only a solvency crisis.

>   
>   His three main points are: 1) We are facing an ugly synchronized global
>   contraction. 2) Forecast of all firms EPS growth is “delusional”. For ’09 the S&P
>   will at best be $60 and could be $50 with a P/E in the range of 10-12X.
>   

Very possible without the right fiscal package.

>   
>   The effect of those projections would result in the market declining 20-25% in
>   the mildest case and up to 30-40% in his “worst case scenario”. 3)There
>   remains room for financial shocks. We no longer face a total financial systemic
>   shock but it could take another 2-3 years of increased individual household
>   savings to repair balance sheets before consumption can grow.
>   

Will take far less than that with the right fiscal package. Government deficit = non government savings

>   
>   Unemployment can hit 9 1/2% by mid 2010.
>   

Maybe, it’s a lagging indicator.

>   
>   We have too many zombie institutions and the government has to permit
>   more to fail…he did not name any.
>   

There aren’t many he could name.

>   
>   Real estate liquidations cost US financial institutions 20 cents on the dollar so
>   he prefers government loan modifications as being more efficient and a
>   cheaper alternative.
>   

I prefer a payroll tax holiday, which should have happened in September, to restore the ability to make mortgage payments.

>   
>   There remains no asset class in which to hide. These are globally synchronized
>   problems. He is long term bearish the dollar which needs to decline to help
>   the export sector.
>   

It might decline but doesn’t have to for the purpose of helping exports.

From his previous writings he’s way out of paradigm but has been right for many of the wrong reasons.


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Posted in Email | 12 Comments »

German credit default graph

Posted by WARREN MOSLER on 14th January 2009


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German CDS USD 5yr


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Posted in Germany | 2 Comments »

2009-01-14 USER

Posted by WARREN MOSLER on 14th January 2009


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MBA Mortgage Applications (Jan 9)

Survey n/a
Actual 15.8%
Prior -8.2%
Revised n/a

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MBA Purchasing Applications (Jan 9)

Survey n/a
Actual 295.80
Prior 344.20
Revised n/a

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MBA Refinancing Applications (Jan 9)

Survey n/a
Actual 7414.10
Prior 5904.50
Revised n/a

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Bloomberg Global Confidence (Jan)

Survey n/a
Actual 8.72
Prior 6.07
Revised n/a

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Import Price Index MoM (Dec)

Survey -5.3%
Actual -4.2%
Prior -6.7%
Revised -7.0%

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Import Price Index YoY (Dec)

Survey -9.5%
Actual -9.3%
Prior -4.4%
Revised -5.4%

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Import Price Index ALLX1 (Dec)

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Import Price Index ALLX2 (Dec)

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Advance Retail Sales MoM (Dec)

Survey -1.2%
Actual -2.7%
Prior -1.8%
Revised -2.1%

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Advance Retail Sales YoY (Dec)

Survey n/a
Actual -9.8%
Prior -8.2%
Revised n/a

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Retail Sales Less Autos MoM (Dec)

Survey -1.4%
Actual -3.1%
Prior -1.6%
Revised -2.5%

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Business Inventories MoM (Nov)

Survey -0.5%
Actual -0.7%
Prior -0.6%
Revised n/a

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Business Inventories YoY (Nov)

Survey n/a
Actual 3.3%
Prior 4.5%
Revised n/a


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Posted in Daily | No Comments »