Daily Archives: March 9, 2009 @ 3:00 pm (Monday)

Bernanke to ‘deploy all tools’ except the right ones

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The right tools have yet to be deployed:

  1. Lending to member banks on an unsecured basis (demanding collateral is redundant).
     
  2. Providing banks with term financing at rates set by the FOMC (mortgage rates, etc. can be directly set as desired).
     
  3. Prohibiting bank sales of financial assets (buy and hold only and no interbank markets).
     

Instead we have the results of a government that doesn’t understand its own monetary arrangements and has implemented policy that for the most part has made a difficult situation all the more difficult.

Feel free to distribute for comment!

Bernanke Says Fed to ‘Deploy All Tools’ for Economic Revival

by Steve Matthews

March 7 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke said the central bank will “forcefully” use every resource to restore financial-market stability and revive U.S. economic growth.

“We will continue to forcefully deploy all the tools at our disposal as long as necessary to support the restoration of financial stability and the resumption of healthy economic growth,” Bernanke said in prepared remarks for an event today in Dillon, South Carolina. The Fed chief returned to his hometown to attend a ceremony naming a highway interchange after him.

Bernanke didn’t comment on specific Fed policies in his remarks. He said he was aware Dillon now “faces challenges” with the economy in a recession.


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Summers on stimulus

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World Coordinated Stimulus Needed: White House

Mar 9 (Reuters)

NOT!!!

We are much better of doing it all unilaterally.

This is the cost of having leadership that does not understand our monetary system.

Summer’s comments, ahead of next month’s G20 summit in London, suggest the U.S. administration wants all industrialised nations to pull together to engineer a demand-led recovery.

That will be music to the ears of British Prime Minister Gordon Brown who has trumpeted internationally-coordinated stimulus measures as the best way to tackle the downturn.

Him too.

“The right macro-economic focus for the G20 is on global demand and the world needs more global demand,” said Summers.

Yes, but we are better off if the demand is here and they export to us.

Summers, who served as Treasury secretary under the Clinton administration in the 1980s, said the view that the market was inherently self-stabilising had been dealt a “fatal blow.”

“This notion that the economy is self-stabilising is usually right but it is wrong a few times a century. And this is one of those times,” he said.

No, it is self correcting, but the ugly way as the automatic stabilizers increase the deficit via falling revenue and rising transfer payments until the deficit gets large enough to turn it all around.


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OPEC February Crude Output Down 770,000 Bbl/Day to 27.775 Million

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The Saudis are back to being swing producer as they set price and let output adjust.

World inventories are estimated to be falling by over 1.4 million barrels per day, as confirmed by the contango quickly fading to backwardation as we pass the ‘roll period’ for the passive funds.

With demand holding up better than markets anticipated and world non OPEC supply stagnant as well, I would expect demand for Saudi output to rise even as they keep prices firm.

I also expect the Fed to see this as a threat to growth rather than inflationary, and therefore continue to keep rates low.

OPEC February Crude Output down 770,000 Bdl/Day to 27.775 Mln

Mar 5 (Bloomberg) — Crude-oil production from the 12 OPEC members in February declined 770,000 barrels a day from January, the latest Bloomberg survey of producers, oil companies and industry analysts shows. Figures are in the thousands of barrels a day.

Opec Production
February 2009

Opec Country Feb Est. Jan Monthly Output Feb. 1 Change Est. vs. Target* Est. Target Est. Cap. (@)
Algeria 1,245 1,275 –30 1,203 42 1,450
Angola 1,670 1,740 -70 1,517 153 2,000
Ecuador 445 475 -30 434 11 500
Iran 3,690 3,780r -90 3,336 354 4,100
Iraq* 2,385 2,365 20 – – 2,500
Kuwait# 2,140 2,280 -140 2,222 -82 2,650
Libya 1,605 1,630r -25 1,469 136 1,800
Nigeria 1,765 1,810 -45 1,673 92 2,500
Qatar 695 725 -30 731 -36 900
Saudi Arabia# 7,860 8,025 -165 8,051 -191 10,800
U.A.E 2,210 2,290 -80 2,223 79 2,800
Venezuela 2,065 2,150 -85 1,986 79 2,500
Total OPEC-12 27,775 28,545r -770 — — 34,500
Total OPEC-11* 25,390 26,180r -790 24,845 545 32,000

*Quotas effective Jan. 1, 2009. OPEC agreed at its Dec. 17 meeting in Algeria to cut its quota target by 2.463 million barrels a day from the previous level, to 24.845 million barrels daily from Jan. 1. The quota target excludes Iraq, which has no formal quota. Indonesia left OPEC at end-2008.

Totals rounded.

r = revised @ = Capacity attainable within 30 days and sustainable for 90 days. # Includes Neutral Zone production shared equally between Saudi Arabia & Kuwait.


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China News Highlights

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Looks like they are showing signs of having bottomed as well, and continue to push demand with fiscal adjustments to sustain employment?

The post Olympic lull also contributed to the Great Mike Master’s Inventory liquidation which seems to have run its course by late December.

Highlights

China Textile Industry Lobbies for Higher Export Rebates, Loans
Standard Chartered says China’s stimulus spending could top 5 tr
Yi Says Chinas Rapid Loan Growth Is Positive ‘Overall’
China First-Quarter GDP to Rise 6.5%, CPI to Drop, Journal Says
China Has Little Room to Cut Rates, Central Bank’s Yi Says
China Unlikely to Maintain Rapid Loans-Growth Pace, Wu Says
China predicted to become world’s No 2 economy by 2010
China has room to further cut interest rates


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Comments on Krugman

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Yes, but unspoken is the automatic stabilizers are quietly adding to the deficit with each move down, and the curves will cross and the economy start to improve when the deficit gets large enough, whether it’s the ugly way via falling revenues and rising transfer payments, or proactively via a proactive fiscal adjustment.

With income and spending turning mildly positive in January and other indicators such as the commodities also beginning to move sideways as the deficit passes through 5% before the latest fiscal adjustment kicks in, we may be seeing GDP headed towards 0 by q3 or sooner as most forecasters now predict. Unemployment, however, will continue to rise until real growth exceeds productivity growth.

Bottom line, there will be a recovery with or without a proactive fiscal adjustment. the difference is how bad it gets before it turns north.

Behind the Curve

by Paul Krugman

Mar 8 (NYT) — President Obama’s plan to stimulate the economy was a massive, giant, enormous. So the American people were told, especially by TV news, during the run-up to the stimulus vote. Watching the news, you might have thought that the only question was whether the plan was too big, too ambitious.

Yet many economists, myself included, actually argued that the plan was too small and too cautious. The latest data confirm those worries  and suggest that the Obama administration’s economic policies are already falling behind the curve.


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SOV CDS Indicative Level

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Starting this week off higher as equity markets sag.

Systemic risk in the eurozone remains elevated.

Wide spreads in the US, UK, Sweden, etc. show markets misunderstand the risks of governments with their own non-convertible currency and floating FX policy.

SOV CDS Indicative Levels

Country 5yr CDS/10yr CDS Change Curve Euro/USD
Austria 260/278 +5 -20/-5 8/16
Belgium 142/156 +5 -10/-2 4/11
Finland 85/95 +3 -3/0 4/9
France 91/98 +3 -4/0 4/9
Germany 88/94 +3 -4/0 5/9
Greece 260/272 unch -25/-8 8/15
Ireland 348/368 unch -30/-10 8/18
Italy 195/205 unch -12/-2 7/10
Netherland 127/134 unch -8/0 5/12
Norway 55/65 +5 -2/2 n/a
Portugal 133/143 unch -12/0 7/12
Spain 150/155 unch -8/-1 7/12
Sweden 140/155 unch -8/-1 n/a
UK 152/162 unch -8/-2 6/12
US 88/98 unch -4/0 3/6


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Crude oil inventories falling

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Higher crude prices means dollars are easier to get overseas and will tend to weaken the dollar.

And the talk is higher oil prices will give the Fed more reason to keep rates low as the higher prices tend to slow growth.

And don’t immediately impact core price measures.

Oil at $50 as OPEC Plans Cut, Keeps to Quota

by Grant Smith

Mar 9 (Bloomberg) — OPEC’s record production cuts are draining the glut in world oil markets, leading traders to bet that $50 crude is two months away.

Ever since oil began its 69 percent plunge from a record $147.27 a barrel in July, traders have been looking for a bottom. Now that the Organization of Petroleum Exporting Countries reduced supplies 13 percent since September, inventories are falling 1.4 million barrels a day, according to PVM Oil Associates Ltd., the world’s biggest broker of energy trades between banks. OPEC will limit exports again when the group meets March 15, according to a survey by Bloomberg News


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2009-03-09 CREDIT

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Some new wides and the stock market hits new lows.

IG On-the-run Spreads (Mar 09)

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IG6 Spreads (Mar 09)

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IG7 Spreads (Mar 09)

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IG8 Spreads (Mar 09)

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IG9 Spreads (Mar 09)


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