I’ve been letting most of the Fed commentary go by but had to post these:
*DJ Fisher: Need To Assure US Is Solvent, Cutting Back On Long-term Liabilities
*DJ Fed Fisher: Market Flooded With Too Much Money
Monthly Archives: May 2011
Poll: Public opposed to raising debt ceiling
Poll: Public opposed to raising debt ceiling
By Jordan Fabian
May 13 — The public remains opposed to raising the nation’s debt ceiling as lawmakers struggle to develop a plan to hike the legal borrowing limit, a new poll released Friday shows.
Forty-seven percent say they don’t want their member of Congress to vote to raise the limit, compared to 19 percent who do. Thirty-four percent say they don’t know enough to say, according to a Gallup poll.
Debt Ceiling dynamics- no chance of US default
Republican Senator Pat Toomey is now making the point that with debt payment an executive priority,
and with tax receipts more than sufficient for interest payments,
not raising the debt ceiling will not mean default,
instead it will mean other federal spending will get cut,
which he pronounced analogous to a partial government shut down.
While this has always been factually correct, it is only very recently that this has become the lead response from the Republicans, in direct response to warnings by the Democrats of a US default.
With the Democrats being exposed as factually wrong and guilty of at least innocent fear mongering, their entire negotiating position is weakened by both the facts and their reduced credibility in general.
So I have to conclude the end result will be dramatic spending cuts,
no tax increases, a large reduction in long term aggregate demand,
and most likely reductions in short term aggregate demand as well.
The Democrats are now left with fighting for alternative spending cuts, with the military a prime target.
In fact, they may already be cutting military spending, as the executive branch is not necessarily compelled to spend the funds authorized by Congress, but can selective not fund or delay funding in the normal course of business. So, for example, they may be able to cut $150 billion a year from actual military spending and score it as something over $2 trillion in savings over 10 years, which would reduce the need for other cuts currently under consideration. And this might be the motivation for brining as many troops back home as possible, from all over the globe.
These kinds of cuts would remove maybe 1-2% of nominal gdp from 2012, support unemployment and the dollar, help keep the Fed on hold, as, in general, fear of becoming the next Greece continues to cause us to work to turn ourselves into the next Japan.
Philadelphia Fed survey, existing home sales, leading indicators all disappoint
Typical street review of today’s numbers from Goldman.
As suspected, look for continued downward revisions to initial 4% Q2 estimates.
And note the graph below showing employment as a % of the population.
The economy continues to be demand constrained at very low levels.
(That is, for the size govt we have, we are grossly over taxed.)
There could be as many as 30 million additional people gainfully employed in a good economy.
And a general prosperity far beyond what anyone might imagine.
But not to be with Congress, mistakenly fearful of the US facing a financial crisis like Greece,
moving forward with their death by 1000 cuts agenda.
USA: Philadelphia Fed Survey – Another Decline
Actual: 3.9
Previous: 18.5
Consensus: 20.0
Released: 19 May 2011 at 10:00 (New York time)
Another Decline
BOTTOM LINE: More signs of slower growth from the Philly Fed index and existing home sales.
US-MAP
Existing home sales -2 (2, -1)
Philadelphia Fed index -12 (4, -3)
KEY NUMBERS:
Existing home sales -0.8% in Apr (mom) vs. GS +2.0%, median forecast +2.0%.
Philadelphia Fed index +3.9 in May vs. GS +22.0, median forecast +20.0.
Leading indicators -0.3% in Apr (mom) vs. median forecast +0.1%.
MAIN POINTS:
1. The Philadelphia Fed’s monthly manufacturing survey weakened sharply for the second month in a row. The headline index of “general business activity” fell to 3.9, from 18.5 in April and 43.4 in March. This still suggests factory sector growth, but only barely. Most of the detailed activity indexes also weakened – the new orders index fell to 5.4 from 18.8, the shipments index to 6.5 from 29.1, and the unfilled orders index to -7.8 from 12.9 – with the exception of employment, which rose to 22.1 from 12.3 in April. (We have no information on how much of the drop in the Philly survey over the past two months could have been related to supply chain issues associated with the Japanese earthquake, but this is not a region with an especially high concentration of vehicle manufacturing.) Price pressures eased a little but remain high in historical terms.
2. Existing home sales declined by 0.8% mom in April to an annualized rate of 5.05 million units. Consensus forecasts had expected a moderate increase. Home sales dropped in three of the four Census regions during the month, with the largest declines in the Northeast. The number of homes currently offered for sales was about unchanged after seasonal adjustment, at about 3.7 million units (the months supply of homes increased, but this was likely due to seasonal variation). The median sales price of existing homes increased by about 0.5% mom on a seasonally-adjusted basis-an encouraging turn after several months of weakness. Existing home sales prices are down 5% year-over-year.
3. Rounding out the weaker-than-expected data, the index of leading economic indicators fell by 0.3% mom in April. The consensus had expected a 0.1% increase.
Saudi Arabia Worried About Speculators’ Interest in Oil
Is this a signal for lower prices?
Or just talk to disguise the fact that they are the price setters?
Trying to figure out what they are going to do next is much like Fed watching.
Saudi Arabia Worried About Speculators’ Interest in Oil
By Jackie DeAngelis
May 19 (CNBC) — Saudi Arabia will take a cautious approach to opening up its stock markets to international investors, and the country is concerned about speculative interest in oil markets, finance minister Ibrahim Al-Assaf told CNBC.
Al-Assaf said in an interview that the Kingdom worries about high oil prices, and that he believes that speculators are currently propping up the market.
Loan requests for home purchases dipped 3.2%
Not even a dead cat bounce in the important component:
Mortgage Applications up on Refinancings
May 18 (CNBC) — Applications for U.S. home mortgages jumped last week for the third week in a row as falling mortgage rates fueled demand for refinancing, an industry group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, climbed 7.8 percent in the week ended May 13.
The MBA’s seasonally adjusted index of refinancing applications surged 13.2 percent, while the gauge of loan requests for home purchases dipped 3.2 percent.
China- Growth of FDI slowing
With its capital constraints FDI has been channel for speculative inflows to facilitate bets on yuan appreciation.
While month to month numbers are volatile, they’re worth keeping an eye on.
In the long run inflation weakens a currency.
Also, JPM yesterday suggested increased risk of what they called a hard landing
Growth of foreign direct investment in China slowing
May 18 (Global Times) – Foreign direct investment (FDI) in China rose to $8.46 billion in April, driven largely by investment in the property sector. The figure is 15.21 percent higher than the previous year but represents a slower rate of growth than seen in March, according to official data released Tuesday.
The slowdown of FDI growth as well as other economic indices this month showed that the economy is cooling down, economists warned Tuesday.
April’s figure was lower than the $12.52 billion invested in March and represented less than half of March’s year on year growth rate of 32.9 percent. The ministry did not elaborate on the reasons for the fall.
The property sector attracted about 24 percent of April’s investment flows, Ministry of Commerce spokesman Yao Jian said at a press briefing.
During the first four months of the year, FDI rose 26.03 percent over levels of the previous year to $38.80 billion, the data showed.
During this period, 10 Asian economies including Japan, Singapore and Hong Kong set up 6,487 new businesses, up 9.87 percent from the previous year, and invested $32.9 billion, up 31.23 percent from the previous year.
EU countries set up 562 new businesses in China, up 16.36 percent from the previous year, while investment from the EU rose 23.42 percent to reach $2.6 billion.
“Despite the financial crisis, European companies are still expanding and investing abroad, including in China. We encourage further market access in China to attract even more EU companies to invest there and indeed we also encourage Chinese companies to invest in Europe,” William Fingleton, a spokesman for the Delegation of the EU to China, told the Global Times in an email.
However, investment from the US dropped 28 percent during the first four months of this year to $1.03 billion in April.
FDI in China plunged after the financial crisis in 2008 but rebounded strongly last year to reach $105.7 billion.
“If the figures released in the first three months are regarded as volatile, April’s FDI figure as well as the month’s imports, manufacturing and other economic indices reported earlier showed a cooldown has firmly set into the economy,” Tian Yun, director of the research center of China Society of Macroeconomics, told the Global Times.
“The economy risks a further slowdown if the government’s monetary tightening policy continues and the country’s employment situation, which should always come before inflation issues, will remain worrisome,” Tian warned.
Inflation Outlook
Governor Zhou Xiaochuan said China’s central bank was focused on controlling prices, without mentioning threats to growth, an indication that he has been more concerned about inflation than any risk of a growth slowdown.
The central bank will “control the monetary conditions behind excessively rapid gains in prices,” Zhou said in comments dated April 18 and released yesterday in the central bank’s annual report. The comments tally with a monetary policy report released May 3 and were before data showing industrial output growth weakened last month.
Home prices rose in China’s 67 of 70 cities monitored by the government in April from last year, led by smaller cities that are defying efforts to control property prices nationwide. Housing prices increased at a faster pace in smaller cities and slowed in major ones, data posted on the statistics bureau’s website today showed.
Rising Coal Demand
Shenhua, the nation’s largest coal producer, rose 0.9 percent to 28.53 yuan. Yanzhou Coal Mining Co., the fourth biggest, advanced 0.9 percent to 32.99 yuan.
Demand for thermal and coking coal may increase between 8 percent and 10 percent this year as less rainfall curbs supplies of hydropower and boosts demand for coal-fired electricity, Luo Zeting, an analyst at Citic Securities, wrote in a report today.
monopoly pricing in copper
Though it can’t ‘prove’ anything, the looks to me to be supportive of my suspicion that the two remaining copper producers are not competing, but instead are colluding to set price and let quantity adjust.
On your post regarding the recent commodity decline, the attached graph shows the generic copper future price and the open interest.
There has been a substantial drop in open interest since Feb11 to current. The copper price has declined but not nearly as much. Is this fair to signal a more heavier decline in price? (accompanied by increase in OI)
I did read on your post you mentioned longs selling to other longs which would indicate no change in OI and so perhaps trend reversal, but we are beyond this point now in commodities?
I presume commodity prices for example copper should be heading back to pre QE2 level (03/11/2010) if not lower with a slowing US economy. And this will be the same for equities
Ottawa Conference
BoC/BoE/RBA Comments
Even with headline ‘inflation’ above comfort levels and recognizing the need to ‘manage inflation expectations’ under ‘expectations theory’ they all religiously believe, they seem to be sufficiently concerned about aggregate demand to make these kinds of dovish comments.
Conclusion: they’re understating the general weakness they’re sensing.
From Karim, my partner at Valance:
Karim writes:
Some important official comments from these 3 in last 24hrs:
Bank of Canada-Still dovish-Highlighting competitiveness issues due to stronger currency, under-representation in emerging markets, and commodity price gains acting as a brake on U.S. growth. No move in policy rate until Q4 at earliest and only to coincide with signal from Fed for higher rates. Excerpts from Carney speech yesterday:
- Since only 10 per cent of Canada’s exports go to emerging economies and our non-commodity export market share in the BRICS has been almost halved over the past decade, activity in Canada does not benefit to the same extent as in past commodity booms driven by U.S. growth. The current situation is more akin to a supply shock for our dominant trading partner, with higher commodity prices acting as a net brake on growth. With oil prices up 50 per cent since last summer, the effect is material.
- Investors looking to rebalance portfolios towards emerging markets could lead them to invest in proxies such as Australia and Canada.
Bank of England-Still dovish-Mervyn King shows no worry from inflation data today (higher than expected but virtually all due to airfares due to timing of late Easter-similar to Eur data) and new MPC Member Broadbent (replacing the uber-hawk Sentence) emphasizing downside risks to growth (higher savings rate, weak credit, Euro stresses). Base case is on hold through year-end.
- King: As set out in my previous letter, the current high level of inflation reflects three main influences: the increase in the standard rate of VAT in January to 20%, higher energy prices and increases in import prices. Although the impact on inflation of these factors is difficult to quantify with precision, it is likely that had they not occurred, inflation would have been substantially lower and probably below the target…..Unemployment is high and wage growth is weak at around 2% a year. Money and credit growth are both very low. It is therefore possible that, as the temporary influence of the factors currently pushing up on inflation wanes, these downward pressures on inflation could drag inflation below the target.
RBA Minutes-Hawkish-Even though 2-speed economy (strong exports/trade; weak consumer), inflation forecast heading higher. Rate hike likely at June or July meeting. The sentence below didn’t appear at the prior RBA meeting in April.
- …members judged that if economic conditions continued to evolve as expected, higher interest rates were likely to be required at some point if inflation was to remain consistent with the medium-term target.