Author Archives: WARREN MOSLER

2008-07-15 US Economic Releases

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ICSC-UBS Store Sales YoY (Jun)

Survey n/a
Actual 2.2%
Prior 2.3%
Revised n/a

Fiscal spending seems to have stemmed the decline.

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ICSC-UBS Store Sales TABLE (Jun)

Same.

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Producer Price Index MoM (Jun)

Survey 1.4%
Actual 1.8%
Prior 1.4%
Revised n/a

Looks like a banana republic with a weak currency.

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PPI Ex Food & Energy MoM (Jun)

Survey 0.3%
Actual 0.2%
Prior 0.2%
Revised n/a

Also looks to be working its way higher.

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Producer Price Index YoY (Jun)

Survey 8.7%
Actual 9.2%
Prior 7.2%
Revised n/a

Inflation pouring in through the front door – import prices.

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PPI Ex Food & Energy YoY (Jun)

Survey 3.2%
Actual 3.0%
Prior 3.0%
Revised n/a

Looking like its on the way up, as it’s recovered and surpassed the level of Aug 06 when Goldman changed their commodity index and triggered massive selling of gasoline.

The Fed is watching for headline to leak into core, which they’ve said is already happening.

When only food/crude/import prices go up, it’s a relative value story, as funds to buy that stuff mean less to buy other things, and they lag in price.

But in this case core measures are not going down to offset headline numbers.

True, they haven’t gone up that much yet, but they have gone up rather than down.

That means that yes, demand is ‘weak’ and unemployment creeping up,

But demand is still strong enough to support both higher headline CPI and rising core measures as well,

Supported by government spending which is not revenue constrained nor liquidity constrained,

And supported by booming exports as non residents trip over each other trying to spend their now unwanted multi $trillion hoard of US financial assets.

Current levels of demand are more than sufficient to support much higher levels of housing starts (though still low levels), relatively flat employment, and rising core inflation measures.

And US real terms of trade continue to deteriorate along with the standard of living as a foreign oil monopolist exacts ever higher relative prices.

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Advance Retail Sales MoM (Jun)

Survey 0.4%
Actual 0.1%
Prior 1.0%
Revised 0.8%

Lower than expected, due to weaker than expected auto sales, due to the wrong vehicles on the showroom floors, which will take a while to correct.

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Retail Sales Less Autos MoM (Jun)

Survey 1.0%
Actual 0.8%
Prior 1.2%
Revised n/a

A little weaker than expected but pretty good from a strong previous month.

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Advance Retail Sales YoY (Jun)

Survey n/a
Actual 3.0%
Prior 2.1%
Revised n/a

Once again fiscal policy, not monetary policy, stops the slide.

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Empire Manufacturing (Jul)

Survey -8.0%
Actual -4.9%
Prior -8.7%
Revised n/a

May be on the mend from the lows.

Karim writes:

  • Retail sales a bit softer than expected..up 0.1% headline, up 0.8% ex-autos, and -0.5% ex-gas
  • Control (ex-autos, gas and building materials) up 0.3% and minor downward revisions to prior two months
  • PPI up 1.8% headline and 0.2% core; y/y 9.2% and 3.0% respectively
  • Pipeline pressures remain intense with intermediate up 2.1% m/m and crude 3.7%
  • Medical goods and services component decline (large component of PCE deflator; so June core PCE may come in 0.0% or 0.1%).
  • Empire survey shows modest improvement but stays in negative territory: -8.68 to -4.92

    • Right, Redbook sales show same moderate growth in non-auto sales. The wrong vehicles are on the showroom floors right now and it will take a while for the right ones to take their place.

    I have no idea what’s driving lower medical costs and whether further declines are to be expected, but seems highly unlikely.

    The dollar’s down again today.

    ‘Inflation’ is flowing in through that channel like water through a screen door on a submarine.

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    Redbook Store Sales (Jul 8)

    Survey n/a
    Actual 2.7%
    Prior 2.6%
    Revised n/a

    Moving up as fiscal policy kicks in.

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    Redbook Store Sales TABLE (Jul 8)

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    IBD/TIPP Economics Optimism (Jul)

    Survey 36.8
    Actual 37.4
    Prior 37.4
    Revised n/a

    A little better than expected.

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    Business Inventories (May)

    Survey 0.5%
    Actual 0.3%
    Prior 0.5%
    Revised n/a

    Possible that sales may be exceeding estimates and lowering inventories.

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    ABC Consumer Confidence (Jul 13)

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

    Seems to have bottomed, but remains at low levels, probably due to inflation.


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The $30 billion of Bear Stearns secs were sold to the Fed

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Doesn’t look like a funding operation.

Looks like JPM sold the Bear Stearns securities to the Fed and retained a first loss piece:

Text in JP Morgan’s 10Q:

“Concurrent with the closing of the merger, the Federal Reserve Bank of New York (the “FRBNY”) will take control, through a limited liability company (“LLC”) formed for this purpose, of a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as of March 14, 2008. The assets of the LLC will be funded by a $29 billion, 10-year term loan from the FRBNY, and a $1 billion, 10-year note from JPMorgan Chase. The JPMorgan Chase note will be subordinated to the FRBNY loan and will bear the first $1 billion of any losses of the portfolio. Any remaining assets in the portfolio after repayment of the FRBNY loan, the JPMorgan Chase note and the expense of the LLC, will be for the account of the FRBNY.”


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2008-07-14 Weekly Credit Graph Packet

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IG On-the-run Spreads (Jul 14)

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IG6 Spreads (Jul 14)

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IG7 Spreads (Jul 7)

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IG8 Spreads (Jul 14)

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IG9 Spreads (Jul 14)

First Bear Stearns, and now the agencies confirm the government is there to ‘write the check’; so, I expect credit spreads to continue to narrow over time.


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Reuters: Food price supports

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more inflation.

Prices are up due to short supplies due to biofuels and weather.

And the political response is handing out funds to those in need, even though that doesn’t create more to eat.

As previously discussed, governments have no choice but to step on the inflation pedal.

Whether it be for food support payments or financial sector support.

That’s how ‘democracy’ works.

(And democracy is way better than the second choice!)

World Bank’s Zoellick: Food prices high until 2012

by Alexandra Hudson

World Bank President Robert Zoellick said on Saturday he expected food prices to remain above 2004 levels until at least 2012 and energy prices would also remain high and volatile.

He repeated that with food and fuel prices in a “danger zone” there was a need for $10 billion to provide food and cash handouts for the world’s poorest.

Soaring oil and food prices have fueled inflation across the globe at the same time as economies slow, posing a sharp dilemma for lawmakers.


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FT: Time for comrade Paulson to pull the plug on the Fannie and Freddie charade

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Totally misguided regarding public purpose.

For one thing, the shareholders of the agencies are still there for ‘market discipline’ – all that’s been done for them is eliminated liquidity issues, not solvency issues.

At the end of the day a lot of houses were built for a lot of people who live there.

These are real assets and real standards of living that have been supported.

Is anyone arguing it’s a waste of real resources? That’s the real issue.

Also, fiscal policy is all about demand management, not a ‘pretty’ balance sheet by some arbitrary standard.

And, of course, without the fundamental understanding that the funds to pay taxes and buy government securities comes from government spending policy is likely to be suboptimal at best.

Also, note the bias towards ‘inflation’ that’s built into the political process.

This all supports prices and GDP.

There are no supply side constraints on government spending and/or lending with floating fx, unlike the gold standard of 1907/1930, and other fixed fx regimes, past and present.

Time for comrade Paulson to pull the plug on the Fannie and Freddie charade

by Willem Buiter

Are Fannie Mae and Freddie Mac adequately capitalised, as asserted recently by US Treasury Secretary Hank Paulson, Federal Reserve Board Chairman Ben Bernanke and their regulator Office of Federal Housing Enterprise Oversight Director James B. Lockhart III? The answer is: obviously not, if these two government-sponsored enterprises of the US federal government had to make a living on normal private commercial terms. Obviously not if they were subject to the market discipline preached by Paulson and Bernanke, but not practiced when it comes to large financial institutions perceived as systemically important (too large or too interconnected to fail) or too politically sensitive to fail.


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AFP: Burning up more food for fuel

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The monetary system will burn up the world’s food supply for fuel until the marginal individual about to starve to death has enough political influence to stop the process.

I’m pretty sure that’s not the millionth one to die of starvation. And probably not the ten millionth.

As more and more acreage goes to biofuels, expect the real price of food to continue to rise.

Lula and Indonesian president pledge biofuel cooperation

by Zulhefi

(AFP) Brazilian President Luiz Inacio Lula da Silva and his Indonesian counterpart pledged cooperation on biofuels during talks here Saturday in a bid to take advantage of surging oil prices.

Lula and President Susilo Bambang Yudhoyono signed off on an agreement to share knowledge on biofuel technology after meeting at Jakarta’s presidential palace.

The Brazilian leader called spiralling global commodity prices a “great opportunity” for developing countries such as Indonesia and Brazil, both of which are major producers of biofuel.

“The developing countries that have the characteristics that Indonesia and Brazil have should not analyse this crisis as only a problem. We have to see this moment as a great opportunity,” Lula said.

“We have land, we have sunlight, we have water resources, we have technology and, thanks to God, the poor of the world have started to eat more, three meals a day, so they will demand more food production.”

The two leaders signed memoranda of understanding that would see the countries exchange experts and students to share knowledge on biofuels. Yudhoyono will also make an official visit to Brazil in November.

“In the energy sector, both countries are cooperating in the field of alternative energy. Brazil has succeeded in developing bio-ethanol and Indonesia can learn from Brazil to develop bio-ethanol,” Yudhoyono said.


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2008-07-11 US Economic Releases

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Trade Balance (May)

Survey -$62.5B
Actual -$59.8B
Prior -$60.9B
Revised -$60.5B

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Trade Balance (May)

Seems to be working its way lower, but rising import prices are a moving target.
Without CBs and monetary authorities buying to help their exporters, I don’t think the rest of the world wants to accumulate $60 billion a month of financial assets, which means the USD will continue to fall and US prices will continue higher until the real trade gap falls to desired levels.

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Trade Balance Ex Petroleum (May)

Survey n/a
Actual -$26.636B
Prior -$25.724B
Revised n/a

This has come down quite a bit and should continue to fall over time.

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Exports YoY (May)

Survey n/a
Actual 17.8%
Prior 19.6%
Revised n/a

Booming!

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Imports YoY (May)

Survey n/a
Actual 12.5%
Prior 13.6%
Revised n/a

Working their way to lower rates of increase, even with energy prices rising.

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Import Price Index MoM (Jun)

Survey 2.0%
Actual 2.6%
Prior 2.3%
Revised 2.6%

‘Inflation’ pouring in through the open window.

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Import Price Index YoY (Jun)

Survey 18.6%
Actual 20.5%
Prior 17.8%
Revised 18.8%

Inflation pouring in through the open window.

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U. of Michigan Confidence (Jul P)

Survey 55.5
Actual 56.6
Prior 56.4
Revised –

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U. of Michigan Confidence TABLE (Jul P)

Inflation hurting confidence even as current conditions have improved some.

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Inflation Expectations 1yr Fwd (Jul P)

Survey n/a
Actual 5.3%
Prior 5.1%
Revised n/a

Fed considers this reason for alarm.

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Inflation Expectations 5y Fwd (Jul P)

Survey n/a
Actual 3.4%
Prior 3.4%
Revised n/a

Way too high for the Fed and going the wrong way.

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Monthly Budget Statement (Jun)

Survey $34.0B
Actual $50.7B
Prior $27.5B
Revised n/a

Haven’t seen the detail. This can be very volatile due to timing issues.


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Chatter about US solvency risk

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The world has enough actual issues without tossing in a few contrived ones.

The fact that the ratings agencies will actually do this also testifies negatively to their state of knowledge while there is no threat of solvency, there is a threat of downgrades and secs getting cheaper by a few basis points, as happened in Japan.

And, worse, as the government has the same fears as the ratings agencies that there is risk of counter agenda policy decisions for the wrong reasons.


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