The Center of the Universe

Beats me why the Fed should care if foreign banks have any capital if the Fed isn’t insuring their deposits or other liabilities?

Seems if they want to lend their money to people who can’t pay it back it’s their problem???
;)

Fed Adopts Foreign-Bank Rule as World Finance Fragments

By Yalman Onaran

November 1 (Bloomberg) — The Federal Reserve approved new standards for foreign banks that will require the biggest to hold more capital in the U.S., joining other countries in erecting walls around domestic financial systems.

Banks with $50 billion of assets in the U.S. will have to meet the standard under a revised rule approved yesterday, which raised the threshold from $10 billion proposed in 2012. The central bank left out two controversial elements of the original proposal, saying those were still being developed.

Walling off U.S. units of foreign banks, designed to protect taxpayers from having to bail them out in a crisis, may increase borrowing costs for those companies and hurt their profitability. The firms say it will also raise borrowing rates for governments and consumers.

Proactively lowering demand with 9% unemployment
:(

India Budget Seeks 7-Year Low Deficit Amid Sops for Votes

By Unni Krishnan, Kartik Goyal and Siddhartha Singh

February 17 (Bloomberg) — Indias government pledged to reduce the fiscal gap to the lowest in seven years in an interim budget before elections due by May, while boosting defense spending and cutting taxes on cars, mobile phones and television sets.

The budget deficit will narrow to 4.1 percent of gross domestic product by March 31, 2015 from an estimated 4.6 percent in the current fiscal year, which is lower than an earlier target of 4.8 percent, Finance Minister Palaniappan Chidambaram told lawmakers today in New Delhi. The budget would provide funds for several months until a new parliament is elected.

So the only explanation I could find for the 30% jump in Nov housing starts was the idea of shovels going in the ground ahead of year end when some 50 low income housing, energy related, and other types of tax credits were expiring. I didn’t see any sign of anything like a sudden 30% jump in starts in any of the other indicators including mtg purchase apps, sales indicators, reports from builders etc. etc.

And now the Jan number seems to have pretty much returned to ‘pre year end spurt’ levels, and if Nov/Dec ‘borrowed’ from 2014 starts could stay soft well after the weather moderates.

Or, I’m mistaken, and when the weather clears (including California…and with no income growth..) we bounce back up to Nov/Dec levels!

We’ll see….

The G-20 said it would “significantly raise global growth” without overtaxing national finance through measures to promote competition and increase investment, employment and trade.

As an initial step toward achieving the $2 trillion target, each country will present a comprehensive growth strategy to a summit of leaders scheduled for November in the Australian city of Brisbane.

truly insulting!

The euro zone is at risk of snatching defeat from the jaws of victory by abandoning efforts to cut budget deficits and fix long-standing economic problems.

The growing perception that austerity has been futile is incorrect.

Fiscal consolidation is producing results, the pain is producing results

Euro-zone policy makers need to do a better job of communicating their successes to a weary population.

Yes, the Fed doesn’t like QE and wants to taper, but seems to me they don’t want mortgage rates this high either. They know the only way the market will ‘bring down rates’ is if the economic weakness persists. And they suspect it very well may persist unless rates come down.

Their remaining option is TIRT (term interest rate targeting) which has yet to be discussed.

Existing Home Sales

Highlights
It’s more than just weather that’s clobbering the housing market. High prices and tight inventory aren’t helping either as existing home sales fell 5.1 percent in January to a 4.620 million annual rate. The year-on-year rate is also at minus 5.1 percent, a sharp contrast to the year-on-year median price which is up 10.7 percent.

Supply of homes relative to sales did rise to 4.9 months from 4.6 months but the improvement is tied mostly to the drop in sales. Prices did come down in the month but from already high levels with the median price down 4.5 percent to $188,900.

Weather was especially cold in January and no doubt contributed to the sales weakness, especially in the Midwest, where sales fell 7.1 percent in the month, and also the Northeast where the decline was 3.1 percent. But weather in California wasn’t a problem, yet sales in the West fell 7.3 percent which the National Association of Realtors points to as evidence of non-weather constraints.

Unattractive mortgage rates are another factor holding down sales. All cash buyers continue to hold up the market, accounting for 33 percent of all sales vs 32 percent in December. In contrast, first-time buyers, who are especially sensitive to the soft jobs market, continue to account for less sales, at 26 percent vs December’s 27 percent.

This is the 5th decline in the last 6 months for this series and lack of improvement in the jobs market, not to mention this month’s severe bout of heavy weather, point to more trouble for February. For the economy, the housing market needs to snap back sharply this spring. The Dow is showing little initial reaction to today’s report.

Not exactly gang busters even before the weather reduced incomes.

And the bad weather it’s like hurricane sandy but without the insurance spending and federal relief spending.

Fed: “Why Is the Job-Finding Rate Still Low?”

We conclude that while matching efficiency has declined and remained low in virtually all industries, the most important factor in the low job-finding rate is the persistently low level of vacancies per unemployed.

Sending this around for another data point and as a reminder that the higher readings of a few months ago were used by the mainstream to support their growth forecasts.

Details

The data isn’t contradicting my narrative about construction being started in Nov/Dec ahead of the tax credits expiring at year end, which explains the higher starts in Nov/Dec followed by the sharp in January. The expiring credits likely altered the timing of non residential construction as well.

U.S. Housing Starts Fell 16% in January (WSJ) U.S. housing starts fell 16% last month to a seasonally adjusted annual rate of 880,000. That was down from an upwardly revised December rate of 1.05 million new homes built, marking the largest month-over-month decline since February 2011. Starts on single-family homes sank 15.9% in January to an annual pace of 573,000. Building permits, a sign of future construction, fell 5.4% to a seasonally adjusted annual rate of 937,000 last month from December’s upwardly revised rate of 991,000. The pace of housing starts last month actually rose in the chilly Northeast by 61.9%. But it fell 67.7% in the Midwest to the lowest pace on record. Starts also fell 12.5% in the South and 17.4% in the West, which has experienced relatively warm weather. Building permits were still up 2.4% in January from a year earlier, though housing starts last month were down 2% from a year ago.

Early in 2013 my narrative was the tax hikes as well as the subsequent sequesters were likely to cause growth to slow to maybe a 2% rate from what might have otherwise been a 4% rate, with downside risk from there.

Take a look at the charts below and notice how these key elements of the economy seemed to ‘go sideways’ during 2013.

And, unfortunately, real disposable personal income took a hit as well and doesn’t look to me like it can support any kind of ‘bounce back’:

(the last yoy print is ‘exaggerated’ by the ‘outlier’ a year earlier, but the trend is clear to me)

[note from poster: apologize for format- should be amended shortly]

Real disposable income

Architecure billings index

Housing starts

MBA purchase applications

Vehicle sales

Retail Sales

With official unemployment around 9%?

Unfortunately they listen to this nonsense and you can see the results

:(

India Fiscal Position Weak as Polls Approach, Moody’s Says

Not even a hint of a suspicion it’s by Presidential design:

“The cumulative effect of all these developments is that the U.S. may well be on the way to becoming a Downton Abbey economy. President Barack Obama is right to be concerned. Those who condemn him for ‘tearing down the wealthy’ and engaging in un-American populism are, to put it politely, lacking in historical perspective,” Summers wrote.

More downward revisions on the way, with expectations of a reversal when the weather issues subside.

But with the federal deficit probably south of 3%, which seems to be struggling to keep pace with the demand leakages, the income lost due to the reduced growth of sales/output/employment means there is that much less support for any post weather rebound in spending/GDP.

“But freezing temperatures boosted demand for heating last month, causing utilities production to jump 4.1 percent.”

Industrial Production

Highlights
The manufacturing sector is losing traction-weather related or not. Overall industrial production fell 0.3 percent in January, following a 0.3 percent gain the month before. Analysts expected a 0.3 percent rise for the latest month.

Turning to major components, it was worse for manufacturing which dropped 0.8 percent after a 0.3 percent increase in December. The consensus projected a 0.1 percent increase for January. Atypically adverse weather helped the overall number from being weaker as utilities jumped 4.1 percent in January, following a 1.4 percent dip the prior month. Mining slipped 0.9 percent after gaining 1.8 percent.

Looking at detail for manufacturing, durables fell 0.8 percent in January, led down by a 5.0 percent drop in motor vehicles and parts. Nondurables declined 0.8 percent in January.

Manufacturing excluding motor vehicles decreased 0.5 percent in January, following a 0.3 percent rise in December.

Capacity utilization declined to 78.5 percent from 78.9 percent in December.

Today’s report adds to the argument that the first quarter will be sluggish. It also calls to attention as to whether the Fed will pause in its “measured steps” for tapering quantitative easing. But the Fed clearly will watch the next employment report before making that decision in mid-March.

The traditional non-NAICS numbers for industrial production may differ marginally from the NAICS basis figures.

From CS:

JAY FELDMAN : Q4 GDP revision is now tracking 2.4 on our estimates. It was tracking 2.7 before retail sales… and down from the initially reported 3.2.


Note October/November/December all marked down lower as well in US retail sales…and even prior to this period as well – will bring down Q4 GDP tracking for consumption.

Again, the income to support sales just doesn’t seem to be there, as the sub 3% federal deficit doesn’t seem to have been providing the spending needed to offset the demand leakages (unspent income):

Retail Sales

Highlights
Overall retail sales in January fell 0.4 percent, following a decrease of 0.1 percent in December (originally up 0.2 percent). The market consensus was for a 0.1 percent dip.

Autos pulled down the total. Motor vehicle & parts declined 2.1 percent, following a decrease of 1.8 percent in December. Excluding autos, sales were unchanged after gaining 0.3 percent the month before (originally up 0.7 percent). Analysts called for a 0.1 percent rise. Gas station sales increased 1.1 percent after jumping 1.5 percent in December. Excluding both autos and gasoline, sales slipped 0.2 percent after rising 0.1 percent in December. The consensus was for a 0.2 percent rise.

In the core, strength was seen in electronics & appliance stores; building materials & garden equipment; and grocery stores. Declines were seen in furniture & home furnishings; health & personal care; clothing; sporting goods, hobby, et al; department stores; nonstore retailers; and food services & drinking places.

The latest report suggests that fourth quarter GDP may be revised down and that first quarter GDP could be soft. Again, atypically adverse weather likely affected the data. Equity futures declined on the news.

When I squint at this chart if anything it seems to have bottomed and nudging irregularly higher:

Highlights
The purchase index, down 2.0 percent in the February 7 week, continues to signal weakness for underlying home sales. The index is down a very sizable 13.0 percent year-on-year underscoring the importance of all cash buyers in the housing market. The refinance index edged 0.2 percent lower. Rates moves slightly lower in the week with average rate for 30-year conforming loans ($417,500 or less) down 2 basis points to 4.45 percent.

Mortgage purchase applications Y/Y:

Good grief
:(

*YELLEN: IN 30 YEARS DEBT-TO-GDP RATIO WOULD BE UNSUSTAINABLE
*YELLEN: UNSUSTAINABLE DEFICITS HAVE NEGATIVE ECONOMIC IMPACT

From the speech:

“a long-term plan is needed to reduce deficits and slow the growth of federal debt”

And from 2010:

“In a nutshell, the problem is that, in the absence of significant policy changes, and under reasonable assumptions about economic growth, demographics, and medical costs, federal spending will rise significantly faster than federal tax revenues in coming years. As a result, if current policy settings are maintained, the budget will be on an unsustainable path, with the ratio of federal debt held by the public to national income rising rapidly.

A failure to address these fiscal challenges would expose the United States to serious economic costs and risks. A high and rising level of government debt relative to national income is likely to eventually put upward pressure on interest rates, thereby restraining capital formation, productivity, and economic growth. Indeed, once the economy has recovered from its downturn, fiscal deficits will crowd out private spending. Large fiscal deficits will also likely put upward pressure on our current account deficits with the rest of the world; the associated greater reliance on borrowing from abroad means that an increasing share of our future income will be required to make interest payments on federal debt held abroad, thereby reducing the amount of income available for domestic spending and investment. A large federal debt will also limit the ability and flexibility of policymakers to address future economic stresses and other emergencies, a risk that is underscored by the critical fiscal policy actions that were taken to buffer the effects of the recent recession and stabilize financial markets in the wake of the crisis. And a prolonged failure by policymakers to address America’s fiscal challenges could eventually undermine confidence in U.S. economic management.”

Big incentives likely as inventories of new vehicles pile up

What about 2 consecutive numbers, like Dec and Jan jobs?
;)

Fed is not swayed by any single number, Fisher tells CNBC

February 7 (Reuters) — The U.S. central bank is unlikely to reverse its decision to wind down its bond-buying program in reaction to the weaker-than-expected January jobs report released on Friday. “I will say this about the rest of our committee, is they are not swayed by a single number. They are thoughtful people,” Dallas Federal Reserve Bank President Richard Fisher said on CNBC, referring to the Fed’s policy-setting Federal Open Market Committee.