Obama believes China is manipulating currency

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Here we go:

Think they realize exports are real costs and imports real benefits???

Obama Deems China ‘Manipulating’ Yuan, Geithner Says

by Rebecca Christie and Mark Drajem

Jan 22 (Bloomberg) — President Obama — backed by the conclusions of a broad range of economists — believes that China is manipulating its currency,” Geithner said in the remarks, which were posted on the Senate Finance Committee Web site today. “The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment.


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Re: UK currency heading south

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>   
>   On Thu, Jan 22, 2009 at 12:06 AM, Russell wrote:
>   
>   Warren:
>   
>   Is the UK going BK.
>   

Many private sector agents, but not the government. There is no such thing in local currency, and the FX debt is private, not public.

When government takes over a bank and declares it insolvent, the holders of foreign currency debt can become shareholders, general creditors in liquidation, or simply wiped out if not senior enough.

There is no reason for government to pay any FX.

>   
>   They are going to have to nationalize the banks and take interest rates to zero.
>   

Looks like they will be making those choices.

>   
>   The Pound is probably going to get par with the USD.
>   

There’s an ‘inventory liquidation’ of pounds going on, as players exit, as well as private sector agents short USD and other FX covering.

The low price of crude had dried up the dollar income of the rest of the world as our trade gap shrinks, leading to a dollar short squeeze.

(Russian and mid east oil dudes who were selling their dollar revenue for the pounds they were spending on London flats and entertainment when oil was high, have cut back on the way down.)

And the worlds portfolio managers and army of trend followers are piling in with their shorts.

While this is a ‘one time’ event, it’s a big one!

The pound has looked over valued to me on an anecdotal purchasing power parity basis for quite a while. Last time I was there seemed even at one to one with the dollar prices would still be way too high over there.

Fundamentally, apart from anecdotal purchasing power parity, the pound looks OK. Fiscal has been tight for a while and isn’t all that loose yet, though they are talking about larger deficits. Prices are in check, with asset prices falling. And borrowing to spend is way down, probably for a while. But the same is true for the US, so there’s no bias there.

Net net, the pound was an indirect beneficiary of the high oil prices, and getting hurt by the fall.

British pound


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2009-01-22 USER

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MBA Mortgage Applications (Jan 16)

Survey n/a
Actual -9.8%
Prior 15.8%
Revised n/a

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MBA Purchasing Applications (Jan 16)

Survey n/a
Actual 303.10
Prior 295.10
Revised n/a

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MBA Refinancing Applications (Jan 16)

Survey n/a
Actual 6491.80
Prior 7414.10
Revised n/a

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Housing Starts (Dec)

Survey 605K
Actual 550K
Prior 625K
Revised 651K

 
Karim writes:

  • Housing starts fell 16% in December and building permits fell 10.7%, and both to all-time lows in nominal terms.
  • These numbers indicate that housing will be a drag on the economy in terms of GDP accounting at least through year-end.
  • The level of starts consistent with new household formation (and adjusting for obsolescence of the existing housing stock) is about 1.25mm.
  • But what the current level of starts of 550k does not reflect is the record level of vacant homes (about 1mm more than the 1985-2005 average).

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Building Permits (Dec)

Survey 600K
Actual 549K
Prior 616K
Revised 615K

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Initial Jobless Claims (Jan 17)

Survey 543K
Actual 589K
Prior 524K
Revised 527K

 
Karim writes:

  • Initial claims jumped 62k to 589k, and continuing claims by 93k to 4607k.
  • Both are new highs for the current cycle and the highest since 1982.

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Continuing Claims (Jan 10)

Survey 4534K
Actual 4607K
Prior 4497K
Revised 4510K

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Jobless Claims ALLX (Jan 17)

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House Price Index MoM (Nov)

Survey -1.2%
Actual -1.8%
Prior -1.1%
Revised n/a

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House Price Index YoY (Nov)

Survey n/a
Actual -8.7%
Prior -7.6%
Revised n/a

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House Price Index ALLX (Nov)


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Proposal update for Obama

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  1. Full ‘payroll tax holiday’ where the Treasury makes all payments for employees and employers.
    • Restores incomes to assist those still working to make their payments, keep their homes, and end the credit crisis.
    • Reduces corporate cost structure to help contain prices as demand increases.
  2. $300 billion in revenue sharing for the States on a per capita basis with no strings attached.
    • Enables States to fund operations.
    • Enables States fund infrastructure projects.
  3. Fund an $8/hr. National Service job for anyone willing and able to work that includes full health care coverage.
    • Addresses unemployment from the ‘bottom up’ rather than the ‘top down’ the way other measures do.
    • Provides for a far superior price anchor than the current practice of using unemployment for that purpose.
  4. Eliminate the need for the Fed to demand collateral from member banks when it lends to them.
    • Demanding collateral is redundant and obstructive to lending.
    • Allows the NY Fed to hit its assigned fed funds target.
  5. Take action to immediately reduce crude oil and crude product consumption.

(Details available on request.)


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2009-01-21 USER

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ICSC UBS Store Sales YoY (Jan 20)

Survey n/a
Actual -1.80%
Prior -2.20%
Revised n/a

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ICSC UBS Store Sales WoW (Jan 20)

Survey n/a
Actual 1.10%
Prior -2.30%
Revised n/a

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Redbook Store Sales Weekly YoY (Jan 20)

Survey n/a
Actual -2.30%
Prior -1.90%
Revised n/a

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Redbook Store Sales MoM (Jan 20)

Survey n/a
Actual -2.50%
Prior -2.30%
Revised n/a

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ICSC UBS Redbook Comparison TABLE (Jan 20)


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Re: MCDX Update

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(email exchange)

Lots of good shorts here- if you have the staying power!

>   
>   On Wed, Jan 21, 2009 at 9:55 AM, Jason wrote:
>   
>   MCDX11 5yr…255/265 (unched)
>   IG11 221-223
>   

10 YR MUNI CDS MARKETS **UPDATE** 01/21/2009

CA 400/450 A1/A+
NYC 285/335 Aa3/AA
FL 190/240 Aa1/AAA
MI 325/375 Aa3/AA-
NV 315/365 Aa1/AA+
NJ 225/275 Aa3/AA
NYS 235/285 Aa3/AA
TX 140/170 Aa1/AA
OH 190/240 Aa1/AA+
VA/SC/NC/UT/GA 110/160
IL 190/240 Aa3/AA
MA 190/240 Aa2/AA

CA 400/450 A1/A+ ****

This spread implies 56% probability of default in 5yrs and 87% probability in 10yrs assuming 80% recovery…

Seriously… State GO & recovery would probably be >95%

Assuming the federal government actually would allow them to fail…


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Geithner testimony

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From Geithner testimony April 3, 2008:

Geithner testimony

Bear Stearns

“With this important context, let me return to the actions taken by the Federal Reserve in response to the situation that arose at Bear Stearns. That response was shaped in roughly four stages: (1) the decision on the morning of March 14 to extend a non-recourse loan through the discount window to JPMorgan Chase so that JPMorgan Chase could in turn lend that money to Bear Stearns;…

We did not have the authority to acquire an equity interest in either Bear or JPMorgan Chase, nor were we prepared to guarantee Bear’s very substantial obligations. And the only feasible option for buying time would have required open ended financing by the Fed to Bear into an accelerating withdrawal by Bear’s customers and counterparties.

We did, however, have the ability to lend against collateral, as in the back-to-back non-recourse arrangement that carried Bear into the weekend. After extensive discussion with my colleagues at the New York Fed, Chairman Bernanke, and Secretary Paulson, and with their full support, the New York Fed and JPMorgan Chase reached an agreement in principle that the New York Fed would assist with non-recourse financing. Using Section 13(3) of the Federal Reserve Act, the New York Fed agreed in principle to lend $30 billion to JPMorgan Chase and to secure the lending with a pledge of Bear Stearns assets valued by Bear on March 14 at approximately $30 billion.”

Geithner clearly told Congress this was a non recourse loan.

In fact, he knew or should have known it was a purchase, which was actually a better arrangement for the Fed.

This is the March 24, 2008 press release from the NY Fed:

The Federal Reserve Bank of New York (“New York Fed”) has agreed to lend $29 billion in connection with the acquisition of The Bear Stearns Companies Inc. by JPMorgan Chase & Co.

The loan will be against a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as marked to market by Bear Stearns on March 14, 2008.

JPMorgan Chase has agreed to provide $1 billion in funding in the form of a note that will be subordinated to the Federal Reserve note. The JPMorgan Chase note will be the first to absorb losses, if any, on the liquidation of the portfolio of assets.

The New York Fed loan and the JPMorgan Chase subordinated note will be made to a Delaware limited liability company (“LLC”) established for the purpose of holding the Bear Stearns assets. Using a single entity (the LLC) will ease administration of the portfolio and will remove constraints on the money manager that might arise from retaining the assets on the books of Bear Stearns….

…Repayment of the loans will begin on the second anniversary of the loan, unless the Reserve Bank determines to begin payments earlier. Payments from the liquidation of the assets in the LLC will be made in the following order (each category must be fully paid before proceeding to the next lower category):

  • to pay the necessary operating expenses of the LLC incurred in managing and liquidating the assets as of the repayment date;
  • to repay the entire $29 billion principal due to the New York Fed;
  • to pay all interest due to the New York Fed on its loan;
  • to repay the entire $1 billion subordinated note due to JPMorgan Chase;
  • to pay all interest due to JPMorgan Chase on its subordinated note;
  • to pay any other non-operating expenses of the LLC, if any.

Any remaining funds resulting from the liquidation of the assets will be paid to the New York Fed.

This last statement indicates this was functionally a purchase of assets by the Fed and not a loan as Geithner testified.

The question is, why was he less than truthful to Congress when he characterized it as a loan when it was a purchase?

Particularly when, as a purchase, the terms were more advantageous for the Fed?


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Crude oil inventories

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The contango in the futures market continues to come in, as does the spread between WTI and Brent.

The RBOB contango is also coming in, indicating gasoline supplies are also tightening.

This indicates spot supplies are tightening- the OPEC cuts are ‘working’.

Most consumption indicators show crude consumption to be about flat or only down slightly year over year.

The great Mike Masters inventory liquidation that began in July may finally have run its course.

And the Saudis are back to being price setter.

I would strongly recommend any fiscal adjustment that increases aggregate demand be accompanied by policy that immediately and substantially reduces crude oil and gasoline consumption.


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VAT cuts

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Interesting, the tax cut is a baby step towards adding to aggregate demand, but restaurants?

They judge success of their economy by how many people eat out rather than eat at home?

And the UK needs to eliminate all VAT ASAP, and not fool with minor cuts.

The eurozone can’t do it without triggering the insolvency of their national governments.

Germany Will Support French VAT-Cut Initiative on Restaurants

Jan 20 (Bloomberg) — Germany is willing to support a French initiative to reduce value-added tax on some labor- intensive industries including restaurants, Finance Minister Peer Steinbrueck said, opening the door for a Europe-wide agreement.

“There’s a certain willingness to compromise from the German side for certain sectors,” Steinbrueck told a press conference in Brussels today. “I see the strong public demand in France and I don’t see a reason to reject” the idea.

France failed to win European Union approval to reduce VAT at restaurants in December. Successive German governments had blocked the initiative since at least 2002. European leaders will discuss in March whether to overhaul the sales-tax system.

“We have the basis for solid agreement with our German partners,” French Finance Minister Christine Lagarde told reporters after meeting with Steinbrueck in Brussels.

Currently, some EU member states may apply reduced tax rates on certain goods and services. EU leaders will have to decide whether to extend permission to all EU countries to lower VAT for locally-provided labor-intensive services on a permanent basis.

“It will be discussed for the first time in three weeks” and “finalized in March,” Steinbrueck said. “I’m happy that a number of member states are supporting” this effort. Still, “There haven’t been any promises. Everything’s possible,” he said.

The U.K. announced a 12.5 billion-pound ($17.5 billion) cut in its VAT in November to spur consumer spending.

John Lewis Partnership PLC, owner of the U.K.’s largest department-store chain, reported “much stronger” sales in the first four days after the reduction of the sales duty to 15 percent from 17.5 percent. Still, the number of shoppers dropped by 1.7 percent over the first December weekend, compared with the year-earlier period, according to data compiled by Experian Plc.


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Spending stimulus skeptics

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Hopefully Obama knows better.

The Stimulus Rush

Jan 13 (Chicago Tribune) — John Cochrane, a professor at the University of Chicago Booth School of Business, says that among academics over the last 30 years, the idea of fiscal stimulus has been discredited and in graduate courses, it is “taught only for its fallacies.”

New York University economist Thomas Sargent agrees: “The calculations that I have seen supporting the stimulus package are back-of-the-envelope ones that ignore what we have learned in the last 60 years of macroeconomic research.”


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