TAF Results

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(from Patrick Doyle)

Below is a table of the results of the last 3 TAF auctions

Of note is the spread to OIS (FF’s) which is inside the historic LIBOR / OIS spread. There were less participants in this round as well

This all bodes well and is showing the easing of pressure in the funding markets.

Jan. 15
2008		 Dec. 21
2007		 Dec. 19
2007
Stop-out rate: 3.95% 4.67% 4.65%
Total propositions submitted: $55.526 Bil. $57.664 Bil. $61.553 Bil.
Total propositions accepted: $30.000 Bil. $20.000 Bil. $20.000 Bil.
Bid/cover ratio: 1.85 2.88 3.08
Number of bidders: 56 73 93
Term 28-day loan 35-day loan 28-day loan
Settlement Date Jan. 17, 2008 Dec. 27, 2007 Dec. 20, 2007
Maturity Date Feb. 14, 2008 Jan. 31, 2008 Jan. 17, 2008

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2008-01-15 US Economic Releases

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2008-01-15 Producer Price Index MoM

Producer Price Index MoM (Dec)

Survey 0.2%
Actual -0.1%
Prior 3.2%
Revised n/a

2008-01-15 PPI Ex Food & Energy MoM

PPI Ex Food & Energy MoM (Dec)

Survey 0.2%
Actual 0.2%
Prior 0.4%
Revised n/a

2008-01-15 Producer Price Index YoY

Producer Price Index YoY (Dec)

Survey 7.1%
Actual 6.3%
Prior 7.2%
Revised n/a

2008-01-15 PPI Ex Food & Energy YoY

PPI Ex Food & Energy YoY (Dec)

Survey 2.0%
Actual 2.0%
Prior 2.0%
Revised n/a

Inflation pressures remain alarming.

2007 highest inflation since the early 1980s, when inflation was on the way down.

Last hit this number on the way up was in the 1970s.

2008-01-15 Advance Retail Sales

Advance Retail Sales (Dec)

Survey 0.0%
Actual -0.4%
Prior 1.2%
Revised 1.0%

Previous month still very high, two month average looks OK.

2008-01-15 Retail Sales YoY % Change

Retail Sales YoY % Change

Year over year numbers still modestly moving back up.

2008-01-15 Retail Sales Less Autos

Retail Sales Less Autos (Dec)

Survey -0.1%
Actual -0.4%
Prior 1.8%
Revised 1.7%

Same as above.

2008-01-15 Empire Manufacturing

Empire Manufacturing (Jan)

Survey 10.0
Actual 9.0
Prior 10.3
Revised 9.8

2008-01-15 Empire Manufacturing TABLE

Empire Manufacturing TABLE

A close look at the table shows prices still very strong.

2008-01-15 Business Inventories

Business Inventories (Nov)

Survey 0.4%
Actual
Prior 0.1%
Revised

Chart looks OK – no excessive build.

Data not in, until 5PM EST..

ABC Consumer Confidence (Jan 13)

Survey -21
Actual
Prior -20
Revised

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Re: more on receipts

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(an interoffice email)

On Jan 15, 2008 9:23 AM, Karim Basta wrote:
>
>
>
> US Daily Comment – Tax Receipts: How Good an Indicator?
> Summary: Although Treasury income tax receipts are a popular measure of
> economic activity, they are generally too noisy and susceptible to calendar
> distortions to be very informative. Indeed, the recent strength in
> withholding tax receipts in the fourth quarter (+10.5% year-on-year) seems
> to be largely due to an extra Monday during the quarter. Adjusting for this
> factor, year-on-year growth in withholdings was about 6% year-on-year,
> roughly 3 percentage points below the 2006-2007 average and broadly
> consistent with the data on employment and earnings. In contrast, state
> sales tax receipts are a quite useful measure. While less timely, they are
> also less noisy than income tax receipts and provide information on one
> issue that is poorly covered in the standard economic data, namely
> consumption at a regional level. Recent trends in sales tax receipts are
> consistent with a more substantial consumption slowdown than suggested by
> the national consumption and retail sales data, especially in states hard
> hit by the housing crisis.

Thanks!

Agreed.

Fed tax receipts have been slowing for a year or so, but no sudden drop at year end, just a continuation of the general downslope. Haven’t seen the sales tax graph, but should also reflect gradual fall off in demand.

Twin themes remain: weakness and higher prices.

PPI finished year with largest gain since coming off higher numbers in the early 80’s, and probably 10 years before that when they hit 6% + on the way to higher levels.

Demand is definitely on the weak side, but strong enough to generate alarming price increases in food/fuel/imports/exports.

warren

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2008-01-15 EU Highlights

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EU Headlines:

Same twin themes as the US, weakness and inflation:

Spain Core Inflation Rises for Fifth Month on Food
German Economic Growth Slowed as Sales Tax Increased
German Investor Confidence Dropped to 15-Year Low
French inflation at highest level since 2004

by Ben Sills
(Bloomberg) In France, the euro region’s second-biggest economy, inflation accelerated to 2.8 percent in December, the fastest pace in almost four years. Inflation held at 3.1 percent for the whole of the single currency area, matching the fastest pace since the euro was introduced.

Controlling Prices

The European Central Bank is “prepared to act preemptively so that second-round effects and risks to price stability do not materialize,” President Jean-Claude Trichet said at a press conference in Frankfurt Jan. 10.

By Christian Vits and Gabi Thesing
(Bloomberg) ECB policy makers, including President Jean-Claude Trichet and the Bundesbank’s Axel Weber, have threatened to raise interest rates if the increase in inflation leads to so-called second-round effects where workers demand higher wages to offset increased living costs.

European Bonds Gain for Second Day as German Confidence Slumps

anticipating ECB may cut due to weakness like the Fed

Prodi Government Names Antonio Lirosi as First `Inflation Czar’
Germany Says ECB’s Independence Won’t Be Questioned

They support the anti-inflation bias.

Portuguese Inflation Slowed to 2.7% in December on Transport

still high

A few highlights from Middle/Eastern Europe:

Romania Will Cut Budget Gap More to Fight Inflation

Fiscal tightening in general – slowing demand in the Eurozone.

Czech Producer Prices Unexpectedly Declined 0.1% in December

Still high and rising.

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Re: FF vs. LIBOR

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(an interoffice email)

On Jan 14, 2008 10:29 AM, Warren Mosler wrote:
> thanks, continued tafs will get it to wherever the fed actually wants
> it. it’s a policy rate they can administer at will.
>
>
>
>
>
>
> On Jan 14, 2008 10:16 AM, Pat Doyle wrote:
> >
> >
> >
> > Today you can say that the spread has narrowed significantly between LIBOR
> > and FFs. The spread on the indices has been above 60 (with a few
> > exceptions) since August. Aug 7th it was 12bps and was over 100 at times.
> > NOW THE SPREAD IS 43.
> >
> >

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If it isn’t inflation, what is it?

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What we used to call an ‘inflation day’ –

  • $ down/oil up
  • Gold through 900- if nothing else, it’s an inflation expectation indicator (not that they cause anything, just reflect it)
  • Other metals up
  • Grains going parabolic
  • Stocks up

also,

  • Export driven growth means demand coming from and output going to non residents, rather than retail sales and other domestic consumption.
  • Changes of portfolio currency preferences away from the $US are driving the dollar down to low enough levels where non residents buy here to use up some of their $US financial assets.
  • Japan/mof (and others) would probably like to buy $ to keep the yen from rising and hurting their exports, but Paulson has warned the world CB’s that this makes them ‘currency manipulators’ and subject to criticism.

This is an explicit weak $ policy that is probably altering CB portfolio preferences and inducing price pressures on our imports.

The Fed is sending signals it’s fine with this kind of inflation at least as long as they are forecasting the risk of weaker domestic demand as a result (somehow) of financial concerns. And because they analyze the risks as if we had a fixed exchange rate they see the risks of supply side credit issues as those of the great depression of the 1930’s. Doesn’t happen with today’s floating fx.

Don’t know when/if the Fed ‘figures it out’ but the curve can go from wherever it is to seriously negative should the Fed hike aggressively to ‘get ahead of the inflation curve.’

The inflation is coming from non monetary sources – monopolist pricing in oil, biofuels linking food to fuel, portfolio shifts out of $US due to US political rhetoric and apparent Fed policy of inflating your way out of debt without concern for the value of the currency. Enough to scare any portfolio manager out of $US risk.

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2008-01-14 EU Highlights

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European News Headlines:

Europe Industrial Production Falls for Second Time in 3 Months

Fed beggar they neighbor policy robbing some demand.

European Bonds Gain on Speculation ECB Won’t Lift Interest Rate

inflation on the rise

Bonello Says Inflation May Slow to 2% by End of Year

He also says this will happen if oil and other prices come down ‘as expected’- must be looking at futures prices.

Italian Industrial Output Falls for Third Month in November
Norway Expects to Drill 35 to 40 Oil-Exploration Wells in 2008

High prices may bring out more supply – some day.

Icelandic January Inflation Holds at Highest Since March

same everywhere

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No recession, yet..

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real-gdp.gif

  • No Recession, yet..

new-home-sales.gif

  • Demand drop of 1% of GDP began over a year ago when home buying by subprime borrowers ceased..

current-account-balance.gif

  • And exports picked up the slack.
    And with housing as low as it is, further reductions, if any, will have minimal macro effects.
  • Losses not that large so far, only about $100 billion in write offs have been announced and with at least some prospects of recovery.
    Far less than the 1998 (inflation adjusted) losses, for example, when $100 billion was lost in just the first day when Russia defaulted August 17 with no prospects of recovery.
  • Financial sector looses are not direct reductions of aggregate demand, just the ‘rearranging of financial assets.’
  • Falling demand due to supply side credit issues and capital constraints are primarily fixed exchange rate phenomena and are rare and brief with floating exchange rate policy and a non convertible currency.
    Even in Japan with a floating exchange rate, when most bank capital was lost, credit expansion was a function of demand, while with fixed exchange rates, supply side issues dominated – Argentina, Russia, Mexico, the US in the 30s (gold standard), and the panic of 1907 Governor Mishkin referenced in his speech.

government-spending-trailing-twelve-months.gif

  • Government spending has been ‘moved forward’ from 2007 to 2008. Friday reported up over 8% year over year (NOTE: graph not updated for this last data point.)
  • Alt minimum tax capped helps demand some in 2008.

personal-spending-personal-income.gif

  • Personal income and spending not falling.
  • No econometric evidence of a significant ‘wealth effect’ from asset prices on the way up or on the way down. Income is better correlated.
  • Government employees and pensioners got GPI pay increases. This ‘half’ of the demand side keeps growing at 5% + nominal rates so to go into recession, the other half has to go down more than that.

government-revenue-trailing-twelve-months.gif

  • Government tax receipts still rising.

initial-continuing-claims-4-wk-mvg-avg.gif

  • Jobless claims remain too low for a recession.

labor-participation-rate.gif

  • Labor force participation rate climbing even as demographics suggest natural drift lower.

cpi-core-cpi-pce-price-index-core-pce.gif

export-prices-crb-index.gif

iron-steel-scrap-prices.gif

  • World and domestic demand is strong enough to support elevating prices of food, energy, and rising US imports and export prices.

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NYC Tourism

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Dollar weak enough to support exports:

NYC hits tourism record

by Samantha Gross

NEW YORK (AP) – With a falling dollar sweetening the deal for international travelers, a record-setting number of tourists visited
the city last year, spending an estimated $28 billion, tourism officials said Sunday.

With a final count still pending, the city’s tourism office said an estimated 46 million people had visited the city in 2007 — up 5
percent from 2006. The jump was largely due to visitors from other countries, who numbered an estimated 8.5 million — a growth of 17 percent.

George Fertitta, chief executive of city tourism office NYC & Company, said the visitors were drawn by more than a favorable exchange rate and the city’s international marketing efforts.

“The city is more vibrant, cleaner and safer — and it’s just more exciting than ever before,” he said.

The portion of the city’s tourists who were from other countries had dwindled since the Sept. 11 attacks, and last year’s growth returned the ratio to pre-2001 levels.

The city has been working to draw such international visitors, who stay longer and spend more money. NYC & Company has launched an overseas television, print and billboard campaign, and in 2007 it more than doubled its marketing offices overseas, targeting countries including China, Brazil and Canada.

New York is one of only a few U.S. urban centers that did not see a drop in the number of overseas visitors between 2000 and 2006.

Mayor Michael Bloomberg has said he wants the city to attract 50 million travelers each year by 2015. Last year, visitors to New York spent $4 billion more than they had the year before.

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Indexing French wages

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A bit of structural inflation being introduced:

Sarkozy Plans to Index Civil Servants’ Salaries to Inflation

by Helene Fouquet and Francois de Beaupuy

(Bloomberg) French President Nicolas Sarkozy said he’d index civil servants’ salaries to inflation and make good on unpaid overtime hours to improve their purchasing power.

“It’s a fact that some civil servants have lost some purchasing power in recent years,” Sarkozy said today in a speech to civil servants in the northern city of Lille. “We’re going to introduce a purchasing power guarantee” to ensure that pay increases match “at least the inflation rate.”

He reiterated that he wants to reduce the number of civil servants and to use half of the savings for pay raises.

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