Author Archives: WARREN MOSLER

OPEC cuts production by 1.5 million barrels a day

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I take this as a signal that the Saudis (and probably Russians as they just met with the Saudis) have decided to hold or raise prices and let quantity sold adjust.

Fuel prices are low enough to restore growth in demand with any positive economic performance.

Oct. 24, 2008

The Organization of Petroleum Exporting Countries decided to make a deep cut in oil production, taking 1.5 million barrels a day off global markets as it embarks on the task of managing prices amid a potential global recession.

December light, sweet crude oil futures fell $3.34 to $64.50 a barrel in electronic trading on the New York Mercantile Exchange by midday in London.


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What’s next for the Fed?

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Bernanke may seek new ways to ease credit as Fed rate nears 1%

By Craig Torres

Oct. 23 (Bloomberg) — Federal Reserve officials are likely to bring interest rates down so aggressively over the next few months that they will have to search for fresh tactics to continue easing credit.

All that’s left is the Fed buying longer term treasury securities to attempt to flatten the curve, get mortgage rates down, and add reserves.

This will ‘flood the market’ with reserves that now pay interest, so they can do this without a zero interest rate policy.

Their theory is that with more reserves banks will lend more, which is not the case, both in theory and practice, as Japan proved not long ago.

Instead of the Fed buying long term securities the treasury should simply stop issuing them and issue more bills. The treasury not issuing longer term securities is functionally the same as the treasury issuing them and then the Fed buying them. But with a lot fewer transaction costs.


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Fed relying on ratings agencies?

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Ironically (?) after reading all the criticism of private sector lenders relying on ratings agencies rather than internal analysis I see this:

GE to use Fed’s commercial paper facility next week

By Rachel Layne and Scott Lanman

The Fed is setting up the special fund to buy commercial paper, and will start the program on Oct. 27. The U.S. Treasury will make a $50 billion deposit into the fund as an indication of support. The Fed said the maximum amount of commercial paper that could be funded by the facility is about $1.8 trillion.

The central bank will buy only debt with the top short-term ratings of A-1, F1 and P-1 given by Standard & Poor’s, Fitch Ratings and Moody’s Investors Service respectively. The facility provides for 90-day borrowing which may help lengthen the time periods for which liquidity is available.


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2008-10-24 USER

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Existing Home Sales (Sep)

Survey 4.95M
Actual 5.18M
Prior 4.91M
Revised n/a

 
A little surprise blip up as foreclosed property sellers hit bids.

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Existing Home Sales MoM (Sep)

Survey 0.8%
Actual 5.5%
Prior -2.2%
Revised n/a

 
Same as above.

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Existing Home Sales YoY (Sep)

Survey n/a
Actual 1.4%
Prior -10.7%
Revised n/a

 
Same as above.

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Existing Home Sales Inventory (Sep)

Survey n/a
Actual 4.266
Prior 4.335
Revised n/a

 
Lower inventories means foreclosures are being sold at a faster rate than new loans are going into foreclosure.

That’s a good sign.

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Existing Home Sales ALLX 1 (Sep)

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Existing Home Sales ALLX 2 (Sep)


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ECB USD tender

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Haven’t been able find the latest total on USD swap lines advances by the Fed.

But at the last ECB tender they set the rate above ‘market rates’ and didn’t get a lot of takers for that reason.

I suspected that would leave the market short USDs and USD LIBOR would trade up until the next tender when the size would again pick up as shorts scramble to cover.

Seems to be happening.

ECB USD tender

Time Euro (Euro change) Sterling (Sterling change) Dollar (Dollar change)
Overnight 3.55625 (-0.01125) 4.56250 (-0.01875) 1.20625 (+0.08750)
1 Week 3.92750 (+0.03000) 4.97500 (-0.04375) 2.19750 (+0.02875)
2 week 4.04250 (-0.00750) 5.42500 (-0.03750) 2.55375 (+0.03500)
1 month 4.58750 (-0.00875) 5.81125 (-0.03375) 3.25875 (-0.01625)
2 month 4.73125 (-0.01250) 5.93750 (-0.03500) 3.38625 (+0.00250)
3 month 4.91500 (-0.01000) 6.00500 (-0.03375) 3.53500 (-0.00625)
6 month 4.99313 (-0.01312) 6.12500 (-0.02250) 3.53000 (+0.04750)
1 year 5.05500 (-0.02625) 6.21875 (-0.03500) 3.50250 (+0.07875)
3 month LIBOR/OIS Spread (bps) 171.60000 (+8.500) 219.40000 (+0.100) 251.85000 (-0.275)


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Re: Russia/OPEC

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(email exchange)

Thanks! it’s all about price setting, as previously suspected.

Warren

>   
>   On Thu, Oct 23, 2008 at 10:09 AM, Scott wrote:
>   
>   Moving on, we note that Russia and OPEC held high level talks
>   yesterday in Moscow as President Dmitry Medvedev met with OPEC’s
>   Secretary-General, Abdallah Salem al-Badri. This is, to the best of our
>   knowledge, the first such “summit” meeting between Russia and OPEC.
>   The talks, apparently, were to discuss the volatile oil market, and it
>   appears that Moscow is pushing for wider and more open co-operation
>   with other world energy producers. Neither the Kremlin nor OPEC
>   released details of the meeting, but before the talks between he and
>   Mr. Medvedev began, Mr. al-Badri dispensed with the idea that he’d
>   come to Moscow to ask for an output reduction. Obviously we do not
>   believe that statement, nor should anyone else. It is in OPEC’s best
>   interest to get Russia, Norway, and any other large… or soon to be
>   large, such as Brazil… to curtail production. Further, the ‘summit’
>   followed an agreement between Russia, Qatar and Iran to consult with
>   one another on the natural gas market, to possibly pursue joint
>   projects and perhaps to create their own nat-gas cartel. Mischief is
>   afoot. We can just sense it.
>   


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Canada News | Ottawa to guarantee inter-bank lending

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Excellent move!

Someone finally understands that the CB demanding collateral from its own regulated banks is redundant for ‘local currency’ lending to member banks.

The Fed should have done this long ago and saved a year of financial turmoil, as I’ve been proposing for a long time.

This means bank failures will be due to solvency, and not liquidity.

Ottawa to guarantee inter-bank lending

By Kevin Doherty

OTTAWA — Canada’s government will guarantee the lending the country’s banks do with other financial institutions.

Finance Minister Jim Flaherty said Thursday the government is establishing the Canadian Lenders Assurance Facility on a temporary basis to backstop wholesale lending.

Mr. Flaherty said he is establishing the lending facility to ensure Canadian banks aren’t left at a competitive disadvantage. More than a dozen countries have pledged hundreds of billions of dollars to guarantee interbank lending.

Banks will access the insurance from the facility on commercial terms. Mr. Flaherty said there will be no cost to taxpayers.

“This is a proactive step,” Mr. Flaherty told reporters. “There is this concern that our institutions could be disadvantaged competitively.”


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