Bernanke text

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Just when you think he’s making progress:

>   
>   (email exchange)
>   
>   On Thu, Feb 3, 2011 at 1:41 PM, Cullen wrote:
>   
>   After a glimpse of hope from some of Bernanke’s speeches late last year
>   he appears to have suffered some sort of memory loss as he is once again
>   talking about the dangers of the govt debt:
>   

Bernanke:

By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit.

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Comments on Non-Mfg ISM

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Looks from the chart we’re getting close to the post Bush tax cut, coming out of that recession highs, so we’re on track for our 3-5% read gdp growth guestimates.

And the high productivity reported today reinforces our thoughts on unemployment coming down only slowly as well.

Last time around the expansion phase of what became the sub prime crisis was a substantial contributor to private sector credit growth. Without that kind of contribution from somewhere else, this recovery could be more modest than the last.

For exports to be sustained, the govt would have to keep the dollar down with fx purchases and reserve building, which in my humble opinion isn’t going to happen. That means the adjustment takes place via a climbing US dollar that continues until it dampens exports. Much like what the euro zone has experienced for the last decade or so.


Karim writes:

Multi-year highs for overall index, new orders (3rd highest on record-chart attached), and employment.
Anecdotes also very positive.

  • “New initiatives creating increase in spending.” (Finance & Insurance)
  • “Indications are that business is picking up and that 2011 could see positive growth across many industries. We are seeing an increase in orders at the beginning of the year.” (Professional, Scientific & Technical Services)
  • “Starting to see higher prices in many areas. Low inventory levels are leading to longer delivery time frames.” (Public Administration)
  • “Business uncertainty seems to be subsiding.” (Management of Companies & Support Services)
  • “Business activity is picking up. The challenges in the textile market (cotton/polyester) are significantly impacting price along with the inability to secure pricing for a period longer than two months.” (Accommodation & Food Services)
  • “2011 looking better than 2010.” (Information)



Jan Dec
Composite 59.4 57.1
Business activity 64.6 62.9
Prices Paid 72.1 69.5
New Orders 64.9 61.4
Backlog of Orders 50.5 48.5
Supplier Deliveries 53.5 51.5
Inventory Change 49.0 52.5
Inventory Sentiment 60.0 61.5
Employment 54.5 52.6
Export orders 53.5 56.0
Imports 53.5 51.0

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Refining Concerns Overshadow Higher Shell Profit

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It’s an agonizingly slow process, but it is starting to feel like the world is turning away from crude oil consumption.

The Saudis are the swing producer, and can set price at any level they wish.
But if they set the price ‘too high’ over time demand shifts away from them due to both conservation and substitution.
(And if they set the price too low, consumption rises to eventually use up their excess capacity.)

It’s feeling to me like they have the price high enough to both cool consumption through both conservation and substitution, as evidenced by the demand for refined products discussed below and charts I’ve posted previously.

And slowly but surely the price of crude- as well as the unattractiveness of being dependent on it and the negative connotations of burning fossil fuels in general- is driving the investment and technology for both better fuel economy and a long term switch to electric power for transportation, as well as for a shift away from fossil fuels in general.

In theory a monopolist like the Saudis might respond by dropping the price to a level that discourages/crushes the investments associated with the switch out of crude- maybe $40 per barrel. But there’s no sign of that yet, and they may not want to dip into their cash reserves to the extent needed to support a move like that.

Nor, alternatively, with what’s going on in the region, might they believe then can afford politically to apply that much austerity to their population.

Also, this is all fundamentally $US friendly, and works to offset the negative impact on the dollar from higher crude prices per se.

Refining Concerns Overshadow Higher Shell Profit

By Sarah Young

February 3 (Bloomberg) — Shell disappointed investors on Thursday with below-forecast fourth-quarter profit, with concerns over its refining business overshadowing a sharp rise driven by higher oil prices.

The results followed strong earnings from Chevron and Exxon Mobil, although BP, struggling to put the Gulf of Mexico oil spill behind it, fared less well.

Shell shares fell 3 percent, with analysts saying they had expected more and expressing concern over continued weakness in the Anglo-Dutch oil major’s refining business, with oil product sales rising just 5 percent year-on-year.

“Our earnings were impacted by weak refining margins, pressure on certain regional natural gas prices, and volatility in downstream marketing margins as a result of rising oil prices,” Shell said.

Arbuthnot analyst Dougie Youngson said margins would be under increased pressure if oil prices remained at around $100 a barrel for long.

Benchmark U.S. crude prices averaged about $85 per barrel in the fourth quarter, up from $76 in the fourth quarter of 2009, but have since risen to above the $100 mark.

“The global market continues to see weak demand and pricing for oil products,” Youngson said in a note.

Shell said that despite a year-on-year improvement its refining results were lower compared with the third quarter because of “increased downtime at major refining facilities.”

Shell’s earnings on a current cost of supplies (CCS) basis, jumped to $5.7 billion from $1.2 billion a year ago when it suffered heavy refining losses. But Jos Versteeg, an analyst at Theodoor Glissen, said this was still less than anticipated.
Excluding non-operating and one-off items the fourth quarter result was $4.1 billion, short of a forecast for $4.85 billion, according to a Reuters poll.

Analysts welcomed Shell’s announcement of a $0.42 dividend for the quarter and the fact it expected to maintain that level for the first quarter of 2011.

Shell’s planned capital investment of $25-$27 billion for 2011 was also well received, with Sanford Bernstein’s Oswald Clint saying capex appeared under control.

However, Arbuthnot’s Youngson said he was concerned about Shell’s focus on gas, given continued price weakness and oversupply forecasts.

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U.K. Service Industries Return to ‘Pre-Snow’ Growth

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Still looks to me like the govt deficit is plenty high enough to support at least modest gdp growth until the pro active austerity measures actually reduce it.

UK Headlines:

U.K. Service Industries Return to ‘Pre-Snow’ Growth

Inflation Could Force Bank of England to Raise Interest Rates, Says Deputy Governor Charlie Bean

UK Faces US-style Jobless Recovery, Says Institute for Fiscal Studies

Wealthy Britons Planning to Increase Spending in 2011, HSBC Says

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Brussels May Punish German Competitiveness, Die Zeit Reports

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And stupider.

Maybe the world should outlaw lawnmowers and require lawns be cut with toenail clippers to create jobs. I’d suggest they were trying to weaken the euro but surely that would be giving them too much credit…

Brussels May Punish German Competitiveness, Die Zeit Reports

By Jeff Black

February 2 (Bloomberg) — European Union officials are considering measures that would punish countries that run excessive trade surpluses or whose competitiveness is too high, Germany’s Die Zeit newspaper reported, citing a document.

The proposed measures, outlined in a position paper obtained by the newspaper, would require states to keep their current account balance within a “corridor” of plus or minus four percent of gross domestic product, Die Zeit said.

A similar boundary would apply for the yearly change in unit labor costs, a measure of price competitiveness, the newspaper said. In 2008, Germany’s current account surplus was 7 percent of GDP and its price competitiveness improved by 5.5 percent, Die Zeit reported.

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ISM- Obama boom!

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Karim writes:

Across the board strength. More evidence that the inventory drag in Q4 was involuntary (demand running well ahead of production). While some of these figures may cool, the order backlog and supplier delivery indices (lead times) suggest very strong data for the next few quarters.

  • Overall index: Highest since May 2004
  • New orders: Highest since Dec 2003
  • Employment index highest since April 1973
  • Export orders: Highest since Dec 1988



ISM Jan Dec
Index 60.8 58.5
Prices paid 81.5 72.5
Production 63.5 63.0
New Orders 67.8 62.0
Backlog of orders 58.0 47.0
Supplier deliveries 58.6 56.7
Inventories 52.4 51.8
Customer inventories 45.5 40.0
Employment 61.7 58.9
Export Orders 62.0 54.5
Imports 55.0 50.5

Yes, manufacturing is being led by exports, which tells me to watch for a dollar rally.

The problem is crude is moving higher, but that may be temporary and fall back as the Egyptian crisis gets resolved, if the Saudis don’t support the higher prices. And the US cost advantage with the dollar at current levels could drive the dollar higher even with the higher crude prices.

The federal budget deficit remains plenty high to support the 3-5% reported real growth, which is enough to bring unemployment down some as well with productivity running maybe 2.5% or so, but unemployment probably won’t fall fast enough for the Fed to declare victory anytime soon. And with core inflation numbers still decelerating the Fed continues to see itself ‘failing’ on both mandates as Chairman Bernanke reported in his last address.

For the Fed, the GDP growth limit is as high as possible without jeopardizing price stability. While they have calculated that should be around the 3-4% real growth level, if the evidence supports higher rates of gdp growth with price stability they should in theory have no problem with higher levels of real growth.

Risks remain China, Europe, and US fiscal tightening, as well as a sharp spike in crude prices

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EU Daily | Europe Manufacturing Growth Quickens to 9-Month High

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As previously discussed, it doesn’t get any better than this from a German point of view.

And it could be several more months or quarters before the austerity hits them.

EU Headlines

Europe Manufacturing Growth Quickens to 9-Month High

Europe Unemployment Remains Near Highest in More Than 12 Years

ECB pauses bond purchases as crisis eases

German January Unemployment Falls to 18-Year Low

France Won’t Lift Sales Tax Rate Right Now, Lagarde Says

Spanish Bank Tackles Toxic Assets

Italian Unemployment Rate Holds Near 7-Year High in December

Central Bank cuts Ireland’s outlook over austerity

Greece confident over new rescue loan installment

Industry warns Europe on competitiveness

Spain’s Salgado Says EU Rescue Fund Should Be More Flexible

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Tevatron Is Shutting Down

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>   
>   (email exchange)
>   
>   On Tue, Feb 1, 2011 at 2:30 AM, Roger wrote:
>   
>   This is sad & pathetic
>   

Agreed.

It’s being shut down for the wrong reason.

Add all this to ever growing real cost of not understanding the monetary system.

The Tevatron Is Shutting Down And You Know What That Means

By Courtney Comstock

January 31 (Business Insider) — The Tevatron, the particle collider that has been smashing together subatomic particles in Illinois since 1983, will be shut down by late 2011.

The Large Hadron Collider in Geneva does the same thing, only 7 times faster, and so the Tevaton has lost funding ($50 million per year) from the Department of Energy, according to the New York Times.

It’s sad for everyone except Wall Street.

For everyone else it means:

  • We’re losing some of our science edge to Europe
  • 1,200 physicists are out of a job
  • Particle physics might not be advanced as soon as everyone hoped
  • We might be at least one step further away from understanding the big stuff, like how the world works

For Wall Street it means that 1,200 physicists, aka potential quant material, are available for hire.

And as someone pointed out in a letter to the editor, Wall Street loves hiring quants!

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China Central Bank says Fed easing ineffective, dangerous

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I suspect they know better but continue to play us for the fools we have proven to be.

Fortunately they want to net export…

China c.bank says Fed easing ineffective, dangerous

January 30 (IBTimes) — Quantitative easing by the Federal Reserve and other central banks cannot address fundamental economic problems but may lead to excessive global liquidity and competitive currency depreciation,China’s central bank said on Sunday.

In its monetary policy report for the final quarter of 2010, the People’s Bank of China (PBOC) also confirmed that it would target 16 percent growth of the broad M2 measure of money supply this year, down from the 19.9 pct growth recorded at the end of 2010.

The central bank said the Fed’s monetary easing was pushing up international commodity prices and asset prices in emerging markets, including China.

“Quantitative easing policy cannot fundamentally address economic problems, and it may cause excessive liquidity on a global scale as well as risks of competitive currency depreciation,” the Chinese central bank said in its 59-page report.

“It is creating imported inflation and short-term capital inflows, pressuring emerging markets,” it said.

As a result, China needed to work hard to soak up liquidity from foreign exchange inflows in order to minimize the impact on the domestic economy, it added.

The central bank reiterated that it would keep the yuan CNY=CFXS basically stable while making the exchange rate regime more flexible.

The central bank said it would continue to use different tools, including interest rates, bank reserve requirements and open-market operations, to rein in money supply and bank credit growth as a way of handling inflationary pressure.

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Inflation Slowing China’s Export Engine

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This is the force that ‘naturally’ brings the currency into line, and then can make it a lot weaker.

And the only way China knows to ‘fight it’ is probably with moves that will will result in a recession.

Inflation Slowing China’s Export Engine
Published: Sunday, 30 Jan 2011 | 10:46 PM ET

Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific.

Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers. But from Vietnam to India, few low-wage developing countries can match China’s manufacturing might — and no country offers refuge from high global commodity prices.

Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports.

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