Archive for November, 2013

Giving Thanks

Wednesday, November 27th, 2013

Given our general grumpiness and Chicken Little attitude about current economic policies, you might think we’re not big on giving thanks.  Not true.

We love Thanksgiving.  This uniquely American holiday is not just about overeating, pilgrims and football.  It’s a time when markets stop moving, politicians stop making bad decisions and stress takes a holiday.  So we have much to be thankful for, even with the economy stuck in neutral.

Thankfulness, though, is all relative.  You may have lost your life’s savings on your investment in a chinchilla farm, but still be thankful to be alive.  Or you may be in despair, because you’ve dropped a few notches on the Forbes 400 list.

Larry Summers

Larry Summers

Yet, if we try hard enough, we can all find something to be thankful for.  For example …

Fed Chairman Ben Bernanke can be thankful that his term will end before quantitative easing causes the U.S. economy to collapse.  As Charles Hugh Smith wrote in the OfTwoMinds blog, “When the multiple bubbles burst and the financial house of cards comes crumbling down, Ben Bernanke will be comfortably secure, far from the consequences of his policies.”

Larry Summers can be thankful he took his name out of the running to be Chairman Bernanke’s successor.  The former economic advisor to President Obama has been saying truly crazy things, such as admitting that it’s not a good idea to run huge budget deficits every year and that quantitative easing (QE) for years with no end in sight raises serious concerns.  Can you imagine the trouble he’d make if he was named Fed chair?

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Taperphobia Hits Wall Street

Friday, November 22nd, 2013

A taperphobia epidemic has Wall Street in a panic yet again.  “Taperphobia” is an irrational fear of common sense.  Symptoms include a falling stock market, soaring bond yields and ongoing anxiety attacks.  There is a cure, but it’s expensive – it costs at least $85 billion a month, but that’s enough to cure all of Wall Street and send the stock market soaring.

Taperphobia was discovered by Federal Reserve Chairman Ben Bernanke in May, when he invented a new definition for the word “taper,” using it to describe the gradual slowdown of quantitative easing (another phrase he invented, which translates to “buying bonds forever”).Philly Fed

Symptoms of taperphobia subsided through calm reassurances of ongoing bond buying to eternity, but they returned in October, because most economists had predicted with absolute certainty that tapering would begin then.

It didn’t, so taperphobia subsided again.  But now, thanks to discussions by board members included in minutes of the Federal Reserve Board, many believe that tapering will begin soon.

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Breaking China

Friday, November 22nd, 2013

If the United States relies on China as its main lender, what happens when China is having difficulties with its debt?

We may soon find out.  As the Financial Times reported, “several banks have had to delay or dramatically reduce Chinese bond issues as the impact of a tight onshore credit market begins to be felt.”China

Zerohedge noted that Chinese bond issuers are dealing with the drying up of interbank market liquidity, increased competition from wealth management and trust products, and other problems.  At the same time, one analyst said, “China is much more funding dependent than in the past.”

Chinese issuers are steering around their problems by increasing offshore issuance, raising a record $51.6 billion outside of China so far this year, which is more than double the $24.5 billion raised in the same period last year, according to Dealogic.

Unless the People’s Bank of China changes its attitude on liquidity, the analyst said, “it’s going to end pretty ugly.”

Define “Forever”

Friday, November 15th, 2013


In May, when Fed Chairman Ben Bernanke said that quantitative easing could not continue forever, the stock market tanked and the word “tapering” became the most feared word on Wall Street.

This past week, during her Congressional hearing as President Obama’s nominee to become the next chair of the Federal Reserve Board, Janet Yellen said, “QE cannot continue forever.”  The market moved higher.

Is it Ben morphing into Janet or Janet morphing into Ben?

Is it Ben morphing into Janet or Janet morphing into Ben?

Both the current Fed chair and his assumed successor assured us that the party’s not over, that there are still plenty of bonds to be bought.

But “forever” seems farther away now that it was back in May.

Ms. Yellen made it clear during her hearing that there’s still plenty of work for QE to do.  Citing high unemployment, she said, “It is important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited.”

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The Economy Is Booming – Unless You’re A Consumer

Friday, November 8th, 2013

At least it sounds like good news.

The U.S. Bureau of Economic Analysis announced that the economy grew at a rate of 2.84% during the third quarter.  That’s up significantly from recent growth, which has been below 2%.

But if you find a silver lining in today’s economy, it’s sure to be surrounded by a black cloud.  There are a few black clouds in this report:

  • Preliminary numbers are almost always wrong.  Funny how sometimes they’re overly optimistic.
  • In spite of the higher growth rate, consumer spending is at its lowest level since the second quarter of 2011.  In a healthy economy, consumer spending usually drives growth.
  • Fixed investment, an indication of capital spending, dropped from 0.96% in the previous quarter to just 0.63%.
  • Inventory doubled from 0.41% the previous quarter to 0.83% of the 2.8%.  An increase in inventory is an underwhelming sign of economic growth.

Interestingly, government grew 0.04%, in spite of sequestration cuts.  The numbers predate the 16-day government shutdown.

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It’s a Dove! It’s a Hawk! No, It’s a Dowk!

Friday, November 1st, 2013

The Federal Open Market Committee issued a statement this week and no one knows what it means. 

A Forbes headline on Wednesday said, “FOMC Statement Dovish,” but on Thursday, the same reporter updated his story and the headline referred to the, “Hawkish FOMC Statement.”  FXStreet called the statement, “less dovish than expected” on Thursday and in a separate story called it “slightly less dovish.”  Meanwhile, Business Insider said, “It’s ‘hawkish’ on balance.”

So is it a hawk or a dove?

What a Dowk looks like.

What a Dowk looks like.

It’s neither and both; it’s a dowk, with the head of a dove and tail of a hawk.  Or maybe it’s a hove, with the head of a hawk and tail of a dove.  Whatever it is, it’s not flying.

Markets have deemed that it wasn’t dovish enough or maybe it was too hawkish.  Some expected a strong statement about continuing (or even increasing!) bond purchases because of the temporary government shutdown’s expected drag on economic growth … as if the economy were growing before the shutdown.

Instead, The Fed settled on more of the same.  As Business Insider put it: “There were no changes in the policy rate or adjustment to $85bn asset purchases. The committee made few changes to the statement and keep the key phrase ‘decided to await more evidence that progress would be sustained before adjusting the pace of purchases.’ “

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