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Saturday, July 17, 2010
Behind the Credit Numbers: (Deleveraging Will Continue)
During the past week there has been a flurry of Federal Reserve reports and commentary concerning the levels of credit in the current economy. The two most notable were:► On July 8th they reported that the level of seasonally adjusted outstanding U.S. Consumer Credit (their G.19 report) decreased during May by $9.1 billion, representing an annualized rate of credit contraction of 4.5%. Although even this change is above the average for the preceding twelve months, it is much smaller than a quiet revision to the previously published April U.S. Consumer Credit figure -- which is now reported to have decreased by $14.9 billion (a 7.3% annualized contraction rate).
The Federal Reserve fails to put these numbers into perspective:
1) Consumer credit has contracted during 15 of the past 16 reported months, and it is down a record total $148 billion over that time span. (more)
Norris: How to Tell a Nation Is at Risk
Which governments will not be able to pay their bills?
The ones with private sectors that are not doing well enough to bail out the government.
That should be one lesson of the near default this year of the Greek government. Government finances are important, but in the end it is the private sector that matters most.
If so, those who focus on fiscal policy may be missing important things. Spain appeared to be in fine shape, with government surpluses, before the recession hit. Now Spain is being downgraded and has soaring deficits. (more)
BNN: 'Era of the fiscal stimulus is over': Rosenberg
BEST OF BNN: Noted bear David Rosenberg says the risk of a double-dip recession is growing. The chief economist at Gluskin Sheff tells BNN why he is bullish on bonds, and why he's worried about the affect fiscal tightening will have on the global economy.
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The Yo-Yo Market and You
provided by The Wall Street Journal,The stock market will suffer dizzy spells until the fog of monetary policy uncertainty is lifted.
Bull markets, it is said, climb a wall of worry. Smart investors buy in early when worries about profits or inflation or wars scare away the faint of heart. Latecomers then bid up stocks as each worry becomes unfounded, until there is nothing left to worry about. Once there is only good news, the market peaks as there is no one left to buy.
Bear markets, on the other hand, fall into what I like to call the pit of doom. Forget about worries—actual bad stuff happens, until nothing bad is left to happen and the market bottoms as there is no one left to sell.
From early May through last week, the market dropped 1500 points into the pit, on the backs of gushing BP oil, riots in Europe, a 30% drop in pending home sales and the news that maybe your next door neighbor is a Russian spy. But now we've seen 680 Dow points added over seven straight up days before a sharp end-of-week decline. What the heck is going on? (more)
Treasury Prices Rise On Weak Consumer Data; Post Weekly Gains
DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Prices of Treasurys rose Friday as a soft consumer-sentiment report added to concerns about the U.S. economic outlook, bolstering demand for safe assets.
The bond market posted a weekly price gain, with the benchmark 10-year note's yield down by more than 10 basis points. Investors flocked to Treasurys as weak economic releases this week, ranging from reports on consumers to the manufacturing sector, cemented arguments among many participants that the economic recovery could falter in the second half of the year.
The Federal Reserve has cut its outlook for the economy and inflation, according to minutes of the central bank's June policy meeting. That fed a growing belief in financial markets that the Fed is likely to keep interest rates at record lows near zero well into 2011 to prevent another downturn in the economy, thus supporting lower bond yields.
"In order for yields to rise, economic data need to strengthen substantially enough to boost job growth, because it is what is needed to promote a self-reinforcing condition for the U.S. economy," said Tony Crescenzi, portfolio manager at Pacific Investment Management Co., or Pimco, in Newport Beach, Calif. "Absent meaningful job growth, both inflation and the Fed's policy rate will stay low, supporting Treasury prices." (more)
NEW YORK (Dow Jones)--Prices of Treasurys rose Friday as a soft consumer-sentiment report added to concerns about the U.S. economic outlook, bolstering demand for safe assets.
The bond market posted a weekly price gain, with the benchmark 10-year note's yield down by more than 10 basis points. Investors flocked to Treasurys as weak economic releases this week, ranging from reports on consumers to the manufacturing sector, cemented arguments among many participants that the economic recovery could falter in the second half of the year.
The Federal Reserve has cut its outlook for the economy and inflation, according to minutes of the central bank's June policy meeting. That fed a growing belief in financial markets that the Fed is likely to keep interest rates at record lows near zero well into 2011 to prevent another downturn in the economy, thus supporting lower bond yields.
"In order for yields to rise, economic data need to strengthen substantially enough to boost job growth, because it is what is needed to promote a self-reinforcing condition for the U.S. economy," said Tony Crescenzi, portfolio manager at Pacific Investment Management Co., or Pimco, in Newport Beach, Calif. "Absent meaningful job growth, both inflation and the Fed's policy rate will stay low, supporting Treasury prices." (more)
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