Showing posts with label FED. Show all posts

Rosenberg On Why Fighting The Fed In Real Terms Has Been Very Successful

Today, David Rosenberg has some good commentary which proves that those who say to not fight the Fed, may be 100% wrong when it comes to fighting adjusted for inflation, or as the case may be - deflation (conveniently, few talk about what bothers even seasoned hedge fund managers such as David Einhorn - i.e., "corn and oil"). And Rosie is spot on: the deflation in all credit-intensive purchases is accelerating, and will accelerate because the only thing that matters, as we have claimed for over a year, is the shadow capital/credit contained in the shadow banking system. That is the number that is collapsing at a rate of more than half a trillion per quarter. No matter what Bernanke does to M2 will even remotely offset this deleveraging deluge. Which is why we have long claimed that the only trump card Bernanke has is to devalue the dollar (both relative to other currencies and absolutely - relative to gold) to the point that its fate as a reserve currency is imperiled, ostensibly leading to a monetary crisis. One is free to name the resulting chaos in dollar denominated prices as one sees fit. But the bottom line is that as long as the shadow banking system continues to contract, which it will for years as the bulk of the funding came from European and Japanese banks: both of which are now gripped in austerity, and not really flooded with leveraged depositor money, everything else is merely a short-term blip on a long-term decline in both economic output and market terms. Also known as noise.

As for Rosie's amusing views on why Fighting the Fed has actually been a very successful strategy in real terms, read below:

DEFLATION REMAINS THE PRIMARY RISK

The San Francisco Fed just published another great report titled The Breadth of Disinflation.

The fact that one of the most reliable research departments within the Fed system could publish such a report two years into the greatest experiment with fiscal, monetary and bailout stimulus and reflationary policies speaks volumes. Frankly, what it tells us is that the 4.3% yield on the long bond is extremely attractive in real terms.

The report found that prices are deflating now for 17% of the goods and services that people consume — “evidence that price declines are widespread.” At the start of the recession, only 34% of the consumption basket was posting disinflation or slowing price momentum. That number is now at 72% — nearly three of four items in the basket is disinflating. This is the same ratio we saw in 1981 but back then we had Volcker doing everything he could to kill inflation. Today we have Bernanke doing everything within his powers from a 0% funds rate to radical expansion of the central balance sheet to reignite inflation and all he can do is throw matches on a wet towel.

Don’t fight the Fed, indeed.

Since the first cut in the Fed funds rate on September 18, 2007 …

The S&P 500 has gone from 1,520 to 1,223.
The unemployment rate has gone from 4.7% to 9.8%.
Industry capacity utilization rates have gone from 81.5% to below 75%.
The 10-year note yield has gone from 4.5% to below 3%.
Housing starts have gone from 1.183 million units to 0.519 million.
Median real estate values have gone from $210,500 to $170,500.
Core inflation has gone from 2.1% to 0.6%.

Well done!

Below we again highlight the appropriate SIRP strategy for such an environment:

Focus on safe yield: High-quality corporates (non-cyclical, high cash reserves, minimal refinancing needs). Corporate balance sheets are in very good shape.
Equities: focus on reliable dividend growth/yield; preferred shares (“income” orientation).
Whether it be credit or equities, focus on companies with low debt/equity ratios and high liquid asset ratios — balance sheet quality is even more important than usual. Avoid highly leveraged companies.
Even hard assets that provide an income stream work well in a deflationary environment (ie, oil and gas royalties, REITs, etc…).
Focus on sectors or companies with these micro characteristics: low fixed costs, high variable cost, high barriers to entry/some sort of oligopolistic features, a relatively high level of demand inelasticity (utilities, staples, health care — these sectors are also unloved and under owned by institutional portfolio managers).
Alternative assets: allocate significant portion of asset mix to strategies that are not reliant on rising equity markets and where volatility can be used to advantage.
Precious metals: A hedge against the reflationary policies aimed at defusing deflationary risks — money printing, rolling currency depreciations, heightened trade frictions, and government procurement policies

www.zerohedge.com

Watch As David Einhorn Makes A Mockery Of One-Man Fed "Expert Network" Larry Meyer

One of the Fed's more arrogant former apparatchiks (of the "100% confidence" interval) Larry Meyer, currently at expert network Macroeconomic Advisors which is used by the likes of Pimco to get inside information on what the Fed will do at its upcoming meetings, appeared on CNBC earlier and attempted to school David Einhorn on "Economics 101." What ensued was yet another confirmation that these Ph.D's (a term we always use in the most pejorative, NC-17 context possible) who destroyed the world, have absolutely no idea what the hell they talk about, and make up bullshit scenarios on the fly. Luckily, it has gotten to a point where every incremental statement catches them in one lie or another. It has become grotesquely comic to watch their faces (as in Bernanke of 60 Minutes infamy) squirm as they realize that the end of the system they created and subsequently destroyed, is near.

A selection of Einhorn's questions:

"Part of the issue with the deflation is companies improve the quality of their products, so last month the PPI went down because we had a new car year, and they sold you a better car for the same price. Now why is it the Federal feel like you need to have a policy response to auto companies making better cars and selling them to you at the same price? Why do we need to drive up the cost of energy, and food, and cotton, to offset that?"
"I think if you drive up food and energy prices, which you don't count in the core PPI or CPI, I think if you don't count those things in the inflation, you may miss the inflation, and if people have to spend more money on food and energy, they have less money to buy other things, and that could prove to be a net reduction in economic activity..."

And while he is unable to respond to any of these (or other) all Meyer can do is assume the claim that easy monetary policy stimulates aggregate demand as factual, where Einhorn put the smackdown: "I think you can argue that, because we have gotten to the point where the transmission method [sic] is broken. You are trying to create a wealth effect which is another asset-based economy thing, it's very questionable whether higher stock prices cause lots of incremental demand, and you have the cost of food and energy which are real things that people have to pay for. And if you have to pay $3, $4 or $5 for gas, you have less money to go out to eat." Meyer's response once again: is nothing less than derisive laughter with no facts to support his claims whatsoever... except for falling back to Econ 101... which of course is not a science.

Lastly, Einhorn says: "I am worried about a bubble in corn and oil." The response - blame it all on China. "Commodity prices will go up but it's driven because Asia and China have adopted US monetary policy which is crazy for them. Absolutely crazy. And we can't do anything about that." And confirming our long-established theory that the Fed is doing nothing less than punishing the American people in order to get China to blink we hear the following from the entrenched demagogue: "That's no reason why we should keep interest rates higher, to benefit China and Asia, and prevent bubbles there, they have to do it themselves. Look in the mirror if you want to know whose problem this is."

So true: so let's create hyperinflation in the US, in the hope that Beijing will finally unpeg. It's official: the Fed is willing to sacrifice its people in order to win an intercontinental pissing match of a flawed and dying economic theory.

As for Larry, we are confident he will survive long after his entire life is proven to have been a hollow defense of a failed ideology: after all he is one of those "fly on the wall" Fed consultants who gets paid by the PIMCOs of the world to leak inside monetary information to the highest bidder. We would love to know: now that the Gerson Lehrman model is over, when will the true leak of critical inside information: companies such as Macroeconomic Advisors finally see either a subpoena by the AG or an FBI raid... After all what they do is identical to what all those other expert networks do day in and out. Only this time the stakes are that much higher (and the pool of beneficiaries that much, ahem Bill Gross, smaller).

www.zerohedge.com

CORRECTED - FED FOCUS-Chattier Bernanke tries to keep US Fed on message

By Pedro Nicolaci da Costa

WASHINGTON Dec 5 (Reuters) - Ben Bernanke is ready for his close-up.

As the Federal Reserve tries to counter suspicion of its latest $600 billion stimulus plan, it is making a concerted, if awkward, effort to raise the chairman's profile and harmonize the often-dissonant message from within the central bank.

One big fear Bernanke must counter stems from the Fed's bloated balance sheet: with some $2.3 trillion in reserves sloshing around the U.S. banking system, some economists and many Republican politicians say inflation is bound to get out of hand.

Another element of the Fed's image problem is the lingering stigma of Wall Street bailouts during the financial crisis, brought to light again last week by data revealing just how heavily major investment banks, including foreign ones, leaned on the Fed for survival.

Barely two years later, the same banks have returned to making handsome profits and rewarding executives with gold-plated pay packages, even as the U.S. unemployment rate remains near 10 percent.

An appearance by Bernanke on CBS television's "60 Minutes" program, to air on Sunday at 7 p.m. EST (0001 GMT), is the Fed's latest push to defend its controversial drive to lower borrowing costs from political encroachment and intense criticism from overseas.

In a first for a Fed chairman, Bernanke published an opinion piece in The Washington Post just hours after the bank launched a new round of monetary easing on Nov. 3. He has also appeared at two unscripted question-and-answer sessions on university campuses in recent weeks.

It will not be easy to fight the view that any Fed action, even a broad easing of monetary conditions, amounts to a bailout of the financial industry. About half of Americans are less confident in their central bank today than five years ago, according to a Thomson Reuters/University of Michigan survey published in November.

U.S. politicians, normally circumspect on matters related to interest rate policy, have not been shy about critiquing the Fed's bond purchases and the inflation risk they pose. Many Republicans want to rewrite the Fed's mandate to focus solely on inflation, dropping its aim to foster full employment.

"Once monetary policy becomes a political issue you have to try to appeal to a broader audience than Wall Street investors," said Maury Harris, chief U.S. economist at UBS.

"What's happened is that people treat it like it's another TARP," he added, referring to the Treasury Department's rescue fund for big banks. "It's viewed as, 'if the Fed is printing money they must be bailing out somebody.'"

U.S. economic growth, at just 2.5 percent in the third quarter, is still too sluggish to put a dent in the unemployment rate, which in November rose to 9.8 percent. Inflation remains low, giving officials comfort that they can ease monetary conditions without causing a surge in prices.

SPEAKING MORE TO SAY LESS

Communications have always been a tricky game for the Fed. Too little can leave financial markets in the dark, boosting uncertainty and volatility. Alan Greenspan, Bernanke's predecessor, tended more toward secrecy and became famous for his cryptic and sometimes unintelligible comments.

Fed Bailout Data Releases

Press Release

Release Date: December 1, 2010

For immediate release

The Federal Reserve Board on Wednesday posted detailed information on its public website about more than 21,000 individual credit and other transactions conducted to stabilize markets during the recent financial crisis, restore the flow of credit to American families and businesses, and support economic recovery and job creation in the aftermath of the crisis.

Many of the transactions, conducted through a variety of broad-based lending facilities, provided liquidity to financial institutions and markets through fully secured, mostly short-term loans. Purchases of agency mortgage-backed securities (MBS) supported mortgage and housing markets, lowered longer-term interest rates, and fostered economic growth. Dollar liquidity swap lines with foreign central banks helped stabilize dollar funding markets abroad, thus contributing to the restoration of stability in U.S. markets. Other transactions provided liquidity to particular institutions whose disorderly failure could have severely stressed an already fragile financial system.

As financial conditions have improved, the need for the broad-based facilities has dissipated, and most were closed earlier this year. The Federal Reserve followed sound risk-management practices in administering all of these programs, incurred no credit losses on programs that have been wound down, and expects to incur no credit losses on the few remaining programs. These facilities were open to participants that met clearly outlined eligibility criteria; participation in them reflected the severe market disruptions during the financial crisis and generally did not reflect participants' financial weakness.

The Federal Reserve is committed to transparency and has previously provided extensive aggregate information on its facilities in weekly and monthly reports. As provided by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, transaction-level details now are posted from December 1, 2007, to July 21, 2010, in the following programs:

Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)
Term Asset-Backed Securities Loan Facility (TALF)
Primary Dealer Credit Facility (PDCF)
Commercial Paper Funding Facility (CPFF)
Term Securities Lending Facility (TSLF)
TSLF Options Program (TOP)
Term Auction Facility (TAF)
Agency MBS purchases
Dollar liquidity swap lines with foreign central banks
Assistance to Bear Stearns, including Maiden Lane
Assistance to American International Group, including Maiden Lane II and III

Additionally, discount window and open market operation transactions after July 21, 2010, will be posted with a two-year lag.

The data made available Wednesday can be downloaded in multiple formats, including Excel, at www.federalreserve.gov/newsevents/reform_transaction.htm. The Excel files allow users to search, sort, and filter the data for each program in multiple categories. The site also provides explanations of each program as well as definitions for the data elements.

In the case of broad-based facilities, details provided include the name of the borrower, the amount borrowed, the date the credit was extended, the interest rate charged, information about collateral, and other relevant credit terms. Similar information is provided for the draws of foreign central banks on their dollar liquidity swap lines with the Federal Reserve. For agency MBS transactions, details include the name of the counterparty, the security purchased or sold, and the date, amount, and price of the transaction.

Banking giants leaned heavily on Fed in crisis

Flags fly outside 85 Broad St., the Goldman Sachs headquarters in New York's financial district, January 20, 2010.

Credit: Reuters/Brendan McDermid

By Pedro da Costa and Rachelle Younglai

WASHINGTON | Thu Dec 2, 2010 7:26am GMT

WASHINGTON (Reuters) - Goldman Sachs, Citigroup and other big U.S. banks repeatedly sought help from the Federal Reserve during the financial crisis, according to data on Wednesday that showed just how precarious their situation was at the time.

Many of the firms now boasting solid profits had to rely on funding from the U.S. central bank, which essentially acted as the glue holding the financial system together in the tumultuous months that followed the bankruptcy of Lehman Brothers in September 2008.

Citigroup, Morgan Stanley (MS.N) and Merrill Lynch, now part of Bank of America, were the three biggest recipients of the Fed's key emergency lending programs, according to a Reuters analysis of Fed data. Goldman Sachs was sixth on the list, contradicting claims from its top executives that the firm always had plenty of cash on hand.

"It appears the investment banks clearly needed the money," said Lawrence Glazer, managing director at Mayflower Advisors in Boston.

The Fed's disclosure of details of its $3.3 trillion in emergency lending, mandated by the Dodd-Frank financial reform bill enacted in July, showed Citigroup and Bank of America (BAC.N) leaning heavily on the U.S. central bank well into the spring of 2009.

It also indicated foreign financial institutions were big beneficiaries of the Fed's largess.

The U.S. central bank had fought efforts to pull back the veil on its secretive lending, and in the end Congress decided to demand only details of emergency programs, not past loans to commercial banks from the Fed's regular discount window.

Details on the Fed's loans of commercial paper -- short-term lending used to fund day-to-day business operations -- revealed a motley cast of characters: borrowers ranged from Korea and the German state of Bavaria to Verizon Communications (VZ.N) and Harley Davidson (HOG.N).

The results could reignite debate about whether some bailouts, such as the support for insurer AIG (AIG.N) and foreign banks, were appropriate. Still, U.S. stocks, which rallied on Wednesday on U.S. jobs and manufacturing data, greeted the release with a shrug.

"It will serve to remind folks that we were in a bad place and the Fed stepped in to help, but might also reopen some old political wounds," said John Cannally, economist at LPL Financial Boston. "It's interesting historical background but the market has largely moved on."

As the financial crisis that began in the summer of 2007 spread beyond the housing sector to the nation's biggest banks, the Fed, under the leadership of Chairman Ben Bernanke, devised increasingly complex facilities to help restore confidence.

Among these were loans to broker-dealers made outside the Fed's usual discount lending window for troubled institutions, which is reserved for deposit-taking commercial banks.

FOREIGN BANKS GET SUPPORT

The Fed made more than 1,300 loans under the Primary Dealer Credit Facility, or PDCF, set up for broker-dealers, with the largest -- $47.9 billion -- going to London-based Barclays (BARC.L), the Fed's data showed. The facility marked the first time since the Great Depression that the Fed had lent to non-depository institutions.

Many banks tapped the facility after it was launched in the wake of investment bank Bear Stearns' collapse in March 2008 but borrowing dried up by late summer.reuters.com

Gold, the EU and the Fed

Central bankers hate gold. That’s surprising given that they collectively own the lions share of what’s out there. The record is pretty clear however, most of the majors have sold gold over the past few decades. Today they have even more reason to hate it. It makes them look bad. This chart shows that both the Euro and the dollar are losing the race against gold as a store of wealth.

That the Euro is hitting all time lows against gold is an old story. But the move has gone parabolic of late, including a 3% pasting today

A very high percentage of Europeans own some gold. Much more than Americans. Younger people who don't own gold have parents that do. They are more aware of gold as an asset class and something to turn to when there is trouble. Therefore the collapse of the Euro against gold is much more relevant then the fall in the EURUSD. EURGOLD is probably the best barometer of how desperate Europeans see their collective financial future. This does not bode well for consumer or business confidence.

The US Fed is adding to the misery of the EU Central bankers. They are part of the problem, not part of the solution. They are contributing to the appreciation of gold at a time when the Euro is weak versus the dollar. This creates the exponential price action in EURGOLD.

Many things are influencing gold of late. Inflation in China, nuts shooting cannons, a melt down of Europe’s financial picture and of course the biggest of all is the Fed and its effort to create inflation as a policy goal. What does this story from the WSJ do for gold?

It’s a good bet that Ben Bernanke and his talking heads will get their way. Actual inflation, and even worse, expectations of inflation will rise. Gold will rise against the dollar as a result. It’s an equally good bet that the Euro is headed lower against the Buck. So the measuring stick that Europeans look at is going to get even more stretched. I wonder if those European central bankers (and a few political leaders) are hating Ben for adding to their woes.

Source: www.zerohedge.com

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