Food for though on GDP
Friday, August 23, 2013
Even Keynesians Do not Understand the Fed
As Brad DeLong writes on his blog.....
There are no signs in the pace of technological progress, in the level of investment, in the pace at which the American labor force educates itself, in measures of capacity utilization, in signs of upward wage pressure due to labor quality bottlenecks, or in surging commodity prices due to supply bottlenecks to suggest that the path of growth of U.S. sustainable potential GDP is materially lower today than was believed back in 2007.
Given the history of the past six years, right now I would expect the Federal Reserve Open Market Committee to have reached the conclusion that a CPE Deflator inflation target of 2%/year with no catchup after shortfalls is inconsistent with its accomplishing both parts of its dual mandate, and that it needs to shift to a 2%/year inflation target with level catchup, to nominal GDP targeting, or to a 3%/year or 4%/year inflation target in order to accomplish its congressional mandate.
Failing that, I would expect an FOMC to announce that the slow pace of real economic growth requires an acceleration of asset purchases, not a tapering.
Granted, Keynesian and money-printer should just be synonymous and there has not been a problem a Keynesian could not 'solve' with more money. However, there does appear to be a growing group of those suggesting that taper will not occur in September.
Even the Fed's Lockhart is concerned.
There are no signs in the pace of technological progress, in the level of investment, in the pace at which the American labor force educates itself, in measures of capacity utilization, in signs of upward wage pressure due to labor quality bottlenecks, or in surging commodity prices due to supply bottlenecks to suggest that the path of growth of U.S. sustainable potential GDP is materially lower today than was believed back in 2007.
Given the history of the past six years, right now I would expect the Federal Reserve Open Market Committee to have reached the conclusion that a CPE Deflator inflation target of 2%/year with no catchup after shortfalls is inconsistent with its accomplishing both parts of its dual mandate, and that it needs to shift to a 2%/year inflation target with level catchup, to nominal GDP targeting, or to a 3%/year or 4%/year inflation target in order to accomplish its congressional mandate.
Failing that, I would expect an FOMC to announce that the slow pace of real economic growth requires an acceleration of asset purchases, not a tapering.
Granted, Keynesian and money-printer should just be synonymous and there has not been a problem a Keynesian could not 'solve' with more money. However, there does appear to be a growing group of those suggesting that taper will not occur in September.
Even the Fed's Lockhart is concerned.
High Volume High- 8/22 Trading Day Edition
A hot of earnings-related new high volume highs on an abnormally slow trading day.
Volume Off the High- 8/22 Trading Day Edition
Not a lot going on in the world of new volume off the high names. HPQ fell after Whitman announced the turnaround efforts at the company will take a lot longer than originally anticipated. Additionally, LXK was down in concert. It does not help the latter announced an acquisition yesterday. Lastly, NOAH fell after announcing earnings.
Gold Backwardation: Should We Care Or Not?
Considering that backwardation has not occurred in the gold market in thirty years should make any investor take notice.
S&P 500 Price/Volume (Or Lack There Of) Heat Map- 8/22 Trading Day Edition
Although the data here is likely unrepresentative of any sort of normalcy, provided the three hour closure of the NASDAQ market, I still present the latest price/volume heat map. In any event, traders took the the trading halt to send equity shares up, testing the 50-day moving average on the S&P 500. We will see if mini-rally holds any weight, or like I suspect the 1,600 level remains in play.
All sectors gained in yesterday's trading, with the cyclical groups leading the charge. A situation fully reflected in the price/volume heat map despite the trading halt and the lower overall volume levels. The days trading likely reflects the reversion to the mean considering the weakness seen last week.
All sectors gained in yesterday's trading, with the cyclical groups leading the charge. A situation fully reflected in the price/volume heat map despite the trading halt and the lower overall volume levels. The days trading likely reflects the reversion to the mean considering the weakness seen last week.
Thursday, August 22, 2013
Has the Fed Lost Control of the Bond Market- What to Watch For
Some interesting comments and thoughts from Fleckenstein. Even if you do not follow his thesis, what to watch for in the bond market are reason enough to take the thoughts into considerations.
Fleckenstein also warns of “misplaced optimism” in the markets but, to hear why the markets may be missing something huge, watch Fleckenstein’s provocative interview in the video above
The video after the jump
Bill Fleckenstein, president of Fleckenstein
Capital, is a well-known Fed watcher. He called the subprime crash in 2007 and,
in an appearance on Talking Numbers back in early May, warned of impending trouble in Japan just one week before
that market went into a tailspin.
Bill Fleckenstein, president of Fleckenstein
Capital, says the Fed can no longer control the bond market but the markets
aren’t aware of that yet. In his most recent Talking Numbers interview,
Fleckenstein says there will be one definite signal to the world that the Fed
has lost control and that has to do with its ability to taper quantitative
easing – if it can happen any time soon. And, Fleckenstein isn’t so sure it
can.
Fleckenstein also warns of “misplaced optimism” in the markets but, to hear why the markets may be missing something huge, watch Fleckenstein’s provocative interview in the video above
The video after the jump
Foreign Treasury Owner Positioning for Higher Rate... But By How Much
The following was posted via Zerohedge earlier today
Consider the following. The Fed has only $50 billion or so in capital. With the Fed now owning over 30% of the ten-year market, every time bonds drop and yields rise, the Fed will erase ALL of this capital. Indeed, Mark Hussman of Hussman Funds notes that even a 100 basis point increase in yields will wipe out the Fed’s capital six times over.
And therein lies the core problem: by expanding its balance sheet so dramatically, the Fed has in effect spread the financial crisis from a private banking level to a public/ sovereign level. Put another way, when the next Crisis hits, it will not be Wall Street banks that go bust but the Fed itself.
Anyone who believes the Fed can “exit” this position is delusional. The single biggest trade for the last four years has been frontrunning the Fed’s asset purchases. When the Fed reverses course and begins selling assets, everyone will dump Treasuries in anticipation.
Indeed, we are already witnessing this with foreign nations selling Treasuries in record amounts in June when the Fed first hinted at tapering its QE programs. Japan and China alone dumped $40 billion that month (of a total $66 billion sold by foreigners that month).
By the way, this was the single largest Treasury dump by foreigners since August 2007. We all remember what followed that (the first round of this Crisis).
The highlights in the above are mine, and it got me thinking especially in regards to the below chart, which shows the the Proshares Ultrashort 20Y Treasury ETF. Rates- which move inverse to price- have been steadily moving upward since late April or early or May.
This correspond directly with the Fed's start of tapering talk, here as exampled by the search queries trend report via Google.
While foreign holders of US treasuries began to reduce their holdings beginning in the April to May time period, here shown as the monthly change in the TIC data.
Notice how China, Japan (as the largest foreign holders), and all foreign owners of US treasuries have continued to reduce their ownership rates. The question I have after viewing these charts- what amount of durational risk were foreign treasury owners attempting to reduce and have we seen all of it?
Consider the following. The Fed has only $50 billion or so in capital. With the Fed now owning over 30% of the ten-year market, every time bonds drop and yields rise, the Fed will erase ALL of this capital. Indeed, Mark Hussman of Hussman Funds notes that even a 100 basis point increase in yields will wipe out the Fed’s capital six times over.
And therein lies the core problem: by expanding its balance sheet so dramatically, the Fed has in effect spread the financial crisis from a private banking level to a public/ sovereign level. Put another way, when the next Crisis hits, it will not be Wall Street banks that go bust but the Fed itself.
Anyone who believes the Fed can “exit” this position is delusional. The single biggest trade for the last four years has been frontrunning the Fed’s asset purchases. When the Fed reverses course and begins selling assets, everyone will dump Treasuries in anticipation.
Indeed, we are already witnessing this with foreign nations selling Treasuries in record amounts in June when the Fed first hinted at tapering its QE programs. Japan and China alone dumped $40 billion that month (of a total $66 billion sold by foreigners that month).
By the way, this was the single largest Treasury dump by foreigners since August 2007. We all remember what followed that (the first round of this Crisis).
The highlights in the above are mine, and it got me thinking especially in regards to the below chart, which shows the the Proshares Ultrashort 20Y Treasury ETF. Rates- which move inverse to price- have been steadily moving upward since late April or early or May.
This correspond directly with the Fed's start of tapering talk, here as exampled by the search queries trend report via Google.
While foreign holders of US treasuries began to reduce their holdings beginning in the April to May time period, here shown as the monthly change in the TIC data.
Notice how China, Japan (as the largest foreign holders), and all foreign owners of US treasuries have continued to reduce their ownership rates. The question I have after viewing these charts- what amount of durational risk were foreign treasury owners attempting to reduce and have we seen all of it?
Volume Off the High- 8/21 Trading Day Edition
A handful of names coming off of their respective highs on increased supply levels. There are some larger, more well know companies represented below. We shall see if this means anything.
Volume Off the High- 8/16 Through 8/20 Trading Days
I had debated posting any of the volume movers for the days I had taken
the mini-vacation, but decided to do so in the case I wanted to look
back or out of concern that I missed something. Here are the names falling from highs for the trading days between 8/16 and 8/20.
High Volume High- 8/21 Trading Day Edition
Not many names making new highs within the very volatile market.
High Volume Highs- 8/16 through 8/20 Trading Days
I had debated posting any of the volume movers for the days I had taken the mini-vacation, but decided to do so in the case I wanted to look back or out of concern that I missed something. Here are the names making new highs for the trading days between 8/16 and 8/20.
S&P 500 Price/Volume Heat Map- 8/21 Trading Day Edition
Getting back into a more swing of things after a few days off. Trading in yesterday's markets was volatile to say the least, with market trading down around 50 basis points before the Fed Minutes, trading up after the release, but finally trading off near the lows of the day. This is a negative signal in of itself. Selling pressure was present across the board.
The price/volume heat map primarily showed a weighting toward the supply-side of the supply/demand balance. This occurs while total volume levels on the market continue to expand on down days. That said, I would expect that the weakness seen over the last week will give way to a counter trend bounce. Maybe to the 50 day moving average.
The price/volume heat map primarily showed a weighting toward the supply-side of the supply/demand balance. This occurs while total volume levels on the market continue to expand on down days. That said, I would expect that the weakness seen over the last week will give way to a counter trend bounce. Maybe to the 50 day moving average.
Subscribe to:
Posts (Atom)