No rate cut for you today, but more money to the banks...
(quote)
March 7 (Bloomberg) -- The Federal Reserve said it will expand two short-term auctions this month to $100 billion, from $60 billion, to address ``heightened liquidity pressures in term funding markets.''
The Fed said it will increase the amount of its March 10 and March 24 term auction facility sales to $50 billion each from $30 billion each. The Fed also said it will initiate a series of 28-day term repurchase agreements.
The Fed has loaned $160 billion in funds since mid-December in six auctions through the Term Auction Facility, known as TAF, in an effort to increase the supply of funds available for lending.
The auctions began as part of a coordinated effort with central banks in the U.K., Canada, Switzerland and the euro region to increase temporary funds after losses on subprime mortgages made banks reluctant to lend. The European Central Bank and Swiss National Bank have halted their auction.
(end quote)
That last paragraph should clearly show you the fact that it's not a world problem--it's a US financial problem.
The US is in the plague ward, sealed off from the ROW. Look for diminishing help from them.
The only way forward is to expose and take the damage. Concealment and behind the back tricks won't work.
But then it would take a real leader to do that, wouldn't it?
How can the leaders admit that the last 8 years were a sham?
A little OT but it came out at the same time as the jobs report.
"The Federal Reserve on Friday announced two initiatives to address heightened liquidity pressures in term funding markets.
"First, the amounts outstanding in the Term Auction Facility (TAF) will be increased to $100 billion. The auctions on March 10 and March 24 each will be increased to $50 billion -- an increase of $20 billion from the amounts that were announced for these auctions on February 29. The Federal Reserve will increase these auction sizes further if conditions warrant. To provide increased certainty to market participants, the Federal Reserve will continue to conduct TAF auctions for at least the next six months unless evolving market conditions clearly indicate that such auctions are no longer necessary.
"Second, beginning today, the Federal Reserve will initiate a series of term repurchase transactions that are expected to cumulate to $100 billion. These transactions will be conducted as 28-day term repurchase (RP) agreements in which primary dealers may elect to deliver as collateral any of the types of securities -- Treasury, agency debt, or agency mortgage-backed securities -- that are eligible as collateral in conventional open market operations. As with the TAF auction sizes, the Federal Reserve will increase the sizes of these term repo operations if conditions warrant.
"The Federal Reserve is in close consultation with foreign central bank counterparts concerning liquidity conditions in markets."
Does this mean the Feds are willing to throw themselves on the live grenade in hopes of saving the banks?
Well what about all the people who have jobs? I mean 95% of the people who - the way the BLS defines it as "looking for work" - are working. Buy tech. Buy homebuilders. Buy Thornburg on the dips. You'll see, I'll be right, you'll all be wrong... bloggers... plfff... what do you people know.
Among other things, the Fed is probably trying to get the spread back down on agency (aka. "agony") mortgage-backed securities. AAA-rated GSE securities are acceptable not only at the TAF but also for the old-fashioned daily open-market operations.
Jobless trends down in a typical recession, economy will shrink, GPD probably go negative in real terms, despite what is officially reported.
Do we decouple from global economic activity mostly, and therefore invest abroad to preserve capital growth? I'm betting yes, even in a depressionary event. Faith of our financial systems will have to be restored, but the event does not appear to be systemic globally. Other national banking institutions appear to be taking their lumps, and flushing the toilet before they leave the confessional...
or not. bearish US, bullish global, but with reduced expectations.
I work in a factory. A large portion of what we do is for automotive. hehehe. Another large portion is CRE supplies for construction. I even went so far as to email the owner/ceo to discuss my concerns about pinning our hopes on CRE and added a link to this site. No answer, full steam ahead. After all, what does a factory chick know, eh?
Half of me is doing the hahahaha, and the other half is wondering how long before I have a cardboard sign in my hands saying "I can haz jobz pleaz?"
Amazing. I never knew that combining bitter vindication with fear and a very twisted sense of humor would create such a rush.
"The Federal Reserve said it will expand two short-term auctions this month to $100 billion, from $60 billion, to address "heightened liquidity pressures in term funding markets.'"
So some banks, at least, are awash in easy money. But they don't want to spend it.
I don't see how gold doesn't blow through $1,000 as a result of this.
Spot on. The TAF has been sterilized (the Fed withdraws liquidity equal to the auction injection). The $100b term repo's, on the other hand, represent net injections of money into the system. If the banks don't want to lend the money out (and I don't think they will), this will tend to depress the FF rate. So, effectively, they have promised a rate cut as the term facility "builds".
I think announcing the "quantity" of the injection before the "price" (the FF rate target) means they are prepping the market for quantitative easing. Under that regime, they decide how much to inject and let the FF rate settle where it will. Of course, a move to quantitative easing will whack the dollar further. How long can China keep its currency pegged to ours when our monetary policies are in direct conflict?
Ya gotta love the lower employement number, 4.8%...Due to the fact of BLS not counting the folks who's unemployemnt benifits have run out and have given up trying to find a job.
Wonder what effect this is going to have on Carlyle but knowing the rapaciousness of the banks they will force liquidation then just scoop up the securities at 75 cents on the dollar then repo the whole load out to the fed. Being the house has never been sweeter.
Wonder when some enterprising investor is going to buy a thrift just so they can set it up as a hedge fund to have a fed line of credit. sure beats a heloc with some undercapitalized bank. Be nice to fund your positions at 3% (soon to be 2) when everyone else is paying thru the nose.
I don't think this will end till the fed allows non banks to get in on the repo action or else takes in non agency paper, but this is going to relieve a fair amount of the liquidations pressure as is assuming and the banks pass on the liquidity to their clients which seems like a pretty big question mark.
"How long can China keep its currency pegged to ours when our monetary policies are in direct conflict?"
Think how much money they have lost with this insane policy. At the end of the day not only will they have sent the US incredible amounts of manufactured good for near nothing in labor, they have also financed the whole thing at low rates and now will be taking payment with vastly depreciated dollars especially against the stuff that they really need right now which is a vast amount of hard commodities to help build out their infrastructure and feed their growing middle class. Instead of just buying stuff from the US all along they are now going to purchase ag's, metals, airplanes, etc at 3x what it would have cost them. And since they have just got burned in their recent investments they will be unlikely to get in on the buying opportunities in equities and other financial assets which are at hand. Instead they will lock in commodity deals at crazy prices like Ford when they went all in on Palladium at $1100 ounce.
"Although how you inject an extra $100 billion without dropping the overnight FF rate is beyond me."
Nemo | Homepage | 03.07.08 - 9:21 am
When I look at the stop-out rates for Treasuries (not agency or MBS) for FOMC operations this week, it looks to me like the Fed has already anticipated a drop in the FF rate.
Best,
Today's 28-day repo took in only MBS as collateral. OK, between Carlyle, UBS (?), Citi, etc, there is even more MBS on offer now than has been the case in prior weeks. The Fed has become the broker of last resort, taking in the paper nobody else wants.
It is probably true that banks are holding on to funds, rather than lending them out. That does not mean the funds rate will come down in response to the Repos, though. To the extent that banks are unwilling to supply funds at current market rates, the cash on banks' books do not factor into the supply side of the market. Hoarding funds reduces supply. The Fed is trying to maintain the funds rate. I'd guess undershoot will be favored relative to overshoot in the funds rate, but this is not a tacit ease - yet, anyhow. It is an effort to avoid a tacit tightening.
"Think how much money they have lost with this insane policy. At the end of the day not only will they have sent the US incredible amounts of manufactured good for near nothing in labor"
Actually, only about five percent of China's GDP comes from exports to US, 150 billion dollars. Total exports are 500 billion dollars, so most of it goes elsewhere. The GDP growth is 300-400 billion dollars PER year there ! So even with total collapse of US exports, things will not look that bad there.
China is not dependent on US anymore unlike five years ago. They succesfully transferred most of US technology to their factories and now they are in position to say to Americans, "Fuck off, we do not need you anymore".
k harris
its hard to believe that the fed doesn't understand that the cash it is providing to the banks might end up just sitting there. I'm guessing that the discussion are pretty intense between the Fed and the money center's and that the agreement to take in the agency paper for repo probably included some warnings to the banks with regards to killing their clients. The Fed is trying to make this work and they are certainly aware that the banks are capable of putting a kink in the liquidity hose to their own ends. We are certainly not in the 'pushing on a string environment'. It is much more like the man dying of thirst and and barman wants to empty his wallet for a glass of water.
AB:
I don't recall posting anything about china needing or not needing the US, but thanks for the info. I was merely commenting on their exchange rate policy and what it has cost them.
As far as telling the US to 'take a hike' (to put it in more gentle terms) why on earth would they want to do this?
What has the US done to them other than purchase large amounts of their products?
I'm not asking you to believe anything regarding what the Fed thinks about the response function of other parties. Funds are at risk of being in short supply. Funds are in short supply for any transaction in which mortgage derivatives are offered as collateral. There is a certain amount of technical cleverness in what the Fed is doing, but there is very little room for judgements along the lines of "nah, they won't do lend it, so why bother?" The Fed is doing what it must. Banks will do what they will.
As to the question regarding stocks, note that financials are leading the rise. Stocks are up because liquidity problems have been reduced, relative to earlier today.
The construction employment number is seriously skewed by the large number of illegals working in the industry. You could go to any building site and find the majority are Mexican illegals. The actual decrease in construction employment from the peak level has got to be much larger than these numbers show. jmo.
Household survey shows an increase of 644,000 in Americans who are not in the workforce...in one month!
Yah, in combination with record indebtedness. Just what we need, DTI pushed up by the loss of income. A very scary number.
These cuts are part of corporate strategies laid out 2-3 years ago. I think we will probably see more cuts into 2008, but I do not think we need to rely on this alone as an indicator of recession. If that's the case, we planned for a recession 2-3 years when the markets approved such corporate strategies.
The Fed is doing what it must. Banks will do what they will.
As to the question regarding stocks, note that financials are leading the rise. Stocks are up because liquidity problems have been reduced, relative to earlier today.
k harris | 03.07.08 - 10:35 am |
k,
i think the at the end of the day the fed has a lot of power over the banks and if they were to 'misbehave' en masse, i think the fed could carve them up and have them for dinner. they do hold the regulatory stick and can basically put anyone out of business they wish. certainly cash is in short supply and the haircuts on securities are very large indeed but in the end as it is currently configured the whole banking system is a government sponsored enterprise. maybe i am just talking my book because i think with the 'right' liquidity infusions a lot of the financial panic is going to disappear.
as far as the stock market, i think the most interesting thing is the relative strength of the economically sensitive things today to what should have crushed them. my portfolio of high beta semi's, and airlines is up pretty nicely. back in january when we had our big swoon it was the commodity stuff which was totally on sale. now that everyone has piled into them the relative valuations are not as compelling though still hugely positive based on what the commodity strips are selling for.
given the public's abandonment of the market and the very high level of shorts, put buying etc. i am very comfortable being very long. in addition on a balance sheet basis there are many stocks that are just wildly cheap. i know that the bear case is that we are heading for depression and all earnings are going to zero, but that is not remotely close to what is actually happening in the data outside housing and credit desks. as i have been posting the airline numbers are extraordinary. we are seeing strong sequential and yoy gains in every metric in the industry in what is supposedly the middle of the great depression. every industrial ceo that gets on cnbc says the same thing, we have huge order book back logs and see nothing in site to change this. the economy has massively bifurcated.
Lock in your airline profits now, all the talk of mergers yet no progress due to union concerns, less than 3 weeks to close deals before the window shuts and basically zero progress.
Alec,
I just bought the stuff and I am not caring about M&A, I want to be exposed to economic strength. The equities are pricing in deep recessions and I want to take the other side of the bet.
d
There's no secret, smart people have fair value estimates for individual stocks or indices, whether it's P/E, market cap/GDP or what not... and then on top of that you have liquidity phenomena such as deleveraging or "dead money" perceptions. Why did stocks languish in the late 70's and early 80's in single digit P/Es? Was the market dumb? No, is was not, but it had an opinion of the future and that opinion was priced in. Currently the opinion that we will have a long (although perhaps not deep) recession isn't priced in, and the market is a tiny bit expensive based on classical measures. On top of that, there is some bifurcation as you mention. When people are bearish on macro, they are bearish on macro headline stuff (financial, retail etc). So when you're talking about "the bear case", you're referring to that part of the market. A lot of us bears are long many many stocks... but we're not here to discuss a utility or a healthcare stock, we're here to talk about the credit-led economy.
CR, I would not plot unemployment rate; it is skewed by 'not looking,' 'discouraged,' etc., as you know better than I do.
Plot employment via household survey and via establishment survey, instead. Employment has been flat for over one year, and is now falling.
Nonsensical B/D adjustments, again: 9K add in 'construction,' 10K add in 'financial activities,' 39K add in 'professional and business services,' and 35K add in 'leisure and hospitality.'
When is the last time the Fed crashed a bank because the bank failed to serve the Fed's purposes? While I have little doubt banks have, in some instances, behaved illegally or contrary to regulation, that is not the issue before us, and I have my doubts that the Fed will insist on banks changing legal behavior to suit the Fed. Investment and lending decisions are still private decisions, within the limits of capital and reserve adequacy. Are you suggesting the Fed will threaten to tear banks apart for not behaving in ways that suit Fed policy? If not, I'm not sure what your assessment of the Fed's power to destroy banks means.
CR said: "Also concerning is the YoY change in employment is less than 1%, also suggesting a recession."
Well, let's look at one of your charts and see what it says.
Take the red line YOY change in employment on your "Employment Measures and Recessions" chart."
Look at the end(s) of previous recessions. There's often a sharp upward spike as employment recovers, followed by a small "consolidation"
after the recovery has been underway for a while.
That pattern is especially clear coming out of the more-recent 1982 and 1990-91 recessions.
This is normal and not a recession indicator. The economy recovers strongly off of an extreme recession low, but that high level of growth isn't sustainable and it eases a bit as part of a completely benign mid-cycle slowdown.
My point: The slower YOY employment growth will not lead to a recession.
"CR forecast that there would be 400k-600k residential construction jobs lost by last summer (Summer, 2007).
All I ask is that CR's posts be examined for accuracy as closely as mine are.
S.
Sebastian | 03.07.08 - 12:03 pm |
You would not be ignoring the large number of undocumented's that were let go first would you?? There is no doubt in my mind after talking to those I know in the residential business that a far larger number of undocumenteds than the above 400K of were let go first. It was a bloodbath. We are probably nearing a million total for construction at this point.
". Are you suggesting the Fed will threaten to tear banks apart for not behaving in ways that suit Fed policy? "
Yes, I am suggesting this although between gentlemen bankers I am sure the language is probably not so severe. If the Fed does not get any traction in their liquidity efforts because the banks are a hindrance they will either do an end run around them or just go right thru them. Ben is steeped in the history of depressions, he knows full well what will happen if the liquidity situation is allowed to decay in extremity. He nor is the rest of the Fed going to sit by idly and watch a systemic failure because the banks choose to take the cash offered and then withhold it from customers because they are too scared to lend. Also I don't think the banks are that dumb either. Unless you believe in the complete breakdown in the society and in which case you are better off heading to walmart and buying some ammo, the prices of a lot of these securities are at silly numbers. If the banks can take them on their balance sheets and the Fed will repo them then two birds will be killed with one stone. Ex housing we are in an acute liquidity crisis not a real economic contraction of massive proportion.
I ask again, when has the Fed ever done what you suggest? Overwhelmingly, banks have failed not because regulators were too tough, but because nobody stopped banks from putting themselves at risk. The risk comes home to roost, and the bank fails. The world of banking, central and otherwise, that you are describing is not the real world.
k:
I have never been in on a meeting between a fed official and major money center bank so I can not tell you what they are like. I am just speculating. I do recall that in 1998 the Fed rounded everyone up and asked them to have a chat vis a vis LTCM. And just recently it seems that the insurance regulators et al got a few parties to the table with regards to Ambac. It would surprise me greatly if the Fed just is going to set some policy numbers and sit back and watch the show. If they do, then we might be in as much trouble as some here suspect.
Letting the banksters reap the consequences of past reckless behavior is not the End of the World as We Know It. It's chickens coming home to roost and the market working --and, quite possibly, Karmic Justice. There is nothing the Fed or Congress needs to "fix", and the more they try, the worse things get for people who had nothing to do with this massive Ponzi scheme.
A pound of prevention (sane lending guidelines, real interest rates above zero, etc.) serveral years ago could have prevented the scale of the unfolding correction, but there is little the PTB can do now except monetize and socialize losses. At our expense, of course.
How big of revision can we expect of this number? Well, at least the government is hiring.
Is this bad? Is this bad?
You gotta f***in' dart in your neck.
Birth-death adjustment was (positive) 135k. Without it we tracked close to the household employment drop of 255k.
Here's the link on the b/d adjustment from BLS:
Fake Jobs
Ouch. December's job creation was revised in half, from 80k+ to 40k+.
This is good news, right? Because, like the Fed will cut rates a bunch, right?
And the seasonally adjusted U9 unemployment rate, a number more honest IMO is 8.9% ( U3 is the headline number usually quoted).
Table A-12. Alternative measures of labor underutilization
-K
No rate cut for you today, but more money to the banks...
(quote)
March 7 (Bloomberg) -- The Federal Reserve said it will expand two short-term auctions this month to $100 billion, from $60 billion, to address ``heightened liquidity pressures in term funding markets.''
The Fed said it will increase the amount of its March 10 and March 24 term auction facility sales to $50 billion each from $30 billion each. The Fed also said it will initiate a series of 28-day term repurchase agreements.
The Fed has loaned $160 billion in funds since mid-December in six auctions through the Term Auction Facility, known as TAF, in an effort to increase the supply of funds available for lending.
The auctions began as part of a coordinated effort with central banks in the U.K., Canada, Switzerland and the euro region to increase temporary funds after losses on subprime mortgages made banks reluctant to lend. The European Central Bank and Swiss National Bank have halted their auction.
(end quote)
That last paragraph should clearly show you the fact that it's not a world problem--it's a US financial problem.
The US is in the plague ward, sealed off from the ROW. Look for diminishing help from them.
The only way forward is to expose and take the damage. Concealment and behind the back tricks won't work.
But then it would take a real leader to do that, wouldn't it?
How can the leaders admit that the last 8 years were a sham?
Federal Reserve turns it up to 11
Not quite the rate cut I predicted, but still a rather dramatic move.
A little OT but it came out at the same time as the jobs report.
"The Federal Reserve on Friday announced two initiatives to address heightened liquidity pressures in term funding markets.
"First, the amounts outstanding in the Term Auction Facility (TAF) will be increased to $100 billion. The auctions on March 10 and March 24 each will be increased to $50 billion -- an increase of $20 billion from the amounts that were announced for these auctions on February 29. The Federal Reserve will increase these auction sizes further if conditions warrant. To provide increased certainty to market participants, the Federal Reserve will continue to conduct TAF auctions for at least the next six months unless evolving market conditions clearly indicate that such auctions are no longer necessary.
"Second, beginning today, the Federal Reserve will initiate a series of term repurchase transactions that are expected to cumulate to $100 billion. These transactions will be conducted as 28-day term repurchase (RP) agreements in which primary dealers may elect to deliver as collateral any of the types of securities -- Treasury, agency debt, or agency mortgage-backed securities -- that are eligible as collateral in conventional open market operations. As with the TAF auction sizes, the Federal Reserve will increase the sizes of these term repo operations if conditions warrant.
"The Federal Reserve is in close consultation with foreign central bank counterparts concerning liquidity conditions in markets."
Does this mean the Feds are willing to throw themselves on the live grenade in hopes of saving the banks?
ApacheTrout ,
Was Dec the only month that was revised?
Thanks!
Well what about all the people who have jobs? I mean 95% of the people who - the way the BLS defines it as "looking for work" - are working. Buy tech. Buy homebuilders. Buy Thornburg on the dips. You'll see, I'll be right, you'll all be wrong... bloggers... plfff... what do you people know.
Jan revised down also, more jobs gone..
Waterfall Friday? Grab your popcorn, it's the early show!
Seriously, the Fed actions have to be at least as unnerving as the jobs reports.
crispy & cole,
Can you please post a link?
thanks.
Among other things, the Fed is probably trying to get the spread back down on agency (aka. "agony") mortgage-backed securities. AAA-rated GSE securities are acceptable not only at the TAF but also for the old-fashioned daily open-market operations.
Although how you inject an extra $100 billion without dropping the overnight FF rate is beyond me.
SEND MORE COPS
Well, Trimtabs had it pretty darn close.
Just think if the Gov had put out the real number. I think the economy actually lost about 630k jobs.
. The job loss in January was revised to 22,000 from 17,000
Payrolls fall by 63,000 in February, suggesting recession - MarketWatch
Jobless trends down in a typical recession, economy will shrink, GPD probably go negative in real terms, despite what is officially reported.
Do we decouple from global economic activity mostly, and therefore invest abroad to preserve capital growth? I'm betting yes, even in a depressionary event. Faith of our financial systems will have to be restored, but the event does not appear to be systemic globally. Other national banking institutions appear to be taking their lumps, and flushing the toilet before they leave the confessional...
or not. bearish US, bullish global, but with reduced expectations.
my 2 inflating rapidly cents.
Ha. Super duper hahaha.
Sorry guys, venting a bit.
I work in a factory. A large portion of what we do is for automotive. hehehe. Another large portion is CRE supplies for construction. I even went so far as to email the owner/ceo to discuss my concerns about pinning our hopes on CRE and added a link to this site. No answer, full steam ahead. After all, what does a factory chick know, eh?
Half of me is doing the hahahaha, and the other half is wondering how long before I have a cardboard sign in my hands saying "I can haz jobz pleaz?"
Amazing. I never knew that combining bitter vindication with fear and a very twisted sense of humor would create such a rush.
Hucoodanode?!
"The Federal Reserve said it will expand two short-term auctions this month to $100 billion, from $60 billion, to address "heightened liquidity pressures in term funding markets.'"
So some banks, at least, are awash in easy money. But they don't want to spend it.
I don't see how gold doesn't blow through $1,000 as a result of this.
Nemo,
Spot on. The TAF has been sterilized (the Fed withdraws liquidity equal to the auction injection). The $100b term repo's, on the other hand, represent net injections of money into the system. If the banks don't want to lend the money out (and I don't think they will), this will tend to depress the FF rate. So, effectively, they have promised a rate cut as the term facility "builds".
I think announcing the "quantity" of the injection before the "price" (the FF rate target) means they are prepping the market for quantitative easing. Under that regime, they decide how much to inject and let the FF rate settle where it will. Of course, a move to quantitative easing will whack the dollar further. How long can China keep its currency pegged to ours when our monetary policies are in direct conflict?
Ya gotta love the lower employement number, 4.8%...Due to the fact of BLS not counting the folks who's unemployemnt benifits have run out and have given up trying to find a job.
Just curious,
The criteria for the "R" word is two consecutive quaters of.....
Does that include a "do over" revision of the prior 2 months?
Or are "do overs" like mulligans and not count?
Wonder what effect this is going to have on Carlyle but knowing the rapaciousness of the banks they will force liquidation then just scoop up the securities at 75 cents on the dollar then repo the whole load out to the fed. Being the house has never been sweeter.
Wonder when some enterprising investor is going to buy a thrift just so they can set it up as a hedge fund to have a fed line of credit. sure beats a heloc with some undercapitalized bank. Be nice to fund your positions at 3% (soon to be 2) when everyone else is paying thru the nose.
I don't think this will end till the fed allows non banks to get in on the repo action or else takes in non agency paper, but this is going to relieve a fair amount of the liquidations pressure as is assuming and the banks pass on the liquidity to their clients which seems like a pretty big question mark.
Holy Crap..
"ATM fees to be raised to 1000 USD per transaction..."
So thats how they are going to do it..
Expired
It sure looks like the safest places to put your money now are the internet casinos and poker sites
.
"How long can China keep its currency pegged to ours when our monetary policies are in direct conflict?"
Think how much money they have lost with this insane policy. At the end of the day not only will they have sent the US incredible amounts of manufactured good for near nothing in labor, they have also financed the whole thing at low rates and now will be taking payment with vastly depreciated dollars especially against the stuff that they really need right now which is a vast amount of hard commodities to help build out their infrastructure and feed their growing middle class. Instead of just buying stuff from the US all along they are now going to purchase ag's, metals, airplanes, etc at 3x what it would have cost them. And since they have just got burned in their recent investments they will be unlikely to get in on the buying opportunities in equities and other financial assets which are at hand. Instead they will lock in commodity deals at crazy prices like Ford when they went all in on Palladium at $1100 ounce.
"Although how you inject an extra $100 billion without dropping the overnight FF rate is beyond me."
Nemo | Homepage | 03.07.08 - 9:21 am
When I look at the stop-out rates for Treasuries (not agency or MBS) for FOMC operations this week, it looks to me like the Fed has already anticipated a drop in the FF rate.
Best,
Sebastian always used to ask where the job losses in consruction were. I think -400k answers that.
Put that plaque next to the "NEW buy recommend" loving cup on the mantlepiece.
But leave some space for the "no recession in 07 OR 08" mounted bull's head.
Household survey shows an increase of 644,000 in Americans who are not in the workforce...in one month!
CR,
Can you please show your graph which shows job growth vs. expected range duiring the course of the Bush years?
Today's 28-day repo took in only MBS as collateral. OK, between Carlyle, UBS (?), Citi, etc, there is even more MBS on offer now than has been the case in prior weeks. The Fed has become the broker of last resort, taking in the paper nobody else wants.
It is probably true that banks are holding on to funds, rather than lending them out. That does not mean the funds rate will come down in response to the Repos, though. To the extent that banks are unwilling to supply funds at current market rates, the cash on banks' books do not factor into the supply side of the market. Hoarding funds reduces supply. The Fed is trying to maintain the funds rate. I'd guess undershoot will be favored relative to overshoot in the funds rate, but this is not a tacit ease - yet, anyhow. It is an effort to avoid a tacit tightening.
RBC CASH index down to 33. Benchmark 100 in 2002. Was over 50 in January.
"Think how much money they have lost with this insane policy. At the end of the day not only will they have sent the US incredible amounts of manufactured good for near nothing in labor"
Actually, only about five percent of China's GDP comes from exports to US, 150 billion dollars. Total exports are 500 billion dollars, so most of it goes elsewhere. The GDP growth is 300-400 billion dollars PER year there ! So even with total collapse of US exports, things will not look that bad there.
China is not dependent on US anymore unlike five years ago. They succesfully transferred most of US technology to their factories and now they are in position to say to Americans, "Fuck off, we do not need you anymore".
k harris
its hard to believe that the fed doesn't understand that the cash it is providing to the banks might end up just sitting there. I'm guessing that the discussion are pretty intense between the Fed and the money center's and that the agreement to take in the agency paper for repo probably included some warnings to the banks with regards to killing their clients. The Fed is trying to make this work and they are certainly aware that the banks are capable of putting a kink in the liquidity hose to their own ends. We are certainly not in the 'pushing on a string environment'. It is much more like the man dying of thirst and and barman wants to empty his wallet for a glass of water.
what just happened? Why are stocks up?
AB:
I don't recall posting anything about china needing or not needing the US, but thanks for the info. I was merely commenting on their exchange rate policy and what it has cost them.
As far as telling the US to 'take a hike' (to put it in more gentle terms) why on earth would they want to do this?
What has the US done to them other than purchase large amounts of their products?
"what just happened? Why are stocks up?"
idoc scared away all the bulls.
David,
I'm not asking you to believe anything regarding what the Fed thinks about the response function of other parties. Funds are at risk of being in short supply. Funds are in short supply for any transaction in which mortgage derivatives are offered as collateral. There is a certain amount of technical cleverness in what the Fed is doing, but there is very little room for judgements along the lines of "nah, they won't do lend it, so why bother?" The Fed is doing what it must. Banks will do what they will.
As to the question regarding stocks, note that financials are leading the rise. Stocks are up because liquidity problems have been reduced, relative to earlier today.
The construction employment number is seriously skewed by the large number of illegals working in the industry. You could go to any building site and find the majority are Mexican illegals. The actual decrease in construction employment from the peak level has got to be much larger than these numbers show. jmo.
Household survey shows an increase of 644,000 in Americans who are not in the workforce...in one month!
Yah, in combination with record indebtedness. Just what we need, DTI pushed up by the loss of income. A very scary number.
These cuts are part of corporate strategies laid out 2-3 years ago. I think we will probably see more cuts into 2008, but I do not think we need to rely on this alone as an indicator of recession. If that's the case, we planned for a recession 2-3 years when the markets approved such corporate strategies.
The Fed is doing what it must. Banks will do what they will.
As to the question regarding stocks, note that financials are leading the rise. Stocks are up because liquidity problems have been reduced, relative to earlier today.
k harris | 03.07.08 - 10:35 am |
k,
i think the at the end of the day the fed has a lot of power over the banks and if they were to 'misbehave' en masse, i think the fed could carve them up and have them for dinner. they do hold the regulatory stick and can basically put anyone out of business they wish. certainly cash is in short supply and the haircuts on securities are very large indeed but in the end as it is currently configured the whole banking system is a government sponsored enterprise. maybe i am just talking my book because i think with the 'right' liquidity infusions a lot of the financial panic is going to disappear.
as far as the stock market, i think the most interesting thing is the relative strength of the economically sensitive things today to what should have crushed them. my portfolio of high beta semi's, and airlines is up pretty nicely. back in january when we had our big swoon it was the commodity stuff which was totally on sale. now that everyone has piled into them the relative valuations are not as compelling though still hugely positive based on what the commodity strips are selling for.
given the public's abandonment of the market and the very high level of shorts, put buying etc. i am very comfortable being very long. in addition on a balance sheet basis there are many stocks that are just wildly cheap. i know that the bear case is that we are heading for depression and all earnings are going to zero, but that is not remotely close to what is actually happening in the data outside housing and credit desks. as i have been posting the airline numbers are extraordinary. we are seeing strong sequential and yoy gains in every metric in the industry in what is supposedly the middle of the great depression. every industrial ceo that gets on cnbc says the same thing, we have huge order book back logs and see nothing in site to change this. the economy has massively bifurcated.
We are most certainly not all subprime.
i know that the bear case is that we are heading for depression and all earnings are going to zero
Then, let me tell you my dear friend, you DO NOT KNOW what the bear case is,
"
Then, let me tell you my dear friend, you DO NOT KNOW what the bear case is"
so what's the secret, or do i need the special handshake to find out.
David in CT,
Lock in your airline profits now, all the talk of mergers yet no progress due to union concerns, less than 3 weeks to close deals before the window shuts and basically zero progress.
CR
I will echo David above in asking for the graph that shows employment gains with expected range included. Just to help gauge the trend.
Thanks for all you do.
Alec,
I just bought the stuff and I am not caring about M&A, I want to be exposed to economic strength. The equities are pricing in deep recessions and I want to take the other side of the bet.
d
There's no secret, smart people have fair value estimates for individual stocks or indices, whether it's P/E, market cap/GDP or what not... and then on top of that you have liquidity phenomena such as deleveraging or "dead money" perceptions. Why did stocks languish in the late 70's and early 80's in single digit P/Es? Was the market dumb? No, is was not, but it had an opinion of the future and that opinion was priced in. Currently the opinion that we will have a long (although perhaps not deep) recession isn't priced in, and the market is a tiny bit expensive based on classical measures. On top of that, there is some bifurcation as you mention. When people are bearish on macro, they are bearish on macro headline stuff (financial, retail etc). So when you're talking about "the bear case", you're referring to that part of the market. A lot of us bears are long many many stocks... but we're not here to discuss a utility or a healthcare stock, we're here to talk about the credit-led economy.
CR, I would not plot unemployment rate; it is skewed by 'not looking,' 'discouraged,' etc., as you know better than I do.
Plot employment via household survey and via establishment survey, instead. Employment has been flat for over one year, and is now falling.
Nonsensical B/D adjustments, again: 9K add in 'construction,' 10K add in 'financial activities,' 39K add in 'professional and business services,' and 35K add in 'leisure and hospitality.'
Certainly not in California.
David,
When is the last time the Fed crashed a bank because the bank failed to serve the Fed's purposes? While I have little doubt banks have, in some instances, behaved illegally or contrary to regulation, that is not the issue before us, and I have my doubts that the Fed will insist on banks changing legal behavior to suit the Fed. Investment and lending decisions are still private decisions, within the limits of capital and reserve adequacy. Are you suggesting the Fed will threaten to tear banks apart for not behaving in ways that suit Fed policy? If not, I'm not sure what your assessment of the Fed's power to destroy banks means.
alec said: "Sebastian always used to ask where the job losses in construction were. I think -400k answers that."
CR forecast that there would be 400k-600k residential construction jobs lost by last summer (Summer, 2007).
All I ask is that CR's posts be examined for accuracy as closely as mine are.
S.
CR said: "Also concerning is the YoY change in employment is less than 1%, also suggesting a recession."
Well, let's look at one of your charts and see what it says.
Take the red line YOY change in employment on your "Employment Measures and Recessions" chart."
Look at the end(s) of previous recessions. There's often a sharp upward spike as employment recovers, followed by a small "consolidation"
after the recovery has been underway for a while.
That pattern is especially clear coming out of the more-recent 1982 and 1990-91 recessions.
This is normal and not a recession indicator. The economy recovers strongly off of an extreme recession low, but that high level of growth isn't sustainable and it eases a bit as part of a completely benign mid-cycle slowdown.
My point: The slower YOY employment growth will not lead to a recession.
Sebastia
"CR forecast that there would be 400k-600k residential construction jobs lost by last summer (Summer, 2007).
All I ask is that CR's posts be examined for accuracy as closely as mine are.
S.
Sebastian | 03.07.08 - 12:03 pm |
You would not be ignoring the large number of undocumented's that were let go first would you?? There is no doubt in my mind after talking to those I know in the residential business that a far larger number of undocumenteds than the above 400K of were let go first. It was a bloodbath. We are probably nearing a million total for construction at this point.
Wyoming
". Are you suggesting the Fed will threaten to tear banks apart for not behaving in ways that suit Fed policy? "
Yes, I am suggesting this although between gentlemen bankers I am sure the language is probably not so severe. If the Fed does not get any traction in their liquidity efforts because the banks are a hindrance they will either do an end run around them or just go right thru them. Ben is steeped in the history of depressions, he knows full well what will happen if the liquidity situation is allowed to decay in extremity. He nor is the rest of the Fed going to sit by idly and watch a systemic failure because the banks choose to take the cash offered and then withhold it from customers because they are too scared to lend. Also I don't think the banks are that dumb either. Unless you believe in the complete breakdown in the society and in which case you are better off heading to walmart and buying some ammo, the prices of a lot of these securities are at silly numbers. If the banks can take them on their balance sheets and the Fed will repo them then two birds will be killed with one stone. Ex housing we are in an acute liquidity crisis not a real economic contraction of massive proportion.
David,
I ask again, when has the Fed ever done what you suggest? Overwhelmingly, banks have failed not because regulators were too tough, but because nobody stopped banks from putting themselves at risk. The risk comes home to roost, and the bank fails. The world of banking, central and otherwise, that you are describing is not the real world.
k:
I have never been in on a meeting between a fed official and major money center bank so I can not tell you what they are like. I am just speculating. I do recall that in 1998 the Fed rounded everyone up and asked them to have a chat vis a vis LTCM. And just recently it seems that the insurance regulators et al got a few parties to the table with regards to Ambac. It would surprise me greatly if the Fed just is going to set some policy numbers and sit back and watch the show. If they do, then we might be in as much trouble as some here suspect.
What k harris said.
Letting the banksters reap the consequences of past reckless behavior is not the End of the World as We Know It. It's chickens coming home to roost and the market working --and, quite possibly, Karmic Justice. There is nothing the Fed or Congress needs to "fix", and the more they try, the worse things get for people who had nothing to do with this massive Ponzi scheme.
A pound of prevention (sane lending guidelines, real interest rates above zero, etc.) serveral years ago could have prevented the scale of the unfolding correction, but there is little the PTB can do now except monetize and socialize losses. At our expense, of course.