Mon, Mar 01, 2010
Regional Fed "hawks" appear to have gained the upper hand
From article below the real market drivers are shown:
- Concerns that the Fed may soon reverse quantitative easing altogether have caused a sharp rise in credit spreads in recent weeks
- The bank has already wound up its main liquidity operations
- Regional Fed "hawks" appear to have gained the upper hand. This has echoes of mid-2008 when the Fed talked of tightening, arguably setting off the chain of events that led to the collapse of Lehman Brothers
US bank lending falls at fastest rate in history
Bank lending in the US has contracted so far this year at the fastest rate in recorded history, raising concerns that the Federal Reserve may have jumped the gun by withdrawing emergency stimulus.
By Ambrose Evans-Pritchard, International Business Editor
Published: 8:43PM GMT 17 Feb 2010
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US Federal Reserve - US bank lending falls at fastest rate in history
David Rosenberg from Gluskin Sheff said lending has fallen by over $100bn (£63.8bn) since January, plummeting at an annual rate of 16pc. "Since the credit crisis began, $740bn of bank credit has evaporated. This is a record 10pc decline," he said.
Mr Rosenberg said it is tempting fate for the Fed to turn off the monetary spigot in such circumstances. "The shrinking in banking sector balance sheets renders any talk of an exit strategy premature," he said.
The M3 broad money supply – watched by monetarists as a leading indicator of trouble a year ahead – has been contracting at a rate of 5.6pc over the last three months. This signals future deflation. The Fed's "Monetary Multplier" has dropped to a record low of 0.81, evidence that the banking system is still broken.
Tim Congdon from International Monetary Research said demands for higher capital ratios and continued losses from the credit crisis are both causing banks to cut lending. The risk of a double-dip recession – or worse – is growing by the day.
"It is absurdly premature to think of withdrawing stimulus while bank credit is still sliding. To have allowed this monetary collapse to occur a full 18 months after the financial cataclysm is extreme incompetence. They seem to have forgotten that the lesson of the 1930s was the falling quantity of money," he said.
Paul Ashworth, US economist for Capital Economics, said that certain Fed officials are clearly worried about lending since they slipped in a warning that bank credit "continues to contract" in their latest statement.
However, regional Fed "hawks" appear to have gained the upper hand. This has echoes of mid-2008 when the Fed talked of tightening, arguably setting off the chain of events that led to the collapse of Lehman Brothers later that year. China has also been calling for a halt to QE, accusing
Washington of "monetizing" its deficit in a stealth default on Treasury bonds.
The bank has already wound up its main liquidity operations. Concerns that the Fed may soon reverse quantitative easing altogether have caused a sharp rise in credit spreads in recent weeks.
Fed chair Ben Bernanke first made his name as an expert on the "credit channel" causes of slumps. It is unclear why he has been so relaxed about declining bank loans this time.
"The reason the Great Depression became 'great' was the contraction of credit. You would have thought that a student of the Depression like Bernanke would be alarmed by this," said Mr Ashworth.
Fri, Feb 19, 2010
Fiscal Balance Watch and Core Inflation Drops
Core inflation drops for the first time since 1982. Soon Goldman Sachs, etc. will be dumping oil and stocks leading to a drop in overall CPI.
From comments of Thomas M. Hoenig, President, Federal Reserve Bank of Kansas City:
"government finance is taking center stage....Knowing inflation is not an acceptable alternative to strong fiscal management... Finally, there are no short-cuts. We currently must adjust from a misallocation of resources. There is no way to avoid some short-term pain in fixing the fundamentals in our economy. It is inconvenient for the election cycle, and it is undeniably terrible to have at least 10 percent of the labor force out of work. But short cuts now mean people out of work again...
China is still buying US debt through other channels...
China finds new ways to buy U.S. debt
Mon, Feb 15, 2010
Is the government starting to say no?
Looks like fed and senate saying no to more support...for now. With mortgage rates rising, defaults will rise quickly in mortgage market....precipitating the next crisis.
Sat, Feb 13, 2010
TLT trades with Oil
Oil drives TLT valuations in the short term with CPI driving it on a longer time frame. As mild deflation will continue for the next 5-10 years, TLT and long term treasuries can be held during this period. TLT can be traded in short term using the following chart:
Fri, Feb 12, 2010
China buys US Treasuries
China orders retreat from risky assets
China has ordered managers of its vast currency reserves to withdraw from risky dollar assets and retreat to core debt guaranteed by the US government, a clear sign that Beijing is battening down the hatches for fresh trouble on global markets.
By Ambrose Evans-Pritchard
Published: 1:31PM GMT 10 Feb 2010
A Communist Party directive leaked to the Chinese-language edition of the Asia Times said dollar reserves should be limited to US Treasuries or agency mortgage debt such as Freddie Mac that enjoys Washington's implicit backing.
BNP Paribas said the move has major implications for global risk assets. "The message from Beijing is that we don't like this environment," said Hans Redeker, the bank's currency chief.
.......
David Bloom, head of currencies at HSBC, said the explosive dollar rally over the last six weeks has been the reversal of the dollar carry trade. "It has been short, sharp, and vicious. People borrowed in US dollars to invest in places like Brazil, Turkey, and New Zealand and now it is unwinding."