Bernanke Capital Management
With the FOMC’s main function of adjusting the fed funds rate pretty much at full throttle with no more to do, the Bernanke Capital hedge fund (with Geithner his new partner as Paulson cashed out) that it is now will tell us what other assets they may or may not buy and/or lend to.
The TALF begins tomorrow with the pricing of a $1.3b Nissan auto loan deal and we’ll get their thoughts on buying Treasuries, the possibility of which is an elephant in the room.
The Fed’s plan to buy mortgages has helped to lower mortgage rates as the MBA said the average 30 yr rate this week matched the lowest level since at least 1990 at 4.89% but it has done virtually nothing to spur purchases as it remains just 9% off its lowest level since 2000. Lower house prices have brought out the buyers. Refi’s did rise 29.6% and has been the only beneficiary of lower rates. ABC confidence rose 1 pt to the highest since the 1st week of Oct.
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Feb CPI rose .4% headline, .1% more than expected and rose .2% core, also .1% more than estimated. The y/o/y gain is .2% up from flat in Jan, the lowest since 1955, led by energy. The core rate is up 1.8% y/o/y. With oil prices bottoming out as are food prices, which I believe is for good in this cycle, inflation #’s are starting to reverse to the upside. The degree of course will determine the Fed’s next conundrum.
Owners equivalent rent rose .1% and continues to remain subdued due to job losses and competition from unsold homes that are put up for rent. Boosting the core rate was a 1.3% increase in apparel prices and a .5% rise in vehicle prices.
Bottom line, with the rapid decline in commodity prices since July, inflation worries quickly receded and gave the market a respite from that perspective (as we then shifted our worries to the economy) but the disinflation seen may be running out of steam and will most likely not lead to deflation.
March 18th, 2009 at 9:23 am
automobile prices +, clothing prices +? i dont think so. certainly not where i live in great midwest. my concern would be massaging of inputs again: they downplayed inflation back during the credit boom, i think they’re going to add in a few “green shoots” to ward off thots of deflation, depression now that credit creation in reverse.
March 18th, 2009 at 9:29 am
I’ve often argued that the US is one giant leveraged debt pyramid ponzi finance scheme, just like those over-leveraged and now collapsed hedge funds we malign so much.
I think “Bernanke Capital Management” is a pretty good name for the leveraged hedge fund formerly known as the United States of America.
March 18th, 2009 at 9:48 am
“and will most likely not lead to deflation”
I don’t agree with this. Maybe short term. But we are monetizing the deficit, I’d like to think of inflation as being an inflated money supply leading to decreased value of our dollar. I’m sure the lack of credit has impacted 70% of GDP on the consumer side and has lead to asset prices falling.
Bottom line is once Ben starts printing hello Zimbabwe. Take care
March 18th, 2009 at 9:54 am
WOOPS I misread. I DIDN’T see the NOT. Disregard my last post
March 18th, 2009 at 10:01 am
“…and will most likely not lead to deflation”.
Ah, we are already in deflation. This massive debt unwind and destruction IS deflation. Assets just go along for the ride … down.
I think those waiting at the station for the hyperinflation train are going to be waiting a very long time.
March 18th, 2009 at 10:03 am
not lead to deflation? we are in the midst of massive deflationary forces. cpi numbers are rubbish. where in the country can you find increases in owners equivalent rent. SATURN?
March 18th, 2009 at 10:10 am
Super-Anon,
to your point: That’s what’s funny/sad/sick about the AIG “Bonus” v. AIG “bailout” comparo..and, the incessant Made-off coverage..
gee, I learned how to divide by 1000..pity the ‘victims’..we Need gov’t Regulation..
It Totally misses the real problem that you are, correctly, referring to. It, the current Economy, is a Massive Pyramid scheme based on a total Fiction.
If you’re Base, and above the base, it may be a great thing, but it isn’t, Really, any way to run a Whorehouse..
D.J. Palfrey, barring the unfotunate, could tell us all about it..
WASHINGTON (CNN) — A top State Department official resigned Friday after revealing to ABC News that he had been a client of the alleged “D.C. madam’s” escort service.
A State Department official, on condition of anonymity, confirmed to CNN the reason for Randall Tobias’ departure as director of U.S. Foreign Assistance and administrator of the U.S. Agency for International Development.
The State Department said that Tobias, 65, resigned for “personal reasons.”
ABC reported on its Web site that Tobias, 65, said Thursday that he had used Deborah Jeane Palfrey’s escort service “to have gals come over to the condo to give me a massage.” He told the network that there was no sex involved.
ABC said Tobias’ private cell phone number was one of thousands listed on documents that Palfrey handed over to the network, which plans to air a report on the documents on the “20/20″ television news program next week.
http://www.cnn.com/2007/POLITICS/04/27/dc.madam/index.html
March 18th, 2009 at 10:17 am
So what do you know about that former CIA guy who was gunned down by Houston police in the Galeria area on the same day that Palfrey was found hanged in her mother’s shed?
March 18th, 2009 at 10:26 am
What is Bloomberg smoking?
Their headline right now is: “U.S. Stocks Fall on Concern Fed Will Fail to Boost Confidence”
CONFIDENCE? Why should we have confidence in anything they tell us? What we want from the Fed is no deflation and no hyperinflation. Who gives a fuck what they say about GM’s prospects.
March 18th, 2009 at 10:34 am
MR,
to keep it simple, I know that those types of coincindences happen with greater regularity in a Society that actively chooses to be/remain deeply delusioned by consuming a steady diet of ‘the stupid’ dished out in a grand buffet by the MSM and their handlers..
http://www.thefreedictionary.com/delusion
http://www.amazon.com/The-Delusioned-And-Insane/dp/B0011XRTPY/ref=sr_f2_12?ie=UTF8&s=dmusic&qid=1237386697&sr=102-12
March 18th, 2009 at 10:36 am
Although they’re beginning to come down, a reduction here, a reduction there, most of the asking rents on vacant single-family homes, townhomes and condos in Chicago’s northwest suburbs are still absurdly set based on what the putative “landlord” needs monthly to pay the mortgage and taxes.
So they sit empty, month after month, season after season.
When these “landloards” can no longer hold the places off the market, rents are going to really plunge. There’s an awful lot of inventory out there.
March 18th, 2009 at 10:53 am
MH-
Course, just making small talk.
jm-
“based on what the putative “landlord” needs monthly to pay the mortgage and taxes.”
When do you think that ‘they’ will no longer able to hold out? Also, I wonder to myself are the bankers hoping that the echo-boom will save them? The carrying costs on all this must be staggering. Is it possible that the nosedive in MV is a function of the inefficiencies imposed on the economy by the irrational debt loads? Did monetizing everything and optimizing asset utilization insure this downturn? Is leaving untouched the equity in your house a less efficient allocation of capital than its monetization through a HELOC which is then converted into a BMW X5 and two years of trips to Tuscany and Turks and Caicos and a Timeshare in Costa Rica or whatever? Silicon implants, de-uglification surgery, poison injections?
How do you increase MV through further extension of the right to charge the vigorish?
March 18th, 2009 at 11:21 am
“The Fed’s plan to buy mortgages has helped to lower mortgage rates as the MBA said the average 30 yr rate this week matched the lowest level since at least 1990 at 4.89% but it has done virtually nothing to spur purchases as it remains just 9% off its lowest level since 2000. Lower house prices have brought out the buyers. Refi’s did rise 29.6% and has been the only beneficiary of lower rates”
Its pretty paradoxical. The Fed wants to lower interest rates to allow home seekers to purchase homes and slow down the collapse in the housing market. However, what is happening is banks are refusing to lend to borrowers with questionable credit which is limiting the impact on the ‘home sales’ side of the equation. One of the byproducts of this policy is that insolvent banks receiving TARP monies are able to lend at lower rates than solvent banks with stronger balance sheets. The borrowers with ‘good’ credit are refinancing at the better rates (ie companies with weaker balance sheets). This is ultimately leading to a migration of mortgages of healthy borrowers from solvent banks balance sheets to the balance sheets of banks with insolvent balance sheets. The refinance is typically done at a lower rate then the previous mortgages which means the earnings generated from those healthy borrowers will decrease earnings for the sector as a whole over time. This migration will also reduce the earnings for the companies with stronger balance sheets ultimately weakening them over time.
So the net-net of the policy is to weaken the earnings of the sector as a whole while decreasing the solvency of banks with strong balance sheets and propping up insolvent banks. All while having a minimal impact on the drop in housing prices.
The irony is amazing. Its quite amusing to watch our arrogant politicians talk about the stengths of the capitalistic systems in good times, siteing, as one of its most fundamental strengths, the efficiency cycle which weeds out the weak hands. Then when we start to experience that efficiency cycle they do everything in their power to revive the irrational exuberance and ultimately lead to a weaker economy.
History is paradoxical. Im a contrarian by nature, and I firmly believe that having an ‘expert in the Great Depression’ sitting in a position of power during this period of history will be viewed as a liability and not an asset. Many people find comfort in the fact that Mr Bernanke has studied the Great Depression. I find it quite scary. Its the “self proclaimed” experts that typically end up fighting the wrong battles and are hell bent on avoiding the situation rather than managing the situation. They are more often then not the ones that arent capable of seeing the forest for the trees and spend their entire time trying to prove the theories they’ve spent of lifetime building.
March 18th, 2009 at 12:25 pm
what we all forget is we had “no” inflation when housing prices were going up -but now that prices are going down we have deflation.
Of course in the real world we should have seen higher reported inflation early in this decade. Remember the clinton adm took housing out of cpi in 1998 and replaced with rents which did not go up as much as houses.
We all shudl be wondering what changes are being made now.
Perhaps we need an FASB pronouncemnt as to how inflation should be consistently measured–but they are busy with market to whatever you want or works for you.
March 18th, 2009 at 12:40 pm
lackofcourage said:
“All while having a minimal impact on the drop in housing prices. ”
The last thing I want the government to do is try to prop up real estate prices. The banks would love nothing more than that though, after all high real estate prices are why they exist.
March 18th, 2009 at 12:43 pm
I strongly disagree with your inflation call. The bottom line is that individuals don’t have money or jobs…all they have is debt that they are defaulting on. There is way too much productive capacity in the economy relative to sustainable demand. Deflation will rule for this year and probably most of next year too.
March 18th, 2009 at 1:06 pm
‘Deflation’ is probably a bad word for it. Perhaps, it should be called, “Complete fools losing everything they thought they had,” or maybe, “I guess you really can’t have something for nothing, after all,” or even, “I guess the system doesn’t really work very well.”
March 18th, 2009 at 1:38 pm
“The Fed’s plan to buy mortgages has helped to lower mortgage rates…but it has done virtually nothing to spur purchases”
Unless I could be certain that I wouldn’t need to sell for many years, why would I want to buy at a time when artificially reduced interest rates are artificially propping up home prices?
A slight reduction in tax-deductible interest payments for a few years isn’t worth the risk of a large, non-deductible capital loss when I have to sell.
March 18th, 2009 at 1:42 pm
Super-Anon – Are you the Austrian fellow who has posted here before?
March 18th, 2009 at 4:07 pm
lackofcourage said….Grow up Kyle.
No where did I say I agree with propping up housing prices. As a matter of fact I dont. I merely pointed out that it is the Fed’s intention to do so. Right or Wrong. However there policies have unintended consequences that are dimetrically opposed to what they’re trying to accomplish.