Coincident with the sharp drop in bond yields and commodity prices over the past few weeks, the implied inflation rate over the next 10 years as measured by the TIPS has fallen to 1.95%, the lowest since Oct ’09 and is down 25 bps just over the past 3 days. This action obviously feeds the disinflation/deflation argument but the inflation side of the debate is predicated on the belief that this short term behavior leads to more money printing and cheap money for longer to combat it. This encapsulates the inflation camp, the continued threat of deflation for now leading to the ever increasing fight on the part of central banks to combat it.
On Tuesday, I showed a chart of National Debt by President. Several readers said a more informative chart would include control of Congress.
Enter Doug Short — he directed me towards that exact chart — including party control of Congress.
My only disagreement with Doug is he blames “spending.” I think that is half right — anything that is unfunded — spending, tax cuts, wars, entitlements — should be blamed for the Debt. You can allocate government revenues however you like — but allocating for any usage beyond revenues is how you create debt.
Regardless, the chart is quite fascinating:
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The Philly Fed was in line with estimates at 21.4, up from 20.2 in April and in contrast to the sharp drop seen in the NY manufacturing survey. But, the components showed softness as New Orders fell to 6.1 from 13.9, Backlogs fell to -3.0 from -.9 and the Employment component fell to 3.2 from 7.3 to the lowest since Nov ’09. Inventories fell to -7.9 from +2. Prices Paid fell 7 pts but is just back in line with the 6 mo average and Prices Received rose 2.5 pts to a 3 mo high. Shipments, which follow orders, were the positive, rising 10 pts but with the drop in New Orders, it won’t be sustained at the same level. The 6 mo outlook fell 7 pts to 37, a 3 month low but the hiring outlook rose to the most since May ’04. Manufacturing in the region continues to expand and is expected to for the next 6 months but “many firms pointed to uncertainty about product demand and the cost of hiring workers, as well as low capacity utilization, as reasons for not increasing employment.”
Oops, I posted this on the wrong day (yesterday) — not only am I three hours off via PCT, I am bamboozled by a full day.
Take two:
I am scheduled to appear on CNBC with David Faber from the SALT conference discussing the new regulatory framework for overhauling Wall Street at about 11:40 EST.
This is my first CNBC appearance in I don’t know how long. Should be . . . interesting.
And on a bizarre personal note (TMI), this is the first time I have shaved three consecutive days in a row in decades . . .
UPDATE:
Video here: CNBC.com
I love this quote:
“Overestimation occurs, in part, because people who are unskilled in these domains suffer a dual burden: Not only do these people reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the metacognitive ability to realize it.”
I have to work that into my presentation today: “unfortunately. their incompetence robs them of the metacognitive ability to realize erroneous conclusions.
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Click for audio show
The big banks make money by taking the bailout money we gave them and lending it back to the government with interest
The WSJ is reporting that Citadel Execution Services and Knight Capital Group both had technical problems just before the Ma 6th whoosh down.
Here’s the Journal:
“Their breakdowns could have strained a market already overloaded by an explosion of trading volume, possibly causing disorder to spread, interviews with market participants and exchange officials suggest.
Discount brokers said several trading venues they use experienced problems during the turmoil but that they didn’t disrupt clients’ ability to trade. “There were a number of different destinations that we had to reroute” orders away from, said TD Ameritrade spokeswoman Kim Hillyer.
“There were strains in the system,” said Greg Framke, E*Trade’s chief information officer. “If there were issues, we were dealing with them.”
At about 2:45 p.m., Citadel encountered problems with its order book that handles exchange-traded funds listed on NYSE Arca, the electronic exchange of NYSE Euronext Inc., according to a Citadel email to customers reviewed by The Wall Street Journal. Exchange-traded funds, or ETFs, are securities that trade on exchanges that represent a basket of stocks, for example tied to a sector or index.
At 2:57 p.m., Citadel sent the following email to clients: “We are currently experiencing Equity system issues. We are advising clients to please route away.”
Another piece to the puzzle that I expect we will eventually unwind . . .
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Source:
Trading-Firm Breakdowns Accompanied Market Chaos
SCOTT PATTERSON
WSJ, May 20, 2010
http://online.wsj.com/article/SB10001424052748704691304575254842975842532.html
Initial Jobless Claims were higher than expected at 471k, 31k above estimates, up from 446k last week and the highest in 5 weeks. The 4 week average is now 454k vs 451k last week. Continuing Claims though fell by 40k and Extended Benefits fell a net 74k and hopefully the drop is due to people finding jobs rather than thru the exhaustion of benefits. Either way, the level of initial claims is definitely worrisome in terms of staying elevated in the mid 400k range. At this point in the economy cycle a break below 400k would have been more typical but it still remains clear that businesses, while adding workers (in many cases bringing back those fired) strategically, are still very reluctant to take the risks of hiring on a broader scale.
The optimism from the successful sale of 10 yr notes at about 4:30am (B/C was 2.03 and money raise was upper end of expectations) in Spain was short lived as 2 hours after, EU officials said they agree with the Germans on their short selling ban and that they need to deal with the “problem of abusive short selling.” While they did say the ultimate decision rests with the individual governments, the endorsement was alarming to the markets. European markets immediately sold off and US futures followed which then accelerated with stops kicking in at the 1100 level one day before expiration. Also around 6:30, US$ 3 mo LIBOR was fixed at the highest level since July ’09. Greece will see another day of strikes today and France said they will freeze spending for 3 years. Germans will vote tomorrow on the Euro Zone bailout plan. Japan’s Q1 GDP rose 4.9% annualized but was below expectations of 5.5%.
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