Posts filed under “Think Tank”

Treasuries/Fed policy/Uh oh

The action in the two year note today where the yield is up a dramatic 30 bps to 1.25%, the highest since mid Nov, is happening coincident with a move higher in yield in the fed funds futures contracts where the market has somewhat reset their expectations of what the Fed will do. The fed funds futures are pricing in a 48% chance of a 25 bps rate hike by the Sept meeting and that is up from a 2% chance priced in just yesterday. After today’s better than expected payroll figure being the main catalyst for today’s action in conjunction with the ever growing inflation concerns, the Fed needs to decipher what is a readjustment of growth expectations and/or what is related to inflation concerns and whether they will fight these trends in order to keep interest rates low. Reading comments from Fed Pres and voting member of the FOMC Yellen within the past 15 minutes does not give much confidence that they know what’s going on and it seems that they had very little of a game plan going into their QE policy. Using quotes from DJ, she said that while buying MBS and US treasuries got off to a good start with yields heading lower, “there’s a lot that central bankers don’t know about the magnitude and duration of the effects of these policies” and “our standard monetary policy models do not incorporate financial frictions that lead to asset purchases having real effects.” She went on to say “we lack both the data and theory to provide strong guidance on these policies” and “we are sailing in uncharted waters, marking our maps with every bit of information along the way.” Yellen is a career economist and ex school professor so she’s learning first hand what its like to mess with the market. I’m worried if other Fed members are this uncertain.

Category: MacroNotes

The King Report: An Inconvenient Truth

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Our friend Brian alerted us to this USA/Today story: Benefit spending soars to new high
The recession is driving the safety net of government benefits to a historic high, as one of every six dollars of Americans’ income is now coming in the form of a federal or state check or voucher.

Benefits, such as Social Security, food stamps, unemployment insurance and health care, accounted for 16.2% of personal income in the first quarter of 2009, the Bureau of Economic Analysis reports. That’s the highest percentage since the government began compiling records in 1929. [More than 30s] In all, government spending on benefits will top $2 trillion in 2009 — an average of $17,000 provided to each U.S. household, federal data show… [This is not capitalism; this is a welfare state run amuck.]

Two major factors were at work on Thursday: 1) Expectations that the May Employment Report will be much better than expected; GS sees -475k; and 2) The Treasury will issue $127B of securities next week. This killed bonds and notes but induced traders to buy stocks and commodities on the asset allocation. The minor factor at work was RBC made Keycorp a ‘top pick’ and Bernstein upgraded Goldman to outperform. Thursday’s financial stock frenzy on only two upgrades illustrates market psychology.

Yesterday the Treasury said it will sell $127B of bills, notes and bonds next week – $35B in 3s, $19B in 10s and $11B of 30s, $31B in three-month bills and $31B in six-month bills.
Bloomberg: South Korea’s National Pension Service, the country’s largest investor, said it will maintain its U.S. government bond holdings even as it cuts the percentage they comprise. “We are planning to reduce the weightings of American Treasuries, but that doesn’t mean we will be selling Treasuries because our fund size is growing,” National Pension said in a statement in response to questions from Bloomberg News. “We don’t have a specific plan to sell Treasuries.”

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Category: Credit, Employment, Federal Reserve, Markets, Think Tank

Payrolls revised, mistakenly said unemployment rate fell

Payrolls fell by just 345k, much better than estimates of a drop of 520k and the two prior months were revised higher by 82k. However, due to a 437k fall in the household survey and a rise in the labor force, the unemployment rate ROSE to 9.4%, .2% more than expected at to the highest…Read More

Category: MacroNotes

Payrolls

May payrolls fell by just 345k, much better than estimates of a drop of 520k and the two prior months were revised higher by 82k. However, due to a 437k fall in the household survey and a rise in the labor force, the unemployment rate fell to 9.4%, .2% more than expected at to the…Read More

Category: MacroNotes

Payroll preview

According to estimates, the US economy shed 520k non farm jobs in May, the 7th straight month above 500k but the smallest job loss of the 7. The unemployment rate though is expected to rise to 9.2%, the highest since Sept 1983, from 8.9% in April as the US economy needs to generate at least…Read More

Category: MacroNotes

Gold

A day after Bernanke testified in Congress that “we anticipate that inflation will remain low” due to “the slack in resource utilization”, “notwithstanding recent increases in the prices of oil and other commodities,” gold is just 2.6% off all time record highs. In fact, of the 19 commodities in the CRB index, it is the…Read More

Category: MacroNotes

Commerical Paper

Commercial paper outstanding fell for an 8th straight week, led by an $11.4b drop in domestic financial CP outstanding. The main theme behind the fall in this category has been the corporate decision to term out one’s financing needs and rely less on the very short term funding source of the commercial paper market. The…Read More

Category: MacroNotes

ECB’s Trichet

ECB President Trichet in his press conference is not breaking any new ground but did reiterate the belief of some that rates could go lower if need be (but i’m sure very reluctantly). He did lower both his growth and inflation forecasts for ’09 and for ’10, he modestly cut his GDP estimate but kept…Read More

Category: MacroNotes

data

Initial Jobless Claims totaled 621k, right in line with expectations BUT the main positive surprise was the 15k drop in Continuing Claims off its record high which came in 120k less than expected and was the first decline since January. The insured unemployment rate remained unchanged at 5%, the highest since 1982 where it got…Read More

Category: MacroNotes

morning note

A 50 bps interest rate cut from Russia’s central bank and Latvia saying they will maintain their peg to the euro after yesterday’s failed bill auction (based on fears of a devaluation) pressured Swiss banks that are exposed to Eastern Europe, are helping to lift some European markets. The FTSE turned negative though after the…Read More

Category: MacroNotes