The U.S. economy grew at a 3.1% real annual rate in last year’s fourth-quarter, the government reports in its third and final estimate for Q4 GDP. That’s up from the previously reported 2.8% pace. For all of last year, the economy expanded by 2.9%.

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Another year of living dangerously
The Economist | Mar 24
Even as higher oil prices and hobbled Japanese production reduce growth they add to mounting inflation risks (Britain is now fretting over inflation of 4.4%). But most rich-world economies have ample economic slack, and in several countries fiscal tightening will tug at recovery. Britain’s coalition government has reaffirmed its commitment to austerity with this week’s budget (see article), and America has begun to cut spending. Both the Bank of England and the Federal Reserve should resist the temptation to tighten soon. The European Central Bank seems intent on raising interest rates next month. That would be a mistake. In the euro zone underlying inflation and wage growth are both subdued and inflation expectations are under control. By raising rates the ECB would strengthen the euro and frustrate the efforts of countries like Greece, Ireland and—the next in line for bailing out—Portugal to grow their way out of their debts. There is only so much economic policymakers can do about crises that spring from war or nature. In this case, the priority should be not making matters worse.

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Orders for durable goods, a leading indicator of economic activity, fell 0.9% last month on a seasonally adjusted basis, the Census Bureau reports. The decrease follows a strong 3.6% gain in January. Economists were expecting a gain. Monthly data is volatile, however, and so it’s not clear if there’s something more ominous afoot.

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New jobless claims fell again last week, dropping by a seasonally adjusted 5,000 to 382,000, the Labor Department reports. The widely watched four-week moving average slipped as well, retreating to its lowest level in two-and-a-half years. It’s clear that new filings are trending lower once more, if slowly. But the ongoing strength in the oil market raises the question of whether higher energy prices are a threat?

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Portugal in crisis after prime minister resigns over austerity measures
Guardian | Mar 23
Portuguese prime minister José Sócrates has said he has submitted his resignation to the president after parliament rejected his minority Socialist government’s latest austerity measures. The loss of the vote “has taken away from the government all conditions to govern,” Sócrates said. It brings the country closer to needing a bailout.
Portugal bailout ‘could cost UK £3bn’
Guardian | Mar 23
“Portugal will inevitably ask for a bailout,” said Open Europe’s Raoul Ruparel. “But the cases of Ireland and Greece clearly illustrate that the EU’s strategy – to throw good money after bad – is failing. Rather than simply taking a bailout, it would be better in the long run for Portugal to restructure its debt now,” Ruparel added.
Merkel Says Socrates Was ‘Right’ to Push for More Portugal Cuts
Bloomberg | Mar 24
German Chancellor Angela Merkel said that Portuguese Prime Minister Jose Socrates did the right thing in putting a “far-reaching” program of austerity measures to parliament. Merkel, in a speech to lower-house lawmakers in Berlin today, said that Socrates had been “right and courageous” in presenting an additional round of budget cuts, and that she was “grateful” to him for taking responsibility for his country’s finances.

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New single-family home sales retreated again last month, falling by nearly 17% in February on an annualized basis, the Census Bureau reports. That’s the biggest monthly fall since last May.

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Junk Bonds: What to Do Now
The Wall Street Journal | Mar 22
It may be time to take some junk out of your trunk. Until recently, high-yield or “junk” bonds have been on a tear, posting double-digit returns in 2009 and 2010 and sending prices higher and yields close to all-time lows. But investors are starting to pare back their appetite for risky assets. For the first time since early December, there were net outflows from high-yield bond funds last week—some $801.9 million—according to EPFR Global, a Boston research firm that tracks fund flows.
ProShares Debuts Short Junk Bond ETF (SJB)
ETFdb | Mar 22
ProShares, the Maryland-based firm known for a suite of leveraged and inverse ETFs, has launched the first ETF offering daily inverse exposure to junk bonds. The ProShares Short High Yield (SJB) will seek to deliver daily results that correspond to -100% of the daily change in the iBoxx $ Liquid High Yield Index. That index serves as the underlying for the ultra-popular iShares iBoxx $ High Yield Corporate Bond Fund (HYG), which has more than $8 billion in assets and consists of more than 400 individual junk bonds.

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Wharton professor Jeremy Siegel, author of the best seller Stocks for the Long Run, worries about mounting inflation pressures. Last week, he said in a TV interview with Bloomberg that the Fed should consider raising rates soon.

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The celebrated investor Jim Rogers thinks we should abolish the Federal Reserve. Asked in an interview yesterday what he’d do as Fed chairman, he replied: “I’d shut it down.”

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It’s no secret that the Federal Reserve’s balance sheet has exploded in recent years, courtesy of the blowback from the financial crisis of late-2008 and the Great Recession. That includes holding more Treasuries. But not all Treasuries are equal when it comes to maturities on the books at the central bank. Most of the ballooning portfolio of government-held debt is in medium-term Treasuries with maturities of 5-to-10-year maturities, according to Fed data. Some of this (all of this?) will flow back into the private sector with QE2’s scheduled unwinding later this year. Barring any glitches, the market’s on track to see a fair amount medium-term Treasuries on sale this year.