How should we judge tomorrow’s speech by Fed Chairman Bernanke? How about Bernanke’s previous comments on a similar macroeconomic challenge? Paul Krugman says Bernanke’s chat on Japan’s malaise are a useful primer for evaluating what we’ll hear to tomorrow. Krugman refers to “Bernanke’s 2000 critique of the Bank of Japan for its failure to take strong action in the face of an economy that was actually in much better shape than the US economy right now.”
Monthly Archives: August 2011
Jobless Claims: Stalled Again
Initial jobless claims are going nowhere once more. And that’s the optimistic view. It’s not the first time that the trend looked like it was turning favorable only to hit a wall. It’s probably not the last time we’ll suffer a headfake, but that doesn’t make it any more frustrating. The good news, in relative terms, is that new jobless claims aren’t moving in a fatal direction, not yet. The main fallout is that the hope of a follow-through to the recent drop hasn’t materialized. In other words, we’re still stuck in the land of neutral. That’s not good, but it’s not a smoking gun for expecting a new recession either–not today, at least, given the numbers in hand.
Are We Facing Another Troubling Rise In Money Demand?
Economist John Taylor of Stanford is worried that the appetite for liquidity is rising… again. The source for this concern starts by recognizing that “quantitative Easing (both I and II) has caused the monetary base—the sum of currency and bank reserves—to explode in the past three years, but has not resulted in similarly large increases in the growth of broader measures of the money supply such as M2,” he writes. Why hasn’t M2 followed suit? Because banks are sitting on the liquidity injected into the system.
New Orders For Durable Goods Rise, But Business Spending Slumps
New orders for durable goods, a widely monitored leading economic indicator, rose 4.0% in July on a seasonally adjusted basis, the U.S. Census Bureau reports. That’s the highest monthly gain since March, although the increase is somewhat tainted because a big chunk of the advance came from a surge in aircraft orders. Excluding transportation, durable goods orders rose by a milder 0.7%. Even so, the gain suggests that while the economy continues to struggle, the risk of an imminent recession remains a low-probability event.
Is Business Spending At The Tipping Point?
“Business spending has been the recovery’s bright spot,” notes Kelly Evans in today’s Wall Street Journal. “Now, it too may be fading.” We’ll know for sure, one way or the other, later today, when the update on durable goods orders is released. Meantime, it’s premature to say this indicator has succumbed to the dark side. But the risk can’t be dismissed, given the recent weakness in the overall economy.
Treasuries: Priced For Disaster
Anxiety levels are rising and Treasury yields are falling. The pairing isn’t unrelated, but the depth of the fall in government yields is astounding nonetheless.
Strategic Briefing | 8.23.2011 | Soaring Gold Prices
Gold Tops $1,910 for First Time
Bloomberg | Aug 23
“Gold has continued to blast ahead even with a relatively strengthening U.S. dollar, strongly performing treasuries and other safe havens,” Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., said by phone from Melbourne. “All of that tells me that this is really all about preserving real purchasing-power.”
Gold futures drop after strong run higher
MarketWatch | Aug 23
Citigroup strategists raised their price forecasts for gold, a move they said was made “to accommodate the impact that global financial tension is having on the metal. Fears about sovereign defaults and currency debasement have left many investors concerned about switching from equities into government bonds, and cash hardly looks an attractive alternative when real rates are negative. Gold has therefore been the main beneficiary of all these concerns,” they said.
Tactical ETF Review: 8.22.2011
Risk is out, safety is in. That’s the message in market action this month, as you’ll see in the following review of ETF proxies for the major asset classes. Bond prices are generally up (and yields are down) while selling dominates trading in stocks, REITs and commodities. The week ahead may bring more churning as the crowd digests the scheduled economic updates: new home sales (Tuesday), durable goods orders (Wednesday), jobless claims (Thursday), and revisions to Q2 GDP and the Reuters/University of Michigan’s consumer sentiment index (Friday). Fed chairman Ben Bernanke also speaks on Friday at the annual Jackson Hole conference. With the recent wave of selling still thick in the air, combined with questions about the economy’s strength, the stakes are high. Will the Fed head outline a new round of monetary stimulus? “If the Fed really is going to go down the route of another round of unconventional policy making, I think they’ve got to go in for, what I called, shock and awe,” Russell Jones, Global Head of Fixed Income Strategy at Westpac Institutional Bank, tells CNBC. Meantime, here’s how the shock and awe in the major asset classes stacks up.
Book Bits For Saturday: 8.20.2011
● Extreme Money: Masters of the Universe and the Cult of Risk
By Satyajit Das
Review via The Globe and Mail
Forget the hand-wringing over the United States losing its triple-A credit rating. The real threat to the global economy is Europe. That’s the no-nonsense view from Satyajit Das, a global risk expert based in Sydney, Australia, and author of Extreme Money: The Masters of the Universe and the Cult of Risk. Mr. Das is counted among the few who predicted the meltdown of toxic credit derivatives that fuelled the financial crisis of 2008. Now the former financial industry wunderkind is warning of new dangers that are threatening the very future the 17-country euro zone.
One More Summer Fling…
I’m taking the rest of the week off (my boss is a generous soul) and so the usual fun may suffer. But I’ll be back in the saddle at the world headquarters of The Capital Spectator come Monday morning.