Some analysts say there may be a recession coming, but you wouldn’t know by looking at retail sales. Today’s update on consumer purchases for July shows a surprising resilience in the data. Seasonally adjusted retail sales were up 0.5% last month, the U.S. Census Bureau reports. That’s the second monthly increase. In fact, other than May’s modest retreat, retail sales haven’t had a down month in more than a year.
Strategic Briefing | 8.12.2011 | Rethinking Fed Policy
The Fed Has Not Done Enough and it Has Not Fired Most of its Ammunition
Uneasy Money | Aug 10
We know that QE2 was intended to prevent inflation expectations from falling to dangerously low, even negative, levels, as they seemed about to do last summer. And in this it was successful. The deceleration in growth was associated with a series of unfortunate one-off events: severe winter weather, a spike in oil prices as a result of the Libyan uprising against Colonel Ghaddafi, and the tsunami and nuclear disaster in Japan. But rather than accommodate these supply shocks by allowing prices to rise as would be natural in the face of a supply shock, pressure built to tighten monetary policy to counter the supply-driven rise in prices, with results that are now becoming all too evident: rapidly falling inflation expectations and real interest rates.
Jobless Claims Fall Below 400k For The First Time Since April
New jobless claims slipped under 400,000 last week on a seasonally adjusted basis for the first time in four months. That’s hardly an all-clear signal for the economy, but at least you can argue that the numbers on this important forward-looking indicator aren’t getting any worse. It’s still open for debate if the trend is getting any better, although as we’ll discuss in a minute there’s some good news to consider.
The Case For Rebalancing Looks Compelling… Again
Market volatility is unnerving, but it usually represents opportunity. Relatively few investors see it that way, of course, which is why so few investors are able to exploit rebalancing opportunities in the long run. On the other hand, the crowd’s inability or unwillingness to rebalance in a timely manner is a big reason why a relative handful of investors can cash in on the rebalancing there’s a rebalancing bonus. But if you missed it the last time, don’t worry: Mr. Market makes it easy to try again, as the recent turmoil reminds.
How’s That Commodities-Based Inflation Forecast Looking These Days?
Funny how you don’t hear much these days about inflation worries based on rising commodities prices. Mysterious? Well, not really. Commodities prices are down recently–sharply. The cash price of crude oil (West Texas Intermediate) is under $80 a barrel, as I write—off from nearly $115 in late-May. A number of other key commodities have tumbled recently as well. Nothing like a big round of selling to change perceptions. That’s the point–commodities prices bounce around a lot, and so we shoud be cautious when it comes to making big decisions based on the price du jour.
Questions About One Manager’s Prediction Conviction
Bloomberg tells us that “Bill Gross was right after all.” Pimco’s celebrated bond fund manager anticipated a lengthy run of sluggish growth in the wake of the Great Recession, an idea that many dismissed:
Monetary Lessons Learned (And Ignored)
Has the Federal Reserve’s monetary stimulus since 2008 been a failure? Many observers of the economic scene think so, and the evidence, they argue, is overwhelming. The U.S. economy, after all, remains plagued with sluggish growth, high unemployment and dim prospects for something more anytime soon. On its face, this looks like damning evidence. But this is a misreading of what monetary policy has accomplished, or more precisely: what it’s kept from happening.
Tuesday’s Main Event: Economic Uncertainty Vs. Monetary Visibility
There’s been an acute shortage of macro clarity in recent days–yes, more so than usual–and so the Federal Reserve this afternoon made a bold effort to enhance the focus, albeit on the one front it can control. “The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013,” the central bank announced earlier via its FOMC statement. It’s not QE3, which some analysts advocate, but it’s ambitious in the sense that the central bank is telling us what monetary policy will be for the next two years. That’s the equivalent of a politician telling you how he’ll vote in 2013. You want clarity? You’ve got it, at least as Fed machinations go. Whether it’ll help is another question, but there’s no question that’s it’s audacious.
A Fresh Surge In Uncertainty
Ken Rogoff of Harvard tells Bloomberg that the Fed will likely roll out a new round of quantitative easing. “They certainly should do something right away,” says the co-author of This Time Is Different: Eight Centuries of Financial Folly
Strategic Briefing | 8.9.2011 | The New New Financial Crisis
Why This Crisis Differs From the 2008 Version
The Wall Street Journal | Aug 9
There are three fundamental differences between the financial crisis of three years ago and today’s events. Starting from the most obvious: The two crises had completely different origins. The older one spread from the bottom up. It began among over-optimistic home buyers, rose through the Wall Street securitization machine, with more than a little help from credit-rating firms, and ended up infecting the global economy. It was the financial sector’s breakdown that caused the recession. The current predicament, by contrast, is a top-down affair. Governments around the world, unable to stimulate their economies and get their houses in order, have gradually lost the trust of the business and financial communities.