Monthly Archives: March 2012

13-Mar (FRB) — Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and 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 late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

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13-Mar (The Wall Street Journal) — U.S. Federal Reserve officials held their course Tuesday, taking no new actions and offering few hints about their willingness to embark on future programs to bolster the economic recovery.

In their assessment of the U.S. economy, the central bank officials acknowledged improvements in the labor market, but cautioned that economic risks remain and that inflation could rise temporarily because of the recent increase in oil and gas prices.

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13-Mar (USAGOLD) — Gold slipped deeper into the range in early New York trading, weighed by fresh dollar gains as the euro slipped to new 4-week lows. A generally stronger dollar tone has emerged recently amid ongoing worries over events in Europe. The greenback also got a boost yesterday when the PBoC sharply lowered the midpoint of the yuan range against the dollar in reaction to the troubling swing to a trade deficit.

Despite the dollar’s gains, stocks are being supported by an ever-so slightly better than expected retail sales print for February, and a favorable revision to January’s data. While business inventories grew more than expected in January as well, shipments rose by a similar amount, leaving the I/S ratio unchanged for a 6th consecutive month. When the dollar and stocks are higher simultaneously, generally gold is going to be suppressed. However, much of those early losses have already been retraced, leaving support at 1677.50 well protected.

Now the market’s attention will turn to the Fed’s FOMC statement at 18:15 GMT. The FOMC is not expected to significantly alter its policy statement today, although recent talk of “sterilized” bond purchases will have all the Fed watchers trying to read between the lines with regard to likelihood and timing. No discernible indication of impending additional quantitative measures may deflate the stock market somewhat, which could offer a later boost to gold.

• US business inventories +0.7% in Jan, above market expectations of +0.5%, vs upward revised +0.6% in Dec.
• US retail sales +1.1% in Feb, near market expectations of +1.0%, vs upward revised +0.6% in Jan; 0.9% ex-autos.
• CPI for Feb: France 2.3% y/y. Spain 2.0% y/y. Italy 3.3% y/y. Sweden 1.9% y/y.
• UK Trade Balance – Visible -£7.5 bln in Jan, inside market expectations of -£7.8 bln, vs downward revised -£7.2 bln in Dec.
• Germany ZEW Economic Sentiment surged to 22.3 in Mar, well above expectations of 10.0, vs 5.4 in Feb; current situation falls to 37.6, vs 40.3 in Feb.
• Russia trade surplus ticks higher to $20.5 bln.
• Japan Tertiary Industry Index (sa) -1.7% m/m in Jan, vs upward revised 1.8% in Dec.
• BoJ hold steady on Target Overnight Call Rate at 0%-0.1%, in-line with expectations.

13-Mar (Reuters) — Japan said on Tuesday it had received approval from China’s government to purchase 65 billion yuan ($10.3 billion) in Chinese government debt in a move that can help Japan diversify its reserves away from the dollar and strengthen economic ties between the two Asian countries.

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12-Mar (The NY Sun) — When I was collecting my annual tax forms to send to my accountant earlier this month, I couldn’t find one — the one called the Form 1099-INT. That’s the form I’ve gotten in past years from banks or mutual fund companies to report interest I’ve received on bank accounts or money market funds.

The form didn’t seem to be downloadable from the bank or mutual fund Web sites, either, so I finally called up and asked a call center representative where my form 1099-INT was. Wearily, she explained that the bank doesn’t have to issue the form if an account generates less than $10 in annual interest. Lots of other callers, she said, had been asking the same question, and getting the same response.

It’s not that I have less money in the bank than I used to. Okay, maybe a little less. The point, though, is that the Federal Reserve’s zero interest rate policy — “zirp,” for short — means that whatever I do have in the bank isn’t generating much interest. And that’s part of the reason I’ve got less money in those bank accounts.

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11-Mar (Bloomberg) — As they have before in the aftermath of financial crises or wars, governments and central banks are increasingly resorting to a form of “taxation” that helps liquidate the huge overhang of public and private debt and eases the burden of servicing that debt.

Such policies, known as financial repression, usually involve a strong connection between the government, the central bank and the financial sector. In the U.S., as in Europe, at present, this means consistent negative real interest rates (yielding less than the rate of inflation) that are equivalent to a tax on bondholders and, more generally, savers.

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PG View: If the attack on savers is here to stay, it would certainly be prudent to protect at least a portion of your savings by choosing to save in gold.

Gold Weakens on China Concerns

12-Mar (USAGOLD) — Gold is under modest pressure on Monday, having been unable to sustain the rebound back above $1700 late last week. Aside from the normal raft of economic issues domestically and in Europe and Japan, concerns about China are starting to mount.

China reported $31.5 bln trade deficit in February as a result of much higher than expected imports. Import growth surged to 39.6% y/y, while export growth was less than half that amount at 18.4%. This was the biggest reported deficit in 22-years. The PBoC reacted immediately by setting the midpoint of yuan’s acceptable trading range sharply lower at 6.3282. It was the second biggest one day cut on record.

A Reuters article said, “Traders and analysts said the PBOC appears to be preparing the domestic and global markets for sharper fluctuations to eventually widen the yuan’s daily trading band.” Given that it happened on the same day that a large trade deficit was reported, call be suspicious. I think they were simply sending the signal that China intends to keep its goods and services relatively cheap, by constraining the upside in the yuan.

The reaction in gold was somewhat muted because the undertone of a slowing Chinese economy is that the PBoC will move toward an easier stance with perhaps a healthy dose of fiscal stimulus to boot. This is consistent with the steps taken by the Western economies in recent years; the central banks push rates lower and offer accommodations, and if necessary the government provides fiscal stimulus as well. While the political will for further direct stimulus has waned significantly in the West — as the political landscape has shifted — that’s not of any particular concern in a country like China; that is until inflation rears its ugly head. If China jumps back on the already crowded bandwagon of monetary accommodations, bailouts and stimulus, just imagine what the longer-term inflationary repercussions might be.

The Fed’s FOMC meets tomorrow in a one day meeting. Rates are on hold at 0% at least through late-2014. There was some escalated discussion last week about the possibility of QE3 in the wake of one-day retreat in the stock market. I think that’s reflective of just how edgy investors are right now. As evidenced by a WSJ article and a Washington Post article today, people are beginning to wonder if recent gains on the employment front are sustainable in light of the continued sluggishness in economic growth. While the Fed may not announce new quantitative measures tomorrow, pressure is already building for them to do more.

12-Mar (The Wall Street Journal) — Something about the U.S. economy isn’t adding up.

At 8.3%, the unemployment rate has fallen 0.7 percentage point from a year earlier and is down 1.7 percentage points from a peak of 10% in October 2009. Many other measures of the job market are improving. Companies have expanded payrolls by more than 200,000 a month for the past three months, according to Labor Department data. And the number of people filing claims for government unemployment benefits has fallen.

Yet the economy is barely growing.

…How can an economy that is growing so slowly produce such big declines in unemployment?

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PG View: Finally, the economists and journalist are starting to question what most people in the real-world have been experiencing all-along; that things out here in the real-world aren’t really improving in any meaningful way.

12-Mar (The Wall Street Journal) — China’s trade sector fell deeply into the red last month after running huge trade surpluses for much of a decade, raising questions about whether the country’s economy is tailing off more rapidly than anticipated.

The weekend report of a $31.5 billion trade deficit in China for February was substantially larger than most analysts expected and followed a string of other disappointing economic data, including weak growth in car sales, industrial production and retail sales, and the continuation of a steep fall in property sales. The only bright economic star was that inflation slackened more rapidly than expected.

…The overall results prompted analysts to predict that China will ease monetary policy over the coming months to bolster growth—but few expect a package remotely on the scale of the stimulus spending and lending that occurred in 2009 and 2010 in response to the global financial crisis.

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12-Mar (Financial Times) — Greece’s new bonds, issued after its €206bn debt exchange, started trading on Monday at distressed levels, indicating that investors fear another restructuring is probable.

A series of 20 bonds with maturities of 11 to 30 years began trading and were quoted with prices of between 23 and 26.5 cents in the euro, a slight rise from Friday’s grey market.

Greece’s yield curve is still inverted with the 11-year bond yielding about 18.1 per cent and the 30-year bond 13.4 per cent, meaning investors are braced for more distress.

The new yields are the highest in the eurozone, ahead of Portugal, the country considered most likely to follow Greece in needing a second bailout.

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PG View: As I’ve been saying for weeks, the likelihood of Greece making good on the new bonds isn’t really any better. That makes the PSI “volunteers” appear even more the patsies, unless of course there was coercion from the get-go…

12-Mar (Reuters) — The People’s Bank of China (PBOC) set the yuan’s midpoint against the dollar sharply lower on Monday, the second biggest single-day fall on record and the latest signal that China is willing to let its currency move within a wider range.

…Traders and analysts said the PBOC appears to be preparing the domestic and global markets for sharper fluctuations to eventually widen the yuan’s daily trading band.

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