Monthly Archives: September 2012
Fed extends ZIRP guidance through 2015. Will buy $40 bln additional in Agency MBS monthly and continue Operation Twist.
Morning Snapshot
13-Sep (USAGOLD) — Gold is consolidating, but remains generally well bid in advance of today’s FOMC statement. Disturbing jumps in initial jobless claims and PPI did little to move the needle as all eyes are squarely focused on the Fed.
The consensus seems to be that the Fed will indeed announce additional quantitative measures today at 12:30ET. It is also likely in my opinion that they extend ZIRP guidance into 2015. What remains to be seen is the scope of any new QE. The Wall Street Journal’s Jon Hilsenrath acknowledged yesterday that the “activist wing” of the Fed wants to follow the ECB’s lead with an open-ended commitment to bond buying. Yet there are risks associated with the so-called ‘big bazooka approach’: What if it’s not any more successful than QE1 or QE2?
At that point, investors would have to come to grips with the reality that monetary policy alone is not the answer to our debt woes. That going deeper into debt — even at suppressed interest rates — is not the way to extract oneself from a debt crisis. The first rule of holes: Stop digging. At that point, citizen’s will start looking toward the government to make meaningful fiscal changes; and quite frankly I don’t believe Congress has any appetite for what is truly necessary.
There may be a temptation at the Fed to go with another half-measure, and save the really big ‘unlimited bond purchases’ ammo for another day. If that happens, market disappointment may result in some long liquidations in the gold market, but I think the downside is limited. The market will quickly start looking forward to upcoming Fed meetings in anticipation of the big bazooka, keeping the long-term uptrend in gold highlighted.
The 2011 household income data released by the Census Bureau yesterday provides a good example of just what the Fed is up against. Median household income fell last year to an inflation-adjusted $50,054. It was the fourth consecutive annual decline and leaves household income at a level last seen 16-years ago and nearly 9% below the high-water mark set in 1999 at $54,932. In a consumption driven economy such as ours, declines in income like this spell big trouble for years to come.
I’m inclined to agree with the Wall Street Journal’s assessment that “it will be a generation before Americans regain the peak income levels.” What these data suggest to me is that in trying to manufacture inflation, the Fed has it’s work cut out for it. It tells me we are likely in for years of negative real interest rates and other forms of accommodative monetary policy in a war against sluggish growth and persistently high unemployment. Again, this is an environment that has favored gold in the past.
we are in for many years of negative real interest
A report from the Census Bureau Wednesday said annual household income fell in 2011 for the fourth straight year to an inflation-adjusted $50,054.
Median annual household income—the figure at which half are above and half below—now stands 8.9% below its all-time peak of $54,932 in 1999, at the end of the 1990s economic expansion.
Household Income Sinks to ’95 Level
12-Sep (Wall Street Journal) — The income of the typical U.S. family has fallen to levels last seen in 1995, a long and pernicious slide that likely means it will be a generation before Americans regain the peak income levels reached at the close of the ’90s.
A report from the Census Bureau Wednesday said annual household income fell in 2011 for the fourth straight year to an inflation-adjusted $50,054.
Median annual household income—the figure at which half are above and half below—now stands 8.9% below its all-time peak of $54,932 in 1999, at the end of the 1990s economic expansion.
[source]
PG View: What this tells me is the Fed is going to have to try all that much harder to create the inflation it desires. Further confirmation that we’re in for a long slog of sluggish growth and negative real interest rates.
Introducing The Latin Euro
13-Sep (New Tork Times) — The verdict is now in. Traditional German values lost and the Latin perspective won. Germany fought hard over many years to include “no bailout” clauses in the Maastricht Treaty (the founding document of the euro currency area) and to limit the rights of the European Central Bank to lend directly to national governments.
But last week, the bank’s governing council – over German objections – authorized the purchase of unlimited quantities of short-term national debts and effectively erased any traditional Germanic restrictions on its operations.
The finding this week by the German Constitutional Court that intra-European financial rescue funds are consistent with German law is just icing on this cake, as far as those who support bailouts are concerned.
…The balance of power and decision-making has shifted toward the troubled periphery of Europe. The “soft money” wing of the euro area is in the ascendancy.
[source]
US PPI +1.7% in Aug, above expectations of +1.4%, vs +0.3% in Jul; +2.0% y/y. Core +0.2%, in-line with expectations.
US initial jobless claims +15k to 382k for the week ended 08-Sep, above expectations of 370k, vs upward revised 367k in previous week.
Gold better at 1734.20 (+2.20). Silver 33.24 (+0.015). Dollar soft. Euro firm. Stocks called lower. Treasurys mixed.
Venizelos, Kouvelis Tell Samaras: No Worker Firings
12-Sep (Greek Reporter) — With international lenders turning the screws on Greece – including extending working hours to 78 hours a week and raising the retirement age to 67 – Prime Minister Antonis Samaras was unable to convince his reluctant coalition partners, PASOK Socialist leader Evangelos Venizelos and Democratic Left chief Fotis Kouvelis to accept the lay off and eventual firing of up to 35,000 public workers over the next three years.
The New Democracy Conservative chief failed to persuade Venizelos and Kouvelis in a meeting to bend to demands from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) to accept the harsh measures in return for a pending $38.8 billion loan installment – the last in a first series of $152 billion in rescue loans – and a second bailout of $173 billion. Without the monies, Greece will be unable to pay its workers and pensioners and go broke, but Kouvelis especially drew a red line against firing workers.
“The Troika has to realize that no measure can be applied in a society that is dissolving,” Kouvelis told reporters after the meeting, referring to the breakdown of Greek life as more than two-and-a-half years of austerity measures have worsened a five-year recession, putting nearly two million people out of work, closed 68,000 businesses and is shrinking the economy by 7 percent.
[source]
PG View: That position is not going to go over well with Greece’s creditors…