End-of-week top gold news

Friday, 01-May-2015

Lawrence Williams (MineWeb) What happens to gold when the yuan floats free of the dollar? “Once China has built its gold reserve to the required level it would have no interest in helping to maintain a depressed gold price level – indeed it may feel that it is better suited to command higher prices and could utilise its huge forex reserves to cement its global position in this respect.”

Note: Many are not anticipating a floating of the yuan, inclusion in the IMF SDR basket and an update on its gold reserves. If the latter shocks like the last announcement in 2009 shocked, the yellow metal could be off to the races.

Liz McCormick & Daniel Kruger (Bloomberg) Just the Idea of Inflation Is Spooking Bond Traders Again “Three months ago, bond traders were bracing for deflation in the U.S. Now, they’re starting to worry about inflation — and snapping up a record share of Treasuries that offer some protection.”

Note: If the inflation genie does indeed escape the bottle, it’s reasonable to expect an overshoot on the upside. After all, the central banks of the world have printed about $11 trillion worth of new currencies since 2007. Getting the genie back in the bottle may well prove exceedingly difficult as well.

Myra P. Saefong (MarketWatch) Gold up over $20 on Greece concerns, dovish market read on Fed meeting, big advance for silver “Gold futures climbed by more than $20 an ounce on Monday as talks between Greece and its international creditors dragged on and investors awaited the outcome of this week’s meeting of Federal Reserve policy makers.”

Note: Gold rebounded early last week, just as we suspected it might. While those gains could not be sustained, the yellow metal closed just a couple dollars lower this week and I wouldn’t be surprised if the pattern repeats.

Enda Curran, Takashi Hirokawa & Masaaki Iwamoto (Bloomberg, via JapanTimes) Abe adviser fears BOJ has den of conspirators opposing reflation “The Bank of Japan appears to be wavering in its commitment to unprecedented monetary easing, said Kozo Yamamoto, an adviser to Prime Minister Shinzo Abe and an advocate of reflationary policies.”

Note: This one made me laugh: For 20-years Japan has been ringing up the debt and printing yen with abandon, but rather than blaming the bad policy, let’s get paranoid and blame a ‘den of conspirators’. The commitment to ‘unprecedented monetary easing’ should have wavered long ago.

Chuin-Wei Yap (Wall Street Journal) The Chinese Are Going for Gold “Physical demand in China is still comfortably ahead of previous years, before an extraordinary bargain-driven consumption surge in 2013, said Philip Klapwijk, managing director of Precious Metals Insights Ltd., a consultancy.”

Note: Gold-centric China has been snapping up tonnage whenever and wherever it can. Speculation in recent weeks suggests an update on reserves may be forthcoming. Bloomberg Intelligence recently suggested China may have trebled reserves since 2009, to 3,510 metric tonnes!

(Bloomberg) Economy in U.S. Stalls on Slump in Business Spending, Exports “The economy in the U.S. barely grew in the first quarter, buffeted by slumps in business investment and exports after oil prices plunged and the dollar surged.”

Note: Inventory building added 0.74% to GDP, so real final sales were -0.5%. That’s bad news, which may have contributed to a slightly more dovish tone from the Fed that contributed to gold’s rise through midweek.

Zheng Yangpeng (ChinaDaily) PBOC ‘poised to pull QE trigger’ as economy stalls “Financial markets on the Chinese mainland are abuzz with speculation that the central bank will inject more liquidity into the economy by unconventional means that could amount to a version of “quantitative easing”.”

Note: It’s the go-to strategy for central banks the world over. When the economy slows, print and pump!

Posted in Gold News, Gold Views |

As Much as a Third of Discouraged Workers Might Return

01-May (Wall Street Journal) — There is still plenty of room for improvement in the U.S. job market despite recent strides, according to a new working paper from the International Monetary Fund.

The debate over how much “slack” or unused capacity remains in the job market is crucial for Federal Reserve officials as they decide when to start raising short-term interest rates from near zero. If there is little slack, policy makers will want to raise rates soon to make sure the economy doesn’t overheat and cause inflation to take off. But if there still are many people available for work if offered, officials can wait longer before lifting borrowing costs.

The IMF paper suggests Fed officials can take their time.

“Labor market slack remains, although it has closed considerably over the course of the recovery,” write Ravi Balakrishnan, Mai Dao, Juan Solé and Jeremy Zook. “This slack goes beyond that signaled by the unemployment rate, and takes account of the labor force participation rate being below trend and many employees working part time involuntarily.”

The U.S. jobless rate was 5.5% in March, but a broader gauge of underemployment that includes workers who have part-time jobs but would like full-time work was 10.9%, the Labor Department reported.

[source]

PG View: Certainly the Fed is no closer to its inflation objective. If they are not really close to their full-employment mandate either, there’s no reason for them to start tightening.

Posted in Economy |

Steer clear of ‘Burnished/’Uncirculated’ American Eagles (MS70 First Strike/Early release) and “off market, specialty mint items.”

Back in 2007, we penned a consumer alert posted at our blog site entitled, “Beware MS70, MS69, PF70 “Perfect” + “Certified” Gold & Silver American Eagles & American Buffalos”  To this day, it remains the first result google produces when an individual searches MS70 Buffalos or MS70 Eagles – a result we’d like to believe has saved many would be precious metals investors from making an expensive mistake.  That said, it hasn’t prevented certain members of the industry from continuing to offer these products, and despite our efforts, their ‘success’ has emboldened them as they have now begun to ‘innovate’ in this field, offering a whole new line of products that provide ambiguity in pricing and allow for higher dealer margins. So, it would appear that the time has come to revisit this article, and to expand to include the latest and ‘not-so’ greatest products we think precious metals buyers should be on guard against.

1.  Burnished/’Uncirculated’ American Eagles (MS70 First Strike/Early release)
Where to begin.  At the moment of this writing, you can buy these coins direct from the U.S. mint for $1475.00.  The first coins with a 2015 date are set to be released in the coming weeks, so you’re going to start hearing about these more and more.  So what is a Burnished/’Uncirculated’ American Eagle?

According to the U.S. mint:

“The term “uncirculated” refers to the specialized minting process used to create these coins. Although they are similar in appearance to American Eagle Bullion Coins, uncirculated quality coins are distinguished by the presence of a mint mark, indicating their production facility, and by the use of burnished coin blanks, which are hand-fed into specially adapted coining presses one at a time.

Each American Eagle Uncirculated Coin is carefully inspected before it is encapsulated in plastic. With its pristine finish now protected, each American Eagle Uncirculated Coin is placed in a protective outer box. A Certificate of Authenticity is included with each coin.”

In other words, put simply, they are all perfect.  To be sure, I don’t fault the mint for making a product that is a more attractive strike than the traditional bullion coin.  In fact, we even think purchasing these coins for aesthetic/owner enjoyment purposes is reasonable.  As we often say to our clients, if you want to buy a coin or two to own for your own personal enjoyment, go for it.

Where we do find fault is if someone is trying to sell you one of these as an ‘early release’ or ‘first strike’, or perfect ‘MS70′ for a considerable premium to what the mint is charging that day.  You can be sure that whatever that difference is, its going straight to the pocket of whoever is selling it to you.

To see what the mint is charging for these on any given day, visit here:  http://catalog.usmint.gov/coin-programs/american-eagle-coins/?_ga=1.20401534.732613573.1408386463

Which leads us to our second, ‘Buyer Beware’ product:

2.  Off market, specialty mint items.  More and more, mints have begun cooperative efforts with dealers to develop unique and exclusive product offerings – what essentially amounts to modern commemoratives.  The advantage to dealers in these products is that a would-be buyer has no basis of comparison.  A dealer can deliver a sales pitch along these lines: “We have cooperated with mint x to develop a superior quality specialty product.  Only 3000 coins were struck, so they are of inherent rarity.”  They may even throw in some real motivators like, “These are selling out fast, and we already have commitments for 2000 coins, so if you don’t act now, they will all be gone.”  Or, “With this kind of rarity, these are going to increase in value faster than the gold price, and your returns will be exponential.”  We could go on, but you get the point.  Our advice would be very simple here:  If someone is offering you a product you cannot locate elsewhere, a product that you cannot make a cost comparison to ensure a competitive price, don’t walk the other direction, RUN.

Posted in all posts |

The Daily Market Report: Gold Remains Defensive Within the Range


01-May (USAGOLD) — Gold remains defensive within the well defined range, dropping to a 6-week low. Traders seem to be just jobbing that range; buying at the low end and selling near the highs with no real commitment one way or the other.

The gains in gold recorded earlier in the week after the dismal Q1 GDP print have been taken back in the wake of the much better than expected initial jobless claims number that came out yesterday. The drop in claims to a cycle-low 262k raises the possibility of a favorable surprise when April nonfarm payrolls comes out next Friday.

Fed rate hike expectations continue to vacillate based on the most recent data points. However, the latest FOMC policy statement suggests the central bank is in no hurry to raise rates. They remain patient, even though “patience” was removed from the statement with much fanfare back in March.

In light of the weak March jobs data and the terrible Q1 GDP number, I don’t think a June hike is in the cards. Although the FOMC didn’t explicitly rule out a June hike this week, it remains unlikely even if April jobs data surprises on the upside.

Another deadline for a Greek deal has come and gone. Greece was supposed to provide a specific list of reforms it is prepared to implement by the end of April. Talk out of Europe is that they hope to have a deal hashed out by Sunday. We’ll see . . .

The important thing to remember is that another €7 bln in bailout funds isn’t going to save Greece from itself; it only buys them a little more time. If a deal is worked out and the next tranche is released, creditors are simply loaning Greece more money that they will immediately give back to the creditors to pay down the previous loans that have come due. It’s all quite silly.

Posted in Daily Market Report, Gold News, Gold Views |

US manufacturing ISM steady at 51.5 in Apr, below expectations of 52.0, vs 51.5 in Mar.

Posted in all posts, Economic Data |

US construction spending -0.6% in Mar, well below expectations of +0.5%, vs upward revised unch in Feb.

Posted in Economic Data |

Ratings agencies say no default if Greece misses ECB, IMF payments

(Reuters) – Most top credit rating agencies say they would not cut Greece’s rating to default if it misses a payment to the International Monetary Fund or European Central Bank, a stance that could keep vital ECB funding flowing into the financial system.

Greece owes nearly 1 billion euros to the IMF in May and almost 7 billion euros to the ECB over July and August and there are concerns that the government, stuck in funding talks with official lenders, will miss the payments.

This would be an unprecedented move that could put Athens’ future in the euro in doubt and has raised questions about whether it could set off a chain reaction, possibly accelerating repayments due to other official and private sector creditors and compounding Greece’s problems.

…”If Greece were, for whatever reason, not to make a payment to the IMF or ECB that would not constitute a default under our criteria as it is ‘official’ sector debt,” said Frank Gill, who rates Greece for S&P.

[source]

Posted in European Debt Crisis |

Gold lower at 1178.05 (-6.30). Silver 16.09 (-0.019). Dollar lower. Euro higher. Stocks called higher. US 10yr 2.07% (+4 bps).

Posted in Markets |

The people who nailed the horrific Q1 GDP number have bad news about Q2

30-Apr (BusinessInsider) — The Atlanta Fed nailed US Gross Domestic Product in the first quarter.

On Wednesday, we learned that the US economy grew by just 0.2%, far below the consensus forecast for 1% growth among economists. Of the 86 economists surveyed by Bloomberg, only four estimated that GDP growth would be 0.2% or lower.

The Atlanta Fed had long forecast 0.2% growth before revising it down to 0.1% after last Friday’s durable goods report.

And just a day after the disappointing Q1 GDP release, the Atlanta Fed has news about Q2: the economy will grow by just 0.9%, according to their latest forecast.

[source]

Posted in Economy |

Japan factory output falls; BOJ keeps policy unchanged

30-Apr (AP, via YahooFinance) — Japan’s central bank has defied expectations it might expand its monetary stimulus to help get growth back on track, keeping policy unchanged despite data showing factory output fell in March.

A brief statement from the Bank of Japan reaffirmed the central bank’s intention to maintain its asset purchases and other measures aimed at spurring inflation to help stimulate corporate and consumer spending.

The government said Thursday that industrial production fell 1.2 percent in March from a year earlier and 0.3 percent from the month before. The decline was relatively mild: manufacturers and analysts had anticipated a drop of over 2 percent from February, when output fell 1.3 percent from the month before.

[source]

PG View: While the industrial production drop was not as big as expected, on the heels of the huge retail sales plunge, the overall tone of the Japanese economy remains pretty bleak. This constitutes an abject failure of the herculean monetary effort on the part of the Abe government and the BoJ to stoke growth and inflation.

Posted in Economy |

The Daily Market Report: Gold Retreats as Dive in Initial Claims Lifts Dollar


30-Apr (USAGOLD) — Gold slid back below the $1200 level in early New York trading, weighed by a sharp drop in initial jobless claims last week. This, along with a bigger than expected rebound in the Chicago PMI revived the dollar somewhat.

Initial jobless claims fell 34k last week to a cycle low 262k. This unwinds most of the gains in claims seen in recent weeks. Perhaps more importantly, it sets up some upside risk for April nonfarm payrolls and the jobless rate, which come out a week from tomorrow. Consensus for payrolls is +228k, although we might see that edge higher now. The unemployment rate is expected to tick lower to 5.4%.

Even if we see payrolls double from the dismal 126k print for March, the Fed is still unlikely to hike rates in June. If fact, yesterday’s terrible Q1 GDP advance report, adds considerable credence to the scenario that suggests the Fed won’t raise rates this year.

The dollar index, which fell to 9-week lows earlier in the session, has since rebounded. However, the gains have been less than 1% thus far. The harsh impact the strong dollar had on Q1 GDP has many now thinking the Fed needs to do something to undermine the greenback.

Renewed hope that Greece may reach some compromise with its creditors may be weighing on gold as well as risk aversion in Europe moderates. A recent poll shows that a decided majority of Greek voters believe the Tsipras government should cut a deal to keep Greece in the eurozone.

This may provide Tsipras with the political cover he needs to backtrack on some of the promises he campaigned on. Even if Greece is able to secure the next €7 bln tranche of bailout funds, it does not even come close to solving the problem that is Greece. It only kicks that can a little ways down the road.

Like other recent retreats into the range — driven by speculators in the paper market — this provides an opportunity to buy physical gold with an 11-handle. The underlying supply/demand dynamics in the gold market remain broadly supportive.

Posted in Daily Market Report, Gold News, Gold Views |

Chicago PMI rebounded to 52.3 in Apr, above expectations of 49.0, vs 46.3 in Mar.

Posted in Economic Data |

Greece signals concessions in crunch talks with lenders

30-Apr (Reuters) – Greece’s leftist government offered its biggest concessions so far in a race to remove roadblocks in crunch talks with lenders on a cash-for-reforms package on Thursday.

Prime Minister Alexis Tsipras’s three-month-old government is under growing pressure at home and abroad to reach an agreement with European and IMF lenders to avert a national bankruptcy. A new poll showed over three-quarters of Greeks feel Athens must strike a deal at any cost to stay in the euro.

An enlarged team of Greek negotiators was due to meet representatives of the so-called Brussels Group of lenders to discuss which reforms Greece will turn into legislation rapidly in exchange for aid. Athens says it needs fresh aid before a 750 million euro payment to the IMF falls due on May 12.

Elected on promises to end austerity and scrap an unpopular EU/IMF bailout program, Tsipras had so far refused to give ground on so-called “red lines” – pensions, labor reform and state asset sales – that are core to his leftist party’s agenda.

But Athens said late on Wednesday it was ready to sell a majority stake in its two biggest ports and to concede on value-added tax rates and some pension reforms, in the clearest signal yet that it is ready to back down for a deal.

[source]

Posted in European Debt Crisis |

Gold slips back below $1200 after sharp drop in jobless claims.

Posted in Gold News |

US personal income unch in Mar, below expectations of +0.3%, vs +0.4% in Feb; PCE +0.4%.

Posted in Economic Data |

US Q1 ECI +0.7%, above expectations of +0.6%, vs negative revised +0.5% in Q4 2014.

Posted in Economic Data |

US initial jobless claims -34k to 262k in the week ended 25-Apr, well below expectations of 290k, vs upward revised 296k in previous week.

Posted in Economic Data |

Gold better at 1206.34 (+1.72). Silver 16.68 (+0.128). Dollar lower. Euro higher. Stocks called lower. US 10yr 2.03% (-1 bp).

Posted in Markets |

Fed damps rates expectations as economy loses momentum

29-Apr (Financial Times) — The US recovery has lost momentum and the pace of hiring has moderated, the Federal Reserve said, acknowledging a weakening in the economy that has prompted markets to push back expectations of interest rate rises.

The central bank said that growth had “slowed” during the winter months reflecting “in part” transitory factors, while growth in household spending had declined even amid strong rises in real incomes, and exports had fallen.

However in its statement the Fed said that despite the weakening in output and employment growth it expects activity to expand at “a moderate pace”.

[source]

PG View: A more dovish take on the FOMC statement from the FT.

Posted in Central Banks, Monetary Policy |

Gold dips back to $1200 as Fed is apparently nonplussed by dismal GDP print.

Posted in Gold News |

Federal Reserve leaves open chance of June rate hike

29-Apr (MarketWatch) – The Federal Reserve said it expects the U.S. economy to rebound after slowing in the ‘winter months,” leaving open the chance of an interest-rate increase as early as June. Yet the latest statement by the Fed after top officials met on Wednesday could be a signal the central bank might wait a bit longer. Many analysts think the Fed will hold of at least until September. The Fed also took note of the sluggish U.S. growth during the first quarter but pointed to ‘transitory factors.” Although GDP and job creation “slowed during the first quarter,” the Fed said, the central bank “continues to expect that … economic activity will expand at a moderate pace.” The Fed’s statement and actions were approved in a 10-0 vote.

[source]

Full FOMC Statement

PG View: Anyone who thinks the Fed will actually hike rates in June is delusional. This is a throwaway policy statement because Yellen doesn’t need to answer any questions this month.

Posted in Central Banks, Monetary Policy |

The Daily Market Report: Gold Underpinned by Weak Dollar After U.S. GDP Disappointment


29-Apr (USAGOLD) — Gold remains fairly well bid in the wake of this mornings GDP disappointment. The yellow metal is being underpinned by a weaker dollar and rising risk aversion.

U.S. Q1 GDP came in well below expectations at just +0.2%. Consensus had been running around +1.0%. We suggested in yesterday’s DMR that the Atlanta Fed’s GDPNow forecasting model was probably closer to the truth, and it was in fact just about spot on.

Exports got crushed in the first quarter, dropping 7.2% y/y. The rise in the dollar to 11½-year highs in Q1 was largely to blame, as talk of an impending Fed rate hike intensified.

Capital expenditures plummeted by 2.5%. It was the biggest drop since 2009.

If it weren’t for the huge 0.74% inventory build (biggest ever), Q1 GDP would have been negative. Final sales were in fact -0.5%.

The bad news is that the inventory build will now take away from Q2 GDP; and we’re already seeing some negative revisions. Deutsche Bank’s Joe LaVorgna nearly halved his Q2 estimate from +4.0% to +2.5%.

When the Fed announces policy later today, they really should address the weak growth with something that is more overtly dovish. Perhaps a more forceful emphasis on the data dependency of any movement on rates.

I think it is safe to say that a June hike is off the table, even though I’ve never really felt that it was on the table. The last thing the Fed wants to do is intensify the growth risks at this point by suggesting policy remains unequivocally on a divergent path with the rest of the industrialized world.

In light of the sharp drop in exports and widening of the trade gap, something should also be said about the dollar. The Fed has been sitting on its hands for about a year now as the ECB and BoJ have debased the euro and yen respectively. Now that the impact of dollar gains are hitting the economy, the Fed should do something to cap the greenback.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

Japan Retail Sales Slump Flashes Warning Signal for Kuroda

27-Apr (Bloomberg) — Japan’s retail sales fell in March the most since 1998, cutting against central bank chief Haruhiko Kuroda’s view that cheaper energy will give a boost to the world’s third-biggest economy.

Sales dropped 9.7 percent from a year earlier, when there was a run-up in purchases ahead of an April sales-tax increase, according to trade ministry data released Tuesday. Sales sank 1.9 percent from the previous month, compared with a gain of 0.6 percent forecast by economists in a Bloomberg survey.

The weak reading on consumer spending comes ahead of this week’s Bank of Japan policy decision and economic outlook that could highlight waning momentum in inflation. Kuroda has said cheaper oil may crimp price gains in the near term, while eventually fueling growth and inflationary pressures.

“It’s becoming clear that Japan’s recovery is very sluggish,” said Kiichi Murashima, an economist at Citigroup Inc. “With a tight labor market and better consumer sentiment, we don’t have to change the view that spending will pick up gradually. But uncertainties are growing about the strength of the economy and that’s worrisome for the BOJ.”

[source]

PG View: This terrible news came out a couple days ago, and what a huge miss versus expectations! It just goes to show that even market professionals continue to think that massive money printing will eventually ignite consumption. Apparently not yet, so what’s the BoJ to do? Print more is the likely answer.

Posted in Economy |

Gold Futures Pare Losses as U.S. Economy Stalls in First Quarter

29-Apr (Bloomberg) — Gold futures pared declines after a U.S. government report showed the economy stalled in the first quarter, adding to speculation that the Federal Reserve will wait longer before raising interest rates.

The metal has rebounded about 6 percent since reaching its 2015 low on March 17. The next day, Fed policy makers trimmed their expectations for where rates would be by the end of the year. Officials are scheduled to issue a policy statement at 2 p.m. in Washington. U.S. gross domestic product rose at a 0.2 percent annualized rate after advancing 2.2 percent the prior quarter, Commerce Department data showed.

“At first glance, the GDP was much weaker than expected, meaning the Fed will probably keep interest rates low for longer,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said in a telephone interview. “Maybe they’ll even defer the rate hike into next year, so this should clearly be supportive for gold.”

[source]

Posted in Gold News, Gold Views |

PBOC ‘poised to pull QE trigger’ as economy stalls

29-Apr (ChinaDaily) — Financial markets on the Chinese mainland are abuzz with speculation that the central bank will inject more liquidity into the economy by unconventional means that could amount to a version of “quantitative easing”.

The People’s Bank of China may adopt new policies that could include direct purchases of local government bonds from the market, a report by Market News International said on Monday. The Wall Street Journal also reported that the government may let banks use these notes as collateral for loans from the central bank.

Economic growth in China has been slowing, but unlike Europe and the United States, there is abundant scope in China to counter the downward pressure by conventional means as reducing interest rates and cutting banks’ reserve requirement ratios, both of which have been done in recent months.

So it seems strange, to say the least, to be talking about QE. However, a closer look suggests that the idea is not so irrational, and an aggressive asset-purchasing program with Chinese characteristics can be expected.

[source]

Posted in Central Banks, Currency Wars, Monetary Policy, QE |

Economy in U.S. Stalls on Slump in Business Spending, Exports

29-Apr (Bloomberg) — The economy in the U.S. barely grew in the first quarter, buffeted by slumps in business investment and exports after oil prices plunged and the dollar surged.

Gross domestic product, the volume of all goods and services produced, rose at a 0.2 percent annualized rate after advancing 2.2 percent the prior quarter, Commerce Department data showed Wednesday in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 1 percent gain. Consumer spending, the biggest part of the economy, rose 1.9 percent, a little better than projected.

While the restraints of harsh winter weather and delays at West Coast ports were temporary, the effects of the drop in fuel prices and stronger currency will probably prove longer-lasting. Federal Reserve officials wrapping up their meeting later in the day may signal they’re in no rush to begin raising interest rates.

…Corporate fixed investment decreased at a 2.5 percent annualized pace, the worst performance since the end of 2009. It grew at a 4.5 percent rate in the previous quarter.

Investment in nonresidential structures, including office buildings and factories, dropped 23.1 percent, the most in four years. It rose 5.9 percent in the prior quarter.

…Exports have fallen for four consecutive months as the dollar gained more than 20 percent since the end of June and overseas growth remains uneven.

[source]

PG View: Inventory building added 0.74% to GDP, so real final sales were -0.5%. That’s bad news, so the Fed may have to express some more overt dovishness this afternoon.

Posted in Economy |

US Q1 GDP (advance report) +0.2%, well below expectations of +1.0%, vs +2.2% in Q4.

Posted in Economic Data |

Gold steady at 1211.10 (-0.60). Silver 16.63 (+0.035). Dollar lower. Euro higher. Stocks called lower. US 10yr 2.03% (+2 bps).

Posted in Markets |

China Readies Fresh Easing to Tackle Specter of Debt

28—China’s central bank is readying its most aggressive easing tool since it launched a massive stimulus plan in 2008 to counter the global financial crisis, in a bid to help one of the government’s most important economic-rescue initiatives get off the ground.

Chinese leaders have singled out the ballooning debts of various levels of government as an economic threat that must be defused. But a debt-for-bond swap plan aimed at giving provinces and cities some breathing room has started to hit snags as many of China’s commercial banks are balking at purchasing the new bonds.

That is prompting the People’s Bank of China to speed up consideration of an innovative tool, according to officials with knowledge of the central bank’s deliberations. Under a Chinese version of strategies used in Europe’s bailouts, the PBOC would let commercial banks swap the local-government bonds they purchase for loans from the central bank, with the aim of keeping the debt-restructuring effort on track without causing a painful credit crunch.

…The sense of urgency is palpable at China’s central bank. To help get the program going, officials from various levels of government and Chinese banks in recent weeks have been lobbying the PBOC to expand its traditional methods to free up credit.

[source]

PG View: That’s going to leave the PBoC with some pretty dodgy assets on their balance sheet.

Posted in Central Banks, Monetary Policy |

Homeownership rate drops to quarter-century low

28-Apr (MarketWatch) — In the latest sign of a changing housing market, homeownership rates are at a quarter-century low, while the rental-vacancy rate is close to the slimmest proportion in more than two decades, according to government data released Tuesday.

The seasonally adjusted homeownership rate, which shows the share of occupied homes in which an owner lives, fell to 63.8% in the first quarter — the lowest proportion since the end of 1989, the U.S. Census Bureau said.

Families with income both above and below the median have seen drops in homeownership rates over the past year.

Weak income growth and difficult-to-get mortgages are likely behind homeownership drops, experts say. Home prices that are running higher aren’t helping, either. Nor are the millions of properties that are underwater — these homes are worth less than owners owe for their mortgage — with borrowers struggling to make monthly payments.

[source]

Posted in Economy |