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More Than Just Fluff!
Submitted by Leo Kolivakis, publisher of Pension Pulse.
What
a hockey game between Team Canada and Switzerland. The Swiss really
played well and it went into overtime, and then a shootout where our
star, Sidney Crosby, scored the game winner.
If
we play like that against the Russians, they're going to have us for
lunch. Hockey is a game of momentum and when the tide shifts, you could
find yourself in an awkward spot very quickly.
This brings me to tonight's topic. At 4:30 this afternoon, I received the now famous release from the Federal Reserve:
The
Federal Reserve Board on Thursday announced that in light of continued
improvement in financial market conditions it had unanimously approved
several modifications to the terms of its discount window lending
programs.
Like the closure of a number of extraordinary credit
programs earlier this month, these changes are intended as a further
normalization of the Federal Reserve's lending facilities. The
modifications are not expected to lead to tighter financial conditions
for households and businesses and do not signal any change in the
outlook for the economy or for monetary policy, which remains about as
it was at the January meeting of the Federal Open Market Committee
(FOMC). At that meeting, the Committee left its target range for the
federal funds rate at 0 to 1/4 percent and said it anticipates that
economic conditions are likely to warrant exceptionally low levels of
the federal funds rate for an extended period.
The
changes to the discount window facilities include Board approval of
requests by the boards of directors of the 12 Federal Reserve Banks to
increase the primary credit rate (generally referred to as the discount
rate) from 1/2 percent to 3/4 percent. This action is effective on
February 19.
In addition, the Board announced
that, effective on March 18, the typical maximum maturity for primary
credit loans will be shortened to overnight. Primary credit is provided
by Reserve Banks on a fully secured basis to depository institutions
that are in generally sound condition as a backup source of funds.
Finally, the Board announced that it had raised the minimum bid rate
for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2
percent. The final TAF auction will be on March 8, 2010.
Easing the terms of primary credit was one of the Federal Reserve's
first responses to the financial crisis. On August 17, 2007, the
Federal Reserve reduced the spread of the primary credit rate over the
FOMC's target for the federal funds rate to 1/2 percentage point, from
1 percentage point, and lengthened the typical maximum maturity from
overnight to 30 days. On December 12, 2007, the Federal Reserve created
the TAF to further improve the access of depository institutions to
term funding. On March 16, 2008, the Federal Reserve lowered the spread
of the primary credit rate over the target federal funds rate to 1/4
percentage point and extended the maximum maturity of primary credit
loans to 90 days.
Subsequently, in response to improving
conditions in wholesale funding markets, on June 25, 2009, the Federal
Reserve initiated a gradual reduction in TAF auction sizes. As
announced on November 17, 2009, and implemented on January 14, 2010,
the Federal Reserve began the process of normalizing the terms on
primary credit by reducing the typical maximum maturity to 28 days.
The increase in the discount rate announced Thursday widens the spread
between the primary credit rate and the top of the FOMC's 0 to 1/4
percent target range for the federal funds rate to 1/2 percentage
point. The increase in the spread and reduction in maximum maturity
will encourage depository institutions to rely on private funding
markets for short-term credit and to use the Federal
Reserve's primary credit facility only as a backup source of funds. The
Federal Reserve will assess over time whether further increases in the
spread are appropriate in view of experience with the 1/2 percentage
point spread.
So why is the Fed removing
liquidity? What does this mean for the bond, stock, currency and
commodities markets? Everyone is wondering whether this the seismic
shift that will jolt markets?
Relax. All the Fed is doing so far
is removing excess liquidity that was in place in light of
extraordinary circumstances. The Fed did not do this to support the
greenback since the US dollar was already rallying prior to this move,
no doubt helped by the troubles in Europe.
To understand why the
Fed is beginning to tighten, all you have to do is look at the recovery
that is going on right now in the United States. First, the Conference Board Leading Economic Index (LEI) for the U.S. increased 0.3 percent in January, following a 1.2 percent gain in December, and a 1.1 percent rise in November:
Says
Ataman Ozyildirim, Economist at The Conference Board: "The U.S. LEI has
risen steadily for nearly a year, led by an improvement in financial
markets and a manufacturing upturn. Consumer expectations and housing
permits have also contributed to these gains over this period, but to a
lesser extent — especially in recent months. Current economic
conditions, as measured by The Conference Board Coincident Economic Index
(CEI), have also improved modestly since July 2009, helped by
strengthening industrial production, despite continued weakness in
employment."
Adds Ken Goldstein, Economist at The Conference
Board: "The cumulative change in the U.S. LEI over the past six months
has been a strong 9.8 percent, annualized. This signals continued
economic recovery at least through the spring."
Second, U.S. industrial production jumped 0.9% in January signaling an economic recovery:
Industrial
production in the U.S. climbed more than expected in January, marking a
sustained economic rebound for manufacturing, utilities and mining.Factories increased production of consumer goods and business equipment, highlighting advances in all major component indexes.
“Manufacturing
in general has looked good over the last several months,” said Russell
Price, senior economist with Ameriprise Financial Inc. in Detroit.
“Even though inventories remain tight, new orders continue to improve,
and the sector in general looks very positive.”The 0.9
percent increase follows a 0.7 percent gain in December, according to a
Federal Reserve report released Wednesday. Manufacturing rose 1
percent, while mining and utilities both climbed 0.7 percent.The increase beat expectations - economists polled by Bloomberg predicted a 0.7 percent jump.
The
capacity utilization rate, a measurement of industrial capacity and how
much of it is being used, rose 0.7 percentage points to 72.6 percent,
which is still well below its 80.6 percent average from 1972 to 2009.The
industrial production index, which is seasonally adjusted, is expressed
as a percentage of output relative to a base year. The current base
year is 2002 and equals 100. In January, the index was at 101.1,
meaning the economy has only just surpassed its level of industrial
production from almost eight years ago.January output was 0.9 percent above its year-earlier level of 100.1.
Industrial
production is a key determiner of the gross domestic product, and
therefore closely monitored by the Federal Reserve when setting
monetary policy.
And
it's not just manufacturing that's looking good. A couple of weeks ago,
Yanick Desnoyers, Assistant Chief Economist at the National Bank of
Canada, wrote that the U.S. recovery is more than just fluff. Importantly, I quote the following:
As
it turns out, surprisingly, real output in the service sector, the
heavy-weight component of the U.S. economy (66%), is no longer in
recovery mode but clearly already in expansion mode! As Chart 3 clearly
shows, in the United States, real activity in this sector is already up
1.7% relative to its level at onset of recession....
The
overall picture, then, is relatively simple. Service output is
expanding, activity in the goods sector is recovering rapidly, and
construction remains the weak link by far. However, this last sector accounts for less than 10% of activity.
In that weekly, Yanick also mentioned that U.S. monetary policy is too accommodating:
The
Federal Reserve’s real key rate stands at about -200 basis points. If
we factor in the expansion of the central bank’s balance sheet, we sink
to about -500 basis points, the same depth in the accommodating zone as
in 1975 (blue star in Chart 14). And everyone remembers what happened
next back then. Inflation literally ran away, forcing the Federal
Reserve to raise its key rate to a record high, which in turn caused
the recession of 1982.
On the basis of our measure of the
output gap, which is much closer to the situation that prevailed during
the 1991 recession, not because the downturn was less severe this time
but rather because of the unusual occurrence of capacity destruction in
the economy, monetary policy in the United States seems overly
accommodating right now.
Under
the circumstances, the recovery under way in the U.S. economy should
spur the Federal Reserve to action early in the second half of 2010,
that is, sometime around August.
Other forecasters
predicting no rate hikes before 2011 are assuming that potential GDP
was not affected during the crisis and that its growth will remain
strong going forward. With credit set to flow less freely in future, we
do not regard this as the most likely of assumptions.
Last week, Marco Lettieri , another economist at the National Bank of Canada, followed up with a weekly stating that U.S. inflation dynamics suggest policy is too accommodative and concluded by stating:
Though
we do not expect inflation to escalate out of control, it would be wise
to be forward looking and keep inflation expectations in check. The
current environment no longer warrants zero-percent interest rates to
allow the economy to grow and labour conditions to improve. In our
opinion, inflation may surprise on the upside, especially as the U.S.
economy tones up through the first half of 2010, revitalized by
increased business investment and an improving labour market. We
continue to expect the FOMC to begin normalizing interest rates at its
meeting of August 2010.
You can keep up-to-date with the latest from the National Bank of Canada's economic research team by going to their site. In my opinion, they are among the best economists out there, always looking forward, not backward.
So
while the markets might react negatively to the Fed's latest move,
please keep in mind that policy is still way too accommodating. This
means that dips in stocks will continue to be bought and there is still
a strong likelihood that speculative bubbles will percolate up in
certain sectors (my money is in alternative energy).
Forget what the bears and skeptics claim. The U.S. recovery is more than just fluff.
»
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Does anyone have the suspicion that Leo doesn't actually believe this stuff, but is simply playing agent provocateur in order to get hits? It would certainly explain the bipolar nature of the writing style in his various comments.
leo on your watch lol
Here will be another future source of discontent
Eight states have been given failing scores for their pension management under a new grading system developed by the Pew Center on the States, which also found a $1 trillion gap between what all 50 states have promised their workers and what they have set aside.
The Pew center said on Wednesday that Alaska, Colorado, Illinois, Kansas, Kentucky, Maryland, New Jersey and Oklahoma had, in essence, failed its new test because they made no meaningful progress on keeping their retiree benefit plans sound. The worst case was Illinois, with a $54 billion gap between the cost of the benefits it had promised to pay retirees over the next 30 years and the amount it had set aside.
The data also did not capture the worst of the market crash, which occurred in the fall of 2008.
Ms. Urahn said that as a result, the $1 trillion figure probably understated the problem
leo spring for some dough 175 bucks
go read williams shadow statistics
get a taste of reality ,, . the only up tick going on is borrowed , fluff fiat ,,
and then read a good austrian economics text.. put the keynesian clap trap to rest,,
as dad romney said of the viet nam war ,, i was brain washed.
another opinion
There has never been a time in US economic history when there were as many challenges simply to both survival of a system as well as an economy.
There has also never been a time in US economic history when we have had to navigate through such blatant lies and distortion. (see leo piece on zero) hedge
sinclair
U.S. state pension funds have $1 trillion shortfall: Pew
WASHINGTON (Reuters) – U.S. states face a total shortfall of at least $1 trillion in their funds for employees’ pensions and retirement benefits, and their financial problems are quickly mounting, according to a report released by the Pew Center on the States on Thursday.
What ARE you smoking?
All you have to do,in the west, is LOOK OUT YOUR WINDOW. If you don't see small business flat on its back, shrinking real incomes, looming price inflation/stagflation, permanently higher structural unemployment and ever-greater income disparity, maybe you WILL see ever-higher debt levels and ever-higher leverage.
Your "recovery" reflects a Potemkin economy: drip-fed on cheap credit. Were that removed ~ and one day it must be ~ you would see just how well these new business successes stand up to the real world.
Where will demand come from?
I hear K2 is all the rage these days. It must turn everything a tinge rose... evidently a mild hallucinogenic that makes things appear pink while making one all giddy about bulls.
17% unemplyment
6 states on the endangered list... 24 to follow
12% wholesale inflation
commercial property ready to implode
ready for second round of housing bust
pension on the ropes ,, with unfunded liabilities
spmeone sees a life size turd floating in a government statistic wet dream ,, and pronounces the turd does not stink lol
Why is this article here? I come here for real information, not propaganda and positive spin. If I wanted to be made a fool of, I'd turn on cnbc.
"The U.S. recovery is more than just fluff."
Dude, you need your head examined!
perhaps you and cramer should get a room.
Leo,
I'm truly appreciative to have you making the bull case. Also far too easy to only read and listen to those things that agree w/ ones market view. You and I are not in agreement but it really helps me to know the bull case (typical recession w/ massive stimulus resulting in a new bull) vs the bear case (atypical recession w/ massive debt overhang and no true credit growth...only contraction). I'm always trying to stay open to the most likely outcome and though I don't think your argument is as strong as the bear case, much appreciated and I'll let you know if at some point I'm swayed. Keep up the other side of the coin.
+1
As usual Leo, You know how to draw a crowd.
Dissembling trolls have a knack for doing that.
Leo, one question: what happens when a lot of these highly paid municipal employees start getting laid off in serious numbers, and when state and local governments have to start cutting pension payments to the retired. Think that will affect consumer demand?
Leo, show some real balls and disclose all your short positions. Now THAT would not be fluff...
You going long tomorrow, dip boy?
Leo, I am too fucking tired and too fucking busy writing my critique of Foucault's genealogy of the modern racist state to even begin giving this massive turd the response it deserves. However I can assure you it is coming, and I want you to know that it is my new goal in life to dynamically reorient your entire perspective about the world and the people that inhabit it. When I am done describing how the transition of sovereign power over life and death with a biologically implied imperative is the weak point of Foucault's final lecture, I WILL BE COMING FOR YOU SIR. Long and short of it: go watch the Bill K Black video and then we can talk. Accounting tricks are not economic growth, comeon, you are a smart guy.
Nice, w/ big balls... Would prefer however the old-fasioned "who" instead of "that" in this part: [... about the world and the people that inhabit it].
Put succinctly:
For over 90 years, The Conference Board has created and disseminated knowledge about management and the marketplace to help businesses strengthen their performance and BETTER SERVE SOCIETY.
Whose SOCIETY, exactly?
And why does the ABC survey show exactly the opposite for confidence?
"The U.S. recovery is more than just fluff."
This economy would fold up like a lawn chair if the 'fluff' was removed from our banking regulations and accounting practices.
Like I said before, I have no doubt that the SPX could run to 50,000 as earnings continue to 'beat expectations' and GDP comes in 'ahead of forecasts', but come on, are you talking about Ponzi fraud Wall Street or the Real Economy? You do realize that it's all a parlor trick, right? People are flying into buildings out there and only 21% thinks the government is legit.
This crew of fianacial engineers is juggling chainsaws and it's just a matter of time til the next disaster slams home.
F**king brilliant!
I worked with Ken Goldstein for many years.
9.8% is probably what a breathalyzer test would have shown a few seconds after that ridiculous statement.
Its more than just fluff. Its unemployed fluff, foreclosure fluff, bankruptcy fluff, trade deficit fluff, stimulus fluff, trillion dollar deficit fluff .....................
Leo is a fluffer.
http://globaleconomicanalysis.blogspot.com/2009/10/can-we-really-trust-l...
http://www.financialsense.com/Market/cpuplava/2009/0930.html
Hey Leo, I hope your right because I'd rather be wrong. Where do I buy the rose tinted "Lucy In The Sky With Diamonds" glasses you're wearing?
...and the Debt?
Everytime I see you post this type of stuff, I am certain ever more you simply do not operate, formulate, concieve or live in the real world/economy.
And have not for at least 3 years.
Leo: Aghhhhhh! Please...
m3 is declining.....we have no instance of economic growth in the face of declining m3......ever....
Yeah, a fluff as it is always just like everyone’s PIN number.Never get to trust anything they say unless they bring us some real proof face to face.
Leo, how do you know that the move from 666 to 1100 hasn't priced in all of the strong recovery you're seeing?
You know he's right. Right now bidding is going on to install quarter million dollar asian mohagony pocket doors on a $25 million 'get away' on an island in the South Pacific. After that McDonald's used to need people. Oh and unionized govt. "add a lane where they had a wide and perfectly good paved shoulder" jobs. Real swell.
Credit contraction is not just a function of 'nobody can get it' but also those who can get it 'don't wan't it' which puts the pickle back in the jar. And of course we are cutting back on dill.
P.S. I'm not kidding about the pocket doors. I'm guessing a California Squid has cash issues.
Yeah, a fluff as it is always just like everyone’s PIN number.Never get to trust anything they say unless they bring us some real proof face to face.
brickwall: leo! nice to meet you
brickwall: leo! nice to meet you
what are you smoking, cause wow, must be amazing.
LOL When the Canadian housing bubble busts. It's gonna take more than pampers and pacifiers, to stop you from crying, Leo! LOL
Buying a nice condo in Vancouver at 50% off would be sweeta.
Leo, we all know now that numbers given out by our government are lies and obfuscations.
I dont believe a friggen thing anymore.
what about walking away from the market?
profits made yes, but nothing gets produced on wallstreet. or in the US evidently. And that wont change till the system falls.
If all the traders left the market what would be the result? Please lets not allow our greed for profit to ruin the country anymore.
I assume i am beating a dead horse saying this. Thanks for listening
Hey Chopshop, do me a favor, read the post carefully and the links to the analyses before talking out of your ass. Same goes for everyone else. If you think this is a bogus recovery, you're in for a shock.
I own a manufacturing company that serves the high tech automation and semiconductor equipment businesses. We have been insanely busy since September 09 and is still strong. That said, I believe we are past our peak in orders - new orders come in but they are smaller. Furthermore, everyone is in a hurry to get shit out the door now because they know what's coming. Finally, our revenues, profits, and employment are trivial compared to the magnitude of bank losses that are coming with the second wave. Bottom line, we are past peak and I think the leading indicators will level out and go down over the coming months.
Its not a bogus recovery, there is no recovery.
Manufactoring liquidity and cooking the books, thats all.
.
Leo you ignorant slut.
Recovery? BULLSHIT!
YOU DO SOME GOOD CUT AND PASTES BUT DON'T REALLY PROVIDE MUCH COMMENTARY THAT ISN'T FLUFF I'M AFRAID
If you think government data can't be manipulated and spun just right to catch people off guard than you're likely just one of the people who's always caught off guard. What have you been smoking?
II'd like to rip you apart for being a typical fool but it's late and I'm tired but just know you're caught in the system and you want what everyone wants but unlike most people at zerohedge, you've got your head so far up your ass you have no idea whats going on. G'luck to you and happy investing. LOL!
"He that hath eyes to see, let him see."
Attention all potential eye donors: Please report to Leo Kolivakis stat!