Richmond Fed

A Glimmer Of Good News: Goldman Raises Its Q2 GDP Estimates To 1.2%, From 1.1%, But Turns Even Gloomier On Q3

Goldman's Ed McKelvey is trying to salvage his team's reputation as the biggest gloom and doomer on Wall Street by explaining why facts and not noise will be responsible for a revised drop of Q2 GDP by not 50%... but 45% of something. What is more interesting are the reasons for the contraction: i) A significantly reduced pace of inventory accumulation; ii) An even wider trade deficit than was first estimated; and iii) A small shift in the composition of final sales to domestic purchasers. Yet those expecting this note to be a start of an optimistic shift, prepare to be disappointed. As McKevley says, "such a conclusion would be premature given the information currently available on the economy’s transition into the third quarter," and in looking at Q3 GDP, the firm gets even gloomier than ever: i) Growth in real consumer spending appears to have softened from an already sluggish pace; ii) Real residential investment has resumed falling at a double-digit pace, iii) Real business investment is roughly on track for our 10% annualized growth assumption, but with risks now tilting to the low side, iv) The trade deficit ended the second quarter in a deep hole, and the conclusion is :"Thus, the key components of private final demand suggest that our 1.7% estimate for annualized growth in real final sales this quarter is more likely to be too high than too low." A lot of words for not saying we are in a double dip.

Frontrunning: August 10

  • Buffett Shortens Bond-Holding Duration After Inflation Warning (Bloomberg)
  • No Need for New Fed Stimulus (WSJ)
  • UK RICS House Price Balance for July -8% - lower than expected: UK Economic Fears Rise As House Prices Dip (FT)
  • Fed Efforts to Spur Growth May Move Markets More Than Economy (Bloomberg)
  • Unemployment: What Would Reagan Do? (WSJ)
  • China July Trade Surplus Surges as Imports Soften (BusinessWeek)
  • China Tells Banks to Take Back Trust Firms Loans, People Say (Bloomberg)
  • Incomes Fall in Most Metro Areas (WSJ)
  • Shirakawa Signals Japan Recovery Withstanding Yen’s Advance (BusinessWeek)
  • Housing Gauge Signals First Price Drop in a Year (BusinessWeek)
Econophile's picture

Richmond Fed economist Kartik Athreya recently penned a criticism of economics bloggers that has exploded over the blogosphere. Basically he says that professional, PhD-educated economists can be trusted because of their rigorous methodology. Bloggers (most), he says, aren't to be trusted. Econophile's rebuttal.

Jeffrey Lacker Says The Fed Will Not Erode The Real Value Of Sovereign Debt Through Inflation

"The government's debt cannot grow indefinitely at a rate much faster than the economy itself grows, so ultimately, something has got to change — either taxes are raised, spending is reduced, or the real value of the debt is eroded through an increase in inflation, an outcome the Federal Reserve is committed to preventing." - Jeffrey Lacker, Richmond Fed

Morning Musings From Art Cashin

While the press and pundits hype the 11,000 level, the real resistance levels are up around 11,100. That’s where lots of Fibonacci targets and moving averages converge. Friday, the napkins suggested S&P resistance at 1194/1197. Friday’s high was 1194.66. Today’s numbers look like: resistance 1199/1202 and support 1182/1185. - Art Cashin

Richmond Fed: "Bubble? What Bubble?"

The latest out of the Richmond Fed is a joke of a paper that while analyzing the possibility that the entire stock market and dollar carry trade is one zero cost of capital-funded bubble, skips over this possibility and instead goes on to analyze the "factors that could contribute to a fundamentals-based explanation for the recent rally in certain risky asset markets." Spoiler alert: No bubble - it's all based in sound reality.

Racketeering 102: Fed's Lacker Threatens With Mutually Assured Destruction If Fed Audited

It was a four short months ago that the Clearing House Association, in a court filing, threatened with untold destruction if the Fed was ordered to submit to an audit that would expose all their dirty laundry in the form of undervalued assets used as collateral by the Federal Reserve.

It is fitting that as attempts to expose the Fed's shady practices accelerate on all fronts, and include direct legal approaches as well as subpoena demands by various politicians, that a Fed President would once again come out today, and recap the good old Mutual Assured Destruction treatise that both Wall and Main Street have gotten used to since the beginning of the bailouts. Somehow financial M.A.D. makes an appearance every time the bankers demand something and have no other rational justifications. So why not just feed the stupid plebs something about the Apocalypse that is certain to transpire should the financial oligarchs not get their way. Today was no exception.

Richmond Fed's Lacker Joins Philadelphia's Plossner In Fed "Excess Liquidity" Dissent Panel

Yesterday it was Philly Fed's Plossner, today it is Richmond Fed's Jeff Lacker who joins the chorus demanding an end to Bernanke's insane monetary policy of drowning the market with unprecedented liquidity which is not getting to consumers but merely propping Amazon stock at a bubblelicious 100x P/E. In a speech before the Charlotte Chamber of Commerce, Lacker stated: "The perception of inflation risk could be particularly pertinent to the current recovery, given the massive and unprecedented expansion in bank reserves that has occurred, and the widespread market commentary expressing uncertainty over whether the Federal Reserve is willing and able to promptly reverse that expansion... If we hope to keep inflation in check, we cannot be paralyzed by patches of lingering weakness, which could persist well into the recovery. In assessing when we will need to begin taking monetary stimulus out, I will be looking for the time at which economic growth is strong enough and well-enough established, even if it is not yet especially vigorous. Although it is hard to predict when that will occur, I can confidently predict that monetary policy will remain particularly challenging for some time to come." Then again, the stock market does not seem to share Mr. Lacker's concerns.

The ISM Fallacy

Yesterday's "blowout" ISM reading of 55.7 (on 53 in consensus) was enough to lead to a big market rally, at least temporarily. Yet, just like CfC and the overall Q3 GDP took early credit for massive stimulus payments (whose cost will be felt more gradually over the next decade), it appears the same principle of "borrowing from the future" is applicable to the ISM reading as well. And if David Rosenberg is correct, and the ISM, along with all other stimulus indicators, holds the seeds of its own destruction inside of it, look for this to be an ISM top, potentially until such time as the next stimulus is invoked.

Bruce Krasting's picture

The deep thinkers at the Richmond Fed have come up with an analytic report on mortgages. The scary conclusion is that when the government is the provider of mortgages there is a significantly higher probability that the loan will default versus a private sector lender. In other words, Uncle Sam is a "soft touch" lender, no need to pay.That conclusion will not sit well with Congress, so it is unlikely that this report will see the light of day. I doubt that many in Congress could read it anyway.

The report breaks down each individual State's rules on defaulting on a mortgage. A must read for those thinking of going down that path.

Econophile's picture

Why do economists keep getting it wrong? How can we ever trust what they say again after their miserable performance before the crash? They see what they want to see. Sheep. If we've learned anything it's to ignore mainstream economists. Listen to the outliers because the mainstream never gets it right. Here's today's data brought to you by an outlier. Remember to be skeptical.

Richmond Fed Critiques The Rating Agencies

Of all organizations, the Richmond Fed was the last place one would expect a broad scope critique of rating agencies. Yet in a piece released today, this is precisely what the bank did, potentially paving the way for the next big whiplash as ever more politicians are already contemplating the next major scapegoat for when the market turns out to have been priced in just a little too much to perfection.

Barclays Douses Market's Rally Expecations

Barclays/Lehman chief market strategist Barry Knapp came out with a report this weekend predicting a 10% drop for the S&P in this quarter, with a low of 750 to come soon. Why the pessimism? As Barry succinctly puts it "We were recently asked - Isn't all the bad news out? Unfortunately, we believe the answer is - No."