San Francisco Fed
Few laws cause as much high blood pressure as the Affordable Care Act (ACA). Supporters of the law consider it the signature legislation of the Obama administration. Yet, in 2011 the House of Representatives passed the “Repealing the Job-Killing Health Care Law,” one of more than 40 attempts to scuttle the legislation. Public opinion polls are ambiguous: most Americans are against the law as a whole and yet most support many of its provisions. BofAML tries to slice through the partisan debate and show what serious research says about how the ACA will impact the labor market.
"It's going to put my family and me out on the streets," is a perspective shared by many of the 1.3 million Americans about to lose their emergency unemployment claims. The program, started during the recession, was intended to help jobless people after they exhausted state benefits, typically lasting six months. House Republicans resisted continuing the benefits without budget cuts elsewhere to cover the cost. As Bloomberg reports, opponents say the extended benefits discourage the unemployed from accepting jobs and that the program should be curtailed, given the recovery in the nation’s labor market.This has profound implications for the oh-so-important unemployment rate that the Fed is so dependent upon...
For everyone who shrugged off last week's enormous spike in initial jobless claims as "can't be real", the BLS has another "holiday volatility"-blamed statistical anomaly for traders to ignore. Initial claims rose 10k to 379k - dramatically worse than the 336k expectation - and the worst since March. Though the BLS says no states estimated jobless claims last week, they would suggest, ever so humbly, that we ignore this data and focus on the trend of the 4-week moving average. Total benefit rolls also rose to 3 month highs, up 94k to 2.88 million. The piece de resistance - non-seasonally-adjusted initial claims were down 48.2k (against the seasonally-adjusted 10k), yet both are up exactly 13k from a year ago (seems the Sandy-based YoY adjustments are playing havoc). Lastly, 1,374,031 American on Emergency Unemployment Compensation (ie. extended benefits) - which are about to run out thanks to Congress (which will implicitly send the unemployment rate plunging).
Bipartisan Budget Deal Reached; No Extension Of Unemployment Benefits Means Unemployment Rate Set To... PlungeSubmitted by Tyler Durden on 12/10/2013 19:01 -0400
Moments ago, news hit that democrat negotiators Patty Murray, and republican Paul Ryan reached a bipartisan deal to ease the automatic budget cuts by $60b. The deal calls for auctioning of govt airwaves, increased premiums for pensions backed by PBGC, a congressional aide told Bloomberg’s Heidi Przybyla. A press conference will be held at 6pm to unveil the bipartisan budget agreement, according to e-mailed statement. As a result, a January 15 government shutdown will be avoided. The agreement would require federal workers to contribute more to their pensions, increase premiums on companies whose pension plans are insured by the federal government and increase security fees paid by airline travelers.
And as a result of the implicit $5 billion a month fiscal boost, a near-term modest taper is now even more likely.
Are Another 1.3 Million Americans About To Drop Out Of Labor Force (And Send Unemployment Plunging)?Submitted by Tyler Durden on 12/02/2013 15:40 -0400
With even the Fed somewhat challenging the credibility of the official unemployment rate - as labor force participation collapses structurally - the possibility that if Congress does not act by Dec 28th, a further 1.3 million people will lose emergency aid and may be deemed 'out' of the labor force merely exaggerates an already farcical situation. As JPM's Mike Feroli notes, the "official" unemployment rate may drop up to 0.8 percentage points, but it won't mean the economy is any better. Is this the 'excuse' the Fed needs to transition from QE to forward guidance (with the public seeing only a rapidly collapsing unemployment rate as evidence of their success) even as the data that they are so "dependent" on becomes worse than useless?
Yellen is the head of the San Francisco Fed. There is a lot of misinformation about her on the web, but the fact of the matter is that she is a career academic with absolutely zero banking experience or business experience.
The philosophical roots of Janet Yellen's economics voodoo, it seems, are in many ways even more appalling than the Bernanke paradigm (which in turn is based on Bernanke's erroneous interpretation of what caused the Great Depression, which he obtained in essence from Milton Friedman). The following excerpt perfectly encapsulates her philosophy (which is thoroughly Keynesian and downright scary): Fed Vice Chairman Yellen laid out what she called the 'Yale macroeconomics paradigm' in a speech to a reunion of the economics department in April 1999. "Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not," said Yellen, then chairman of President Bill Clinton's Council of Economic Advisers. "Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes," although there is "uncertainty with which to contend." She couldn't be more wrong if she tried. We cannot even call someone like that an 'economist', because the above is in our opinion an example of utter economic illiteracy.
- How much does QE contribute to the growing inequality of wealth in this country and what are the risks this creates?
- How much systemic risk does the Fed create by becoming what Warren Buffett termed “the greatest hedge fund in history”?
- How might the Fed’s expanded balance sheet and its failure to even begin to “normalize” monetary policy four years into the recovery limit its flexibility to deal with the next recession or crisis?
Pulling from an extensive record of public speeches and FOMC meeting transcripts, Goldman Sachs reviews Fed Chair-nominee Janet Yellen's views on a number of policy-relevant issues.
All the histrionics over the next Fed chairman, pardon chairwoman, choice are over. WSJ reports that Obama is set to announce Mr., pardon Mrs Janet Yellen as Bernanke's replacement tomorrow at 3 pm at the White House. "The nomination would conclude a long and unusually public debate about Mr. Obama's choice which started last June when he said that Ben Bernanke wouldn't be staying in the post after his term ends in January. Mr. Obama gave serious consideration to his former economic adviser, Lawrence Summers, who pulled out in September after facing resistance from Democrats in the Senate." However, while a Yellen announcement, largely priced in, in a normal environment would have been good for at least 10-20 S&P points, with the debt ceiling showdown the far more immediate concern, the choice of the Chairwoman may not be the buying catalyst that it would have otherwise been.
When we first posted this article a month ago, few paid attention as the entire world was gripped in Summer-mania. Now that Summers is out of the picture, and the monetary policy acumen of the former San Fran Fed president are under the spotlight, it is probably an opportune time to recall Janet Yellen's ability to foresee the future heading into the great financial crisis whose five year anniversary took place this weekend. Or rather lack thereof, because as the following excerpt from a 2010 FCIC hearing, noticed first by the NYT, demonstrates, if this is the best Fed head replacement we can do then we may as well fast forward to the Great Financial Crisis ver 2.0: “For my own part,” Ms. Yellen said, “I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s — I didn’t see any of that coming until it happened.”
San Francisco Fed head John Williams - known for his extremely dovish views on monetary policy (and support of record accomodation) - appears to have taken some uncomfortable truth serum this morning. In a speech reminiscent of previous "froth" discussions and "irrational exuberance" admissions, Williams explained:
- *WILLIAMS SAYS POLICY MAY YIELD ASSET BUBBLES, UNINTENDED RESULT
- *WILLIAMS: ASSET-PRICE BUBBLES AND CRASHES 'ARE HERE TO STAY'
- *WILLIAMS: ASSET-PRICE BUBBLES ARE 'CONSEQUENCE OF HUMAN NATURE'
His words appear to reflect heavily on the Fed's Advisory Letter (from the banks) from 3 months ago - warning of exactly this "unintended consequence." This, on the heels of Plosser's recent admission that the Fed was responsible for the last housing bubble, suggests with the black-out period before September's FOMC about to begin, the Fed is sending us a message that Taper is coming - as we know they are cornered for four reasons (sentiment, deficits, technicals, and international resentment).
In the US, retail sales on Friday will be the main data release. In addition, Congress will return from its 5-week recess on Monday and will likely keep their focus on Syria this week. Finally, San Francisco Fed President Williams (who does not vote on FOMC policy this year) will speak on Monday. Last week, Williams argued that the FOMC should maintain its focus on the unemployment rate, despite its limitations. After Friday's employment report saw the unemployment rate drop again due to falling participation, this issue is likely to resurface. The Fed's communication blackout period begins on Tuesday so Williams will be the last FOMC speaker before the September meeting ends on the 18th.
Just when the market thought it had priced in a new equilibrium without (or with - it is not quite clear) a Syria war, here comes Thursday with a data dump that will make one's head spin. Central bankers are once again on parade starting overnight, when the BOJ announced no change to its QE program and retaining its monetary base target of JPY270 trillion. The parade continues with both the BOE and ECB, the latter of which is expected to address the recent pick up in Eonia rates and take praise for the recent very much unsustainable "recovery" in the periphery even as Germany continues to slide lower (this morning's factory orders plunged 2.7% on exp. -1.0%), which in turn lead the Bund to pass above 2.0% for the first time since March 2011. Speaking of bonds blowing out, the US 10Y is now just 6 bps away from 3.00%, the widest since July 2011, and likely to breach the support level, taking out a boatload of stops and leading to the next big step spike in rates as the second selling scramble ensues. And just to keep every algo on its binary toes, today we also get a NFP preview with the ADP private payrolls at 8:15 am (Exp. 180K, down from 200K), Initial Claims (Exp. 330K), Nonfarm Productivity and Unit Labor Costs (Exp. 1.60% and 0.9%), Factory Orders (Exp. -3.4%), Non-mfg ISM (Exp. 55), Final Durable Goods, EIA Nat Gas and DOE Crude Inventories, oh and the G-20 meeting in St. Petersburg where Putin and Obama are not expected to share much pleasantries, and where John Kerry's swiftboat may not be allowed to dock.
A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of.