Ben Bernanke & US Fed 01 (May 08 - Nov 10 )

[kennynah]

I suspect that when the recessionary grim ripper stalked the Americans, they bucked up from their once cushy jobs n starting really working leading to significantly higher productivity. The employers continue to cost control while catching up on profits/revenues. Only when the businesses start to constantly rake in qtr after qtr of profits will CEOs be willing to expense mire budget on hiring new hands.

[millionairemind]

I suspect that when the recessionary grim ripper stalked the Americans, they bucked up from their once cushy jobs n starting really working leading to significantly higher productivity. The employers continue to cost control while catching up on profits/revenues. Only when the businesses start to constantly rake in qtr after qtr of profits will CEOs be willing to expense mire budget on hiring new hands.

Then the boss figured... since we can cope with fewer people, Y hire in the first place??

[kennynah]

my thoughts exactly... so, a high unemployment will be a norm for sometime to come... job creation will start off with lower income groups....before progressing to the more expensive positions...

in fact, we should be looking at this levelling off of 10% unemployment as a long term indication for bullish play.... for several months now... we have not seen any worst indication that ~11% of unemployment and since then, they've reported a pull back to ~9.7%.... market cheered evidently from the index rally... if this unemployment figure to be released this Fri gets even better, then, i think it will fuel the rally further...

market is forever forward looking... econ data serves only to confirm such outlook...

so, while my gut feel is that current index seem toppish... i wont be so arrogant and stubborn as to persistently stay obtused with this view... fighting the market strong trend is asking for early "retirement"....

[millionairemind]

Apr 1, 2010
Low rates still needed: Fed
WASHINGTON - ROCK-BOTTOM interest rates are still needed to aid the US economic recovery, but there's a chance that the Federal Reserve may have to start raising rates before America's unemployment rate drops significantly, a Federal Reserve official said on Wednesday.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said the Fed is right to pledge to keep rates at record lows for an 'extended period.'

But he - as Federal Reserve Chairman Ben Bernanke did last week - said that doesn't mean a specific time period or number of meetings. Some analysts have taken it to mean around six months.

After suffering from the worst and longest recession since the 1930s, the economy seems to be on a path for moderate growth, a little below a 3 per cent pace for the January-to-March quarter, Mr Lockhart said in a speech to business people meeting in Hartford, Connecticut.

'It's quite possible the recovery could be well advanced before any significant reduction of unemployment materialises,' Mr Lockhart said. 'It's also quite possible circumstances justifying the start of a cycle of policy tightening will develop well before the unemployment rate has found a satisfactory level,' he added.

The unemployment rate now stands at 9.7 per cent. The Fed, along with many private economists, predict the jobless rate will stay high over the next two years because economic growth won't be robust enough to drive it down quickly. -- AP

[kennynah]

everytime they highlight this IR subject.... i worry....it just tells me they are discussing this issue and at 0.25% ... it can only go up.... and maybe earlier than expected... maybe just after treasury finishes off their sale of equities assets...

[millionairemind]

Deflation on the prowl as Bernanke shuts down his printing press
The most audacious monetary experiment in modern history ended on April Fools' Day. America must walk without crutches, on gangrenous legs.


By Ambrose Evans-Pritchard
Published: 6:35PM BST 04 Apr 2010

The US Federal Reserve has completed its purchase of $1.7 trillion (£1.1bn) of mortgage securities, agency debt and US Treasuries, the conjuring trick of "credit easing" that allowed Ben Bernanke to create stimulus equal to 12pc of GDP.

The Fed's money creation has been more or less the size of Washington's borrowing needs for the last year, as Beijing notes with suspicion.

We will never know whether it was wise to go nuclear. My view – anathema to readers, I fear – is that Ben Bernanke and Britain's Mervyn King saved us from potential calamity. We were all too close to the tipping point illustrated in Irving Fisher's Debt Deflation Causes of Great Depressions, the moment when the sailing ship catches water and capsizes instead of righting itself by natural rhythm.

Work by Berkeley Professor Barry Eichengreen shows that global trade, industrial output, and stock markets all crashed at a faster rate over the six terrifying months after the Lehman crisis than during the early 1930s. How quickly we forget, and how easily we are seduced by a 76pc stock rally into thinking it was a storm in a teacup. Just wait until the day fiscal retribution comes.

The $1.7 trillion created out of nothing will vanish as the bonds are sold on the open market. Not too quickly, let us hope. Easy money must cushion the blow of spending cuts. Even talk of ending QE amounts to tightening. While the US economy has begun to create jobs again – plus 114,000 in March, stripping out short-term census workers – there were false dawns in 2002 and 1982. The broader U6 jobless rate nudged up to 16.9pc.

Bond vigilantes ask who will step into the Fed's shoes to soak up the flood of debt from Washington, whether from the Obama Treasury or from Fannie Mae and Freddie Mac – the mortgage giants on death row.

Yields on 10-year Treasuries have jumped 30 basis points in two weeks to 3.94pc. Alan Greenspan called it "the canary in the mine" for US sovereign debt.

The yield spike is happening even though core inflation (trimmed mean PCE) has been dropping like a stone, touching a record low of 1.04pc in February. The Fed's Monetary Multiplier is languishing at 0.815, a flat tire.

The basic 30-year fixed mortgage has risen to 5.08pc from 4.71pc in December. The US housing market looks too sickly to withstand this. New home sales have fallen for four months in a row, dropping to a half-century low in February. The inventory of unsold homes has jumped to 8.6 months supply. Some 24pc of mortgages are in negative equity.

Mr Bernanke is taking the fateful decision to knock away the props of the mortgage market even though the M3 broad money supply has been contracting at an epic pace of 6pc since September. If M3 gives early warning of six to 12 months, beware.

Mr Bernanke does not look at M3, disdaining such monetarist eccentricities as medieval sorcery. The M3 signal has certainly been erratic over the years. It can be distorted by portfolio shifts. But the refusal to even look at it has been the root of much trouble over the past four years.

Had Mr Bernanke paid attention, he would have seen the need to pop the credit bubble earlier. He would also have avoided his catastrophic error in the early summer of 2008. Robert Hetzel, chief economist at the Richmond Fed, writes in Monetary Policy In The 2008-2009 Recession that central banks themselves triggered the crisis by failing to cut rates fast enough as the economy tanked from March to July 2008.

Cast your mind back to that moment. Rates had already been slashed from 5.25pc to 2pc. Oil and copper prices were rocketing. Inflacionistas were screaming, accusing the Fed of 1970s debauchery and some Fed hawks seemed to agree.

Dr Hetzel said the Fed "effectively tightened" policy in June 2008 by tough talk that led the futures market to price in a half-point rate rise by September 2008. Evidence that the growth rate of broad money had long been plummeting was ignored.

The European Central Bank went further, raising rates in July even though the eurozone was already deep in recession. We know what happened. Lehman, AIG, Fannie and Freddie fell apart in September. The wheels came off the world's financial system.

My fear is that the Fed will repeat the mistake – in this case by reversing QE too soon. The problem is Mr Bernanke's ideological doctrine of "creditism".

Is the Fed chairman worshipping a false religion? Was Milton Friedman right in arguing that the quantity of (broad) money is what is what matters most, not the credit mechanism?

Upon this abstruse doctrinal point will depend – perhaps – whether the Atlantic economies rise above stall speed or lurch into a double-dip recession.

[winston]

CREDIT SUISSE: EXPECT A CHANGE IN FED LANGUAGE AS LABOR MARKET IMPROVES

Credit Suisse says we have reached a critical turning point in the recovery (see their latest strategy note here). Last week’s labor report marked the point where the Fed will begin targeting tighter monetary policy. Nonetheless, the labor report is an overwhelming positive for the markets according to CS:

“We think the March jobs report – which was less Census and more private-laden than expected – marks a significant turning point for the labor market. It’s increasingly likely that job growth (non-Census) has entered a period of trend expansion.

In addition to the positive job headlines, the important income and hours worked details were unambiguously positive – not only for a weather-exaggerated March, but for the first quarter overall. There were also significant upward revisions to the prior two months, which is itself a sign of a turning point.

The alternative Household Survey jobs measure has added 1.357mn new jobs over the last three months. The actual recovery might be stronger than what the payroll numbers suggest.”

Their analysts maintain that the Fed likely won’t raise rates until September, but the labor report will likely result in a change in Fed language at their April meeting.

While Fed rate hikes are probably still many months away (we think September), today’s labor market news, and yesterday’s powerful ISM result, tilt the scales that much more in the direction of the FOMC jettisoning the “extended period” language at the next FOMC meeting (April 29).

Bernanke speaks on Wednesday. Will his accommodative tone change to one of more proactive monetary policy?

Source: CS

http://pragcap.com/credit-suisse-expect ... t-improves

[millionairemind]

Apr 7, 2010
FED mulls crisis measures exit
WASHINGTON - THE Federal Reserve discussed an exit strategy from massive economic support measures last month but delayed any decision, minutes of the latest policy-setting meeting showed on Tuesday.

At a March 16 meeting of the Federal Open Market Committee (FOMC), participants 'discussed possible approaches for formulating and communicating key elements of its strategy for removing extraordinary monetary policy accommodation at the appropriate time.

'No decisions about the committee's exit strategy were made at this meeting, but participants agreed to give further consideration to these issues at a later date,' the minutes said.

The FOMC left its ultra-low key federal funds rate unchanged in a range between zero and 0.25 per cent, where it has been since Dec 2008 in a bid to jump-start the world's largest economy from the worst recession in decades. The policymakers agreed that the central bank's purchases of US$1.25 trillion (S$1.75 trillion) of mortgage-backed securities and about US$175 billion of other debt were on track for completion by the target date of March 31.

The FOMC concluded that financial market conditions remained supportive of economic growth and there were no signs of emerging misalignments in financial markets or 'widespread' instances of excessive risktaking. 'Participants were also reassured by the absence of any signs of renewed strains in financial market functioning as a consequence of the Federal Reserve's winding down of its special liquidity facilities,' the minutes said.

However, bank lending was still contracting and interest rates on many bank loans had risen further in recent months. Still, the participants expected that credit conditions 'would gradually improve over time,' which could provide a positive feedback loop that would ultimately boost the economic recovery. -- AFP

[LenaHuat]

Yesterday, Siva of BT, wrote a very stimulating article on the "Bernanke Put". It seems markets are buying it BB and the Obama team are firming up things pretty well.

[millionairemind]

Here's the article

Published April 8, 2010

Bernanke Put to keep Wall St going

By R SIVANITHY

AFTER a few wobbles earlier this year, it looks very much like Wall Street has regained its footing - the Dow Jones Industrial Average is up 6 per cent for the year and on the brink of breaking 11,000. Moreover, you wouldn't have to look too hard to find fund managers, analysts and pundits who will offer the standard reasons for this optimism - that stocks are cheap relative to future prospects or some other variation of that theme, such as 'valuations are undemanding' or that a strong economic recovery is on the cards.

Space Age trading: The market believes that the Fed will insure it against any disaster and so - quite logically - stocks must always be a 'buy'

That may be so, but such reasoning only scratches the surface of what really is going on. The real reason why the US stock market has pushed and should continue to push higher in the near term (a prediction made several times before and most recently on March 22, 'Riskless trade should keep Wall St grinding higher') is what has come to be known as the 'Bernanke Put'.

In a nutshell, this refers to the explicit guarantee by US Federal Reserve chief Ben Bernanke that in times of trouble, interest rates will be slashed to zero and money printed in order to prop up the stock market and the 'too big to fail' banks.

The word 'Put' in this case derives from a put option, an instrument which gains in value when prices plunge and is hence often used as insurance by sophisticated players to protect the value of their portfolios.

In other words, the market believes whole-heartedly that the Fed will insure it against any disaster and so - quite logically - stocks must always be a 'buy'.

Whether or not this will prevail indefinitely is of course open to debate since the 'Bernanke Put' is nothing more than a continuation of the 'Greenspan Put' that was in force from 2000 to 2006, a put which then led to easy credit and a massive expansion in investment banking that in turn contributed to the crash of 2007 and 2008.

For now though, Wall Street appears secure in its faith that the Fed would always step in to give it what it wants. The complacency that this faith has spawned is manifest all over the market and is obvious with every economic release where the current mindset is firmly win-win no matter what happens - if the economy is bad or struggling, then there's no way the Fed can justify raising rates in which case stocks are a buy; if there are signs of economic recovery then even if rates rise they have to do so only gradually and over the course of many months, in which case stocks are also a buy.

Consider, for example, last week's US jobs report that was lauded as showing the best jobs creation in three years and so was said to have helped pushed stocks higher all over the world.

A close examination reveals that the report is actually not great at all - although 162,000 jobs were added in March, 48,000 were part-time workers hired by the government to conduct its 2010 Census, while 81,000 came from the US Labor Department's 'birth-death' seasonal adjustment. This latter figure is a wholly statistical construct based on the number of new firms opening ('births') or closing ('deaths') and does not refer to actual jobs created. It is derived using long-term econometric forecasting models and can vary tremendously from month to month but is usually generous on the upside - in February, for example, the adjustment arbitrarily added 97,000 jobs.

More relevant was that the unemployment rate actually remained at 9.7 per cent and the Labor Department's U-6, which is the total number of people unemployed and is a better gauge of the pain being felt, rose to a new high of 16.9 per cent. Also a new high was the proportion of people out of work for 27 or more weeks - 44.1 per cent.

Separately, economists from the Liscio Report have estimated that the probability of someone out of work in February finding a job in March sank to 18.7 per cent - the lowest since 1948, which is when the numbers were first tracked.

Now, it's a sure bet that the hundreds of economists and analysts still employed by the bailed-out Wall Street banks would have been able to peer behind the headline numbers and figure out that the employment situation is still grim. So since stocks were quickly bought and are continuing to be bought, it must mean that faith in the Bernanke Put and the 'win-win' mentality described earlier is very much in force. It'll certainly be interesting to see how long this can last and if, in time to come, whether the Bernanke Put goes the way of its predecessor, the Greenspan Put.