fra ed yardeni, en jeg kender ret godt efterhånden
jeg mødte ham i februar 1987 og har talt med ham i telefon en del gange
I) POLITICS: Obama picks the Best and the Brightest. On Friday, the President-elect met with his new Transition Economic Advisory Board (TEAB). The committee of 17 members is mostly the same old crowd from the Clinton administration. Proving that this is still a country for old men, Paul Volcker (81) sat right next to Obama. Volcker was remarkably prescient about the grim outlook for the global financial system and economy back on April 10, 2005, when he wrote an op-ed piece for The Washington Post titled “An Economy on Thin Ice.” (See link below.) Mr. Volcker warned, “Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. What really concerns me is that there seems to be so little willingness or capacity to do much about it.” Then, he predicted, “I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change.” Volcker has been talking about “change,” well before Obama made it his successful presidential campaign mantra. Volcker’s unhappy version of change is likely to trump Obama’s happy version for a while. (Volcker and I were on a first-name basis when I worked for him at the Federal Reserve Bank of NY during 1979. He called me Ed. I called him Mr. Volcker.)
In any event, it was good to see Volcker right next to the President-elect on Friday rather than some radical from the 1960s. It was also comforting that TEAB includes so many experienced policy hands. It is another indication of Mr. Obama's willingness to move away from the left and toward the center. Yet, ironically, the economy urgently requires a radical approach to revive growth. New infrastructure spending programs would most likely be too little, too late to help an economy that is in a deep recession now. I still believe that a more targeted stimulus aimed at not just stabilizing, but reviving housing activity would be the best way to turn the corner. If you know any of the following members of TEAB tell them we should nationalize Fannie and Freddie and have these two Government Owned Enterprises provide $2 trillion of 30-year fixed mortgages at 4%, on a first-come-first-served basis for all qualified buyers of new or existing homes. That would get rid of the housing inventory overhang in 3-6 months! They can call me 24/7 to discuss the idea.
jeg mødte ham i februar 1987 og har talt med ham i telefon en del gange
I) POLITICS: Obama picks the Best and the Brightest. On Friday, the President-elect met with his new Transition Economic Advisory Board (TEAB). The committee of 17 members is mostly the same old crowd from the Clinton administration. Proving that this is still a country for old men, Paul Volcker (81) sat right next to Obama. Volcker was remarkably prescient about the grim outlook for the global financial system and economy back on April 10, 2005, when he wrote an op-ed piece for The Washington Post titled “An Economy on Thin Ice.” (See link below.) Mr. Volcker warned, “Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot. What really concerns me is that there seems to be so little willingness or capacity to do much about it.” Then, he predicted, “I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change.” Volcker has been talking about “change,” well before Obama made it his successful presidential campaign mantra. Volcker’s unhappy version of change is likely to trump Obama’s happy version for a while. (Volcker and I were on a first-name basis when I worked for him at the Federal Reserve Bank of NY during 1979. He called me Ed. I called him Mr. Volcker.)
In any event, it was good to see Volcker right next to the President-elect on Friday rather than some radical from the 1960s. It was also comforting that TEAB includes so many experienced policy hands. It is another indication of Mr. Obama's willingness to move away from the left and toward the center. Yet, ironically, the economy urgently requires a radical approach to revive growth. New infrastructure spending programs would most likely be too little, too late to help an economy that is in a deep recession now. I still believe that a more targeted stimulus aimed at not just stabilizing, but reviving housing activity would be the best way to turn the corner. If you know any of the following members of TEAB tell them we should nationalize Fannie and Freddie and have these two Government Owned Enterprises provide $2 trillion of 30-year fixed mortgages at 4%, on a first-come-first-served basis for all qualified buyers of new or existing homes. That would get rid of the housing inventory overhang in 3-6 months! They can call me 24/7 to discuss the idea.
10/11 2008 16:59 le 0
137 II) CREDIT: Burn, baby, burn. The Fed has been fighting the fires in the credit markets by pumping liquidity out of the Liquidity Trap back into the economy. Meanwhile, GM and Ford have been burning through their cash like they can expect to get more to burn from the US government. While the Fed’s fire fighters have succeeded in containing the fires in some areas, the inferno continues to spread in other areas. The worst hit industry since mid-year is the auto industry. During the summer, the bad news for auto sales was soaring oil prices. Since Lehman failed, the auto credit crunch has flattened the industry. During Q3, Ford had a cash burn of $7.7bn. GM incinerated $6.9bn, which puts a possible acquisition of rival Chrysler on the back burner. Without a handout from Washington, GM could collapse within six months. But why would Washington want to throw taxpayers’ cash into GM’s bonfire of mediocrity? Obama’s team may have to create CARP, the Car Rescue Program, to nationalize GM, Ford, and Chrysler. What a mess!
TARP is certainly no CARP. Banks are using the capital injections from the Treasury to offset the large losses they’ve already incurred. (If Paulson/Bernanke/Cox had authorized suspending mark-to-market accounting, the loan losses would have been much smaller.) The banks have tightened lending standards significantly. Auto loans are especially hard to obtain. (Letting Lehman fail depressed money market fund demand for auto-backed commercial paper.)
Meanwhile, "Feddie" continues to pump funds out of the Liquidity Trap back into the economy:
(1) The Fed’s assets soared to a record $2.1tn on 11/5, up $1.2tn since 9/10, just before Lehman imploded.
(2) Over the past two weeks, the Fed’s new CPFF purchased $243bn in commercial paper.
(3) From 9/10-11/5, the US Treasury’s checking account at the Fed soared from $5.4bn to $578bn.
(4) Over this same period, depository institutions deposited an additional $472bn at the Fed.
It seems to me that a large portion of the jump in the assets of the Fed since Lehman died may reflect a significant aversion to counterparty risk by banks. Rather than trade funds with each other, some are depositing them at the Fed, while others are borrowing the funds from the Fed. This new intermediation role for the Fed has been accentuated by the fact that the Fed started on October 6, 2008 to pay interest on required and excess reserves held by banks at the Fed. Excess reserves jumped $361.4bn from 9/10-11/5. Borrowed reserves jumped $505.8bn over this same period.
* Credit Monitor (weekly): How goes the credit crunch? It’s still out there, though the sum of bank credit and commercial paper outstanding was at a record high at the end of October. Credit quality spreads are narrowing in the money markets and muni bond market. They remain wide in the corporate bond market.
* Central Banks' Balance Sheets (weekly): The Fed, ECB, and BoE are massively expanding their balance sheets with their assets up y/y by 133%, 62%, and 168%, respectively. The Fed’s assets are at a record high of $2.1tn, led recently by currency swaps with foreign central banks. Deposits of the US Treasury and depository institutions at the Fed both at record highs. During the week of November 5, the Fed held a record $1.6tn of non-Treasury securities.
* Cash & Reserves Held By Commercial Banks (weekly): Are banks hoarding cash? Yes they are. Over the past seven weeks through October 29, the cash assets of commercial banks soared by $395bn to $681bn. Depository institutions had $504bn in deposits at the Fed on November 5, up $472bn over the previous eight weeks. Commercial banks have a record $1.96tn in liquid assets (i.e., US Treasuries & Agencies and cash assets). This is 19.6% of bank credit, up from 15.2% on September 10 and the highest since December 2005.
TARP is certainly no CARP. Banks are using the capital injections from the Treasury to offset the large losses they’ve already incurred. (If Paulson/Bernanke/Cox had authorized suspending mark-to-market accounting, the loan losses would have been much smaller.) The banks have tightened lending standards significantly. Auto loans are especially hard to obtain. (Letting Lehman fail depressed money market fund demand for auto-backed commercial paper.)
Meanwhile, "Feddie" continues to pump funds out of the Liquidity Trap back into the economy:
(1) The Fed’s assets soared to a record $2.1tn on 11/5, up $1.2tn since 9/10, just before Lehman imploded.
(2) Over the past two weeks, the Fed’s new CPFF purchased $243bn in commercial paper.
(3) From 9/10-11/5, the US Treasury’s checking account at the Fed soared from $5.4bn to $578bn.
(4) Over this same period, depository institutions deposited an additional $472bn at the Fed.
It seems to me that a large portion of the jump in the assets of the Fed since Lehman died may reflect a significant aversion to counterparty risk by banks. Rather than trade funds with each other, some are depositing them at the Fed, while others are borrowing the funds from the Fed. This new intermediation role for the Fed has been accentuated by the fact that the Fed started on October 6, 2008 to pay interest on required and excess reserves held by banks at the Fed. Excess reserves jumped $361.4bn from 9/10-11/5. Borrowed reserves jumped $505.8bn over this same period.
* Credit Monitor (weekly): How goes the credit crunch? It’s still out there, though the sum of bank credit and commercial paper outstanding was at a record high at the end of October. Credit quality spreads are narrowing in the money markets and muni bond market. They remain wide in the corporate bond market.
* Central Banks' Balance Sheets (weekly): The Fed, ECB, and BoE are massively expanding their balance sheets with their assets up y/y by 133%, 62%, and 168%, respectively. The Fed’s assets are at a record high of $2.1tn, led recently by currency swaps with foreign central banks. Deposits of the US Treasury and depository institutions at the Fed both at record highs. During the week of November 5, the Fed held a record $1.6tn of non-Treasury securities.
* Cash & Reserves Held By Commercial Banks (weekly): Are banks hoarding cash? Yes they are. Over the past seven weeks through October 29, the cash assets of commercial banks soared by $395bn to $681bn. Depository institutions had $504bn in deposits at the Fed on November 5, up $472bn over the previous eight weeks. Commercial banks have a record $1.96tn in liquid assets (i.e., US Treasuries & Agencies and cash assets). This is 19.6% of bank credit, up from 15.2% on September 10 and the highest since December 2005.
10/11 2008 17:07 le 0138 III) GLOBAL ECONOMY: US, German, and Chinese export indicators confirm that the global economy took a dive in September and October:
(1) The ISM's new export orders index for manufacturing plunged to 41% in October from September's 52%. This ends 70 consecutive months of growth in this index.
(2) German manufacturing orders decreased a record 8.0% m/m in September, led by an 11.4% drop in foreign orders.
(3) China’s PMI composite index fell from 51.2 in September to 44.6 in October, the lowest reading since its launch in July 2005. The output index slid from 54.6 to 44.3 during the month, while the orders index fell from 51.3 to 41.7. The index of export orders was below 50 for the second straight month falling to 41.4 last month. It was near 60.0 in the spring.
Eric Fishwick, chief economist at CLSA, a widely-respected Asia-focused private equity firm, recently lowered his forecast for China’s real GDP growth in 2009 to only 5.5%. If he is right, then the country would be effectively in a severe recession with unemployment rising rapidly. He argues that while Beijing has greater influence over China’s economy than most other Asian governments have over theirs, the breakneck expansion of the private sector--now two thirds of the economy--means that large parts of China’s growth machinery are beyond Beijing’s direct control and subject to the same rules and laws as other market economies. “Investors need to analyse China as ‘Just Another Capitalist Country’ and question whether government policy will actually work,” he notes. That’s a good point, which is about to be tested. China’s government pledged a 4 trillion yuan ($586bn) stimulus plan to prop up growth. The funds, equivalent to almost a fifth of China's gross domestic product last year, will be used by the end of 2010. All this new public spending should provide lots of business for the private sector. China’s latest “Great Leap Forward” should keep the economy growing between 7%-9% in 2009, in my opinion.
* US Purchasing Managers Export Indexes: Could US exports tumble? They may be doing so already. ISM export index plunged from 57.0 in August to 41.0 in October, the lowest reading since records for this series began in 1988. The 3-ma fell from near 60.0 in the summer to 50.0 in October. It’s now suggesting export growth could collapse to zero, or lower, from its current double-digit pace. That’s significant since trade has been the one offset to falling domestic demand. ISM Non-Manufacturing Export Index is not seasonally adjusted and therefore very volatile. The 3-ma was little changed at 48.3 in October, near lows for the short history of the series. It was as high as 60.2 in June 2007.
* German Orders & Production: How are things in Germany? Not guten. German orders, production, and earnings are all falling. German business confidence is the lowest in five years. German factory orders posted their biggest decline on record in September, with foreign orders particularly weak. Yearly growth in orders dropped to 15-year low. German production recorded its largest decline in 14 years in September, with both consumer and capital goods output down around 3.0% during the month
(1) The ISM's new export orders index for manufacturing plunged to 41% in October from September's 52%. This ends 70 consecutive months of growth in this index.
(2) German manufacturing orders decreased a record 8.0% m/m in September, led by an 11.4% drop in foreign orders.
(3) China’s PMI composite index fell from 51.2 in September to 44.6 in October, the lowest reading since its launch in July 2005. The output index slid from 54.6 to 44.3 during the month, while the orders index fell from 51.3 to 41.7. The index of export orders was below 50 for the second straight month falling to 41.4 last month. It was near 60.0 in the spring.
Eric Fishwick, chief economist at CLSA, a widely-respected Asia-focused private equity firm, recently lowered his forecast for China’s real GDP growth in 2009 to only 5.5%. If he is right, then the country would be effectively in a severe recession with unemployment rising rapidly. He argues that while Beijing has greater influence over China’s economy than most other Asian governments have over theirs, the breakneck expansion of the private sector--now two thirds of the economy--means that large parts of China’s growth machinery are beyond Beijing’s direct control and subject to the same rules and laws as other market economies. “Investors need to analyse China as ‘Just Another Capitalist Country’ and question whether government policy will actually work,” he notes. That’s a good point, which is about to be tested. China’s government pledged a 4 trillion yuan ($586bn) stimulus plan to prop up growth. The funds, equivalent to almost a fifth of China's gross domestic product last year, will be used by the end of 2010. All this new public spending should provide lots of business for the private sector. China’s latest “Great Leap Forward” should keep the economy growing between 7%-9% in 2009, in my opinion.
* US Purchasing Managers Export Indexes: Could US exports tumble? They may be doing so already. ISM export index plunged from 57.0 in August to 41.0 in October, the lowest reading since records for this series began in 1988. The 3-ma fell from near 60.0 in the summer to 50.0 in October. It’s now suggesting export growth could collapse to zero, or lower, from its current double-digit pace. That’s significant since trade has been the one offset to falling domestic demand. ISM Non-Manufacturing Export Index is not seasonally adjusted and therefore very volatile. The 3-ma was little changed at 48.3 in October, near lows for the short history of the series. It was as high as 60.2 in June 2007.
* German Orders & Production: How are things in Germany? Not guten. German orders, production, and earnings are all falling. German business confidence is the lowest in five years. German factory orders posted their biggest decline on record in September, with foreign orders particularly weak. Yearly growth in orders dropped to 15-year low. German production recorded its largest decline in 14 years in September, with both consumer and capital goods output down around 3.0% during the month
