This is a 28min video from Grant Williams of Vulpes Investment management (Singapore hedge fund managers). Grant is the author of the much acclaimed Things that make you go Hmmmmmmm!. The presentation details two bubbles, one about to burst and the other about to inflate enormously.
There is much money to be lost in the bursting by the unwary and conversely a great deal to be made by hitching a ride up with the other.
LINK to YouTube here:
Showing posts with label bonds. Show all posts
Showing posts with label bonds. Show all posts
Tuesday, October 23, 2012
Tuesday, October 12, 2010
Work a lifetime and the Goverment confiscates 90%
"Inflation has now been institutionalized at a fairly constant 5% per year. This has been scientifically determined to be the optimum level for generating the most revenue without causing public alarm. A 5% devaluation applies, not only to the money earned this year, but also to all that is left over from previous years. At the end of the first year, a dollar is worth 95 cents. At the end of the second year, the 95 cents is reduced again by 5%, leaving its worth at 90 cents, and so on. By the time a person has worked 20 years, the government will have confiscated 64% of every dollar he saved over those years. By the time he has worked 45 years, the hidden tax will be 90%. The government will take [in purchasing power] virtually everything a person saves over a lifetime."- G. Edward Griffin
So you have to invest to earn more than an average of 5% a year over you lifetime. Pension funds try for 9% and lately have trimmed that somewhat to maybe 8%. Still pie -in-the sky.
US Treasury bonds pay 3.75% for the privilege of tying your money up for 30 years - a lifetime. All that just to gurantee that the government gets 90% of your earnings. Remember the Feds get tax on the interest they pay you on these bonds!!!
So you have to invest to earn more than an average of 5% a year over you lifetime. Pension funds try for 9% and lately have trimmed that somewhat to maybe 8%. Still pie -in-the sky.
US Treasury bonds pay 3.75% for the privilege of tying your money up for 30 years - a lifetime. All that just to gurantee that the government gets 90% of your earnings. Remember the Feds get tax on the interest they pay you on these bonds!!!
Wednesday, August 4, 2010
Corporate America is borrowing at record low rates
Corporate America is borrowing at record low rates. U.S. nonfinancial companies have a record $837 billion of cash on their balance sheets. Both are the ingredients for a surge in corporate takeovers. Mix in a healthy helping of Fed's newly affirmed fear the money supply might not grow fast enough, and the long case for stocks looks compelling.
US Treasury yields fall to record low on Fed's 'QE lite' plan
Yields on short-term US Treasury debt have fallen to the lowest in history on mounting expectations of extra stimulus from the Federal Reserve.
Two-year rates fell to 0.52pc after a further batch of grim data hinted at a sharp slowdown in the second half of the year. Factory orders fell 1.2pc in June, while consumer spending fell flat.
The savings rate has risen to a one-year high of 6.4pc as Americans adapt to the new era of austerity and build a safety buffer against unemployment. "Households are repaying debt at a rapid clip," said Gabriel Stein from Lombard Street Research. "With an output gap at around 3pc, the US economy could move into outright deflation in 2011 for the first time since records began."
Two-year rates fell to 0.52pc after a further batch of grim data hinted at a sharp slowdown in the second half of the year. Factory orders fell 1.2pc in June, while consumer spending fell flat.
The savings rate has risen to a one-year high of 6.4pc as Americans adapt to the new era of austerity and build a safety buffer against unemployment. "Households are repaying debt at a rapid clip," said Gabriel Stein from Lombard Street Research. "With an output gap at around 3pc, the US economy could move into outright deflation in 2011 for the first time since records began."
Monday, July 20, 2009
Credit Spread Recap
Updated: 20-Jul-09 10:39 ET
The 10-Year Treasury sold off dramatically last week as it gave up 36 bps to close at a 3.65% yield - a decline of over 10%. However, prices are still up significantly from when the yield hit 4.00% on June 11, 2009.
The mortgage spread narrowed 44 bps from 191 bps to 147 bps as mortgage rates dropped from 5.20% to 5.12% and the 10-Year yield rose.The 2-10 Year yield spread rose 25 bps to 265 - again mostly a result of the sell-off in the 10-Year Treasury.
The TIPS spread moved up just 1 bps this week to settle at 178 bps. So while Treasuries came under pressure, inflation expectations may not be the driving force.Instead, Treasury yields may be moving higher as the flight-to-safety trade starts to abate with "good" news developing with regard to California's budget talks and CIT's possible short-term financing deal.
The spread between the ML High Yield Master II to the 10-Year Treasury narrowed 28 bps as corporate bonds improved in light of reasonably good earnings reports.
Treasuries will likely continue to come under additional pressure this week as some of the bad news becomes "less bad."However, we still believe that the U.S. economy is facing some major hurdles in its race towards growth.
Overall macro factors will likely keep yields somewhat in check, but we continue to expect a retesting of the 4.00% yield over the coming months.
Briefing.com
The 10-Year Treasury sold off dramatically last week as it gave up 36 bps to close at a 3.65% yield - a decline of over 10%. However, prices are still up significantly from when the yield hit 4.00% on June 11, 2009.
The mortgage spread narrowed 44 bps from 191 bps to 147 bps as mortgage rates dropped from 5.20% to 5.12% and the 10-Year yield rose.The 2-10 Year yield spread rose 25 bps to 265 - again mostly a result of the sell-off in the 10-Year Treasury.
The TIPS spread moved up just 1 bps this week to settle at 178 bps. So while Treasuries came under pressure, inflation expectations may not be the driving force.Instead, Treasury yields may be moving higher as the flight-to-safety trade starts to abate with "good" news developing with regard to California's budget talks and CIT's possible short-term financing deal.
The spread between the ML High Yield Master II to the 10-Year Treasury narrowed 28 bps as corporate bonds improved in light of reasonably good earnings reports.
Treasuries will likely continue to come under additional pressure this week as some of the bad news becomes "less bad."However, we still believe that the U.S. economy is facing some major hurdles in its race towards growth.
Overall macro factors will likely keep yields somewhat in check, but we continue to expect a retesting of the 4.00% yield over the coming months.
Briefing.com
Tuesday, May 12, 2009
Will the Fed buy more bonds?
U.S. Treasury bonds have fallen over half a percentage point in the past seven weeks, the biggest fall since 1994. Mortgages rates on 30-year fixed loans are back to more than 5%... This sets the stage for a showdown between the government's lenders (bond buyers) and the Federal Reserve, which wants interest rates to remain low. The Street (BlackRock, American Century, Federated, and Pioneer Investment) thinks the Fed will buy Treasury bonds again (like it did last month) in order to force rates lower. No matter what the Fed does, long-term interest rates are going much higher and the bond market is going to get crushed.
What will more and more creditworthy borrowers do when they see the Fed engineering a huge new inflation? Borrow as much money as they can, at fixed rates. Take Microsoft, for example. Bill Gates' company has never borrowed a penny before – ever. It has no need for debt financing whatsoever – it's sitting on more than $20 billion in cash reserves. Nevertheless, Microsoft will borrow billions in five, 10, and 30-year debt. It will use the money from this sale to help fund a $40 billion share repurchase program – nearly 25% of the company's outstanding shares. Follow Bill Gates' lead: Buy high-quality equity. Sell government debt.
Another member of the ultra-wealthy, Bond King Bill Gross, is also betting on inflation. Gross reduced U.S. government-related debt holdings (which include Treasuries, agency debt, and government-backed bank debt) in his PIMCO Total Return Fund for the first time since January. His holdings are now 26% of the fund down from 28% in March - the most he's owned since April 2007. If his May 8 interview with CNBC is any clue, Gross may shift some assets into senior bank debt now that the government's stress tests are done... "The banking system is enduring," Gross said. "These types of spreads on the senior debt level are historic and quite attractive."
From Bloomberg:
BlackRock Inc., American Century Investments, Federated Investors and Pioneer Investment Management say it's time to buy Treasuries because the Fed will need to expand its purchases to keep consumer borrowing costs from rising further."
While government buying of Treasuries will temporarily keep yields down, and could make for a good short-term trade, it won't stop the eventual massive inflation hangover.
What will more and more creditworthy borrowers do when they see the Fed engineering a huge new inflation? Borrow as much money as they can, at fixed rates. Take Microsoft, for example. Bill Gates' company has never borrowed a penny before – ever. It has no need for debt financing whatsoever – it's sitting on more than $20 billion in cash reserves. Nevertheless, Microsoft will borrow billions in five, 10, and 30-year debt. It will use the money from this sale to help fund a $40 billion share repurchase program – nearly 25% of the company's outstanding shares. Follow Bill Gates' lead: Buy high-quality equity. Sell government debt.
Another member of the ultra-wealthy, Bond King Bill Gross, is also betting on inflation. Gross reduced U.S. government-related debt holdings (which include Treasuries, agency debt, and government-backed bank debt) in his PIMCO Total Return Fund for the first time since January. His holdings are now 26% of the fund down from 28% in March - the most he's owned since April 2007. If his May 8 interview with CNBC is any clue, Gross may shift some assets into senior bank debt now that the government's stress tests are done... "The banking system is enduring," Gross said. "These types of spreads on the senior debt level are historic and quite attractive."
From Bloomberg:
BlackRock Inc., American Century Investments, Federated Investors and Pioneer Investment Management say it's time to buy Treasuries because the Fed will need to expand its purchases to keep consumer borrowing costs from rising further."
While government buying of Treasuries will temporarily keep yields down, and could make for a good short-term trade, it won't stop the eventual massive inflation hangover.
Friday, May 8, 2009
Treasury bond yields soar this week... inflationary boom coming
Bond bear market watch: U.S. Treasury bond yields soared yesterday after few eager buyers showed up to bid on the latest round of debt.
As the FT reports: The 30-year Treasury yield rose to 4.30 per cent on Thursday from 4.10 per cent the day before after bids at the government auction came at lower prices than expected. The 30-year Treasury is now at its highest level since last November. The rise in bond yields has raised questions about whether the Federal Reserve will step up efforts - which began in March - to keep yields down through direct purchases of government bonds.
The funny money printing crew in Washington is starting to lose control...
As the FT reports: The 30-year Treasury yield rose to 4.30 per cent on Thursday from 4.10 per cent the day before after bids at the government auction came at lower prices than expected. The 30-year Treasury is now at its highest level since last November. The rise in bond yields has raised questions about whether the Federal Reserve will step up efforts - which began in March - to keep yields down through direct purchases of government bonds.
The funny money printing crew in Washington is starting to lose control...
Thursday, March 19, 2009
Nobody (With Any Sense) Wants to Play This Game Anymore
The Fed plan is to continue sopping up all those toxic mortgage bonds that are slopping around the system. They also plan on buying some $300 billion in U.S. Treasury notes over the next six months.
Funny that, because they are the only ones who want Treasuries and such right now. Certainly almost no one besides the Japanese and Chinese is interested. And yet outsiders are supposed to be funding most all of Washington’s various recovery plans.
As per the accountants at the Treasury Department, net foreign purchases of long-term U.S. Treasury notes, Fannie Mae and Freddie Mac bonds, corporate debt and stocks dropped from a positive $34.7 billion in December ’08 to a negative $43 billion in January ’09, a 224% net decline in one short month!
Now consider that both Japan and China actually increased their holdings over this period (although even they came in under their 12-month purchase average). Seems to me that right about the same moment that we are trying to flog $2 trillion in shiny new “Obama-Bonds” on the open market, most everyone else is trying to unload nasty old used U.S. notes onto that same market.
The upshot? That light at the end of the tunnel that the cheerleaders were touting? That’s the 4:19 express out of Galveston,and the Obama recovery program is sitting square in the middle of the track.
Funny that, because they are the only ones who want Treasuries and such right now. Certainly almost no one besides the Japanese and Chinese is interested. And yet outsiders are supposed to be funding most all of Washington’s various recovery plans.
As per the accountants at the Treasury Department, net foreign purchases of long-term U.S. Treasury notes, Fannie Mae and Freddie Mac bonds, corporate debt and stocks dropped from a positive $34.7 billion in December ’08 to a negative $43 billion in January ’09, a 224% net decline in one short month!
Now consider that both Japan and China actually increased their holdings over this period (although even they came in under their 12-month purchase average). Seems to me that right about the same moment that we are trying to flog $2 trillion in shiny new “Obama-Bonds” on the open market, most everyone else is trying to unload nasty old used U.S. notes onto that same market.
The upshot? That light at the end of the tunnel that the cheerleaders were touting? That’s the 4:19 express out of Galveston,and the Obama recovery program is sitting square in the middle of the track.
Wednesday, March 11, 2009
Muni & Corporate bond Comments 3/11/09
The treasury market continued its selloff yesterday, while Muni's and Corporates are both cheapening in price, widening in spread.
The Muni market hit a wall about two weeks ago, spreads have been widening versus the MMD scale ever since. Supply in the muni market has also been very robust, with 7BB worth of New Issues coming in each of the last few weeks.
In the high tax states, 10yr Ma State GO has widened over 25 BP's, now trading at +35 to scale.. NY City GO's have widened about 30, now trade +155 over the MMD.. Cal is trading +150 these days, but that widening took place earlier.
Corporate Bonds, which had tightened at a torrid pace from November thru mid February have slid recently
In both sectors, the market had moved too far, too fast. Take advantage of these back ups. The recession will pressure both sectors from a credit perspective, but diligent selection will provide great opportunities. Quality Investment Grade Bonds yielding 4 to 7.5% make great sense, and Muni's will be in greater and greater demand over the next few years as inevitably State and Federal Tax Rates rise.
In Agency Securities, the FDIC Insured Corporate Bond sector continues to explode in size. The market has now grown to over 100BB, since its initial issuance in November. These bonds have NO CREDIT RISK, as they carry the governments Full Faith and Credit backing.. 2 year bonds trade at 70 Basis Points over Treasurys @ 1.70% 3 year Bonds @ 80 Over Treasurys or 2.20%... More than ever, FNMA FHLMC and FHLB will be leaned on by the government to help resolve the Mortgage Crisis, and I reckon that credit risk in those entities is miniscule. Bonds with at least 1 year of call protection are the best value.
LIQUIDITY FOR SECURITIES THAT ARE IMPAIRED REMAINS AWFUL. In credit, there are MANY MANY MULTIPLES OF SELLERS of AIG and its entities International Lease Finance, and American General, HSBC, Citigroup, Bank America, Merrill Lynch, Prudential, Genworth Financial, Hartford Insurance, Ford, and GMAC FOR ANY BUYER... CPI Floating Rate Notes, and Bill Based Floating rate notes also struggle to find a Bid Side..
The large global Financial Issues (1BB+ in size) which in previous years would have a daily trading volume of 30-40mm Bonds per day, in today's market might only trade a few million, sometimes much less on a given day.
In Municipal's, bonds that have only insured ratings, and/or weak underlying ratings are also a struggle to sell. In my opinion, the market has had a structural change with the losses of a number of large brokerage company balance sheets, and the liquidation of so many levered hedge funds..In the past, these were the buyers of last resort, who could be counted on providing a "down" bid..but it was liquidity nonetheless.
On the flip side, keep in mind that quality paper in any sector will have a decent bid, in even poor market conditions. In Muni's, that means Hi Quality State, County and City GO's and essential purpose revs.. In Corporates, companies that have solid investment grade ratings, and good cash flow.
The banking crisis and the economy will still be down for longer than anyone wants to believe.
The Muni market hit a wall about two weeks ago, spreads have been widening versus the MMD scale ever since. Supply in the muni market has also been very robust, with 7BB worth of New Issues coming in each of the last few weeks.
In the high tax states, 10yr Ma State GO has widened over 25 BP's, now trading at +35 to scale.. NY City GO's have widened about 30, now trade +155 over the MMD.. Cal is trading +150 these days, but that widening took place earlier.
Corporate Bonds, which had tightened at a torrid pace from November thru mid February have slid recently
In both sectors, the market had moved too far, too fast. Take advantage of these back ups. The recession will pressure both sectors from a credit perspective, but diligent selection will provide great opportunities. Quality Investment Grade Bonds yielding 4 to 7.5% make great sense, and Muni's will be in greater and greater demand over the next few years as inevitably State and Federal Tax Rates rise.
In Agency Securities, the FDIC Insured Corporate Bond sector continues to explode in size. The market has now grown to over 100BB, since its initial issuance in November. These bonds have NO CREDIT RISK, as they carry the governments Full Faith and Credit backing.. 2 year bonds trade at 70 Basis Points over Treasurys @ 1.70% 3 year Bonds @ 80 Over Treasurys or 2.20%... More than ever, FNMA FHLMC and FHLB will be leaned on by the government to help resolve the Mortgage Crisis, and I reckon that credit risk in those entities is miniscule. Bonds with at least 1 year of call protection are the best value.
LIQUIDITY FOR SECURITIES THAT ARE IMPAIRED REMAINS AWFUL. In credit, there are MANY MANY MULTIPLES OF SELLERS of AIG and its entities International Lease Finance, and American General, HSBC, Citigroup, Bank America, Merrill Lynch, Prudential, Genworth Financial, Hartford Insurance, Ford, and GMAC FOR ANY BUYER... CPI Floating Rate Notes, and Bill Based Floating rate notes also struggle to find a Bid Side..
The large global Financial Issues (1BB+ in size) which in previous years would have a daily trading volume of 30-40mm Bonds per day, in today's market might only trade a few million, sometimes much less on a given day.
In Municipal's, bonds that have only insured ratings, and/or weak underlying ratings are also a struggle to sell. In my opinion, the market has had a structural change with the losses of a number of large brokerage company balance sheets, and the liquidation of so many levered hedge funds..In the past, these were the buyers of last resort, who could be counted on providing a "down" bid..but it was liquidity nonetheless.
On the flip side, keep in mind that quality paper in any sector will have a decent bid, in even poor market conditions. In Muni's, that means Hi Quality State, County and City GO's and essential purpose revs.. In Corporates, companies that have solid investment grade ratings, and good cash flow.
The banking crisis and the economy will still be down for longer than anyone wants to believe.
Saturday, February 21, 2009
HEADLINE NEWS WEEK ENDING 2/20/09
Overview
Federal Reserve policymakers have downgraded their outlook for the US economy in 2009 according to their latest projections for real GDP growth, inflation and unemployment. more...
US MARKETS
Treasury/Economics
Treasuries remained in demand throughout this short yet active President’s Day week. The market is still trading very volatile, with double digit yield movements everyday this week. more...
Large-Cap Equities The stock market tumbled this week due to further weakness in the financial sector and fears of a deepening recession. more...
Corporate BondsThere were a handful of issuers that tapped the investment grade market this week as concerns regarding the stimulus package and bank rescue plan kept issuers at bay. more...
Mortgage-Backed Securities Mortgages performed poorly versus Treasuries as the latest US Government policy plan, the Home Affordability and Stability Plan (HASP), intended to stem the foreclosure crisis, may lead to a surge in refinancing. more...
Municipal Bonds The municipal market stalled this week. Two-year AAA-rated general obligation (GO) bond yields rose 3 basis points (bps) through Thursday, to 1.17%. more...
High-Yield The high yield market remains resilient, notwithstanding the onslaught of difficult macro news. more...
INTERNATIONAL MARKETSWestern European EquitiesStocks in Western Europe lost ground over the past week. The stocks with the worst performance were insurance (-19.0%) and banks (-16.1%). more...
Eastern European Equities The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -14.1% this week, while the Russian stock index RTS went down by -17.1%. more...
Global Bonds and CurrenciesSovereign government bond markets had a mixed week. The long ends of both the Bund and Gilt markets took their main lead from the US Treasury market, closing the week firmer. more...
Emerging-Market Bonds Emerging market dollar-pay debt spreads widened this week. more...
FACTORS SHAPING THE MARKET NEXT WEEK
Next week, investors will be listening closely to Fed Chairman Ben Bernanke during his semi-annual testimony before Congress. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend! All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Federal Reserve policymakers have downgraded their outlook for the US economy in 2009 according to their latest projections for real GDP growth, inflation and unemployment. more...
US MARKETS
Treasury/Economics
Treasuries remained in demand throughout this short yet active President’s Day week. The market is still trading very volatile, with double digit yield movements everyday this week. more...
Large-Cap Equities The stock market tumbled this week due to further weakness in the financial sector and fears of a deepening recession. more...
Corporate BondsThere were a handful of issuers that tapped the investment grade market this week as concerns regarding the stimulus package and bank rescue plan kept issuers at bay. more...
Mortgage-Backed Securities Mortgages performed poorly versus Treasuries as the latest US Government policy plan, the Home Affordability and Stability Plan (HASP), intended to stem the foreclosure crisis, may lead to a surge in refinancing. more...
Municipal Bonds The municipal market stalled this week. Two-year AAA-rated general obligation (GO) bond yields rose 3 basis points (bps) through Thursday, to 1.17%. more...
High-Yield The high yield market remains resilient, notwithstanding the onslaught of difficult macro news. more...
INTERNATIONAL MARKETSWestern European EquitiesStocks in Western Europe lost ground over the past week. The stocks with the worst performance were insurance (-19.0%) and banks (-16.1%). more...
Eastern European Equities The CECE index of equities traded in Central Europe (Czech Republic, Hungary, and Poland) lost -14.1% this week, while the Russian stock index RTS went down by -17.1%. more...
Global Bonds and CurrenciesSovereign government bond markets had a mixed week. The long ends of both the Bund and Gilt markets took their main lead from the US Treasury market, closing the week firmer. more...
Emerging-Market Bonds Emerging market dollar-pay debt spreads widened this week. more...
FACTORS SHAPING THE MARKET NEXT WEEK
Next week, investors will be listening closely to Fed Chairman Ben Bernanke during his semi-annual testimony before Congress. more...
For more information, please contact 800 5-PAYDEN or visit payden.com.
If you have difficulties viewing this e-mail and would prefer the Weekly Market Update in plain text format, please e-mail us at paydenrygel@payden-rygel.com. To unsubscribe from this email, please email us at unsubscribe@payden-rygel.com.
Have a great weekend! All rights reserved. Legal terms. Payden & Rygel respects your privacy. Privacy policy.
The investment strategy and investment management information presented on this email and related Web site, payden.com, should not be construed to be formal financial planning advice or the formation of a financial manager/client relationship. Payden.com is an informative Web site designed to provide information to the general public based on our recommendations of investment management and investment strategies and is not designed to be representative of your own financial needs. Nor does the information contained herein constitute financial management advice. The firm makes no warranty or representation regarding the accuracy or legality of any information contained in this Web site, and assumes no liability for the use of said information. Be advised that as Internet communications are not always confidential, you provide our Web site your personal information at your own risk. Please do not make any decisions about any investment management or investment strategy matter without consulting with a qualified professional.
Thursday, February 12, 2009
China must buy more U.S. debt… "it is the only option"
Even though it knows the dollar will fall, China – the world’s largest holder of U.S. Treasuries – will continue buying because it’s their “only option.”
Luo Ping, a director-general at the China Banking Regulatory Commission, asked at a meeting in New York on Wednesday, “Except for US Treasuries, what can you hold? Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”
Read full article... (requires subscription)
Luo Ping, a director-general at the China Banking Regulatory Commission, asked at a meeting in New York on Wednesday, “Except for US Treasuries, what can you hold? Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”
Read full article... (requires subscription)
Tuesday, February 3, 2009
Another argument for higher interest rates
This is a little technical, courtesy Niels Jensen , Managing Partner of Absolute Return Partners based in London, courtesy of John Mauldin. Thanks John, your work is much appreciated:
"So when we are told that the bailout cost, although large, is still manageable, it is only half the story.
The loss of tax revenue is another nail in the coffin and could lead to a dramatic – and unpredicted - rise in public debt. Have you heard any mention of that from your government?
At this point I need to introduce something as alien as the "flow-of-funds accounting identity"3:
Δ(G-T) = Δ(S – I) + ΔNFCI4
I rarely throw formulas at you for the simple reason that it scares many readers away. I urge you to stay with me for a bit longer, though, because this formula is critical in order to understand how the government response to the current crisis is likely to impact interest rates longer term. The equation states that any change in fiscal stimulus (Δ(G-T)) must equal the change in private sector net savings (Δ(S-I)) plus the change in net foreign capital inflows.
Translation: If our government stimulates the economy through public spending, as it is currently doing in spades, we must either save more or we have to rely on foreigners being prepared to invest in our country. There are no exceptions to this rule.
The key question, as our economic adviser Woody Brock points out, is what will cause this equation to hold true? It is quite simple. We will save more if we get paid more to do so (through higher interest rates) or if we are so scared of the future that we stop spending and start investing instead.
Foreign investors are no different. Now, with the trillions of dollars being spent around the world to shore up our financial system, the fear factor alone is not going to be enough. Higher – possibly much higher - interest rates will be required to ensure sufficient savings.
Obviously, there is another option at the government's disposal. The central bank can monetize some or all of the deficit by buying the bonds issued by the government. This line of action will keep Δ(G-T) down; hence the need for increased private savings (and/or capital inflows) drops accordingly. The problem with this approach, as an old Danish saying states, is that it is like wetting your pants to stay warm. Monetization executed on a big scale is highly inflationary in the long run, inevitably driving bond yields higher.
The good news is that we are very unlikely to loose control of inflation in the short run. The economy is simply too weak for that to happen.
"So when we are told that the bailout cost, although large, is still manageable, it is only half the story.
The loss of tax revenue is another nail in the coffin and could lead to a dramatic – and unpredicted - rise in public debt. Have you heard any mention of that from your government?
At this point I need to introduce something as alien as the "flow-of-funds accounting identity"3:
Δ(G-T) = Δ(S – I) + ΔNFCI4
I rarely throw formulas at you for the simple reason that it scares many readers away. I urge you to stay with me for a bit longer, though, because this formula is critical in order to understand how the government response to the current crisis is likely to impact interest rates longer term. The equation states that any change in fiscal stimulus (Δ(G-T)) must equal the change in private sector net savings (Δ(S-I)) plus the change in net foreign capital inflows.
Translation: If our government stimulates the economy through public spending, as it is currently doing in spades, we must either save more or we have to rely on foreigners being prepared to invest in our country. There are no exceptions to this rule.
The key question, as our economic adviser Woody Brock points out, is what will cause this equation to hold true? It is quite simple. We will save more if we get paid more to do so (through higher interest rates) or if we are so scared of the future that we stop spending and start investing instead.
Foreign investors are no different. Now, with the trillions of dollars being spent around the world to shore up our financial system, the fear factor alone is not going to be enough. Higher – possibly much higher - interest rates will be required to ensure sufficient savings.
Obviously, there is another option at the government's disposal. The central bank can monetize some or all of the deficit by buying the bonds issued by the government. This line of action will keep Δ(G-T) down; hence the need for increased private savings (and/or capital inflows) drops accordingly. The problem with this approach, as an old Danish saying states, is that it is like wetting your pants to stay warm. Monetization executed on a big scale is highly inflationary in the long run, inevitably driving bond yields higher.
The good news is that we are very unlikely to loose control of inflation in the short run. The economy is simply too weak for that to happen.
Higher interst rates are inevitable!
As things currently stand, the government and the Fed may take any steps they want to stabilize the economy, no matter how much these steps cost.
Now, the government is like a fat schoolboy taking candies from a well-dressed stranger. It has spent $8.5 trillion of future taxpayers' and foreign creditors' money guaranteeing debt and bailing out failed companies. But the government doesn't have its own money to pay for these remedies. So it borrows and inflates.
Analyst Jim Bianco's research shows the government's remedies have now cost America more than World War II. The Fed is expanding the money supply at a current rate of 151% a year... and in the last three months, the Treasury borrowed $485 billion. It has never borrowed this much in 12 months.
In 2009, the government will run the world's first trillion-dollar deficit.In 2010 or 2011 – when the Chinese arrangement ends – the Bond Market Vigilantes will return. Watch gold for the signal.
Gold is a much smaller market than the bond market, so it's more nimble. When gold makes a new high above 1,050, you should immediately start looking for shelter. It means the Chinese arrangement is winding down and the Vigilantes are coming.
The Vigilantes will run interest rates up by at least 10%.
They will force the U.S. economy to deal with its debt problem, the root of all our troubles today. No more bailouts, no more government guarantees, no more expensive spending programs, and no more printing money. This is what the situation was like in the early 1980s. It was chaos, but those who prepared ahead of time made a fortune.
This time around, while the vigilantes restore balance, you should own only gold, cash, and short-term money-market instruments. In the meantime, you should use the stability to earn as much income as you can by selling options against blue-chip stocks and holding high-yield bonds and other income investments.
These investments prosper when there are no Bond Market Vigilantes around.
Now, the government is like a fat schoolboy taking candies from a well-dressed stranger. It has spent $8.5 trillion of future taxpayers' and foreign creditors' money guaranteeing debt and bailing out failed companies. But the government doesn't have its own money to pay for these remedies. So it borrows and inflates.
Analyst Jim Bianco's research shows the government's remedies have now cost America more than World War II. The Fed is expanding the money supply at a current rate of 151% a year... and in the last three months, the Treasury borrowed $485 billion. It has never borrowed this much in 12 months.
In 2009, the government will run the world's first trillion-dollar deficit.In 2010 or 2011 – when the Chinese arrangement ends – the Bond Market Vigilantes will return. Watch gold for the signal.
Gold is a much smaller market than the bond market, so it's more nimble. When gold makes a new high above 1,050, you should immediately start looking for shelter. It means the Chinese arrangement is winding down and the Vigilantes are coming.
The Vigilantes will run interest rates up by at least 10%.
They will force the U.S. economy to deal with its debt problem, the root of all our troubles today. No more bailouts, no more government guarantees, no more expensive spending programs, and no more printing money. This is what the situation was like in the early 1980s. It was chaos, but those who prepared ahead of time made a fortune.
This time around, while the vigilantes restore balance, you should own only gold, cash, and short-term money-market instruments. In the meantime, you should use the stability to earn as much income as you can by selling options against blue-chip stocks and holding high-yield bonds and other income investments.
These investments prosper when there are no Bond Market Vigilantes around.
Friday, January 30, 2009
Market Reflections 1/29/2009
The White House warned Thursday to expect a "staggering" contraction for fourth-quarter GDP in data to be released Friday, news that didn't help any appetite for risk. Durable goods data for December in fact showed staggering losses as did new home sales. Weekly jobless claims continue to deteriorate pointing to another month of severe payroll contraction. All the day's news sent stocks, which had shown resistance to bad news over the last few sessions, down sharply with the Dow industrials losing 2.7 percent.
Earnings news was headed by a massive $5.9 billion loss for Ford and included big losses by big and small companies alike. Earnings have proven far worse than expectations, now at -35% year-on-year vs. expectations at the beginning of the month for barely a 1% decline (data provided by the courtesy of Thomson Reuters).
Money moved back into the safety of gold which gained $20 to end back over $900 at $909.80. All the bad news isn't hurting oil where talk of a strike at Shell refineries and heavy talk of OPEC cutback compliance are keeping prices over $40. However bad conditions are here talk is building that they may be worse in Europe where questions are now being asked over the future of the euro. The dollar gained more than 2 cents against the euro to end at $1.2950.
Money moved out of the Treasury market following a poorly received 5-year auction, a massive $30 billion auction that attracted limited interest and raises questions over how many buyers are left for the government's debt. The 3-month yield rose 4 basis points to 22 basis points with the 30-year up a very steep 22 basis points to 3.63 percent.
Earnings news was headed by a massive $5.9 billion loss for Ford and included big losses by big and small companies alike. Earnings have proven far worse than expectations, now at -35% year-on-year vs. expectations at the beginning of the month for barely a 1% decline (data provided by the courtesy of Thomson Reuters).
Money moved back into the safety of gold which gained $20 to end back over $900 at $909.80. All the bad news isn't hurting oil where talk of a strike at Shell refineries and heavy talk of OPEC cutback compliance are keeping prices over $40. However bad conditions are here talk is building that they may be worse in Europe where questions are now being asked over the future of the euro. The dollar gained more than 2 cents against the euro to end at $1.2950.
Money moved out of the Treasury market following a poorly received 5-year auction, a massive $30 billion auction that attracted limited interest and raises questions over how many buyers are left for the government's debt. The 3-month yield rose 4 basis points to 22 basis points with the 30-year up a very steep 22 basis points to 3.63 percent.
Saturday, January 24, 2009
This Week in Review 1/23/09
Earnings drag stocks down
Earnings season is upon us again – and few are bringing good cheer. Financials in particular have resurfaced with greater vulnerability than expected. It turns out that improvement in the credit crisis has not been as much as previously believed. Meantime, inflation fears are making a comeback in the bond markets.
STOCKS
Stocks got no bounce from Obama taking office this past Tuesday. While there is considerable opinion that the new administration’s expected fiscal stimulus plan will speed up recovery, the latest earnings reports more than offset that optimism. Equities were pulled in particular by financials. Lowlights included huge losses at Royal Bank of Scotland. RBS warned that it may report a loss of $41.3 billion.
Also, equities were spooked by news that State Street needs to raise large amounts of capital. This raised fears that major banks are likely strapped for capital as well. Bank of America’s firing of CEO John Thain (formerly CEO of Merrill Lynch) left markets wondering about whether or not bank management in general is successfully dealing with the current financial crisis. For financials overall, sentiment definitely turned more negative.
Key tech companies were mixed. Apple dramatically topped expectations with its sales of Macs. In contrast, Microsoft continued to disappoint.
Broader based companies posted earnings that led equities to believe that more bad news is to come from more cyclically sensitive companies. GE had disappointing earnings.
Finally, a record low for housing starts in December was announced this past week, adding to negative sentiment in equity markets.
Equities were down this past week. The Dow was down 2.5 percent; the S&P 500, down 2.1 percent; the Nasdaq, down 3.4 percent; and the Russell 2000, down 4.7 percent.
For the year-to-date, major indexes are down as follows:
Dow down 8.0 %;
S&P 500 down 7.9 %;
Nasdaq down 6.3 %;
Russell 2000 down 11.0 %.
BONDS
Current monetary policy and expected fiscal policy played key roles in the bond markets this past week. The Fed is keeping short-term rates extremely low with the fed funds target range of zero to 0.25 percent. Treasury bill yields remained not far from zero in sympathy with the fed funds rate. In contrast, with Barack Obama taking office this past Tuesday, credit markets have become more nervous about how much debt the U.S. government and governments world wide will be issuing to combat recession. Hence, the long-bond rose sharply this bond week with rising inflation fears also contributing to the boost in long-term yields.
For this past week Treasury rates were mostly up as follows: 3-month T-bill, down 1 basis point, the 2-year note, up 8 basis points; the 5-year note, up 15 basis points; the 10-year bond, up 28 basis points; and the 30-year bond, up 44 basis points.
Yields on long-term Treasuries jumped this past week. Key factors were a resurgence in inflation expectations and a fear of increased supply to fund fiscal stimulus plans and financial bailouts.
OIL PRICES
This past week, limited economic news was negative. Nonetheless, crude oil posted a strong net gain for the week. Boosting prices on Tuesday was the expiration of the February futures contract as the lower priced February contract converged with the higher priced March contract. A significant number of traders had been playing a “contango” situation in which current prices are low but are expected to consistently rise in coming months. But with the expiration of the February contract, there was considerable short-covering, boosting crude prices.
Not all factors lifted prices. Two geo-political issues keeping oil prices firm appear to have been resolved at least temporarily. Russia and the Ukraine have agreed upon a natural gas deal and Israel pulled its military out of the Gaza Strip. Government reports on petroleum stocks indicated that inventories were somewhat higher than expected but news of additional bailouts for banks helped boost prices.
But by the end of the week, oil industry consultant PetroLogistics Ltd. Indicated that OPEC will cut supplies by about 5 percent this month, which helped bolster crude prices. Even though crude rose notably this past week, prices are still relatively soft due to ongoing recession worldwide.
Net for the week, spot prices for West Texas Intermediate jumped $8.14 per barrel to settle at $44.65 – and coming in $100.64 below the record settle of $145.29 per barrel set on July 3.
The Economy
On the indicator front, it was a mostly quiet week – the only market moving indicator was housing starts. According to nearly all of the economic pundits, housing has to recover before the overall economy can. But the latest housing starts numbers indicate that’s not happening yet.
Housing starts drop to new low
Indeed, housing starts in December continued to be pushed down by oversupply of unsold homes on the market. Starts fell another 15.5 percent, following a 15.1 percent plunge in November. The December pace of 550 thousand units annualized was down 45.0 percent year-on-year and was sharply below the consensus forecast for 615 thousand units. December’s pace of new construction was the lowest since the starts series began in 1959.
For the latest month, the fall in starts was led by the multifamily component which dropped 20.4 percent while the single-family component fell 13.5 percent.
By region, the decline in starts was led by a monthly 24.5 percent drop in the Midwest. Starts also declined in the South, down 22.2 percent, and the West, down 2.2 percent. The Northeast rose 12.7 percent.
Permits also continued in freefall in December, posting a 10.7 percent drop, following a 15.8 percent falloff in November. The December pace of 0.549 million units annualized for permits was down 50.6 percent year-on-year.
Other housing news out last week point to continued weakness or even further deterioration. The housing market index, compiled by the National Association of Homebuilders together with Wells Fargo, fell 1 point in January to a record low of 8 -- a level indicating that nearly all respondents are reporting month-to-month contraction. This index compiles respondents’ views on present sales of new homes, sales of new homes expected in the next six months, and traffic of prospective buyers in new homes.
Overall, the picture for housing continues to be bleak. But the silver lining is that homebuilders are facing the reality that inventories of unsold homes must be worked off before starts pick up. Meanwhile, construction jobs will continue downward and there will be collateral damage to spending for the likes of appliances, furniture, and other home improvement purchases. Not only is the fourth quarter looking very negative, but the direction for the first quarter is clearly down for the overall economy.
Looking ahead at the Fed
This coming week, the highlight may well be the Fed’s FOMC statement. Given that at the December 15-16 FOMC, the Fed cut the fed funds rate target to a record low range of zero to 0.25 percent, the Fed can’t cut any further. Importantly, the FOMC went out of its way to emphasize that the effective fed funds rate is likely to remain low “for some time.”
Indeed, the fed funds futures market was paying attention to the statement. Based on fed funds futures, traders expect the effective fed funds rate to stay below 0.25 percent at least through mid-2009 and below 0.5 percent for the rest of 2009.
Since we will not be seeing a statement from the Fed saying that the fed funds target is going lower, what can we expect? The Fed is now focusing on quantitative easing or credit easing as stated by Fed Chairman Bernanke. Without a doubt, the Fed has expanded its balance sheets immensely over the last few months.
Over the past decade from 1999 until late 2008, Reserve Bank credit outstanding had been slowly rising from $500 billion to $1 trillion. But credit outstanding surged from $894 billion this past September to an astonishing $2.2 trillion in December! Now, the focus is expanding credit into specific segments of the credit markets that will have the most impact on economic recovery. The Fed emphasized this targeting of credit in the December FOMC statement.
“As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.”
So, at this FOMC meeting, we may see more specifics about what the Fed may be purchasing to expand credit. There now is an unusual intra-Fed political angle. The FOMC – which is a committee comprised of Fed governors and Fed regional bank presidents - is charged with making decisions on setting the fed funds rate. But the regional presidents are not involved with the official decisions on new lending facilities – just the Fed governors. It will be interesting to see what role the regional Fed presidents will be playing while the fed funds target is stuck on hold. The debate will likely continue over whether the Fed should set numerical targets for balance sheet items. Separately, any FOMC comments on to what degree the economy may be worsening could move markets.
The bottom line
The latest economic numbers not surprisingly confirm that the recession is more than just a mild dip and fourth quarter earnings are falling in line with that view. It’s going to be a while before any significant fiscal stimulus will be coming out of the new administration and Congress. So, it is still up to the Fed to loosen the credit markets and specifically to begin restoring faith in mortgage markets. Wednesday FOMC meeting statement likely will give new details on the Fed’s plans.
courtesey Econoday
Earnings season is upon us again – and few are bringing good cheer. Financials in particular have resurfaced with greater vulnerability than expected. It turns out that improvement in the credit crisis has not been as much as previously believed. Meantime, inflation fears are making a comeback in the bond markets.
STOCKS
Stocks got no bounce from Obama taking office this past Tuesday. While there is considerable opinion that the new administration’s expected fiscal stimulus plan will speed up recovery, the latest earnings reports more than offset that optimism. Equities were pulled in particular by financials. Lowlights included huge losses at Royal Bank of Scotland. RBS warned that it may report a loss of $41.3 billion.
Also, equities were spooked by news that State Street needs to raise large amounts of capital. This raised fears that major banks are likely strapped for capital as well. Bank of America’s firing of CEO John Thain (formerly CEO of Merrill Lynch) left markets wondering about whether or not bank management in general is successfully dealing with the current financial crisis. For financials overall, sentiment definitely turned more negative.
Key tech companies were mixed. Apple dramatically topped expectations with its sales of Macs. In contrast, Microsoft continued to disappoint.
Broader based companies posted earnings that led equities to believe that more bad news is to come from more cyclically sensitive companies. GE had disappointing earnings.
Finally, a record low for housing starts in December was announced this past week, adding to negative sentiment in equity markets.
Equities were down this past week. The Dow was down 2.5 percent; the S&P 500, down 2.1 percent; the Nasdaq, down 3.4 percent; and the Russell 2000, down 4.7 percent.
For the year-to-date, major indexes are down as follows:
Dow down 8.0 %;
S&P 500 down 7.9 %;
Nasdaq down 6.3 %;
Russell 2000 down 11.0 %.
BONDS
Current monetary policy and expected fiscal policy played key roles in the bond markets this past week. The Fed is keeping short-term rates extremely low with the fed funds target range of zero to 0.25 percent. Treasury bill yields remained not far from zero in sympathy with the fed funds rate. In contrast, with Barack Obama taking office this past Tuesday, credit markets have become more nervous about how much debt the U.S. government and governments world wide will be issuing to combat recession. Hence, the long-bond rose sharply this bond week with rising inflation fears also contributing to the boost in long-term yields.
For this past week Treasury rates were mostly up as follows: 3-month T-bill, down 1 basis point, the 2-year note, up 8 basis points; the 5-year note, up 15 basis points; the 10-year bond, up 28 basis points; and the 30-year bond, up 44 basis points.
Yields on long-term Treasuries jumped this past week. Key factors were a resurgence in inflation expectations and a fear of increased supply to fund fiscal stimulus plans and financial bailouts.
OIL PRICES
This past week, limited economic news was negative. Nonetheless, crude oil posted a strong net gain for the week. Boosting prices on Tuesday was the expiration of the February futures contract as the lower priced February contract converged with the higher priced March contract. A significant number of traders had been playing a “contango” situation in which current prices are low but are expected to consistently rise in coming months. But with the expiration of the February contract, there was considerable short-covering, boosting crude prices.
Not all factors lifted prices. Two geo-political issues keeping oil prices firm appear to have been resolved at least temporarily. Russia and the Ukraine have agreed upon a natural gas deal and Israel pulled its military out of the Gaza Strip. Government reports on petroleum stocks indicated that inventories were somewhat higher than expected but news of additional bailouts for banks helped boost prices.
But by the end of the week, oil industry consultant PetroLogistics Ltd. Indicated that OPEC will cut supplies by about 5 percent this month, which helped bolster crude prices. Even though crude rose notably this past week, prices are still relatively soft due to ongoing recession worldwide.
Net for the week, spot prices for West Texas Intermediate jumped $8.14 per barrel to settle at $44.65 – and coming in $100.64 below the record settle of $145.29 per barrel set on July 3.
The Economy
On the indicator front, it was a mostly quiet week – the only market moving indicator was housing starts. According to nearly all of the economic pundits, housing has to recover before the overall economy can. But the latest housing starts numbers indicate that’s not happening yet.
Housing starts drop to new low
Indeed, housing starts in December continued to be pushed down by oversupply of unsold homes on the market. Starts fell another 15.5 percent, following a 15.1 percent plunge in November. The December pace of 550 thousand units annualized was down 45.0 percent year-on-year and was sharply below the consensus forecast for 615 thousand units. December’s pace of new construction was the lowest since the starts series began in 1959.
For the latest month, the fall in starts was led by the multifamily component which dropped 20.4 percent while the single-family component fell 13.5 percent.
By region, the decline in starts was led by a monthly 24.5 percent drop in the Midwest. Starts also declined in the South, down 22.2 percent, and the West, down 2.2 percent. The Northeast rose 12.7 percent.
Permits also continued in freefall in December, posting a 10.7 percent drop, following a 15.8 percent falloff in November. The December pace of 0.549 million units annualized for permits was down 50.6 percent year-on-year.
Other housing news out last week point to continued weakness or even further deterioration. The housing market index, compiled by the National Association of Homebuilders together with Wells Fargo, fell 1 point in January to a record low of 8 -- a level indicating that nearly all respondents are reporting month-to-month contraction. This index compiles respondents’ views on present sales of new homes, sales of new homes expected in the next six months, and traffic of prospective buyers in new homes.
Overall, the picture for housing continues to be bleak. But the silver lining is that homebuilders are facing the reality that inventories of unsold homes must be worked off before starts pick up. Meanwhile, construction jobs will continue downward and there will be collateral damage to spending for the likes of appliances, furniture, and other home improvement purchases. Not only is the fourth quarter looking very negative, but the direction for the first quarter is clearly down for the overall economy.
Looking ahead at the Fed
This coming week, the highlight may well be the Fed’s FOMC statement. Given that at the December 15-16 FOMC, the Fed cut the fed funds rate target to a record low range of zero to 0.25 percent, the Fed can’t cut any further. Importantly, the FOMC went out of its way to emphasize that the effective fed funds rate is likely to remain low “for some time.”
Indeed, the fed funds futures market was paying attention to the statement. Based on fed funds futures, traders expect the effective fed funds rate to stay below 0.25 percent at least through mid-2009 and below 0.5 percent for the rest of 2009.
Since we will not be seeing a statement from the Fed saying that the fed funds target is going lower, what can we expect? The Fed is now focusing on quantitative easing or credit easing as stated by Fed Chairman Bernanke. Without a doubt, the Fed has expanded its balance sheets immensely over the last few months.
Over the past decade from 1999 until late 2008, Reserve Bank credit outstanding had been slowly rising from $500 billion to $1 trillion. But credit outstanding surged from $894 billion this past September to an astonishing $2.2 trillion in December! Now, the focus is expanding credit into specific segments of the credit markets that will have the most impact on economic recovery. The Fed emphasized this targeting of credit in the December FOMC statement.
“As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.”
So, at this FOMC meeting, we may see more specifics about what the Fed may be purchasing to expand credit. There now is an unusual intra-Fed political angle. The FOMC – which is a committee comprised of Fed governors and Fed regional bank presidents - is charged with making decisions on setting the fed funds rate. But the regional presidents are not involved with the official decisions on new lending facilities – just the Fed governors. It will be interesting to see what role the regional Fed presidents will be playing while the fed funds target is stuck on hold. The debate will likely continue over whether the Fed should set numerical targets for balance sheet items. Separately, any FOMC comments on to what degree the economy may be worsening could move markets.
The bottom line
The latest economic numbers not surprisingly confirm that the recession is more than just a mild dip and fourth quarter earnings are falling in line with that view. It’s going to be a while before any significant fiscal stimulus will be coming out of the new administration and Congress. So, it is still up to the Fed to loosen the credit markets and specifically to begin restoring faith in mortgage markets. Wednesday FOMC meeting statement likely will give new details on the Fed’s plans.
courtesey Econoday
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