Posts Tagged ‘Bonds’

Publius

Will Europe Bring Down the Global Economy?

by Publius

From National Journal:

This is the worst-case scenario from Europe, and it just might come true: Italy defaults on its debts. Every major Italian bank collapses. Recession grips the eurozone. Sovereign defaults and bank failures ripple across the Continent. Saddled with bad loans to nations and lenders in Europe, American banks hemorrhage cash. Credit freezes in the United States. Multinational companies, unable to raise money, curb U.S. investment and hiring. Wall Street demands, but fails to get, new bailouts. The entire developed world plummets into recession and, quite possibly, depression.

This, in contrast, is the placid warning that President Obama gave Americans about the threat: “If Europe is contracting,” he said on Monday, “then it’s much more difficult for us to create good jobs here at home.” There’s still a chance that Europeans, through some combination of fiscal and monetary action, can stop the crisis before it shatters the feeble U.S. recovery. But the worst case is so much worse than Obama’s description, and Washington has failed to prepare voters for the possibility. “The [potential] shock we’re talking about is of very large magnitude,” says Viral Acharya, a New York University professor who studies financial risk extensively. “If you’re just having an Armageddon coming your way, [America’s] buffers may not be adequate.”

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Larry Kudlow

A Twisted Outlook: Obamanomics Isn’t Pretty

by Larry Kudlow

Stocks collapsed roughly 700 points over two days after the Federal Reserve launched its “Operation Twist.” The market correctly perceives that the central bank’s plan to swap $400 billion of short-term notes for long-term bonds adds no new reserves to the financial system. So it wasn’t QE3, that’s for sure. No stimulus. In fact, with the Treasury yield curve flattening, the Fed’s sterilized asset swap actually tightened financial markets.

The Fed should have listened to the GOP congressional leadership, which in a letter advocated no more stimulus and no more market-subverting interference.

But the real issue is the new FOMC forecast: “There are significant downside risks to the economic outlook, including strains in global financial markets.” That was the killer statement.

So let me repeat: We are on the front end of a recession. The profits picture is very much in doubt. More Obamanomics tax hikes are in the air. Europe is unsolved. U.S. finances are a mess. All this is being discounted by slumping stocks.

Corporate credit risk spreads have been widening, which is a negative for the profits picture, as economist Michael Darda has pointed out. Profits are the mother’s milk of stocks. And the European funding markets have tightened substantially, as their much-wider financial-stress spreads all indicate.

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Publius

‘Operation Twist’: Fed Will Tweak Interest Rates Lower, Trigger Inflation Fears

by Publius

From the Associated Press:


The Federal Reserve is running out of options to try to boost a slumping economy and lower unemployment. So policymakers are expected to reach 50 years back into their playbook for their next move.

Most economists expect the Fed to announce a plan Wednesday to shift money in its $1.7 trillion portfolio out of short-term securities and into longer-term holdings.

The plan could lower Treasury yields further. Ultimately, it could reduce rates on mortgages and other consumer and business loans, too.

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Larry Kudlow

Market Melt: The Deflationary M2 Explosion

by Larry Kudlow

Amidst the financial flight-wave to safety, with stocks plunging, gold soaring, and Treasury bond rates collapsing — and all the European banking fears which go with that — there’s an important sub-theme developing: An almost-forgotten monetary indicator, M2, which is mostly cash, demand-deposit checking accounts, savings deposits, and retail money-market funds, has been soaring.

According to the St. Louis Fed, M2 is up 24.2 percent at an annual rate over the past two months. Almost out of the blue, that comes to a near $500 billion increase. In rough terms, the M2 explosion breaks down to $165 billion in demand deposits and $335 billion in savings deposits.

What’s going on here? There’s a flight to government-guaranteed accounts. Some people believe Europeans are withdrawing from their own banking system and parking their money in the U.S. banking system, guaranteed by Uncle Sam. Kelly Evans reports in her Wall Street Journal column of a $30 billion outflow from equity mutual funds that has probably gone into cash.

This is a very disconcerting development. Normally, big M2 growth would signal a faster economy, and maybe even higher inflation. But as economist Michael Darda points out, the velocity, or turnover, of money seems to be plunging.

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Frank Salvato

The Stunning Demonization of Fiscal Responsibility

by Frank Salvato

Just when you thought the Progressive Movement could be more deeply invested in denial, now comes the absurd notion that somehow, the TEA Party Movement, whose pinnacle tenet is fiscal responsibility; which has devoutly insisted that the federal government cease the practice of spending beyond the tax revenue it gleans from taxpayers, that somehow it is the TEA Party Movement and their affiliated members of Congress who are responsible for the downgrade in the US credit rating by S&P and not the glad-handing spendthrifts of the big government, nanny state Progressive Movement.

“Bottom up, top down…inside out.”

Shameless partisan, Chicago Progressive operative and former senior advisor to Pres. Barack Obama, David “Say Anything, Lie, Cheat and Steal to Win” Axelrod is quoted as saying, “The fact of the matter is that this is essentially a Tea Party downgrade.”

US Sen. John Kerry (D-MA), who, it was revealed during the 2004 General Election, was fast and loose with the truth about his service in Vietnam, parroted Axelrod’s talking point, saying, Standard & Poor’s decision was “without question the Tea Party downgrade” because Tea Partiers held bipartisan lawmakers back from a bigger deal. This, even though the facts bear out that it was in fact Democrats who refused the deal, demanding almost a half trillion dollars in additional tax revenue be added to the mix.

And Howard Dean, Progressive ideologue extraordinaire, who has devolved into irrelevance since losing both his ill-fated presidential bid and the leadership post of the DNC, said, “I think they’re totally unreasonable and doctrinaire and not founded in reality. I think they’ve been smoking some of that tea, not just drinking it.”

One has to be impressed with the coordination it must take to ensure that all the political operatives in the Progressive Movement are using the exact same talking points during each and every interview almost at exactly at the same time. If one were of a curious mind the question of who is at the helm of the USS Propaganda would come to the forefront. Of course, we shouldn’t expect to find inquisitive minds of this nature within what used to be referred to as the mainstream media…they get their Cliff Notes from the same source.

Only from the minds of the Progressive Movement can we find a converse-reality in thinking so striking, so absurd, that it would condemn as being the cause of repercussions for fiscal irresponsibility those who are demanding that deficit spending come to a halt; that those who are demanding fiscal responsibility are responsible for fiscal irresponsibility.

Night is day and day is a tree.

Yet, even as the cancer of disingenuous, partisan, Progressive ideological madness comes “fast and furious” to the American people via the usual suspects in the alphabet media, it would appear that, increasingly, the American people are beginning to see through the political propaganda of the Far-Left.

A new Gallup poll – and we point out that Gallup leans Left – has concluded:

“Americans’ political ideology at the midyear point of 2011 looks similar to 2009 and 2010, with 41 percent self-identifying as conservative, 36 percent as moderate, and 21 percent as liberal.

“If this pattern continues, 2011 will be the third straight year that conservatives significantly outnumber moderates — the next largest ideological bloc. Liberalism has been holding steady for the past six years, averaging either 21 percent or 22 percent…”

“Among Republicans, conservatives currently outnumber moderates by nearly 3 to 1, 72 percent vs. 24 percent, while very few are liberal (4 percent)…

“Conservatism among independents increased fairly sharply in 2009, from 30 percent to 35 percent, largely explaining the expansion of conservatism nationally at that time, and it has held at that level since then.”

Meanwhile, a new Rasmussen Reports poll indicates that:

“…just 17 percent of likely US voters think the federal government today has the consent of the governed. 69 percent believe the government does not have that consent. 14 percent are undecided.

“The number of voters who feel the government has the consent of the governed — a foundational principle, contained in the Declaration of Independence — is down from 23 percent in early May and has fallen to its lowest level measured yet.

“Perhaps it’s no surprise voters feel this way since only 8 percent believe the average member of Congress listens to his or her constituents more than to their party leaders. That, too, is the lowest level measured to date. 84 percent think the average congressman listens to party leaders more than the voters they represent.”

So, with the Progressives and Democrats holding the Executive Branch, half of the Legislative Branch and just under half of the Judicial Branch (which, in and of itself has become increasingly useless in the eyes of the electorate), and with the overwhelming majority of American voters believing that the federal government does not have the consent of the governed, and with a mass movement of independents toward the Conservative political line of thinking – not to mention a move within the Democrat Party away from their fringe Progressive Left – is it a wise political move to continue jamming the disingenuous stick of non-factual propaganda into the political hornets’ nest that is the TEA Party Movement?

The American people have been awakened to the need to divine fact from fiction where the management of our country is concerned. This truth is self-evident in the results of the 2010 Mid Term Elections. That said, the only ones who seem to be in denial about the realities facing our country appear to be elected Progressive elitist politicians who would rather bankrupt the country while degrading its chances for recovery, all in the name of social engineering and social justice.

In times past, better men would have identified this behavior as treason. Perhaps it is time for those who identify with the principles of the TEA Party to “take the gloves off”; perhaps it is time for the American people to “downgrade” the Progressive Movement to its proper place…the rotting garbage heap of failed political ideology.

What do you think about that, Mr. Kerry? You had better go check with your puppet master for a response. Run along now.

Lawrence Meyers

Economics for The Rest of Us

by Lawrence Meyers

I get tired constantly repeating myself to my fine friends who are on the Left side of the political spectrum when it comes to economic, fiscal, and business realities.  It’s not their fault.  I used to be the same way.  However, following up on a good article about economics for dummies, I thought I’d add some basic concepts that everyone should understand — regardless of political beliefs.

This stuff isn’t that hard to understand.  My old high school math teacher would just drill me over and over on something until I got it.

Risk, Reward, and Investment

A rich person makes all his income, more than $250,000 each year, from investment income only.

Investment involves taking a risk.  In exchange for that risk, an investor is rewarded.  The greater the risk, the greater the reward.

Imagine two cups.  Under one is a dollar.  You bet one dollar and choose one cup.   The odds of picking the right cup are 1-1.  If you are right, you win one dollar.

Imagine ten cups.  Under one cup is ten dollars.  You bet one dollar but choose only one cup.  The risk of choosing the right cup has gone up to 9-1 against you.   Don’t you think you deserve a higher reward for choosing that one right cup?

If you don’t think so, I have a bridge I’d like to sell you.

Investment works the same way.

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Publius

Washington Is Annoyed at Wall Street’s Failure to Panic

by Publius

From CNBC:

I just got off the phone with a source on Capitol Hill who has spent the past few days trying to convince Republicans to vote for a debt ceiling hike.

He told me that the biggest obstacle he faces has been “market complacency.”

“Frankly, a bit of panic would be very helpful right now,” he said.

As he explained it, lots of people in Washington, D.C. expected that this would be a week marked by panic in the markets. Stocks would tank. Bonds would get clobbered. The dollar would do something dramatic. And all of this would help convince reluctant lawmakers that they had to reach a compromise on the debt ceiling.

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Lawrence Meyers

Krugman’s Mistake

by Lawrence Meyers

The only thing worse than Paul Krugman’s call for even more spending in his article “The Mistake of 2010″ is permitting his ideological bias drive his failure to state the obvious.

His Mistake of 2010 not only rests squarely on the shoulders of the Obama Administration, but Mr. Krugman actually wants the Administration to make things worse by spending even more money!

Mr. Krugman says, “We have already repeated the mistake of 1937. Call it the mistake of 2010: a “pivot” away from jobs to other concerns”.   First, note Mr. Krugman’s use of the word “we” rather than, “The Obama Administration and the Democratic Congress”.

Second, Mr. Krugman has a short memory.  The Administration never focused on jobs.

They spent over a year trying to get a health care law passed rather than attack the jobs problem.  Even worse, the health care law is extremely problematic, hugely unpopular, and filled with loopholes.

The only alleged focus on jobs was the Porkulus bill, which was never designed to stimulate, and has not generated any improvement at all in the unemployment rate.  We’ve already seen countless examples of wasted capital here at BigGovernment.   However, if you really want to be infuriated, pay a visit to Stimulus Watch. There you can peruse exactly how that money has been spent — including the most expensive initiatives and the ones voted upon by site visitors as being the ones they are the least satisfied about.  Note, if you will, the commonality between the items listed in these two categories.  Further take note that most of these are grants to states — which went and created government jobs rather than jobs in the private sector.  Some of you may say that a job is a job.  That’s true to a certain extent.  Then again, a government job is also an expensive job.

Take the $1,479,922,924 grant to Florida State Fiscal Stabilization Fund for Education, which created 13,232 jobs….at an average cost of $111,844.  That does not include costs the state will later bear for pensions.  California?  Same deal, only at a “mere” $82,372 per job.  Clearly, however, something stinks in the great state of Texas, for the $2.177 billion Education grant there created…416 jobs.  That’s only $5,233,173 per job.

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Andrew Mellon

Faber: Nations Will Print Money, Go Bust, Go to War…We Are Doomed

by Andrew Mellon

Today the leading Austrian economic think tank, the Ludwig von Mises Institute held a conference at the University Club in Manhattan in which Marc Faber, famed contrarian investor and publisher of the “Gloom, Boom and Doom Report” gave his perspective on the financial crisis and his outlook for the future.

Marc Faber

Below are his main points and entertaining quotes:

  • Central banks will never tighten monetary policy again, merely print, print, print
  • Bubbles used to be concentrated in 1 sector or region in the 19th century, but off of the gold standard this concentration has ended
  • “The lifetime achievement of Greenspan and Bernanke is really that they created a bubble in everything…everywhere.”
  • “Central banks love to see asset prices go up,” and their policy reflects their desperation to perpetuate this
  • US housing bubble that Greenspan could not spot (even though he has recently spotted bubbles in Asia) stands in stark contrast to that of Hong Kong in 1997, where prices fell by 70%, yet none of the major developers went bankrupt; this was a result of a system not built on excessive debt like that of the US
  • “You have to ask what they were smoking at the Federal Reserve,” during the housing bubble, as prices were increasing by 18% annually when interest rates started to steadily rise in 2004
  • Over the last couple of years, when the gross increase in public debt has exceeded the gross decrease in private debt, markets have risen, whereas when private debt growth has outpaced public debt growth, markets have tanked
  • The next 3-5 years will be highly volatile

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The New Ledger

Fat Fingers, Unemployment, and Greece

by The New Ledger

It’s time for your weekly dose of Coffee and Markets, featuring The New Ledger’s Francis Cianfrocca, a podcast brought to you by the fine folks at Andrew Breitbart’s BigGovernment.com and LibertyPundits.com, your home for conservative podcasts. In this week’s edition, we discuss the crazy fallout from a glitch on the stock market Thursday, the latest unemployment numbers, and what’s happening with the crisis in Greece.

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You can subscribe to the podcast by following the links above, and if you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Video: Cramer Spots Fat Fingers in Real Time
TNL: Some Contrary Indicators in Markets
Big Picture: Bonds Are For Losers Revisited
Kudlow: The Contagion Panic is a Bloody Mess
Business Insider: Here’s a List of Stocks in Which NASDAQ is Cancelling Trades
TNL: What Republicans Should Have Done About Financial Regulation