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Friday, May 31, 2013
UBS: Here Are 5 Assets That Look Like They're In A Bubble
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Japanese Consumers Are Suddenly Buying Crazy Expensive Watches And Eating Upscale Sushi Due To 'Abenomics'
Martin Fackler at The New York Times has a dispatch from Japan regarding the real-world impact of "Abenomics" the government's three-pronged economic jumpstart scheme.
Abenomics involves ultra-aggressive monetary stimulus, fiscal stimulus, and also structural reforms.
Since it became clear that Prime Minister Shinzo Abe would take office last autumn, the stock market has been on a tear, and the yen has been sliding, but of course the real question is whether the measures will produce a real-world reaction among domestic consumers and businesses.
There are some signs that it's working.
Even some of Japan’s wary consumers are beginning to indulge. At the plush Takashimaya department store in Tokyo’s financial district, a clerk reported that $20,000 watches had become hot sellers. And a cut-rate sushi chain, which flourished in difficult times, just started a line of upscale restaurants for customers newly able to afford “petite extravagances.”
...
“Young people even in their 40s don’t remember Japan’s good times,” said Hiroshi Sato, a 64-year-old executive treating himself to one of Takashimaya’s fancy watches. Choosing one from a black velvet tray, he explained his purchase as a bet on Mr. Abe’s success after two decades of his predecessors’ failures.
It's important to recognize that domestic demand appears to be springing to life.
Because the yen has been dropping, there's a widespread belief that Abenomics is about weakening the currency to make exporters more competitive. And that may be phone side-phenomenon. But as Lars Christensen has recently pointed out, the theory behind aggressive monetary policy is not about boosting exports, but about inducing domestic activity by raising inflation and demand expectations.
So people buying watches and eating upscale sushi is exactly what the government has in mind.
10 Things You Need To Know This Morning
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REUTERS/Gary CameronGood morning. Here's what you need to know. Markets in Asia were mixed in overnight trading. The Japanese Nikkei rose 1.6%, but the Hong Kong Hang Seng fell 0.5% and the Shanghai Composite retreated 0.1%. European markets are in the red across the board, with Spain down 0.9%. In the United States, futures point to a positive open.Beginning at 10 AM ET, Federal Reserve Chairman Ben Bernanke will deliver a testimony before the Joint Economic Committee of Congress. Bernanke may be questioned about the recent uninterrupted rise in the stock market and whether Federal Reserve policies are creating a bubble.At 2 PM ET, the Federal Reserve will release the minutes from the FOMC's April 30-May 1 monetary policy meeting. The big debate in the markets over the past two weeks or so has been whether the Fed could taper off bond purchases sooner than markets expect, so any discussion in the minutes that sheds light on this will be of interest.The Bank of Japan elected to keep monetary policy unchanged as expected at its May policy meeting after launching an unprecedented bond buying program in April. BoJ Governor Haruhiko Kuroda acknowledged recent improvements in Japanese economic data, and said of the recent volatility in the Japanese government bond market, "At this point, I don’t think [recent JGB yield rises] will have a large impact on the real economy."The release of the minutes from the Bank of England's May 8-9 monetary policy meeting revealed that the central bank's Monetary Policy Committee remained split 6-3 against re-starting the BoE's bond buying program in order to bolster its commitment to bringing down inflation. BoE Governor Mervyn King will chair one more monthly meeting before incoming Governor Mark Carney takes over at the end of June.The U.K. reported disappointing retail sales data for April this morning. Sales fell 1.4% last month after contracting 0.7% the month before. Economists were expecting sales to rise 0.1%.Home improvement retailer Lowe's reported first quarter earnings of $0.49 per share, below analysts' consensus estimate for $0.51. Sales of $13.15 billion during the quarter also fell short of estimates, which were for $13.45 billion. The company blamed the miss on bad weather. Shares are down 4.4% in pre-market trading.Ford Motor says it will expand production at its North American plants by 200,000 units in 2013 by expanding production lines and shortening its summer shutdown by a week at many locations. The move marks a turnaround in an auto industry that has had to close plants and decrease production several times in recent years.Sony's board of directors is discussing a plan to spin off part of its film and music arm submitted by hedge fund manager Dan Loeb, the company's largest investor. Loeb proposes that Sony spin off 15-20% of the film/music business into a separately-listed public company, using the proceeds from the share sale to bolster its struggling consumer electronics business.Existing home sales data for April are due out in the U.S. at 10 AM ET. Economists expect the release to reveal that sales rose 1.4% in April after contracting 0.6% in March. Follow the data LIVE on Business Insider >Please Note: Business Insider will never share your information with any other companies. You also have the ability to unsubscribe from these newsletters at any time simply by following the unsubscribe link located at the bottom of each email Please follow Money Game on Twitter and Facebook.
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ANALYST: A 'Bearish Shooting Star' Is About To Emerge
Miller Tabak's chief technical market analyst Jonathan Krinsky alerts clients about a "bearish shooting star" that will emerge on the S&P 500 charts today if the index closes around current levels.
Here's Krinsky:
NYSE composite volume is running 9% above Tuesday’s pace. Breadth has moved from +1244 at 10:30 am, to negative 74 currently. Needless to say, that is quite a large reversal, especially after there were over 500 new 52 week highs today. Health Care is best +0.93%, while Utilities struggle down 0.46%.
With the pickup in volume, and the broad amount of new highs across individual names and sectors today, the close should be very important. Closing at current levels would leave many indices with bearish “shooting star” candles on the daily charts. Of course, we have seen over and over in this rally where one day’s bearish action has meant nothing more than that, just one day.
The chart below shows the bearish shooting star. The way these candlestick charts work, for those who aren't familiar: the bottom and top of the box formed by each candlestick represent the day's opening and closing prices, respectively, while the lines extending from the box represent the intraday range.
So, then, a bearish shooting star, according to StockCharts.com, is "a single day pattern that can appear in an uptrend. It opens higher, trades much higher, then closes near its open. It looks just like the Inverted Hammer except that it is bearish."
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FOMC MINUTES: MANY SAID MORE PROGRESS NEEDED BEFORE SLOWING QE
UPDATE: The minutes from the Federal Reserve's April 30-May 1 FOMC meeting on monetary policy are out.
The main headline: many on the Committee said more progress is needed before tapering back any bond purchases under the Fed's quantitative easing program.
The FOMC saw an economy expanding at a "moderate pace." However, recent data raised concern on the Committee that the recovery may be slowing.
The full text of the release is below.
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A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, April 30, 2013, at 2:00 p.m. and continued on Wednesday, May 1, 2013, at 9:00 a.m.
PRESENT:
Ben Bernanke, Chairman
William C. Dudley, Vice Chairman
James Bullard
Elizabeth Duke
Charles L. Evans
Esther L. George
Jerome H. Powell
Sarah Bloom Raskin
Eric Rosengren
Jeremy C. Stein
Daniel K. Tarullo
Janet L. Yellen
Christine Cumming, Richard W. Fisher, Narayana Kocherlakota, Sandra Pianalto, and Charles I. Plosser, Alternate Members of the Federal Open Market Committee
Jeffrey M. Lacker, Dennis P. Lockhart, and John C. Williams, Presidents of the Federal Reserve Banks of Richmond, Atlanta, and San Francisco, respectively
Deborah J. Danker, Deputy Secretary
Matthew M. Luecke, Assistant Secretary
David W. Skidmore, Assistant Secretary
Michelle A. Smith, Assistant Secretary
Scott G. Alvarez, General Counsel
Steven B. Kamin, Economist
David W. Wilcox, Economist
Thomas A. Connors, Troy Davig, Michael P. Leahy, Stephen A. Meyer, David Reifschneider, Daniel G. Sullivan, and William Wascher, Associate Economists
Simon Potter, Manager, System Open Market Account
Michael S. Gibson, Director, Division of Banking Supervision and Regulation, Board of Governors
James A. Clouse and William Nelson, Deputy Directors, Division of Monetary Affairs, Board of Governors
Andreas Lehnert, Deputy Director, Office of Financial Stability Policy and Research, Board of Governors
Jon W. Faust, Special Adviser to the Board, Office of Board Members, Board of Governors
Linda Robertson, Assistant to the Board, Office of Board Members, Board of Governors
Seth B. Carpenter, Senior Associate Director, Division of Monetary Affairs, Board of Governors
Joyce K. Zickler, Senior Adviser, Division of Monetary Affairs, Board of Governors
Michael T. Kiley and Thomas Laubach, Associate Directors, Division of Research and Statistics, Board of Governors
David Bowman, Deputy Associate Director, Division of International Finance, Board of Governors
Steven A. Sharpe and John J. Stevens, Assistant Directors, Division of Research and Statistics, Board of Governors; Min Wei, Assistant Director, Division of Monetary Affairs, Board of Governors
Stefania D'Amico, Senior Economist, Division of Monetary Affairs, Board of Governors
Randall A. Williams, Records Project Manager, Division of Monetary Affairs, Board of Governors
Kenneth C. Montgomery, First Vice President, Federal Reserve Bank of Boston
David Altig, Jeff Fuhrer, and Loretta J. Mester, Executive Vice Presidents, Federal Reserve Banks of Atlanta, Boston, and Philadelphia, respectively
Lorie K. Logan and Mark E. Schweitzer, Senior Vice Presidents, Federal Reserve Banks of New York and Cleveland, respectively
Fred Furlong, Group Vice President, Federal Reserve Bank of San Francisco
Evan F. Koenig and David C. Wheelock, Vice Presidents, Federal Reserve Banks of Dallas and St. Louis, respectively
Robert L. Hetzel and Andrea Tambalotti, Senior Economists, Federal Reserve Banks of Richmond and New York, respectively
Jonathan Heathcote, Senior Research Economist, Federal Reserve Bank of Minneapolis
Developments in Financial Markets and the Federal Reserve's Balance Sheet
The Manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets as well as the System open market operations during the period since the Federal Open Market Committee (FOMC) met on March 19-20, 2013. By unanimous vote, the Committee ratified the Open Market Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account over the intermeeting period.
By unanimous vote, the Committee agreed to extend the reciprocal currency (swap) arrangements with the Bank of Canada and the Banco de México for an additional year beginning in mid-December 2013; these arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement of 1994. The arrangement with the Bank of Canada allows for cumulative drawings of up to $2 billion equivalent, and the arrangement with the Banco de México allows for cumulative drawings of up to $3 billion equivalent. The vote to renew the System's participation in these swap arrangements was taken at this meeting because a provision in the Framework Agreement requires each party to provide six months' prior notice of an intention to terminate its participation.
Staff Review of the Economic Situation
The information reviewed at the April 30-May 1 meeting indicated that economic activity expanded at a moderate pace in the first quarter. In March, the unemployment rate edged down further, although it continued to be elevated, and employment growth slowed. Consumer price inflation was relatively low, while measures of longer-run inflation expectations remained stable.
After faster gains in January and February, private nonfarm employment increased at a subdued rate in March, and government employment declined slightly. The unemployment rate was 7.6 percent in March, a little below its average in the fourth quarter of last year. The labor force participation rate also edged down to below its fourth-quarter average. The rate of long-duration unemployment and the share of workers employed part time for economic reasons declined somewhat in March, but these measures remained well above their pre-recession levels. Indicators of near-term labor market conditions were consistent with projections of moderate increases in employment in the coming months: Measures of job openings generally moved up, but the rate of gross private-sector hiring and indicators of firms' hiring plans were subdued, on balance, and initial claims for unemployment insurance trended up a little over the intermeeting period.
Manufacturing production decreased slightly in March but expanded at a brisk rate in the first quarter as a whole, supported in part by a recovery in output following Hurricane Sandy, and the rate of manufacturing capacity utilization in March was somewhat higher than in the fourth quarter. The production of motor vehicles and parts rose solidly in March, but factory output outside of the motor vehicle sector declined. Automakers' schedules indicated that the pace of motor vehicle assemblies in the coming months would be a bit below that in March. Broad indicators of manufacturing production, such as the diffusion indexes of new orders from the national and regional manufacturing surveys, were at levels that pointed to small increases in factory output in the near term.
Real personal consumption expenditures (PCE) expanded at a solid pace in March and in the first quarter as a whole. Some factors that tend to influence household spending were generally positive in recent months. For example, real disposable income increased in February and March, supported in part by recent declines in retail gasoline prices that raised household purchasing power and offset to some extent the effects of this year's higher payroll and income taxes. In addition, household net worth likely rose in recent months as a result of higher equity values and home prices. In contrast, consumer sentiment in the Thomson Reuters/University of Michigan Surveys of Consumers was roughly flat, on balance, in March and April and remained relatively downbeat.
Conditions in the housing sector continued to improve, as real expenditures for residential investment expanded briskly in the first quarter, although from a low level. Total combined starts of new single-family homes and multifamily units increased in March to a level well above that at the beginning of the year. Home prices continued to rise through February, and sales of new homes rose in March, but sales of existing homes decreased a little.
Growth in real business expenditures on equipment and software slowed in the first quarter. Nominal shipments of nondefense capital goods excluding aircraft continued to rise gradually in February and March, but new orders were slightly below the level of shipments, pointing to modest gains in shipments in the near term. Other forward-looking indicators, such as surveys of business conditions and capital spending plans, also suggested that outlays for business equipment would rise at a subdued pace in the coming months. Real business spending for nonresidential construction declined a little in the first quarter. Real inventory investment increased in the first quarter, and business inventories in most industries appeared to be broadly aligned with sales in recent months.
Real federal government purchases declined markedly in the first quarter, led by a significant decrease in defense spending, which may have partially reflected the anticipated effects of the federal spending sequestration. Real state and local government purchases also decreased somewhat in the first quarter, as state and local construction expenditures continued to decline.
The advance release of first-quarter data for the national income and product accounts showed that real net exports of goods and services also subtracted moderately from real gross domestic product (GDP) growth, as real imports outpaced real exports.
Overall consumer prices, as measured by the price index for PCE, edged down in March and rose just 1 percent from a year earlier. Consumer energy prices declined in March, and retail gasoline prices fell further in the first few weeks of April. Consumer food prices only edged up in March. Consumer prices excluding food and energy were flat in March, and their increase from 12 months earlier was similar to that for total consumer prices. Near-term inflation expectations from the Thomson Reuters/University of Michigan Surveys of Consumers were slightly lower in April, and longer-term inflation expectations in the survey were little changed and remained within the narrow range that they have occupied for several years.
Measures of labor compensation indicated that gains in nominal wages remained subdued. Increases in the employment cost index were modest over the year ending in the first quarter. Average hourly earnings for all employees were unchanged in March, and hourly earnings gains in the first quarter as a whole were muted.
Economic growth in foreign economies overall in the first quarter of 2013 showed only a small improvement from that registered in the second half of 2012. Real GDP growth picked up in the United Kingdom, and recent indicators suggested that the pace of contraction moderated in the euro area. In contrast, economic growth in China slowed abruptly after surging late last year. Foreign inflation appeared to increase a little in the first quarter, partly as a result of higher food prices in several emerging market economies, but remained quite moderate.
Staff Review of the Financial Situation
Financial conditions improved a little, on balance, over the intermeeting period. Yields of longer-term Treasury securities and foreign benchmark sovereign bonds declined appreciably, reflecting the somewhat negative tone of U.S. and foreign economic data releases as well as policy actions by the Bank of Japan that were more accommodative than the markets had expected. Equity prices rose modestly, on net, supported in part by solid quarterly earnings reports.
The expected path of the federal funds rate implied by market quotes shifted down moderately over the intermeeting period. However, the Desk's survey of primary dealers, conducted prior to the April 30-May 1 meeting, indicated that the dealers continued to view the third quarter of 2015 as the most likely time for the initial increase in the target federal funds rate. The median dealer anticipated that the FOMC would maintain its current pace of asset purchases through December 2013 and saw the second quarter of 2014 as the most probable time for the end of asset purchases, implying a slight upward revision to the projected total size of the Federal Reserve's asset purchase program.
Over the intermeeting period, near-term measures of inflation compensation derived from yields on nominal and inflation-protected Treasury securities moved lower amid somewhat disappointing economic data and declines in energy and other commodity prices; forward measures of inflation compensation changed little at longer horizons. Yields on agency mortgage-backed securities (MBS) decreased about in line with those on nominal Treasury securities of comparable duration.
Conditions in domestic dollar funding markets were generally little changed, and offshore dollar funding markets reacted only modestly to the elevated uncertainty surrounding the negotiations, early in the intermeeting period, to resolve the banking crisis in Cyprus.
Some indicators of the condition of domestic financial institutions weakened slightly. Share prices for the largest domestic banking organizations declined somewhat, on balance, and bank credit default swap spreads edged a bit higher, on average, across the larger firms in the sector.
Broad equity price indexes increased, on net, over the intermeeting period, likely reflecting solid quarterly earnings reports, stable medium-term earnings expectations, and lower interest rates. Option-implied volatility for the S&P 500 index over the near term remained in a range that was low by historical standards.
Yields on corporate bonds fell roughly in line with those on Treasury securities of comparable maturity, generally leaving their spreads little changed. The rate of corporate bond issuance by nonfinancial firms remained robust in March and April. Consistent with recent trends, some companies reportedly retired a notable portion of their outstanding commercial paper and issued longer-term bonds in comparable amounts. Syndicated leveraged loans were issued at a record pace in the first quarter, supported by strong demand for this type of asset, particularly from nonbank institutions. Gross public issuance of equity by nonfinancial firms was solid over the same period.
Conditions in some segments of the commercial real estate (CRE) sector continued to improve in recent months. Outstanding CRE loans held by commercial banks edged up in the past two quarters following a prolonged period of decline, and commercial mortgage-backed security issuance was strong in the first quarter. According to the Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) conducted in April, the fraction of banks that eased standards on CRE loans over the past three months increased to a relatively high level, while demand for these loans strengthened further. CRE prices continued to move up slowly, and price indexes for various market segments reached levels last seen in late 2008.
Rates on conforming home mortgage loans declined over the intermeeting period, and the spread between the primary mortgage rate and MBS yields remained well below its peak during the second half of 2012. The estimated pace of mortgage refinancing originations continued to be high, supported by historically low mortgage rates. However, purchase mortgage applications stayed at low levels. Overall delinquencies trended lower for both prime and subprime mortgages, primarily reflecting the very tight underwriting standards imposed over the past several years.
Consumer credit continued to expand in January and February, mostly driven by sizable increases in nonrevolving credit. Growth was particularly strong in auto loans as well as in student loans extended through the Department of Education's Direct Loan Program. In contrast, total revolving credit was about flat amid continued tight underwriting standards and terms on credit card loans. Issuance of consumer asset-backed securities--in particular, those backed by subprime auto loans--remained robust in recent months.
Total bank credit expanded moderately during the first quarter of 2013. Gains continued to be concentrated in commercial and industrial (C&I) loans, which increased especially strongly at domestic banks. In the April SLOOS, relatively large net fractions of these banks reported having eased standards and reduced spreads on C&I loans to firms of all sizes.
M2 grew at a faster pace in March and April than earlier in the year, possibly boosted by the higher level of annual tax payments and refunds relative to recent years. Meanwhile, the monetary base expanded briskly over those two months, driven mainly by the increase in reserve balances resulting from the Federal Reserve's asset purchases.
Early in the intermeeting period, prices of a range of risky assets abroad fell in reaction to reports of the "bail-in" of depositors at banks in Cyprus and the imposition of an extended bank holiday in that country, but outside of Cyprus those movements generally proved temporary. Euro-area equity indexes, which fell as stresses in Cyprus intensified, ended the period up slightly. By contrast, stock prices in Japan rose sharply, as the Bank of Japan surprised investors with the scale of its new monetary policy program aimed at raising inflation to 2 percent. Yields on longer-term Japanese government bonds displayed considerable volatility in the days following the announcement, although they were little changed, on net, over the intermeeting period. Outside of Japan, foreign benchmark sovereign yields fell over the intermeeting period, with market commentary citing weak U.S. and foreign macroeconomic data releases, increased expectations for further monetary accommodation by some foreign central banks, and the announcement by the Bank of Japan. After appreciating, on balance, since early this year, the dollar depreciated against most currencies, although it continued to appreciate against the yen. Emerging market stock prices changed little, on net, and emerging market equity mutual funds experienced modest outflows.
Staff Economic Outlook
In the economic forecast prepared by the staff for the April 30-May 1 FOMC meeting, the projection for real GDP growth was little revised from that prepared for the March meeting. With fiscal policy expected to be tighter this year than last year, the staff still anticipated that the pace of expansion in real GDP would only somewhat exceed the growth rate of potential output in 2013. The staff also continued to project that real GDP would accelerate gradually in 2014 and 2015, supported by an eventual easing in the effects of fiscal policy restraint on economic growth, increases in consumer and business sentiment, further improvements in credit availability and financial conditions, and accommodative monetary policy. The expansion in economic activity was anticipated to slowly reduce the slack in labor and product markets over the projection period, and the unemployment rate was expected to decline gradually.
The staff's forecast for inflation was also little revised from the projection prepared for the March FOMC meeting. With longer-run inflation expectations assumed to remain stable, energy prices expected to continue to trend down, and significant resource slack persisting over the forecast period, the staff continued to project that inflation would remain subdued through 2015.
The staff viewed the uncertainty around its forecast for economic activity as similar to the average level over the past 20 years. However, the risks to this outlook were viewed as skewed to the downside, reflecting in part concerns about the situation in Europe. Although the staff saw the outlook for inflation as uncertain, the risks were viewed as balanced and not unusually high.
Participants' Views on Current Conditions and the Economic Outlook
In their discussion of the economic situation, meeting participants generally indicated that they viewed the information received during the intermeeting period as suggesting that the economy was expanding at a moderate pace despite some softness in recent economic data. Conditions in the labor market showed some continued improvement, although the unemployment rate remained elevated. Spending by consumers continued to expand, supported by better credit conditions, rising equity and housing prices, and lower energy prices; and the housing sector improved further. However, growth in business investment spending slowed somewhat, and fiscal policy appeared to be exerting significant near-term restraint on the economy. Perhaps reflecting more subdued growth abroad, especially in Europe and China, net exports weakened in the first quarter.
Participants generally saw the economic outlook as little changed since they met in March. However, economic data releases over the intermeeting period were mixed, raising some concern that the recovery might be slowing after a solid start earlier this year, thereby repeating the pattern observed in recent years. Various views on this prospect were offered, from those participants who put more emphasis on the underlying momentum of the economy, noting the strengthening in private domestic final demand, to those who stressed the growing fiscal restraint or the other headwinds still facing the economy. Participants continued to anticipate that, with appropriate monetary policy, growth would proceed at a moderate pace over the medium run and that the unemployment rate would decline gradually toward levels consistent with the Committee's mandate. A number of participants noted that the balance of risks to growth remained to the downside, al-though a couple suggested that such risks had diminished appreciably since last fall. A few participants warned that, in light of ongoing fiscal restraint and a weak global outlook, economic data could remain soft for the next few months, regardless of the underlying strength of the economy.
Consumer spending was reported to be strong in a number of areas of the country and, more broadly, appeared to be supported by rising equity and house prices, improved household balance sheets, and easier credit conditions. However, concerns were expressed that this rate of growth in consumer expenditures might not be sustainable without the support of a notable pickup in business investment and hiring. Other factors that might affect spending also were mentioned. For example, the losses in income and wealth experienced during the crisis might lead households to be more cautious in their spending and to save at a higher rate; wealth gains in recent years appeared concentrated among higher-net-worth individuals, who may have a lower propensity to spend out of additional wealth; and retailers reported weakness in spending by lower-income households, who had been more affected by the increase in payroll taxes.
Participants saw the housing market as having strengthened further during the intermeeting period and pointed variously to rising house prices, growth in home sales, a lower inventory of houses for sale, a reduction in the average time houses stayed on the market, and encouraging reports from homebuilders. More all-cash or investor purchases were being reported, and the pace of home purchases overall appeared to be constrained less by a lack of demand than by a lack of homes for sale, in part reflecting fewer newly foreclosed houses coming onto the market. The rate of new delinquencies on mortgages declined nearly to pre-crisis levels, and the pipeline of properties in the foreclosure process was being slowly worked down, in part through modifications and short sales. Over time, the supply of homes for sale was expected to increase as new construction picked up and sellers saw more attractive opportunities to put their houses on the market. The improvement in the housing sector was also seen as contributing to a pickup in activity in related industries.
With some exceptions, business contacts were reporting continued caution about expanding investment or payrolls. Reports included some weakening in manufacturing activity, due in part to reduced demand from abroad, and farm exports in one District were projected to be flat following strong growth in previous years. However, the CRE sector showed some signs of recovery, and survey results indicated that the terms of CRE lending were easing and loan demand increasing.
The federal spending sequestration and recent tax increases were viewed as restraining aggregate demand. Participants differed somewhat in their assessments of the magnitude of these effects on the economy, with views ranging from an estimate of substantial fiscal drag to one of less restraint than previously expected. A few participants mentioned the sequestration's impact on hiring and spending by the defense industry or government contractors, but one participant noted that a decline in expected future tax liabilities of the private sector associated with lower federal spending might provide a partial offset to the economic effects of the budget cuts.
Participants generally saw signs of improvement in labor market conditions despite the weaker-than-expected March payroll employment figure. Employment growth in earlier months had been solid, and more-recent improvements included the further decline in the unemployment rate in March and the gradual progress being made in some other labor market indicators. However, several participants cautioned that the drop in the unemployment rate in the latest month was also accompanied by another reduction in the labor force participation rate; the decline in labor force participation over recent quarters could indicate that the reduction in overall labor market slack had been substantially smaller than suggested by the change in the unemployment rate over that period. One participant commented that assessing the shortfall of employment from its maximum level required taking account of not only the gap between the unemployment rate and its corresponding natural rate, but also the gap between the labor force participation rate and its longer-term trend--a trend which was admittedly subject to considerable uncertainty. A few participants mentioned that job growth may have been restrained to an extent by businesses postponing hiring because of uncertainties over the implementation of health-care legislation or because they were unable to find certain types of skilled workers.
Both headline and core PCE inflation in the first quarter came in below the Committee's longer-run goal of 2 percent, but these recent lower readings appeared to be due, in part, to temporary factors; other measures of inflation as well as inflation expectations had remained more stable. Accordingly, participants generally continued to expect that inflation would move closer to the 2 percent objective over the medium run. Nonetheless, a number of participants expressed concern that inflation was below the Committee's target and stressed that future price developments bore careful watching. Most of the recent reports from business contacts revealed little upward pressure on prices or wages. A couple of participants expressed the view that an additional monetary policy response might be warranted should inflation fall further. It was also pointed out that, even absent further disinflation, continued low inflation might pose a threat to the economic recovery by, for example, raising debt burdens. One participant focused instead on the upside risks to inflation over the longer term resulting from highly accommodative monetary policy.
Financial conditions appeared to have eased further over the intermeeting period: Longer-term interest rates declined significantly, banks loosened their C&I lending terms and standards on balance, and competition to make commercial and auto loans was strong. Businesses were reportedly still borrowing to refinance, but they had begun to take out more new loans as well. While the Committee's accommodative policy continued to provide support to financial conditions, events abroad also influenced U.S. markets over the intermeeting period. In particular, the Bank of Japan announced a new monetary policy program that was considerably more expansionary than markets had expected. Financial conditions in Europe improved somewhat over the period, but some participants still saw the situation in Europe as posing downside risks to U.S. growth. At this meeting, a few participants expressed concern that conditions in certain U.S. financial markets were becoming too buoyant, pointing to the elevated issuance of bonds by lower-credit-quality firms or of bonds with fewer restrictions on collateral and payment terms (so-called covenant-lite bonds). One participant cautioned that the emergence of financial imbalances could prove difficult for regulators to identify and address, and that it would be appropriate to adjust monetary policy to help guard against risks to financial stability.
In discussing the effects of the Committee's asset purchases, several participants pointed to the improvement in interest-sensitive sectors, such as consumer durables and housing, over the recent period as evidence that the purchases were having positive results for the economy. The effects on a range of asset prices of the Bank of Japan's recent announcement were cited as added evidence that large-scale asset purchases were effective in easing financial conditions and thereby helping stimulate economic activity. In evaluating the prospects for benefits from asset purchases, however, one participant viewed uncertainty about U.S. fiscal and regulatory policies as interfering with the transmission of monetary policy and as preventing asset purchases from having a meaningful effect on the real economy.
Participants also touched on the conditions under which it might be appropriate to change the pace of asset purchases. Most observed that the outlook for the labor market had shown progress since the program was started in September, but many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate. A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth; however, views differed about what evidence would be necessary and the likelihood of that outcome. One participant preferred to begin decreasing the rate of purchases immediately, while another participant preferred to add more monetary accommodation at the current meeting and mentioned that the Committee had several other tools it could potentially use to do so. Most participants emphasized that it was important for the Committee to be prepared to adjust the pace of its purchases up or down as needed to align the degree of policy accommodation with changes in the outlook for the labor market and inflation as well as the extent of progress toward the Committee's economic objectives. Regarding the composition of purchases, one participant expressed the view that, in light of the substantial improvement in the housing market and to avoid further credit allocation across sectors of the economy, the Committee should start to shift any asset purchases away from MBS and toward Treasury securities.
Committee Policy Action
Committee members saw the information received over the intermeeting period as suggesting that economic activity had been expanding at a moderate pace. Labor market conditions had shown some improvement in recent months, on balance, but the unemployment rate remained elevated. Household spending and business fixed investment advanced, and the housing sector had strengthened further, but fiscal policy was restraining economic growth. The Committee expected that, with appropriate monetary policy accommodation, economic growth would proceed at a moderate pace and result in a gradual decline in the unemployment rate toward levels that the Committee judged consistent with its dual mandate. Members generally continued to anticipate that, with longer-term inflation expectations stable and persisting slack in resource utilization, inflation over the medium term would likely run at or below the Committee's 2 percent objective.
In their discussion of monetary policy for the period ahead, all but one member judged that a highly accommodative stance of monetary policy was warranted in order to foster a stronger economic recovery in a context of price stability. The Committee agreed to continue purchases of MBS at a pace of $40 billion per month and purchases of longer-term Treasury securities at a pace of $45 billion per month, as well as to maintain the Committee's reinvestment policies. The Committee also retained its forward guidance about the federal funds rate, including the thresholds on the unemployment and inflation rates. One member dissented from the Committee's policy decision, expressing concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in inflation expectations.
A few members expressed concerns that investor expectations of the cumulative size of the asset purchase program appeared to have increased somewhat since it was launched last September despite a notable decline in the unemployment rate and other improvements in the labor market since then. In contrast, a few other members focused on evidence that market expectations about the total size of the program had changed little, on net, since the program was launched or had responded appropriately to incoming information. Members generally agreed on the need for the Committee to communicate clearly that the pace and ultimate size of its asset purchases would depend on the Committee's continued assessment of the outlook for the labor market and inflation in addition to its judgments regarding the efficacy and costs of additional purchases and the extent of progress toward its economic objectives. To highlight its willingness to adjust the flow of purchases in light of incoming information, the Committee included language in the statement to be released following the meeting that said the Committee was prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.
At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:
"Consistent with its statutory mandate, the Federal Open Market Committee seeks monetary and financial conditions that will foster maximum employment and price stability. In particular, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to undertake open market operations as necessary to maintain such conditions. The Desk is directed to continue purchasing longer-term Treasury securities at a pace of about $45 billion per month and to continue purchasing agency mortgage-backed securities at a pace of about $40 billion per month. The Committee also directs the Desk to engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve's agency mortgage-backed securities transactions. The Committee directs the Desk to maintain its policy of rolling over maturing Treasury securities into new issues and its policy of reinvesting principal payments on all agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability."
The vote encompassed approval of the statement below to be released at 2:00 p.m.:
"Information received since the Federal Open Market Committee met in March suggests that economic activity has been expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy is restraining economic growth. Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6 1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent."
Voting for this action: Ben Bernanke, William C. Dudley, James Bullard, Elizabeth Duke, Charles L. Evans, Jerome H. Powell, Sarah Bloom Raskin, Eric Rosengren, Jeremy C. Stein, Daniel K. Tarullo, and Janet L. Yellen.
Voting against this action: Esther L. George.
Ms. George dissented because she continued to view monetary policy as overly accommodative and therefore as posing risks to the long-term sustainable growth of the economy. She expressed concern that the stance of policy might be fostering imbalances and excessive risk-taking in some financial markets and institutions, and she cited the potential for the Committee's ongoing asset purchases to complicate the future conduct of policy, raise uncertainty, and affect future inflation expectations. Accordingly, Ms. George preferred to signal a near-term tapering of asset purchases, which would begin to move policy toward a more appropriate stance.
Review of Exit Strategy Principles
After the policy vote, participants began a review of the exit strategy principles that were published in the minutes of the Committee's June 2011 meeting. Those principles, which the Committee issued to clarify how it intended to normalize the stance and conduct of monetary policy when doing so eventually became appropriate, included broad principles along with some details about the timing and sequence of specific steps the Committee expected to take. The participants' discussion touched on various aspects of the exit strategy principles and policy normalization more generally, including the size and composition of the SOMA portfolio in the longer run, the use of a range of reserve-draining tools, the approach to sales of securities, the eventual framework for policy implementation, and the relationship between the principles and the economic thresholds in the Committee's forward guidance on the federal funds rate. The broad principles adopted almost two years ago appeared generally still valid, but developments since then--including the change in the size and composition of SOMA asset holdings--suggested a need for greater flexibility regarding the details of implementing policy normalization, particularly because those details would appropriately depend at least in part upon future economic and financial developments. Also, because normalization still appeared to be well in the future, the Committee might wish to wait and acquire additional experience to inform its plans. In particular, the process of normalizing policy could yield information about the most effective framework for implementing monetary policy in the longer run, and thus about the appropriate size of the SOMA portfolio and level of reserve balances. In addition, several participants raised the possibility that the federal funds rate might not, in the future, be the best indicator of the general level of short-term interest rates, and supported further staff study of potential alternative approaches to implementing monetary policy in the longer term and of possible new tools to improve control over short-term interest rates.
Views differed regarding whether the best course at this point would be to simply acknowledge that certain components of the June 2011 principles had been overtaken by events or rather to formally revise the principles. Acknowledging that the principles need to be updated would help avoid possible confusion regarding the Committee's intentions; waiting to update the principles would allow the Committee to obtain additional information before revising them. It was also mentioned that the public's understanding of the likely exit process might not be improved if the Committee issued only a set of broad principles without providing detailed information on the steps anticipated for normalization. However, issuing revised principles relatively soon could give the public additional confidence that the Committee had the tools and a plan for eventually normalizing the conduct of policy. Moreover, one participant stressed that the Committee's ability to provide forward guidance about the normalization process was a key monetary policy tool, and revised principles would permit use of that tool to help adjust the stance of policy. Participants emphasized that their review of the June 2011 exit strategy principles did not suggest any change in their views about the economic conditions that would eventually warrant beginning the process of normalizing the stance of monetary policy. At the conclusion of the discussion, the Chairman directed the staff to undertake additional preparatory work on this issue for Committee consideration in the future.
It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, June 18-19, 2013. The meeting adjourned at 1:05 p.m. on May 1, 2013.
Notation Vote
By notation vote completed on April 9, 2013, the Committee unanimously approved the minutes of the FOMC meeting held on March 19-20, 2013.
Ben Bernanke Should Never Read Another Statement To Congress Again
Ben Bernanke is testifying in front of Congress today about the state of the economy. His full opening statement is here.
Warning: It's very dry.
He recapitulates the state of the economy, and then says that fiscal austerity was a drag, and that easing is still helpful.
It's very dry stuff, but then again, this is a speech on the state of the economy, rather than a speech delivered to fellow economists about monetary policy.
That being said, it's a gigantic waste of time for him to deliver this speech.
Traders only care about the headlines, and there's no reason why the speech couldn't be delivered electronically to the members early, so that they could read it through and then jump to the Q&A.
This should be how all testimony goes. Deliver the speech electronically when things start. Let people read for a couple of minutes. And then jump right into the good action.
No more opening statements.
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Thursday, May 30, 2013
YARDENI: We're Witnessing 'Irrational Exuberance' In The European Stock Market
There does appear to be some irrational exuberance over in Europe. One of the greatest dichotomies in the global bull market in stocks is the stellar performance of European equity prices despite the ongoing recession in the euro zone. The MSCI Europe stock price index is up 81.2% since March 9, 2009 to a new cyclical high. The euro zone’s real GDP is down 1.5% over the past six quarters. It’s hard to imagine that investors are turning more optimistic on the future over there. For now, it still looks to be mostly a relief rally. Stocks have risen in Europe mostly on relief that the ECB has averted a Lehman-style financial meltdown, so far. Monday’s FT included an article titled, “Wall of money eases Eurozone funding.” The print version of the same story yesterday was titled, "Eurozone makes hay while bond market shines.” It notes: “Encouraged by low market borrowing costs and strong investor demand, finance ministries are further ahead in funding programmes than at this stage in at least the past three years. France, Spain, Italy, Belgium and the Netherlands have raised more than half the year’s expected total, according to estimates by Barclays." That’s even though the region is in the worst recession since the monetary union started in 1999.
Investors are clearly reaching for yield all around the world, including in the peripheral countries of the euro zone. The FT reports: “When Spain last week issued 10-year bonds, demand was three times greater than the €7bn raised. Italy raised €6bn from 30-year bonds, the first with such a long maturity since 2009. Earlier this month, Portugal issued €3bn of new 10-year bonds, its first since the country requested an international bailout programme two years ago.”
Today's Morning Briefing: Group Hug. (1) One of the greatest relief rallies on record. (2) The Bullish Strategists Society. (3) Another 2-4 years for the bull? (4) Starting to believe in tomorrow again. (5) Irrational exuberance or rational relief in Europe? (6) Making hay in Europe’s bond market. (7) Not all profit margins have peaked. (More for subscribers.)
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REUTERS/Gary CameronGood morning. Here's what you need to know. Markets in Asia were mixed in overnight trading. The Japanese Nikkei rose 1.6%, but the Hong Kong Hang Seng fell 0.5% and the Shanghai Composite retreated 0.1%. European markets are in the red across the board, with Spain down 0.9%. In the United States, futures point to a positive open.Beginning at 10 AM ET, Federal Reserve Chairman Ben Bernanke will deliver a testimony before the Joint Economic Committee of Congress. Bernanke may be questioned about the recent uninterrupted rise in the stock market and whether Federal Reserve policies are creating a bubble.At 2 PM ET, the Federal Reserve will release the minutes from the FOMC's April 30-May 1 monetary policy meeting. The big debate in the markets over the past two weeks or so has been whether the Fed could taper off bond purchases sooner than markets expect, so any discussion in the minutes that sheds light on this will be of interest.The Bank of Japan elected to keep monetary policy unchanged as expected at its May policy meeting after launching an unprecedented bond buying program in April. BoJ Governor Haruhiko Kuroda acknowledged recent improvements in Japanese economic data, and said of the recent volatility in the Japanese government bond market, "At this point, I don’t think [recent JGB yield rises] will have a large impact on the real economy."The release of the minutes from the Bank of England's May 8-9 monetary policy meeting revealed that the central bank's Monetary Policy Committee remained split 6-3 against re-starting the BoE's bond buying program in order to bolster its commitment to bringing down inflation. BoE Governor Mervyn King will chair one more monthly meeting before incoming Governor Mark Carney takes over at the end of June.The U.K. reported disappointing retail sales data for April this morning. Sales fell 1.4% last month after contracting 0.7% the month before. Economists were expecting sales to rise 0.1%.Home improvement retailer Lowe's reported first quarter earnings of $0.49 per share, below analysts' consensus estimate for $0.51. Sales of $13.15 billion during the quarter also fell short of estimates, which were for $13.45 billion. The company blamed the miss on bad weather. Shares are down 4.4% in pre-market trading.Ford Motor says it will expand production at its North American plants by 200,000 units in 2013 by expanding production lines and shortening its summer shutdown by a week at many locations. The move marks a turnaround in an auto industry that has had to close plants and decrease production several times in recent years.Sony's board of directors is discussing a plan to spin off part of its film and music arm submitted by hedge fund manager Dan Loeb, the company's largest investor. Loeb proposes that Sony spin off 15-20% of the film/music business into a separately-listed public company, using the proceeds from the share sale to bolster its struggling consumer electronics business.Existing home sales data for April are due out in the U.S. at 10 AM ET. Economists expect the release to reveal that sales rose 1.4% in April after contracting 0.6% in March. Follow the data LIVE on Business Insider >Please Note: Business Insider will never share your information with any other companies. You also have the ability to unsubscribe from these newsletters at any time simply by following the unsubscribe link located at the bottom of each email Please follow Money Game on Twitter and Facebook.
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STOCKS DIP, SILVER HAS CRAZY DAY: Here's What You Need To Know
Continue to Business Insider »You will be redirected in seconds.Enter your email address and zip code to set up customized email alerts.You have successfully emailed the post. Today was pretty spectacular for precious metals investors. 
Today was pretty spectacular for precious metals investors. First, the scoreboard:
And now, the top stories:
There were no major economic data releases in the United States today, but the Chicago Fed's monthly National Activity Index, out this morning before the opening bell, fell to -0.53 in April from -0.23 the month before.The big story in markets was the price action in silver (and gold, to a lesser extent). When futures markets re-opened for the week on Sunday night, silver fell as much as 9% before battling back slowly throughout Monday morning. Around noon, when silver made it back to even for the day, buyers swooped in, driving the metal up 2.7% in a matter of minutes. The price action in gold followed the same pattern, but the moves weren't as big as in silver.Yahoo! this morning confirmed weekend reports that it would buy social media micro-blogging website Tumblr for $1.1 billion in cash. Tumblr only made $13 million in revenue last year, but Yahoo! is hopeful that the deal will increase traffic by 20% and grow its audience by 50%.Speaking at the CFA Society Chicago today, Chicago Fed President Charlie Evans said the Federal Reserve would like to see inflation closer to its 2% target. Evans said the Fed may or may not choose to sell bonds from its portfolio when the time comes to exit the market, keeping the option of allowing assets to run off (i.e., allowing bonds to mature without selling them).DON'T MISS: The 14 Best Housing Markets For The Next Five Years >Please Note: Business Insider will never share your information with any other companies. You also have the ability to unsubscribe from these newsletters at any time simply by following the unsubscribe link located at the bottom of each emailPlease follow Money Game on Twitter and Facebook.
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Continue to Business Insider »You will be redirected in seconds.Enter your email address and zip code to set up customized email alerts.You have successfully emailed the post. It's going to be another slow week for U.S. economic data releases (especially Monday and Tuesday, when nothing notable is scheduled).
It's going to be another slow week for U.S. economic data releases (especially Monday and Tuesday, when nothing notable is scheduled). However, the real story right now is central banks – especially the Federal Reserve, which is far and away the biggest story in global markets right now as investors try to determine whether the Fed is trying to prime markets for tapering of its monetary stimulus programs.
Deutsche Bank strategist Jim Reid provides a nice overview of all of the central bank activity going on this week:
Bernanke’s congressional testimony before the Joint Economic Committee this Wednesday will be the highlight in a week where we may learn more about the Fed’s intentions with regards to potential QE tapering. Indeed, Bernanke’s speech will be made on the same day as the Fed publishes minutes from its Apr30th/May1st policy meeting which may shed some further light on the FOMC’s deliberations with respect to asset purchases. In advance of Wednesday, Chicago Fed president Evans will be speaking today, followed by the NY Fed’s Dudley and St Louis Fed’s Bullard who will speak on Tuesday - all are voting members of the FOMC this year.
Outside of the Fed, there’s also a fair bit going on at other central banks. Wednesday will see the Bank of Japan publish its latest monthly policy statement, following the conclusion of its two-day policy meeting which starts on Tuesday. The BoE will be publishing minutes from its last meeting on Wednesday. On Thursday, Draghi will be speaking at an event in the City of London on the topic of "The future of Europe in the global economy" at an event organised by the Lord Mayor. Rounding out the week ahead in policy, the European Council meets on Wednesday where tax policy and initiatives to promote growth are on the official agenda.
So, maybe not so much data to look out for until Thursday, when we get flash PMIs from China, Europe, and the U.S. – but investors will have plenty of tea leaves to read in the meantime.
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Social: |Your Activity | These articles have been added to your Google activity log. You can remove them here: Options Notify me when a story is shared. The 14 Best Housing Markets For The Next Five Years
National home prices are down 29.1% since their Q1 2006 peak. But over the next five years they are expected to rise 3.9%, according to the latest CoreLogic Case-Shiller report.
We drew on the latest data to identify the best housing markets for the next five years.
The top 15 cities are ranked by the projected annualized change in home prices between Q4 2012 and Q4 2017.
We also included the median home price, median household income, unemployment rate, and the change in home prices since their peak, to offer a broader view of the local economy and housing market.
Note: The median family income and home price is for Q4 2012. Unemployment data is as of February 2013, and population data for the metros is for 2011.
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Wednesday, May 29, 2013
The Title Of Bernanke's Graduation Speech Is Eerily Similar To A Really Bullish Book About Stocks
Dr. Ed's Blog
Ed Yardeni is the President and Chief Investment Strategist of Yardeni Research Fed Chairman Ben Bernanke seems to agree with my upbeat assessment of the future led by the ongoing high-tech revolution. He signed on to the thesis in a commencement speech on Saturday titled, “Economic Prospects for the Long Run.” That title is eerily similar to that of Jeremy Siegel’s investment textbook (1994), Stocks for the Long Run. His speech is also reminiscent of his predecessor’s cheerleading of the 1990s bull market. Bernanke said that he is optimistic about the long-term prospects for the US economy because he expects that “human innovation and creativity will continue.” He concluded that “historians of science have commented on our collective tendency to overestimate the short-term effects of new technologies while underestimating their longer-term potential.” In the past, Bernanke explicitly stated that his ultra-easy monetary policy is aimed at driving stock prices higher. Now that they are at record highs, his recent cheerleading could contribute to a melt-up, just as Alan Greenspan did during the second half of the 1990s. We all know how that ended.
Greenspan, who was Fed Chairman from August 1987 to January 2006, was a big believer in the high-tech revolution during the second half of the 1990s. His last major speech about this subject was titled “Technology and the economy,” on January 13, 2000. Just as technology stocks were about to crash, he said: “When we look back at the 1990s, from the perspective of say 2010, the nature of the forces currently in train will have presumably become clearer. We may conceivably conclude from that vantage point that, at the turn of the millennium, the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever.”
Subsequently, Greenspan said that the financial crisis of 2008 was caused by a “once-in-a-century event,” i.e., the Lehman bankruptcy! Let’s hope that Bernanke won’t regret his latest speech.
The S&P 500 is now 6.5% above its previous record high on October 9, 2007. The current bull market seemed to be tracking the previous one (from 2003-2007), raising concerns that 2013 could play out as badly as did 2007. Now the two bull markets are diverging with the current one rising to new highs. It’s much easier now to make the case that the market may be just starting a melt-up, as I discussed last week.
Dr. Ed's BlogToday's Morning Briefing: Ahead of Schedule. (1) From 666 to 1667. (2) Symbolists vs. strategists. (3) To Hades and back. (4) Secular bear case is harder to make. (5) Illuminati and Numerati. (6) 666 x 3 = 1998. (7) The BRAINEE Revolution. (8) America will export gas. (9) Flood of federal revenues. (10) Are Obama’s scandals bullish? (11) Bernanke is high on high-tech. (12) So was Greenspan. (13) “Renoir” (+ +). (More for subscribers.)
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Earlier, stocks, gold, and bonds jumped as Federal Reserve Chairman Ben Bernanke delivered a prepared statement during a testimony before the Joint Economic Committee of Congress.
However, it didn't take long for everything to head back down in the other direction when the question was put to Bernanke: could the Federal Reserve begin tapering back its bond purchases by Labor Day?
Bernanke didn't rule it out as a possibility as long as there was enough improvement in the economic data to warrant such action.
This isn't inconsistent with anything that the Fed has said before – bond buying will scale back when the Fed thinks the economy can finally handle less monetary stimulus – but markets took this as an opportunity to sell off.
And gold keeps heading lower. It just edged down a bit more with the release of the minutes from the FOMC's April 30-May 1 monetary policy meeting.
Now, the shiny yellow metal is trading 1.5% lower on the day, at levels around $1357.
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EL-ERIAN: A Simple Change In Brand Perception Is What Destroyed Gold
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Mohamed El-ErianMohamed El-ErianGold has been getting hammered lately, and it's down again today. 
Dr. Mohamed Abdulla El-Erian is the CEO and co-CIO of PIMCO, the world’s largest bond investor with over US$1 trillion of assets under management as of 2010. El-Erian previously worked as the investment manager of Harvard... More » 
Mohamed El-ErianMohamed El-ErianGold has been getting hammered lately, and it's down again today. PIMCO's Mohamed El-Erian discusses it in an FT piece titled We Should Listen To What Gold Is Really Telling Us.
El-Erian's argument is that essentially gold had a brand and it had a story, and that story was that it would inevitably go up, as central banks stimulated more.
But it doesn't take much to change the brand and tell a new story.
While lower inflationary expectations and surging equities played a role, the real catalyst for the dramatic price drop was a rumour that Cyprus could be forced to sell its holdings by its European partners. This involved a tiny amount of gold (valued at less than $1bn at the time), but it made investors suddenly pay attention to the possibility of significant supply hitting the markets from other European economies (particularly Italy with holdings of some $130bn).
This simple change was enough to bring the gold price down 15 per cent in less than a week. Since then, the metal has struggled to re-establish a firm footing, (it is currently trading at about $1,345 a troy ounce).
El-Erian then goes onto liken this to Apple. One moment it's on top of the world, and infallible. And then suddenly the story changes, and people value the company in a completely different way.
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Dr. Mohamed Abdulla El-Erian is the CEO and co-CIO of PIMCO, the world’s largest bond investor with over US$1 trillion of assets under management as of 2010. El-Erian previously worked as the investment manager of Harvard... More » You are logged into Facebook
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Continue to Business Insider »You will be redirected in seconds.Enter your email address and zip code to set up customized email alerts.You have successfully emailed the post. Sam Ro | May 20, 2013, 9:38 PM | 500 | 
China is about more than massive infrastructure build-outs.
Some things have to come down.
"This was the scene in Wuhan as three-and-a-half kilometers of elevated road came down," wrote Bloomberg about this incredible demolition footage. "The viaduct was only built in 1997 as part of the main highway between Shanghai and Tibet.
Check out this video from Bloomberg.com:
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FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
6 Things Traders Need To Do To Improve Their Consistency (The Kirk Report)
Traders should focus on consistency. To do this, Charles E. Kirk writes that traders need to do six key things. 1. "Have a consistent daily routine." 2. "Adopt and maintain a consistent strategy." 3. "Simplify, simplify and simplify more." 4. "Track what you do everyday." 5. "Flowchart everything." 6. "Set your rules and follow the rules."
Leon Cooperman: 'Everyone Is Moving Up The Risk Curve' (Barron's)
Investors have been chasing yield for some time. Leon Cooperman and Steve Einhorn of Omega Advisors told Barron's that investors are moving up the risk curve.
What are you seeing as far as investors looking for more yield?
Cooperman: Everyone is in the process of moving up the risk curve. We have an investor who put all of his money in T-bills when he retired, because he didn't want duration risk or credit risk. So for the guy who bought T-bills, he can't get any return anymore, so he migrated to T-bonds. The guy who bought T-bonds has migrated into industrial credits. The buyers of industrial credits have migrated into high yield. The high-yield buyers have migrated into structured credit, where we are now in our credit exposure at Omega, and the structured-credit people are increasingly looking at equities. So everybody is moving up the risk curve.
That helps equities, no doubt?
Einhorn: There is no effective alternative to common stocks and people are getting fatigued sitting on cash earning zero and bonds, which have such unattractive returns.
In Just Two Charts, You'll Understand Why Gold Is Crashing (Credit Suisse)
Gold prices have been taking a hit since April. This is because of 1. A decline in risks from Europe which is proxied by charts showing declining yields on Spanish and Italian 10-year notes, and 2. Normalizing interest rates in the U.S.
Credit Suisse
69% Of Global Investors Think Income Investing Is A Priority (Advisor Perspectives)
Legg Mason's survey of "affluent investors" in North America, Europe and Asia showed that income is a priority for global investors. 69% of global investors said that "that investing in income generating products is an extremely important or important priority. Another 23% say it is at least somewhat important." 80% of investors said they wanted to know more about income investing.
Doug Kass: Here Are My 31 Favorite Books On Investing (Business Insider)
Doug Kass gave us his 31 favorite books on investing. Byron Wein called the reading list "terrific." Some of the titles include 1. "The Most Important Thing" by Howard Marks. 2. "The Money Game" by Adam Smith. 3. "It's Earnings That Count" by Hewitt Heiserman, Jr. 4. "Bailout Nation" by Barry Ritholtz. 5. "The Big Short" by Michael Lewis.
BofA: A 'New Berlin Wall' Has Been Erected In Europe
Sam Ro | May 20, 2013, 8:58 PM | 787 |
The relative calm in recent weeks belies the huge distortions that continue to plague the global economy and markets.
Michael Hartnett, Bank of America Merrill Lynch's Chief Investment Strategist, recently published a report loaded with unconventional charts intended to communicate how the world is changing.
In a slide titled "The new Berlin Wall," Hartnett presented this chart showing how German bond and stock prices have surged as the young people in Portugal, Italy, Greece, and Spain have suffered.
Many consider this a reflection of how the euro has failed those in its currency bloc.
Bank of America Merrill Lynch
Unfortunately, Hartnett sees a very similar trend within in the U.S. where stock and bond prices have rebounded sharply benefiting the investing class even as increasing numbers of Americans watch from the sidelines.
"Risk is bubbles and Robin Hood policies that curtail the demand and supply of credit," wrote Hartnett.
Bank of America Merrill Lynch
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Marc Faber: The US Can 'Artificially Depress' Prices And Confiscate Your Gold (GLD)
Gold prices continue to take a beating with futures at $1,354 an ounce.
Marc Faber, publisher of The Gloom, Boom and Doom report, told Talking Numbers that he is buying physical gold and will buy more if it hits the $1,300 mark.
But, he said that he isn't keeping it in the U.S. "I bought gold at $1,400, I buy every month some gold, and I have an order to buy more at $1,300 because I want to keep an allocation towards gold – physical gold – and not stored in the United States at all times."
Here he explains why he isn't keeping it in the U.S. via CNBC and Yahoo Finance:
Now you're emphasizing stored outside the U.S.. We're a pretty safe country Marc, why do you have to keep the gold out of here?
Well, safe country? I’m not so sure about that under the present government. But in 1933, gold was taken away from Americans. The government paid them $25 and after, they revalued the gold to $35. So, basically what the government can do once again, and that is a possibility. They could artificially depress, manipulate the price down and then say ‘Gold is illegal to be held. We have to collect all the gold from the citizens.’ Say if they manipulated the price down to $1,000. They could collect it at $1,000 and then revalue to $10,000.
That's possible but do you believe it is probable Marc? That would be a Black Swan kind of event or a cold swan type of an event for you. That's not your base case.
It’s not probable… Correct. I’m not a believer in the manipulation theory. I’m not a believer in all the conspiracy theories. I’m a believer that the market went down because there was a technical break and also because stocks are so strong. So, when people look at their gold and they look at the stock market that goes up every day, they then decide ‘Gold is dead. Let’s buy stocks’ because, at heart nowadays, everybody is a momentum player. The fund managers who must outperform the index, the hedge fund guys, the high-velocity trading people, the algorithmic people – they’re all momentum players. What moves up, they chase. What moves down, they sell.
Watch the entire interview at CNBC and Yahoo Finance:
Tuesday, May 28, 2013
Here's The Problem That Made The New Alleged Bitcoin Inventor A Mathematical Rock Star
This weekend, computer scientist Ted Nelson claimed that mathematician Shinichi Mochizuki was the man behind Bitcoin.
See, while the digital currency has moved markets and attracted major investors, nobody actually knows who came up with it.
The paper describing the system was published under a pseudonym, Satoshi Nakamoto, and people are clamoring to find out who the genius behind the Bitcoin system actually is.
And while there is a mountain of compelling evidence demonstrating that Mochizuki probably isn't Nakamoto, this is still an excellent opportunity to revisit why people are obsessed with the Japanese mathematician — namely, his rock-star status achieved after publishing a bold proof of one of the thorniest problems in Diophantine analysis: the abc conjecture.
In short, the abc conjecture explores the relationships between prime numbers.
It's been described as the most important unsolved problem in Diophantine Analysis.
Diophantine analysis is a branch of mathematics that works with some of the most simple number systems (like ax + by = 1 or xn + yn = zn) and in doing so explores some of the deepest relationships in math.
Some of the earliest work with mathematics — we're talking ancient Greek number-crunching here — was with prime numbers, especially the relationships and frequency between them.
The abc conjecture — a younger problem in the field, originally proposed in 1985 — is as follows.
Take three positive integers that have no common factor and where a + b = c. For instance, 5, 8, and 13.
Now take the distinct prime factors of these integers—in this case 2, 5, and 13—and multiply them to get a new number, d.
In most cases, like this one, d is larger than c. The conjecture states that in rare instances where d is smaller than c, it is usually very close to c. Most importantly, the conjecture also shows that there are a finite number of instances of a, b, and c where d is smaller than c.
Mochizuki claims to have cracked this conjecture in a 500-page proof.
Even if you didn't catch all of that, solving this would be the necessary missing link for a dozen different, more advanced problems in Diophantine Analysis, and is also linked to the legendary mathematical problem, Fermat's Last Theorem.
So it's not unreasonable to expect that Mochizuki — an exceedingly intelligent mathematician whom Nelson thinks had time to complete such an undertaking — has the brains to be the guy behind Bitcoin.
But even if the evidence doesn't come together, Mochizuki should still he hailed as the guy who potentially cracked one of the most difficult problems in his field, still a huge achievement.
Herbalife's Stock Is Ripping
Shares of Herbalife are ripping today with the nutrition supplement seller's stock last trading up more than 8% at $48 per share.
We haven't seen any news on the stock, yet.
Herbalife is one of the most controversial stocks and it has generated a great deal of dicussion on both the long and short side.
Back in December, hedge fund manager Bill Ackman, who runs $12 billion Pershing Square Capital Management, publicly announced that he's shorting more than 20 million shares of the stock. Ackman believes the company is a "pyramid scheme" and has a price target of $0.
Not everyone has agreed with him, though.
Ackman's rival Carl Icahn snapped up a massive stake in Herbalife. Icahn owns more than 16 million shares of Herbalife.
The stock is trading well above the level when Ackman revealed his short at a special Sohn Conference event in mid-December.
Here's a chart:
Yahoo! Finance
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