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Tuesday, September 3, 2013
One Detail In China's Ugly Manufacturing Report Was So Bad That It's Almost Unbelievable
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REPORT: Brazil Caves On Bus Fare Hikes
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Ben Bernanke Came Out Guns Blazing
REUTERS/Jason ReedU.S. Federal Reserve Chairman Ben Bernanke is pictured on a video camera display during a news conference following the Fed's two-day policy meeting at the Federal Reserve in Washington, June 19, 2013.Today, most were expecting Federal Reserve Chairman Ben Bernanke to attempt to soothe markets.
After all, volatility in the Treasury market, caused by uncertainties surrounding how soon the Fed will begin to taper the pace of its bond-buying program, has had earthshaking reverberations around the world. (Volatility in the Japanese government bond market has increased dramatically, and emerging market stocks, bonds, and currencies have been getting crushed as Treasury yields have risen in the States.)
Instead, Bernanke and the Fed did just the opposite. The FOMC revised up its economic forecasts – implying a quicker economic recovery, meaning tapering is closer than previously assumed – and even laid out a roadmap for tapering, saying bond buying could be completely finished by mid-2014.
This development wasn't even borne out of the discussion in the Q&A with reporters – Bernanke had it ready to go in his prepared remarks to launch the presser. Guns blazing.
"If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year," said Bernanke, referring to the FOMC's newly-released macroeconomic projections. "And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year."
Bernanke went on to say that "in this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7%, with solid economic growth supporting further job gains."
"Bottom line - no backing down, no turning back, the Fed will taper unless the data deteriorate," said Société Générale strategist Kit Juckes following the presser. "There is debate, but the fact the vol has not prompted second thoughts seems to me key."
No second thoughts.
Indeed, when pressed during the Q&A about the recent surge in Treasury yields, Bernanke said, "Yes, rates have come up some. That's in part due to more optimism – I think – about the economy. It's in part due to perceptions of the Federal Reserve. The forecasts that our participants submitted for this meeting, of course, were done in the last few days, so they were done with full knowledge of what happened to financial conditions. Rates have tightened some, but other factors have been more positive – increasing house prices, for example."
Then, Bernanke concluded, "If interest rates go up for the right reasons – that is, both optimism about the economy and an accurate assessment of monetary policy – that's a good thing. That's not a bad thing."
In other words, instead of leaning against the rise in yields that markets have seen over the past several weeks, Bernanke essentially green-lit the sell-off.
The bond market did not take the tapering road map nor Bernanke's assessment of Treasury market volatility very well. Treasuries, which were already taking a hit following the release of the 2 PM statement and forecasts, really started selling off as Bernanke spoke.
The yield on the 10-year Treasury note hit a high of 2.33% during the presser (versus levels around 2.21% before the 2 PM releases).
For now, it appears that the FOMC is undeterred by recent volatility in the Treasury market, and that's something investors should keep in mind.
CHINESE MANUFACTURING CONTRACTS FURTHER
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BILL GROSS: Ben Bernanke Is Deathly Afraid Of Deflation
Bloomberg TelevisionBloomberg's Trish Regan and Bill GrossPIMCO's Bill Gross appeared on Bloomberg Television with Trish Regan and Adam Johnson to discuss the Fed's big FOMC announcement, economic forecasts, and press conference. Among other things, Gross emphasized the importance of the low inflation readings we've been getting out of the economy (emphasis added).
I think the Chairman is almost deathly afraid and we have witnessed in speeches going back five or 10 years on the part of the chairman in terms of the helicopter speech and the reference not only to the depression but to the lost decades in Japan. I think he is deathly afraid of deflation. As we meander back and forth around the 1% level, I would suggest that the chairman to the extent that he perhaps has a limited time left in terms of being the Chairman, that he would guide the committee towards not only an unemployment rate which has been emphasized in terms of the Q&A but also towards a higher inflation target, which is really a target. It's not something in terms of a cap, but the inflation target of 2% and for the next year or two, 2.5% has been specifically delineated in terms of that. It's a target. Those who think it is a cap and we are 1% below the cap and therefore the Fed doesn't care about it, I think the chairman told us the Fed does care about it and the closer we get to 2%, the better as far as he's concerned.
In other words, this low inflation we're getting is not a good thing, and we should think of the Fed's 2.5% inflation threshold as a "target," not a "cap."
Remember, half of the Fed's dual mandate is to keep price stable, not as low as possible.
Here's a transcript of the Gross' interview via Bloomberg Television:
Gross on today's statement by Bernanke:
"It was a pro-growth type of statement and a suggestion that some additional definitions in terms of when tapering might begin and when it might end. Obviously according to a 7% unemployment number that speaks in his mind and perhaps my mind to early 2014. But I might also say in terms of questions and answers, and that is critical I think, that he did speak to the conditional influence of inflation. That even if unemployment came down to 7% and inflation did not go up to 2%, they would look around and readjust their decision. This is a combined growth unemployment and inflation type of combination that has to be delicately managed and i think the market has misinterpreted the growth and the unemployment targets while leaving out the inflation targets going forward."
On what he means by market misinterpretation:
"I think they are missing the influence on inflation that obviously the chairman has considered and perhaps the committee as well. There was a question and Q&A that basically said, Mr. Chairman, if we are down at 1% inflation and it doesn't rise, then real interest rates are in a quandary to which you have limited flexibility, and he said, I agree completely with the premise of your question. I would think the markets are looking at the 7% unemployment rate and suggesting the tapering will end at that point. I would suggest that yes, he did say 7% in terms of an unemployment target where tapering would end, presumably in 2014, but he also qualified significantly a number of times that inflation has to go back up towards that 2% target and at the moment we are not there. Those who are selling treasuries in anticipation that the Fed will ease out of the market might be disappointed unless we have inflation close to 2%."
On how the Fed will respond if we don't get to 2%:
"I think the Chairman is almost deathly afraid and we have witnessed in speeches going back five or 10 years on the part of the chairman in terms of the helicopter speech and the reference not only to the depression but to the lost decades in Japan. I think he is deathly afraid of deflation. As we meander back and forth around the 1% level, i would suggest that the chairman to the extent that he perhaps has a limited time left in terms of being the Chairman, that he would guide the committee towards not only an unemployment rate which has been emphasized in terms of the Q&A but also towards a higher inflation target, which is really a target. It's not something in terms of a cap, but the inflation target of 2% and for the next year or two, 2.5% has been specifically delineated in terms of that. It's a target. Those who think it is a cap and we are 1% below the cap and therefore the Fed doesn't care about it, I think the chairman told us the Fed does care about it and the closer we get to 2%, the better as far as he's concerned."
On Janet Yellen:
"I think she is a Siamese twin in terms of policy. She is very much a dove and has chaired the communication effort on the part of the Fed for the last few years which has emphasized and will continue to be emphasized. PIMCO does not want to be in a position of endorsing anyone. We would simply endorse a chairman or chairwoman who perhaps would emphasize Main Street as well as Wall Street which has been the emphasis for the past three or four years."
On when he thinks the Fed will start to taper QE and when investors need to start trading on that:
"Based on what he said, based upon what the Fed estimates have given us in the last hour it suggests that yes, towards the end of the year, as we hit 7.25%, and if inflation rises as opposed to stays at 1% that the Fed would begin to taper and that ultimately they would end tapering in perhaps the first quarter of 2014. Is that a realistic possibility? At PIMCO, we don't think that really is. We think the chairman and the Fed are taking a very much of a cyclical type of view. He blames lower growth on fiscal austerity and expects towards the end of the year once that is gone, all of the sudden the economy will be growing at 3%. He blames housing prices moving up on homeowners that simply like higher home prices as opposed to emphasizing the mortgage rate, which is really what has provided the lift in the first place. To certain extent his driving analogy, which he talked about pulling back on the accelerator, I think he might be driving in a fog. I think the Fed itself may be driving in a fog. To think that is a cyclical as opposed to a structural problem in terms of our economy. I simply think and PIMCO thinks that real growth to lower unemployment below 7% is a long shot over the next 6, 12, 18 months."
The Australian Dollar Gets Taken To The Blender
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7 Depressing Charts About America
Greg Flume/Getty Images
$('.icon-tooltip').tooltip();As if the recent string of high-profile scandals over Benghazi, AP phone records and the IRS weren't enough to land the Obama administration in political hot water, the controversial news of the National Security Agency's top secret PRISM program has now raised major privacy concerns for Americans.
While civil liberties continue to face erosion by heightened security and surveillance programs, there are many other areas where the American reality doesn't match the hype.
Here are seven metrics that show US citizens' quality of life isn't as high as many imagine.
1. We don't get much privacy.
The US is the second worst country in the democratic world for overall privacy protection, though the UK grabbed the top spot, according to Privacy International. The two Western powers — along with Malaysia, Russia and China — were said to have "endemic" surveillance with few safeguards.
Privacy International 2. We still don't require companies to provide paid maternity leave.
The US is the only Organisation for Economic Cooperation and Development (OECD) member-country that doesn't require paid maternity leave. And comparing it to the rest of the world doesn't make the situation look much better: the US is one of only four countries that doesn't have official paid leave for parents, joined by Liberia, Sierra Leone and Papua New Guinea.
ThinkProgress3. We're by far the most violent country in the world.
Once again, the US is an outlier, but for all the wrong reasons. Sociologist Kieran Healy made this chart comparing deaths in the US by assault (gun violence, stabbings, etc.) with other OECD countries since the 1960s.
4. We spend too much on heath care.
The US spends more than any other country on health care, costing every American an average of $8,000 and the government $4,000 per person, annually. Why is health care in America so expensive? Primarily due to the price of medical goods and services, as well as financial waste, according to nonprofit medical company The Regence Group.
OECD5. We produce TONS of CO2 emissions.
More than a billion cars were motoring around the world in 2010, a full quarter of them in the US — the largest contribution of any country in the world. The graph above shows that the US has consistently produced double the amount of CO2 emissions (metric tons per capita) compared to the average amount produced by the rest of the OECD.
World Data Bank6. Paid vacation is a fantasy in the US.
There is no federal law mandating paid vacation for American workers, meaning that even if you're lucky enough to receive paid leave, your employer isn't required to provide it. One in four US workers doesn't receive any paid time off.
The Unemployment Law Project7. Our government has a serious glass ceiling.
The lack of female representation in positions of power has long been a topic in the US and elsewhere, but the numbers show America is lagging behind. We offer this poignant 2011 excerpt about women in Congress from Jennifer Steinhauer of The New York Times:
"Even as women have made strides in many areas of political life, Congress remains male dominated. From the galleries above the Senate and House floors often appear to be a sea of red and blue ties, with the occasional mid-calf red skirt suit floating among them. Until just a few months ago, there wasn’t even a women’s restroom near the House floor."
World Data BankThis story was originally published by GlobalPost.
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