Posts Tagged ‘quantitative easing’
Posted by Larry Doyle on August 6th, 2010 9:46 AM |
This morning’s Unemployment Report further confirms that our economy remains burdened by our Sense on Cents description of ‘walking pneumonia.’ While this month’s report was decidedly weaker than expectations, once again we witness downward revisions to prior reports. Do you find it strange that more often than not much of the economic data released has displayed this tendency to have downward revisions to prior reports. Think the data is heavily massaged? You think?
Let’s navigate this morning’s report thanks to The Wall Street Journal’s Market Data page: (more…)
Tags: august 6 non-farm payroll report, August 6 unemployment report, average hours worked august 6 2010, employment report august 6 2010, GIM, Greenwich Investment Management, Larry Doyle, market reaction unemployment report august 6 2010, more quantitative easing, nfp august 6 2010, QE2, quantitative easing, Sense on Cents, U-6 august 6 2010, unemployment report august 6, unemployment revisions august 6 2010, where are the jobs
Posted in Employment, General, Unemployment | 7 Comments »
Posted by Larry Doyle on July 14th, 2010 3:24 PM |
The Federal Reserve just released the minutes from a June 22-23 meeting and an early May conference call. The Fed as an institution is always careful in its delivery, but in reading through their tea leaves this afternoon I sense concern on the Fed’s part of a real slowing, if not a double dip, in our economy. A summary of the Fed minutes includes the following highlights:
FOMC participants’ forecasts for economic activity and inflation suggested that they expected the recovery to continue and inflation to remain subdued, but with, on balance, slightly weaker real activity and a bit lower inflation than in the projections they made in conjunction with the April 2010 FOMC meeting. (more…)
Tags: does fed need more stimulus, Fed concerns, Fed minutes July 14 2010, Federal Reserve, Federal Reserve minutes July 14 2010, Federal reserve on unemployment growth and inflation, FOMC, quantitative easing, summary of Fed minutes
Posted in Federal Reserve, General | 6 Comments »
Posted by Larry Doyle on April 1st, 2010 11:30 AM |
If you are in a position to refinance your mortgage, I would not wait. Why?
The largest buy program in the history of the U.S. mortgage market just ended yesterday. That program, part of the Federal Reserve’s quantitative easing, purchased $1.25 trillion in mortgage-backed securities. In the process, the Fed brought mortgage rates down somewhere in the vicinity of .50% to a full 1% from where they would likely otherwise be. (more…)
Tags: end of quantitative easing, Federal reserve QE program, mortgage rates, mortgage refinancing, quantitative easing, should I refinance, what is quantitative easing, when to refinance, where are mortgage rates headed
Posted in General, Mortgages, refinancing | 1 Comment »
Posted by Larry Doyle on March 23rd, 2010 1:47 PM |
Inflation is dead, right?
If we believe The Wall Street Journal, all we had to do was read yesterday’s edition to learn this fact. The WSJ wrote, Inflation is Dead? Long Live Long-Term Treasurys:
The Treasury Department is selling $118 billion in debt this week, just as Congress tackled a $940 billion health-care bill over the weekend, shining the spotlight on the U.S.’s hefty fiscal commitments.
Budget-deficit and debt levels are forecast to worsen: Total deficits including interest costs are set to remain above $1 trillion in the next decade, according to Barclays Capital. But longer-dated U.S. government debt is as popular as ever, even at the measly 3.689% and 4.580% yields that 10- and 30-year Treasurys are paying, respectively.
That popularity is supported by a single, compelling economic fact: Inflation is dead.
There you go. The WSJ said it, so it must be right. The policy wonks in Washington continually repeat it, so they must be right, too. Or are they? (more…)
Tags: commodities, consumer price index excluding housing, deflation, deflation in housing, deflation in owners rent, fed Funds rate, Fed induced liquidity, food prices, gas prices, Inflation, inflation and deflation, is inflation dead, long term treasurys, oil prices, quantitative easing, raw materials
Posted in General, Housing Crisis, Inflation, deflation | 3 Comments »
Posted by Larry Doyle on March 16th, 2010 3:32 PM |
Is the White House now in charge of both fiscal and monetary policy?
The Federal Reserve just released its March statement confirming no change in its monetary policy and little change in economic outlook. A brief overview of the Fed’s statement includes the following:
>> Maintains the Fed Funds range at 0-.25% for an extended period.
>> The quantitative easing program used to purchase $1.25 trillion in mortgage-backed securities and $125 billion in federal agency debt is nearing completion at the end of this month. The Fed will monitor economic conditions and employ policy tools as necessary to promote economic recovery and price stability.
>> Economic activity is generally improving. The overall pace of economic recovery is moderate. (more…)
Tags: Barack Obama, Ben Bernanke, Christina romer, economic activity March 16 2010, extended period, extended period in White House statement, Fed statement March 16 2010, Fed's independence, Federal Reserve, Federal Reserve statement March 16 2010, Federal Reserve's independence, fiscal policy, inflation March 16 2010, Is the Fed independent, labor market March 16 2010, monetary policy, Peter Orszag, quantitative easing, sell the dollar, Tim Geithner, Wall Street Main Street March 16 2010, White House coordiantion with Federal Reserve
Posted in Barack Obama, Ben Bernanke, Federal Reserve, General | 7 Comments »
Posted by Larry Doyle on February 17th, 2010 12:19 PM |
Our wizards in Washington should not be so naive to think foreign buyers, especially from Asia, will continue to finance our debt at current rates and at current levels. News yesterday that China is no longer the largest holder of our Treasury debt should not be discounted.
What are the ramifications for our nation if China and other foreign buyers decline to purchase our debt or – even worse – actually start selling even more of their current holdings? A quick and violent move higher in our domestic interest rates.
Don’t think it could happen? Think again. (more…)
Tags: 10yr rate, 2yr rate, bonds, China, China's Treasury holdings, currency relationship, financing our debt, fiscal deficit, government bond rates, interest rates, Japan, Japan's Treasury holdings, Nishida, quantitative easing, rates, Shimominami, U.S. Treasury market, yen vs dollar
Posted in General, interest rates | No Comments »
Posted by Larry Doyle on November 4th, 2009 3:06 PM |
None other than Meredith Whitney, the top rated bank analyst on Wall Street, characterized the Federal Reserve’s quantitative easing program to purchase mortgage-backed securities (MBS) as a ‘deal with the devil.’ Can the Federal Reserve sneak out of hell without disturbing the other residents? Can the Federal Reserve regain its stature of credibility and independence in the face of such massive government intervention and Wall Street influence? The challenge embedded in communicating how the Fed will ‘exit hell’ will be the single greatest determinant of economic and market direction over the next six months.
Did we catch a peek into those depths of hell today given the release of the most recent Federal Reserve policy statement?
What did we learn? (more…)
Tags: capacity utilization rate, easy money, Fed statement November 4 2009, Fed will keep rates low for extended period, Fed's deal with the devil, Fed's exit strategy, Fed's purchase of mbs, Federal Reserve, Federal Reserve policy statement on November 4 2009, Federal Reserve statement November 4 2009, how will Federal Reserve exit quantitative easing, Meredith Whitney, quantitative easing
Posted in Federal Reserve, General, Wall Street | 3 Comments »
Posted by Larry Doyle on October 15th, 2009 11:03 AM |
Inflation? Deflation? What is it going to be? As we continue to navigate the economic landscape, that question – perhaps more than any other – is of paramount concern. As I assess the economy and the markets, I envision the following:
> Ongoing deflationary pressures in real estate. Foreclosures hit a record level based on a report this morning.
> A likely increase in deflationary pressures from wages as unemployment continues to increase, hours worked do not pick up, and average hourly earnings are stagnant. How are corporations reporting earnings? Not from growth in top line revenue, but from cutting costs, including headcount.
I firmly believe these two overriding forces most concern the Fed and the threat that the deflationary forces could grow if not counteracted. How does the Fed counteract these pressures? Keep the liquidity pump running via a 0-.25% Fed Funds rate and now increased speculation of perhaps more quantitative easing in the form of purchasing more mortgage-backed securities.
What has been the result of all this liquidity running into the system? A significant decline in the value of our dollar. What does that create? Inflation. That’s good, right? A little inflation will provide some pricing power which supports our equity market. Not so fast. The inflation is not directly addressing the deflationary pressures in real estate and likely deflationary pressure in wages. The inflation is being generated primarily in commodities. What does that mean? Prices for food, gas, oil, and other raw material inputs will increase. As those prices increase, the cost of living in America will increase. Regrettably, that increase in cost of living will not be offset by an increase in wages.
Daily Finance provides a preview of the coming rise in food prices in writing, Sticker Shock at the Supermarket: Food Prices Poised to Rise:
If there’s any silver lining to a recession — albeit a thin one — it’s that consumer prices typically go down. Make no mistake, deflation is a sign of a sick economy, but at least the net effect of cheaper prices for the basic necessities — food, clothing and shelter — helps folks get by when they are struggling to make ends meet.
But consumers should brace themselves for things to change, especially at the supermarket. As the global and U.S. economies emerge from the downturn, economists predict that there is going to be some sticker shock at the checkout line. Food prices, they say, are heading higher and when you combine that with an unemployment rate that’s expected to linger near a three-decade high for at least another year, it’s even more unwelcome news.
The U.S. Department of Agriculture expects overall food prices to rise as much as 4 percent in the U.S. by the end of 2010. Yet, some economists think they could climb by as much as 5 percent. Even using the government’s more conservative numbers, the price for eggs is forecast to rise 3 percent and beef is seen increasing 2 percent. Lamb, seafood and fish? All three categories are expected to jump as much as 5 percent.
A 5 percent boost in your grocery bill may not seem terribly devastating, but consider this: If you spend $300 a week on groceries now, you’ll need to squeeze a raise of about a thousand dollars a year out of your boss (don’t forget withholding tax) just to keep up with higher chicken, beef, pork and dairy prices. Good luck accomplishing that little feat with a 9.8 percent unemployment rate and companies looking into every nook and cranny in order to cut costs.
Why again are these prices poised to increase?
the weak U.S. dollar means we will be exporting more of our homegrown food overseas, causing prices to rise at home.
The consumer will continue to get squeezed, but the wizards in Washington will be able to pronounce that the overall level of inflation is stable. Really?
-3 + 3 = 0 is not the same as 0 + 0 = 0 !!!
What a world.
LD
Tags: corporate earnings, cost of food, cost of goods, cost of living, cutting costs, daily Finance, decline in value of dollar, deflation, deflationary pressures, dolalr devaluation, Economy, exports, Fed liquidity, Federal Reserve policy, foreclosures, headcount reduction, Inflation, quantitative easing, real estate prices, real estate values, revenues, Sticker Shock at the Supermarket Food Prices Poised to Rise, Unemployment, wage pressures, wages
Posted in General, Inflation, deflation, hyperinflation | No Comments »
Posted by Larry Doyle on October 14th, 2009 4:17 PM |
Could the S in USA be changing from ’states’ to ’socialist?’ Maybe that is overly aggressive, but why do I ask?
If the markets are an indication of an incipient rebound in economic health, then why would certain Federal Reserve governors want to increase the Fed’s quantitative easing program? Is that accurate? Is the Fed actually looking to inject even more capital and liquidity into our housing market over and above the $1.25 trillion commitment they have already made? Recall that the Fed informed the markets that it would extend the current purchase program of MBS (mortgage-backed securities) until the end of the 1st quarter 2010, while not increasing the dollar commitment.
Also recall that there had been an increase in Fed-speak by certain Fed representatives (Kevin Warsh, Thomas Hoenig) about the need for an increase in rates ’sooner rather than later,’ along with the need for a defined exit plan by the Fed from its massive injection of liquidity into the markets.
Well, take those comments with a large grain of salt. Why? Today we learn that there are ‘doves‘ within the Fed who believe the Fed should commit even more money to support our housing market. Bloomberg provides insights on this topic by writing, Fed Says Some Officials Were Open to Buying More MBS:
Some Federal Reserve policy makers were open last month to boosting the central bank’s $1.25 trillion mortgage-backed securities purchase program to stimulate the economy amid concerns the recovery may fade.
“Some members thought that an increase in the maximum amount of the committee’s purchases of agency MBS could help to reduce economic slack more quickly,” according to minutes of the Federal Open Market Committee’s Sept. 22-23 meeting released today in Washington. One member said the improvement in the outlook could warrant a reduction in purchases, the minutes said, without identifying the policy maker.
Having read and reviewed more Fed statements than I care to remember, each and every word in a Fed statement is very carefully chosen. Why? The Fed is attempting to manage market expectations. The fact that the Fed chose to release these comments about mortgage purchases is an indication that the Fed will not only keep the liquidity spigot on for an ‘extended’ period but also may increase the flow of liquidity into the economy via increased purchases of mortgage securities. What does that mean? They view the economy as still having real weakness, especially in housing. And what does that mean? Little concern of inflation in general and likely deflationary pressures within housing.
To fight the deflationary pressures, the Fed will continue to pump liquidity. Are there any costs to this increased liquidity? The equity markets are rallying so it must be good. Well, not so fast. Actually, the costs are in the form of ongoing weakness in the dollar. The U.S. Dollar Index moved lower by another .65% today.
When you truly look at the economy and the markets, think of things in terms of purchasing power. The dollar is now down approximately 7% on the year. I would encourage people to more actively assess the value of the dollar in terms of asset returns and incorporate that into the cost of products.
Those dollar weighted returns and dollar weighted costs in the context of a global market and global economy are truly the proper perspective.
LD
Tags: decline in value of dollar, deflation, dollar, doves, exit plan, Fed, Fed doves, Fed Says Some Officials Were Open to Buying More MBS, fed statements, Fed's quantitative easing, Federal Reserve, FOMC meeting September 22-23, housing, Housing Crisis, injection of liquidity, kevin Warsh, market expectations, MBS, quantitative easing, Thomas Hoenig, U.S. Dollar Index
Posted in Federal Reserve, General, Home Loan, Housing Crisis, quantitative easing | No Comments »
Posted by Larry Doyle on August 27th, 2009 10:28 AM |
Will the Federal Reserve surprise the markets and not fully purchase the $1 trillion+ worth of mortgage-backed securities via its quantitative easing program? Why would the Fed slow, if not stop, its mortgage purchases? What might this mean for mortgage rates?
Bloomberg highlights this potential development this morning in writing Lacker Says Fed May Not Need To Buy MBS Authorized:
The Federal Reserve may not need to buy the full $1.25 trillion in mortgage-backed securities the central bank has authorized by year-end as the economy improves, Federal Reserve Bank of Richmond President Jeffrey Lacker said.
“I will be evaluating carefully whether we need or want the additional stimulus that purchasing the full amount authorized under our agency mortgage-backed securities purchase program would provide,” Lacker said today in a speech in Danville, Virginia.
The Bloomberg story follows up on news released by the Fed that it had decreased and changed the money managers through which it has purchased mortgage securities. The New York Fed released a statement on August 17th highlighting this development, New York Fed Streamlines External Investment Managers for Agency MBS Purchase Program:
The Federal Reserve Bank of New York today announced that it has streamlined the set of external investment managers for the agency mortgage backed securities purchase program, reducing the number of investment managers from four to two. The New York Fed has retained Wellington Management Company, LLP for trading, settlement and as a secondary provider of risk and analytics support; and BlackRock Inc. as the primary provider of risk and analytics support.
Let’s address some basic questions about the Fed’s MBS purchase program, MBS in general, and implications for the economy.
1. Which money managers were removed by the Fed?
>> Goldman Sachs Asset Management and Pimco
2. Why might the Fed slow its purchasing of MBS?
>> While Fed governor Lacker would maintain that the Fed may slow its purchasing of MBS because the economy has improved and continues to improve, I would beg to differ. Home sales are rebounding, but delinquencies and foreclosures are running at record pace. Those statistics, in my opinion, continue to cast dark clouds on our housing landscape.
The Fed’s purchasing of MBS has skewed this market and implicitly crowded out private investors from buying these assets at higher rates.
3. How are MBS valued?
>> When the Fed or any other investor purchases a MBS, the return is determined not merely by the coupon on the bond but also by the rate of prepayment. That prepayment rate is an option the homeowner has and the purchaser of MBS effectively sells.
The value of this prepayment option needs to be weighed when evaluating MBS. How is this done? As with any option in the market, valuation factors include volatility and time to option expiration.
In the current market environment, mortgage valuations are EXTREMELY RICH. How so? The OAS (option adjusted spread) an investor can expect to receive in purchasing a 30yr MBS security is BELOW Libor, which is the effective borrowing rate for most banks.
4. What does this mean?
>> While the U.S. Treasury issues debt along the entire yield curve (1 month to 30 yrs), the Fed is purchasing MBS effectively at valuations which are negative to funding. That differential is the implicit subsidy Uncle Sam is providing to homeowners.
5. What happens if and when the Fed slows its MBS purchases?
>> Mortgage rates will move higher to a level at which private investors deem MBS to represent fair value. How much higher? I would guesstimate at least .25% and more likely .50%-.75%.
LD
Tags: BlackRock role in Fed MBS purchase program, Fed purchase of mbs, Fed's purchase of mbs, Fed's quantitative easing, GSAM and Pimco no longer buying MBS for Fed, how are MBS valued, Lacker Says Fed May Not Need to Buy MBS Authorized, New York Fed Statemen tabout MBS Purchase Program, quantitative easing, Richmond Fed President Jeffrey Lacker, valuing prepayment option embedded in an MBS, Wellington Management purchase of MBS for Fed, what happens if and when Fed slows MBS purchases, what will happen if Federal Reserve stops buying mortgage securities, why might Fed slow its purchasing program, will Federal Reserve stop buying mortgage securities
Posted in Federal Reserve, General | No Comments »
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