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A Word Of Caution To The “Vibrant Economic Recovery” Optimists

Current price levels and related trends are similar today, Bloomberg’s Rich Yamarone warns, to recent periods when deflation fears forced the Federal Reserve to ease policy. To determine the course of monetary policy, the Fed, Yamarone notes, looks at a number of indicators. What is worrying today is that several of them – production and employment – are moving in a somewhat softer direction (despite MSM propaganda). For those optimists leaning toward the potential for a more vibrant economic recovery, a word of caution: Comparisons to month-ago or even year-ago levels may be deceiving.

Via Bloomberg’s Rich Yamarone,

Commodity prices have been on a steady decline since mid-2011 and non-petroleum import prices have contracted at a 1.2 percent pace during the last 12 months. Given personal consumption expenditure (PCE) inflation of only 0.7 percent and an associated core PCE of 1.1 percent – both of which are important in policy deliberations – Fed officials would be justified in their concern.

Other than the obvious 2008 contraction in the general price level, which coincided with a depression and a banking crisis, the two most recent bouts of deflation worries were in 1998 and 2002. In 1998, fears of deflation among policy makers escalated throughout the year. Then-Dallas Fed President Bob McTeer noted during the Sept. 29 FOMC meeting: “Our most recent Beige Book report shows that the price picture has turned deflationary in several sectors. Weak international demand has continued to add to growing supplies and falling prices. We see price declines in gasoline, petrochemicals, oil and gas services, semiconductors, computers, primary metals, paper and paper products, and softwood lumber.” The Fed then went on to ease three times for a total of 75 basis points, bringing the target rate down to 4.75 percent.

Deflation fears picked up again in the third quarter of 2002 when PCE inflation sank to 0.7 percent and the core PCE was lingering around 1.5 percent. We are essentially at those same levels today. Ultimately, the Fed cut its borrowing target rate by 50 basis points to 1.25 percent.

 

To determine the course of monetary policy, the Fed of course looks at a number of indicators. What is worrying today is that several of them – production and employment – are moving in a somewhat softer direction. The industrial production index climbed 1.1 percent in November from a lowly 0.1 percent increase during October. The year-over-year pace currently stands at 3.2 percent. While that may seem desirable, it is a far stretch from the better than 8 percent gains posted in mid-2010. Employment growth has also taken on a flatter pattern.

For those optimists leaning toward the potential for a more vibrant economic recovery, a word of caution: Comparisons to month-ago or even year-ago levels may be deceiving.


Month-to-month changes are going to be elevated since the government shutdown of Oct. 1-17 reduced output and activity.

Similarly, October and November levels versus year-ago activity are deceptively strong due to the impact of Hurricane Sandy, which crippled the entire eastern seaboard leaving millions without power or transportation. For example, total retail sales in October last year were flat from the previous month and up a scant 0.1 percent in November from October. That makes the current year-over-year gains of 4.7 percent and 4.1 percent in November and October, respectively, appear better than they really were.

Given the fragility of the economy and the Fed’s unprecedented policy actions, a renewed threat of deflation leaves policy makers with few options.


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/4QAn_Bias7I/story01.htm Tyler Durden

Previewing Tomorrow's Fed Announcement From A Game Theory Perspective

From Ben Hunt of Epsilon Theory

Whatever It Takes

A few observations on what to look for in the language of the FOMC announcement tomorrow from a game theoretic perspective…

Ever since Mario Draghi ad-libbed the lines “whatever it takes” in his July 2012 speech in London, a speech that together with the equally fabulistic OMT program rescued Europe and the Euro from the clutches of Spanish and Italian sovereign debt woes, this has been the go-to phrase for any politician or central banker seeking to imply unlimited resolve in bringing the firepower of the State down on an unruly market. Angela Merkel and Nicolas Sarkozy immediately seized on Draghi’s line once they saw what a salutary influence it had … Barack Obama now uses the phrase in the context of everything from budget fights to immigration reform to community college funding … Ben Bernanke is much more reticent to use the phrase directly (he’s smart enough to see it as the psychological weapon that it is, a weapon that diminishes from overuse), but his words are constantly interpreted by the media as implying a “whatever it takes” stance. In fact, I’m hard-pressed to come up with a more prevalent  — or powerful — policy language meme than “whatever it takes.”

Why is it so popular? Because it works like a charm in the Common Knowledge game. Underpinning the CK game is a vast array of forward looking expected utility calculations that each and every one of us makes regarding our expectation of everyone else’s expectations of everyone else’s expectations. I know that’s a mouthful, and for some background on the mechanics of the CK game and Fed communications you can look here and here and here in prior Epsilon Theory notes, but essentially you’re playing what Keynes called the Newspaper Beauty Contest. The drivers of the CK game are public statements by famous people like Mario Draghi, and the expected utility calculations we unconsciously make in our heads are based on Who and What … Who is making the statement and how likely is it that he or she will deliver on the statement, and What is the likely impact of the policy if it comes to pass.

The power of “whatever it takes” is in the What. Expected utility calculations cannot handle an unlimited result, and there’s a little piece of our brain that goes on tilt when it tries to process that phrase, particularly if it’s being said by a powerful Who. That little piece of our brain returns a Does Not Compute result when it hears “whatever it takes” in a policy context, which leaves the rest of our brain floundering. Luckily for us, we have no shortage of media messengers who are only too happy to tell us what it means and repeat the message ad infinitum, because it makes those media messengers relevant and useful. And if they’re more relevant they can sell more newspapers or ads or whatever. Everyone wins!

So what does this have to do with the FOMC announcement tomorrow? There’s a lot of chatter out there that the Fed will hold off on a taper announcement, but will put some sort of limit on the overall size of this latest round of QE launched in September 2012. In other words, monthly purchases will continue at the current rate, but this will no longer be a QE-forever program. From a CK game perspective, placing a limit on the QE program is a more market-negative statement than a taper. This is what I’m going to be watching for tomorrow, along with whatever dovish (market-positive) language is inserted around forward guidance on rates. And then the battle for meaning and interpretation will be joined …


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/lbfnjeK16sE/story01.htm Tyler Durden

Previewing Tomorrow’s Fed Announcement From A Game Theory Perspective

From Ben Hunt of Epsilon Theory

Whatever It Takes

A few observations on what to look for in the language of the FOMC announcement tomorrow from a game theoretic perspective…

Ever since Mario Draghi ad-libbed the lines “whatever it takes” in his July 2012 speech in London, a speech that together with the equally fabulistic OMT program rescued Europe and the Euro from the clutches of Spanish and Italian sovereign debt woes, this has been the go-to phrase for any politician or central banker seeking to imply unlimited resolve in bringing the firepower of the State down on an unruly market. Angela Merkel and Nicolas Sarkozy immediately seized on Draghi’s line once they saw what a salutary influence it had … Barack Obama now uses the phrase in the context of everything from budget fights to immigration reform to community college funding … Ben Bernanke is much more reticent to use the phrase directly (he’s smart enough to see it as the psychological weapon that it is, a weapon that diminishes from overuse), but his words are constantly interpreted by the media as implying a “whatever it takes” stance. In fact, I’m hard-pressed to come up with a more prevalent  — or powerful — policy language meme than “whatever it takes.”

Why is it so popular? Because it works like a charm in the Common Knowledge game. Underpinning the CK game is a vast array of forward looking expected utility calculations that each and every one of us makes regarding our expectation of everyone else’s expectations of everyone else’s expectations. I know that’s a mouthful, and for some background on the mechanics of the CK game and Fed communications you can look here and here and here in prior Epsilon Theory notes, but essentially you’re playing what Keynes called the Newspaper Beauty Contest. The drivers of the CK game are public statements by famous people like Mario Draghi, and the expected utility calculations we unconsciously make in our heads are based on Who and What … Who is making the statement and how likely is it that he or she will deliver on the statement, and What is the likely impact of the policy if it comes to pass.

The power of “whatever it takes” is in the What. Expected utility calculations cannot handle an unlimited result, and there’s a little piece of our brain that goes on tilt when it tries to process that phrase, particularly if it’s being said by a powerful Who. That little piece of our brain returns a Does Not Compute result when it hears “whatever it takes” in a policy context, which leaves the rest of our brain floundering. Luckily for us, we have no shortage of media messengers who are only too happy to tell us what it means and repeat the message ad infinitum, because it makes those media messengers relevant and useful. And if they’re more relevant they can sell more newspapers or ads or whatever. Everyone wins!

So what does this have to do with the FOMC announcement tomorrow? There’s a lot of chatter out there that the Fed will hold off on a taper announcement, but will put some sort of limit on the overall size of this latest round of QE launched in September 2012. In other words, monthly purchases will continue at the current rate, but this will no longer be a QE-forever program. From a CK game perspective, placing a limit on the QE program is a more market-negative statement than a taper. This is what I’m going to be watching for tomorrow, along with whatever dovish (market-positive) language is inserted around forward guidance on rates. And then the battle for meaning and interpretation will be joined …


    



via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/lbfnjeK16sE/story01.htm Tyler Durden

No Entrepreneurs, Please; We’re French

Loic Le Meur and Arnaud Montebourg

CNet’s Stephen Shankland has the
interesting story of encounters at international tech
entrepreneurship conference, LeWeb,
between start-up business people and
Arnaud Montebourg, France’s minister for industrial renewal.
Specifically, entrepreneurs compared their experiences in America
and Britain, where they were relatively free to innovate, take
risk, hire, and fire as needed in order to get businesses off the
ground, with the rule-bound and expensive process in France. An
interaction at the 11:00 mark in the video below makes it clear
that, whatever Montebourg’s title,  there’s probably little
renewal in store for France anytime soon.

Clara Shih, founder and chief executive of Hearsay Social, had a
message she said [organizer Loic] Le Meur could deliver to
Montebourg: “You should tell him to make it easier to hire and
fire,” she said. “It would be helpful for employers…to have more
flexible labor laws, because then we would be more aggressive about
hiring.”

When Le Meur delivered the message, with reinforcement from Jeff
Clavier founder and managing partner of SoftTech Venture Capital,
Montebourg said things are different here.

“We are not California. We are French,” Montebourg said. “We
have a tradition to help people, to protect people. The question
for us is to find a good balance between protection and what you
need.”

Clavier wasn’t buying it. More flexibility would mean more jobs,
he said.

“The reason we create so many jobs in California and have such
low unemployment is that we can contract with or get rid of people
as we need to, if they don’t perform or as economic issues arise.
The point is that we create the jobs first and then contract
afterwards as opposed to thinking for 12 or 18 months whether we
can afford to hire one more person.”

Note that France
faces protests around the country against high taxes and
intrusive regulation that make doing business increasingly
difficult. Truck drivers
blocked roads to protest an “ecotax,” and the government even
produced a secret (but leaked) report saying that
taxation was losing legitimacy and the country is on the verge of
revolt.

The Hollande government is under serious pressure to
ease byzantine labor regulation after the country was slammed
with a surprise credit downgrade. Those rules are sufficiently
bizarre as to require companies to
keep money-losing plants with inefficient workforces
open—apparently indefinitely, or at least until the money runs
out.

Which makes a less-than-enticing environment for entrepreneurial
types.

As Le Meur told Montebourg at LeWeb, “The problem here is that
countries around us see this as trying to slow down startups.
You’re penalizing the startups. They try of course to disrupt
systems. That’s how they grow. The image of France is that it’s the
country where they try to slow you down to protect the past.”

from Hit & Run http://reason.com/blog/2013/12/17/no-entrepreneurs-please-were-french
via IFTTT

No Entrepreneurs, Please; We're French

Loic Le Meur and Arnaud Montebourg

CNet’s Stephen Shankland has the
interesting story of encounters at international tech
entrepreneurship conference, LeWeb,
between start-up business people and
Arnaud Montebourg, France’s minister for industrial renewal.
Specifically, entrepreneurs compared their experiences in America
and Britain, where they were relatively free to innovate, take
risk, hire, and fire as needed in order to get businesses off the
ground, with the rule-bound and expensive process in France. An
interaction at the 11:00 mark in the video below makes it clear
that, whatever Montebourg’s title,  there’s probably little
renewal in store for France anytime soon.

Clara Shih, founder and chief executive of Hearsay Social, had a
message she said [organizer Loic] Le Meur could deliver to
Montebourg: “You should tell him to make it easier to hire and
fire,” she said. “It would be helpful for employers…to have more
flexible labor laws, because then we would be more aggressive about
hiring.”

When Le Meur delivered the message, with reinforcement from Jeff
Clavier founder and managing partner of SoftTech Venture Capital,
Montebourg said things are different here.

“We are not California. We are French,” Montebourg said. “We
have a tradition to help people, to protect people. The question
for us is to find a good balance between protection and what you
need.”

Clavier wasn’t buying it. More flexibility would mean more jobs,
he said.

“The reason we create so many jobs in California and have such
low unemployment is that we can contract with or get rid of people
as we need to, if they don’t perform or as economic issues arise.
The point is that we create the jobs first and then contract
afterwards as opposed to thinking for 12 or 18 months whether we
can afford to hire one more person.”

Note that France
faces protests around the country against high taxes and
intrusive regulation that make doing business increasingly
difficult. Truck drivers
blocked roads to protest an “ecotax,” and the government even
produced a secret (but leaked) report saying that
taxation was losing legitimacy and the country is on the verge of
revolt.

The Hollande government is under serious pressure to
ease byzantine labor regulation after the country was slammed
with a surprise credit downgrade. Those rules are sufficiently
bizarre as to require companies to
keep money-losing plants with inefficient workforces
open—apparently indefinitely, or at least until the money runs
out.

Which makes a less-than-enticing environment for entrepreneurial
types.

As Le Meur told Montebourg at LeWeb, “The problem here is that
countries around us see this as trying to slow down startups.
You’re penalizing the startups. They try of course to disrupt
systems. That’s how they grow. The image of France is that it’s the
country where they try to slow you down to protect the past.”

from Hit & Run http://reason.com/blog/2013/12/17/no-entrepreneurs-please-were-french
via IFTTT

French Foreign Minister: Other European Countries To Send Troops To CAR

French
Foreign Minister Laurent Fabius has said that troops from other
European nations will be taking part in the intervention in the
Central African Republic. During a radio interview last Sunday,
Fabius said that logistical support for the U.N.-backed mission was
already being supplied by Poland, the U.K., Germany, Spain, and
Belgium. The U.S. has also provided support, having flown troops
from Burundi to the Central African Republic.

From
France 24:

Laurent Fabius, the French foreign minister, announced on
Tuesday that other European countries would deploy ground troops to
the violence-hit Central African Republic, without identifying
them.

“We will soon have troops on the ground provided by our European
colleagues,” he told the lower house of the French National
Assembly, days after he decided to seek help from the rest of
Europe with its former colony, where France has deployed a
1,600-strong force to quell brutal sectarian violence.

Follow these stories and more at Reason 24/7 and don’t forget you
can e-mail stories to us at 24_7@reason.com and tweet us
at @reason247.

from Hit & Run http://reason.com/blog/2013/12/17/french-foreign-minister-other-european
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Gene Healy Says David Brooks’ Paean to Presidential Power Is Year’s Worst Op-Ed

For four years running, Gene Healy has closed the
holiday season with a column saying “bah, humbug” to the
year’s worst op-eds. Christmas came early this year, thanks to
perennial contender David Brooks. In Thursday’s New York
Times, Brooks offered a bold panacea for the problems of our
time: We need to “Strengthen the Presidency.” It strikes Healy as
counterintuitive to imagine that a president with a drone
fleet, a “kill list,” dragnet databases of Americans’ personal
information, and increasingly arbitrary authority over health
care’s one-sixth of the U.S. economy has too little
power.

View this article.

from Hit & Run http://reason.com/blog/2013/12/17/gene-healy-says-david-brooks-paen-to-pre
via IFTTT

Gene Healy Says David Brooks' Paean to Presidential Power Is Year's Worst Op-Ed

For four years running, Gene Healy has closed the
holiday season with a column saying “bah, humbug” to the
year’s worst op-eds. Christmas came early this year, thanks to
perennial contender David Brooks. In Thursday’s New York
Times, Brooks offered a bold panacea for the problems of our
time: We need to “Strengthen the Presidency.” It strikes Healy as
counterintuitive to imagine that a president with a drone
fleet, a “kill list,” dragnet databases of Americans’ personal
information, and increasingly arbitrary authority over health
care’s one-sixth of the U.S. economy has too little
power.

View this article.

from Hit & Run http://reason.com/blog/2013/12/17/gene-healy-says-david-brooks-paen-to-pre
via IFTTT

Photographic Proof of Obama’s Lack of Transparency

That’s an official, Obama-administration-approved picture, one
of an endless stream of photos released via the official White
House feed. Increasingly, sanctioned photos of Obama are all the
public is seeing because the guy who pledged the most transparent
administration ever is maintaining unprecedented control over
independent snapshots of his activities.

Andrew Malcolm, a former press flack for First Lady Laura Bush
now writing for Investor’s Business Daily, notes that Obama even
banned photographers accompanying him on his flight to South Africa
for Nelson Mandela’s funeral from taking pictures of the president
with George W. Bush (widely circulated photos of the pair onboard
Air Force One were offical photos). Yet, says
Malcolm, social media sites allow for a steady drip, drip, drip
of supposedly behind-the-scenes images that promise access but
really only “allow Obama to claim a kind of public
transparency, giving individuals sanitized access to hidden moments
with what are, in effect, mere photo news releases.”

Malcolm is following up on a complaint voiced by the AP’s
director of photography, Santiago Lyon, who argued in the New
York Times,

The official photographs the White House hands out are but
visual news releases. Taken by government employees (mostly former
photojournalists), they are well composed, compelling and even
intimate glimpses of presidential life. They also show the
president in the best possible light, as you’d expect from an
administration highly conscious of the power of the image at a time
of instant sharing of photos and videos.

By no stretch of the imagination are these images journalism.
Rather, they propagate an idealized portrayal of events on
Pennsylvania Avenue.


More here.

One can argue whether such actions constitute “Orwellian image
control,” as Lyon believes, but there’s no question that Team
Obama’s maniac attempts to keep control of the narrative is
unsettling.
And generally ineffective, if recent polls are any indication.
Indeed, energy spent trying to keep tabs on who has access to take
pictures of or write about the president drains resources away from
actually addressing problems and policy screwups. Insularity tends
to create defensiveness, which makes it all the more difficult to
deal with, say, disastrous rollouts of healthcare.gov.

Speaking of transparency, take 50 seconds to watch this 2010
Reason TV gem about the “Real World: DC,” which covers what happens
when when Congress stops being polite…and starts secret, detailed
negotiations on a sweeping, transformative health care reform
bill…

from Hit & Run http://reason.com/blog/2013/12/17/photographic-proof-of-obamas-lack-of-tra
via IFTTT

Photographic Proof of Obama's Lack of Transparency

That’s an official, Obama-administration-approved picture, one
of an endless stream of photos released via the official White
House feed. Increasingly, sanctioned photos of Obama are all the
public is seeing because the guy who pledged the most transparent
administration ever is maintaining unprecedented control over
independent snapshots of his activities.

Andrew Malcolm, a former press flack for First Lady Laura Bush
now writing for Investor’s Business Daily, notes that Obama even
banned photographers accompanying him on his flight to South Africa
for Nelson Mandela’s funeral from taking pictures of the president
with George W. Bush (widely circulated photos of the pair onboard
Air Force One were offical photos). Yet, says
Malcolm, social media sites allow for a steady drip, drip, drip
of supposedly behind-the-scenes images that promise access but
really only “allow Obama to claim a kind of public
transparency, giving individuals sanitized access to hidden moments
with what are, in effect, mere photo news releases.”

Malcolm is following up on a complaint voiced by the AP’s
director of photography, Santiago Lyon, who argued in the New
York Times,

The official photographs the White House hands out are but
visual news releases. Taken by government employees (mostly former
photojournalists), they are well composed, compelling and even
intimate glimpses of presidential life. They also show the
president in the best possible light, as you’d expect from an
administration highly conscious of the power of the image at a time
of instant sharing of photos and videos.

By no stretch of the imagination are these images journalism.
Rather, they propagate an idealized portrayal of events on
Pennsylvania Avenue.


More here.

One can argue whether such actions constitute “Orwellian image
control,” as Lyon believes, but there’s no question that Team
Obama’s maniac attempts to keep control of the narrative is
unsettling.
And generally ineffective, if recent polls are any indication.
Indeed, energy spent trying to keep tabs on who has access to take
pictures of or write about the president drains resources away from
actually addressing problems and policy screwups. Insularity tends
to create defensiveness, which makes it all the more difficult to
deal with, say, disastrous rollouts of healthcare.gov.

Speaking of transparency, take 50 seconds to watch this 2010
Reason TV gem about the “Real World: DC,” which covers what happens
when when Congress stops being polite…and starts secret, detailed
negotiations on a sweeping, transformative health care reform
bill…

from Hit & Run http://reason.com/blog/2013/12/17/photographic-proof-of-obamas-lack-of-tra
via IFTTT