Tag: finance

There has been much media insinuation in recent months that just because Spain’s economy has virtually shuttered, and imports have slid to unprecedented low levels in the process pushing the (adjusted) GDP beancount positive for the first time in 3 years, that things are somehow getting better. What the media has roundly ignored is that as a result of the collapse in consumption and end demand, courtesy of an unemployment rate that at least according to Eurostat just rose to a new record high, the companies that actually operate in Spain and form the basis for any real economic growth, are shuttering at an unprecedented pace. Of note: Spanish electrical appliance maker Fagor, which employs 5,700 people worldwide, or in a few shorts months, employed, is one step closer to bankruptcy after its Polish subsidiary filed for protection from its creditors. The company, which claims to be the fifth-biggest electrical appliance company in Europe, had trading of its debt suspended after its mother firm – private Spanish conglomerate Mondragon – refused to pour in money to rescue the company.

Fagor makes washing machines, refrigerators and other appliances at 13 factories in five countries. Or, in a few shorts months, made.

AFP reports:

Spain’s financial market regulator said Fagor Electrodomesticos’s debt was suspended from the fixed-interest market on Thursday morning as a precaution “owing to circumstances which could disturb normal trade” in its securities. Shortly afterwards, the regulator said Fagor’s Polish subsidiary, Fagor Mastercook, had voluntarily filed for bankruptcy protection. It employs 1,400 people at its factory in Wroclaw, southwestern Poland. The Polish offshoot’s filing at a court in the northern Spanish city of San Sebastian did not affect the status of the parent Fagor Electromesticos, which is part of the sprawling Basque cooperative Mondragon.

 

But it raised fears among Fagor workers in the Basque country, where the company says it employs 2,000 people directly and supports the same number of jobs indirectly.

 

Workers planned a demonstration on Thursday evening in San Andres, the remote Basque town where the company is based.

 

Fagor announced on October 16 that it had launched initial proceedings towards bankruptcy protection while it tried to refinance its debt, which a source within the company said was 800 million euros ($1.1 billion).

 

Under Spanish bankruptcy rules, Fagor has four months from that date to try to raise funds, but the source told AFP its fate could be determined much sooner in the absence of financing from Mondragon.

 

“If there is no change in the corporation’s decision, the company will have to enter bankruptcy proceedings. I don’t know if that will be within one week or two, but it will be in the short term.”

But while defaults are normal things, at least in the Old Normal economy, when failure was allowed, what is troubling is that Fagor’s parent company refused to preserve the firm’s viability in exchange for a tiny liquidity injection of just €170 million.

Fagor has said 170 million euros would be enough to save it and warned that a lack of financing would push it to an “imminent bankruptcy request”. But Mondragon said in a statement late on Wednesday that it felt Fagor, which has suffered a prolonged period of falling sales, “the company no longer responds to market needs, and the financial resources it requests would not ensure its business future”.

 

Fagor posted sales of 1.17 billion euros in 2012, a drop of over one-third since 2007, a year before Spain’s sharp economic downturn began with the collapse of a decade-long property bubble.

 

The company operates with 10 brands in 130 countries worldwide, and has 13 factories in Spain, France, Poland, Morocco and China. It has a market share of 16.3 percent in Spain and of 14.2 percent in France.

 

The Mondragon group was founded in the 1950s by a local priest, Jose Maria Arizmendiarrieta, as a small workers’ cooperative and is now an international conglomerate with a mission of maintaining jobs. Its various branches, present in 20 countries, include industry, distribution and finance.

 

Despite its international presence, Mondragon’s cooperative structure has kept most of its jobs and production at home, with 35,000 employees in the Spanish Basque Country, 35,000 elsewhere in Spain and about 13,500 abroad.

And since bankruptcy now appears inevitable, that is up to 70,000 former Spanish jobs that will very soon be on the streets, protesting and enjoying the Spanish “recovery.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/i3cRH02HYmM/story01.htm Tyler Durden

There has been much media insinuation in recent months that just because Spain’s economy has virtually shuttered, and imports have slid to unprecedented low levels in the process pushing the (adjusted) GDP beancount positive for the first time in 3 years, that things are somehow getting better. What the media has roundly ignored is that as a result of the collapse in consumption and end demand, courtesy of an unemployment rate that at least according to Eurostat just rose to a new record high, the companies that actually operate in Spain and form the basis for any real economic growth, are shuttering at an unprecedented pace. Of note: Spanish electrical appliance maker Fagor, which employs 5,700 people worldwide, or in a few shorts months, employed, is one step closer to bankruptcy after its Polish subsidiary filed for protection from its creditors. The company, which claims to be the fifth-biggest electrical appliance company in Europe, had trading of its debt suspended after its mother firm – private Spanish conglomerate Mondragon – refused to pour in money to rescue the company.

Fagor makes washing machines, refrigerators and other appliances at 13 factories in five countries. Or, in a few shorts months, made.

AFP reports:

Spain’s financial market regulator said Fagor Electrodomesticos’s debt was suspended from the fixed-interest market on Thursday morning as a precaution “owing to circumstances which could disturb normal trade” in its securities. Shortly afterwards, the regulator said Fagor’s Polish subsidiary, Fagor Mastercook, had voluntarily filed for bankruptcy protection. It employs 1,400 people at its factory in Wroclaw, southwestern Poland. The Polish offshoot’s filing at a court in the northern Spanish city of San Sebastian did not affect the status of the parent Fagor Electromesticos, which is part of the sprawling Basque cooperative Mondragon.

 

But it raised fears among Fagor workers in the Basque country, where the company says it employs 2,000 people directly and supports the same number of jobs indirectly.

 

Workers planned a demonstration on Thursday evening in San Andres, the remote Basque town where the company is based.

 

Fagor announced on October 16 that it had launched initial proceedings towards bankruptcy protection while it tried to refinance its debt, which a source within the company said was 800 million euros ($1.1 billion).

 

Under Spanish bankruptcy rules, Fagor has four months from that date to try to raise funds, but the source told AFP its fate could be determined much sooner in the absence of financing from Mondragon.

 

“If there is no change in the corporation’s decision, the company will have to enter bankruptcy proceedings. I don’t know if that will be within one week or two, but it will be in the short term.”

But while defaults are normal things, at least in the Old Normal economy, when failure was allowed, what is troubling is that Fagor’s parent company refused to preserve the firm’s viability in exchange for a tiny liquidity injection of just €170 million.

Fagor has said 170 million euros would be enough to save it and warned that a lack of financing would push it to an “imminent bankruptcy request”. But Mondragon said in a statement late on Wednesday that it felt Fagor, which has suffered a prolonged period of falling sales, “the company no longer responds to market needs, and the financial resources it requests would not ensure its business future”.

 

Fagor posted sales of 1.17 billion euros in 2012, a drop of over one-third since 2007, a year before Spain’s sharp economic downturn began with the collapse of a decade-long property bubble.

 

The company operates with 10 brands in 130 countries worldwide, and has 13 factories in Spain, France, Poland, Morocco and China. It has a market share of 16.3 percent in Spain and of 14.2 percent in France.

 

The Mondragon group was founded in the 1950s by a local priest, Jose Maria Arizmendiarrieta, as a small workers’ cooperative and is now an international conglomerate with a mission of maintaining jobs. Its various branches, present in 20 countries, include industry, distribution and finance.

 

Despite its international presence, Mondragon’s cooperative structure has kept most of its jobs and production at home, with 35,000 employees in the Spanish Basque Country, 35,000 elsewhere in Spain and about 13,500 abroad.

And since bankruptcy now appears inevitable, that is up to 70,000 former Spanish jobs that will very soon be on the streets, protesting and enjoying the Spanish “recovery.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/i3cRH02HYmM/story01.htm Tyler Durden

Two months ago we reported that Obama had officially declared war on the weather, after it was reported that he was ready to use “administrative authority” to fight climate change. While at the time it was not quite clear just what authority he had to unleash centrally-planned weather, today we finally got a glimpse of how Obama’s biggest war yet would look like.

As Washington Times reports, “President Obama issued an executive order Friday directing a government-wide effort to boost preparation in states and local communities for the impact of global warming. The action orders federal agencies to work with states to build “resilience” against major storms and other weather extremes. For example, the president’s order directs that infrastructure projects like bridges and flood control take into consideration climate conditions of the future, which might require building structures larger or stronger — and likely at a higher price tag.”

In other words, following the epic Syrian fiasco, whose primary intention was to boost the US budget deficit as a result of a localized war, and allow Bernanke more debt issues to monetize, Obama now has decided to unleash a very expensive, and very much debt-funded war against the greatest enemy of all: the weather.

The article goes on:

“The impacts of climate change — including an increase in prolonged periods of excessively high temperatures, more heavy downpours, an increase in wildfires, more severe droughts, permafrost thawing, ocean acidification and sea-level rise — are already affecting communities, natural resources, ecosystems, economies and public health across the nation,” the presidential order said. “The federal government must build on recent progress and pursue new strategies to improve the nation’s preparedness and resilience.”

 

There’s no estimate of how much the additional planning will cost. Natural disasters including Superstorm Sandy cost the U.S. economy more than $100 billion in 2012, according to the administration.

Well, the more the merrier. Since interest costs in the New Normal are not an issue as long as the Marriner Eccles politburo is around, debt is wealth, and the more debt the US incurs to comply with Obama’s latest executive order, the better.

Sure enough, as a result of this idiotic development, it is best to have very lofty aspirations, of the variety that come in 9 or more digits: after all, since nobody can quantify “climate change” may as well unleash the most ridiculous numbers conceivable.

The White House is also setting up a task force of state and local leaders to offer advice to the federal government, with several Democratic governors having agreed to serve and at least one Republican governor, from the U.S. territory of Guam.

 

Mr. Obama has a goal of reducing U.S. greenhouse gas emissions by 17 percent by 2020, and the Environmental Protection Agency is working on rules that would impose tougher regulations on coal-burning power plants. But much of the president’s climate-change agenda has stalled in Congress, and the administration says the new order recognizes that global greenhouse gas emissions are still rising, making further damage from global warming inevitable.

Actually no:

But since when did an autocrat, whose only concern is pandering to his populist, Obamaphone-equipped electorate, while spying on the middle class and doing the bidding of Wall Street, care about the facts?

Finally:

“The question is not whether we need to act,” Mr. Obama said at the time. “The question is whether we will have the courage to act before it’s too late.”

Damn right: however the “action in question has nothing to do with spending trillions to prepare for a crisis that may come long after the Federal Reserve has destroyed western civilization, but rather to overthrow a corrupt, oligarchic, self-serving system, in which the middle-class, once the backbone of a great nation, is being forced into extinction by its “elected” representatives through the most subversive form of wealth transfer in the Fed’s 100 years of existence.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/51_i2oXFKUw/story01.htm Tyler Durden

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There’s very little use in mapping a territory that has already been mapped, but there are times when it is done for other reasons. Maybe this time where the mapping of territory is going on it’s a question of atoning of one’s sins, making amends for offenses and errors in the mapping (or not, as we shall see). Just a few days ago Alan Greenspan’s latest piece of work was published (October 20th 2013). It’s entitled The Map and the Territory: Risk, Human Nature, and the Future of Forecasting. Although, that’s nothing new either. Greenspan steals the title of the French author Michel Houellebecq’s book The Map and the Territory, published in 2010 (translated into English in2012) that won the prestigious Prix Goncourt. The Goncourt is the prize for literature in France that is awarded to “the best and most imaginative prose of the year” by the Académie Goncourt. Perhaps Greenspan is in the running for themost imaginative prose of the year with his story of risk management and the irrationality of man.

Greenspan’s Mapping

Greenspan maps the territory of the lead-up to the financial crisis. He contemplates on the forming of bubbles and he explains just how and why he never actually saw the housing bubble coming; despite the fact that many had already warned him. Obviously the maxim about being forewarned and forearmed doesn’t hold with Mr. Greenspan; that fundamental principle was thrown to the wind long ago when he set up the foundations for the subprime crisis.

Wasn’t it Greenspan that suggested in a speech in 2004 that more people should take out adjustable-rate mortgages (ARMs) taking advantage of the historically low interest rates (1%) that he would then hike to over 5% within a couple of years, bringing many into sheer ruin? He (famously) stated “where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately”. Obviously they weren’t able to do it appropriately enough. Who paid the price? No comment needed, Mr. Greenspan.

In Greenspan’s map he says the major mistake of those that didn’t see the crisis coming were because those people had considered society as being made up of rational decision makers. He says that people got it all wrong. Man is irrational. But, he adds that we are saved since we are irrational in predictable ways. That’s a contradiction in itself; wherefore the title of his work.

The Polish-American scientist Alfred Korzybski stated that a “map is not a territory”, meaning that we confuse maps with territories. In other words, we describe something (through drawing a map) but it is only a representation of reality and not the territory itself. It’s a shame that Greenspan has not realized that his own description, his own mapping of the territory of the subprime crisis in the book, is not going to take it away and it certainly won’t be anything more than his own cartographic charting of waters that have already been charted. Greenspan has confused the model of reality with reality itself; he has mapped the territory that he shouldn’t be mapping.

Now, Greenspan believes that it is possible to predict the irrational (unpredictable) behavior of investors and man in general. This is despite the fact that in a recent television interview Greenspan admitted that he knew of the subprime crisis in 2008. Wasn’t that when it had actually hit the real-estate fan big time? Greenspan refuses to apologize for believing that a “bubble in and of itself doesn’t give you a crisis”. Doesn’t it?

Greenspan obviously has very little to say on the subject and spends a single chapter on the predictable nature of irrationality. The rest is just economic history and story-telling; Mr. Greenspan’s representation of reality. Greenspan’s mapping blames (at least at first) the holder of the territory land title, the US government, for allowing the sub-primes to come into existence. He exonerates the Federal Reserve and absolves them of all guilt and condemnation in the prognosis of his personal version of the narrative.

Who’s to Blame

But, while he doesn’t openly admit the role that was played by the Federal Reserve he does state that the Fed played a major role in allowing capital levels to be set by the commercial banks themselves. The predictable nature of that irrational decision was largely obvious, wasn’t it, Mr. Greenspan?

“The accompanying dangers were not fully appreciated, even in the commercial banking sector”, he explains. But, it seems that he was turning a deaf ear (and so were the banks) to the worries that were being expressed by many at the time.

But, the real problem is not the Federal Reserve and it isn’t even the US government. The real problem for Greenspan is the overabundance of investment from foreign countries. The US saved less because they were getting money thrown at them from all over the world. It’s those foreign investors that are the problem. That at least tops it all and shows just to what extent Mr. Greenspan is entirely irrational and unpredictable. He has disproved his own theory, entirely plagiarized from others, but the territory that he maps does not describe the reality of the situation.

 

Alan Greenspan served as Chairman of the Federal Reserve of the US between 1987 and 2006 and he was appointed by President Ronald Reagan. When he retired in 2006 he had been the 2nd longest serving chairman of the Federal Reserve. On leaving the Fed he became a consultant and private advisor through Greenspan Associates LLC.

Originally posted: Greenspan Maps a Territory 

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Technical Analysis: Bear Expanding Triangle | Bull Expanding Triangle | Bull Falling Wedge | Bear Rising Wedge | High & Tight Flag

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/KARJB3sjDo8/story01.htm Pivotfarm

Contrary to initial reports that the shooter was an off-duty NSA agent, subsequent updates have revealed that the LAX shooter, who reportedly is still dead, although unclear if he was killed before or after he was in police custody, as Paul Anthony Ciancia, a 23-year-old who was either a Los Angeles native, or from Pennsville, N.J. Additionally, we have learned that according to a law enforcement official, who was briefed at LAX on the investigation but not authorized to speak publicly, said the gunman was wearing fatigues and carrying a bag containing a hand-written note that said he “wanted to kill TSA and pigs.” The official requested anonymity because he was not authorized to speak publicly. Considering the accuracy with which this news event has been broken, most of it relying on unsubstantiated and often times fake Twitter sources (some had reported earlier, falsely, that the former NSA chief had been shot as well), we won’t be surprised if this story were to change a few more times.

From My Fox LA:

A law enforcement official told the The Associated Press that the suspect in the Los Angeles airport shooting is a 23-year-old man from New Jersey who wrote a rant about killing Transportation Safety Administration workers.
 
A law enforcement official, who was briefed at LAX on the investigation but not authorized to speak publicly, said the gunman was wearing fatigues and carrying a bag containing a hand-written note that said he “wanted to kill TSA and pigs.” The official requested anonymity because he was not authorized to speak publicly.
 
The official identified him as Paul Ciancia. A second law enforcement official confirmed the identity, speaking on condition of anonymity.

The gunfire erupted around 9:30 a.m. inside the terminal that houses airlines such as Allegiant Air, Frontier, Spirit, Virgin America and JetBlue. Patrick Gannon, chief of the Airport Police Department, said the suspect walked into the airport, pulled an assault rifle out of a bag and started shooting.

“He proceeded up into the screening area where TSA screeners are and continued shooting,” Gannon said, adding that the gunman “went past the screeners and back into the terminal itself.”

Gannon said police pursued the gunman, who was shot and taken into custody inside the terminal. The gunman’s condition was not immediately known.

Interim Los Angeles Fire Chief Jim Featherstone said paramedics treated seven people at the airport, and six were taken to area hospitals. One person apparently declined to be transported, fire officials said.

Officials at Ronald Reagan UCLA Medical Center said it was treating three male patients, one in critical condition and two in fair condition. At least two other patients were believed to be at Harbor UCLA Medical Center, but their conditions were not immediately known. News media outlets reported that one patient who was taken to Harbor UCLA had died.

Multiple media outlets, citing unnamed sources, reported that one TSA agent was killed in the gunfire, but police would not confirm the reports.

The gunman was described by some witnesses as a young white male. Police and fire officials said they could not confirm reports that the gunman was an off-duty TSA agent.

Some initial reports indicated that a second suspect had been arrested, but Gannon said, “This was a lone shooter,” and the gunman “was the only person that was armed in this incident.”

David Bowdich, FBI special agent in charge, declined to provide any details of the investigation, but said, “At this point, we do not see any additional threats here at the airport.”

Aside from the alleged note, the shooter’s motives are unclear as of yet.

* * *

Update: that was quick – one has to love the social media.

 

Correction: LAX gunman NOT killed by law enforcement. Gunman is in custody.

— NBC News (@NBCNews) November 1, 2013

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

Contrary to initial reports that the shooter was an off-duty NSA agent, subsequent updates have revealed that the LAX shooter, who reportedly is still dead, although unclear if he was killed before or after he was in police custody, as Paul Anthony Ciancia, a 23-year-old who was either a Los Angeles native, or from Pennsville, N.J. Additionally, we have learned that according to a law enforcement official, who was briefed at LAX on the investigation but not authorized to speak publicly, said the gunman was wearing fatigues and carrying a bag containing a hand-written note that said he “wanted to kill TSA and pigs.” The official requested anonymity because he was not authorized to speak publicly. Considering the accuracy with which this news event has been broken, most of it relying on unsubstantiated and often times fake Twitter sources (some had reported earlier, falsely, that the former NSA chief had been shot as well), we won’t be surprised if this story were to change a few more times.

From My Fox LA:

A law enforcement official told the The Associated Press that the suspect in the Los Angeles airport shooting is a 23-year-old man from New Jersey who wrote a rant about killing Transportation Safety Administration workers.
 
A law enforcement official, who was briefed at LAX on the investigation but not authorized to speak publicly, said the gunman was wearing fatigues and carrying a bag containing a hand-written note that said he “wanted to kill TSA and pigs.” The official requested anonymity because he was not authorized to speak publicly.
 
The official identified him as Paul Ciancia. A second law enforcement official confirmed the identity, speaking on condition of anonymity.

The gunfire erupted around 9:30 a.m. inside the terminal that houses airlines such as Allegiant Air, Frontier, Spirit, Virgin America and JetBlue. Patrick Gannon, chief of the Airport Police Department, said the suspect walked into the airport, pulled an assault rifle out of a bag and started shooting.

“He proceeded up into the screening area where TSA screeners are and continued shooting,” Gannon said, adding that the gunman “went past the screeners and back into the terminal itself.”

Gannon said police pursued the gunman, who was shot and taken into custody inside the terminal. The gunman’s condition was not immediately known.

Interim Los Angeles Fire Chief Jim Featherstone said paramedics treated seven people at the airport, and six were taken to area hospitals. One person apparently declined to be transported, fire officials said.

Officials at Ronald Reagan UCLA Medical Center said it was treating three male patients, one in critical condition and two in fair condition. At least two other patients were believed to be at Harbor UCLA Medical Center, but their conditions were not immediately known. News media outlets reported that one patient who was taken to Harbor UCLA had died.

Multiple media outlets, citing unnamed sources, reported that one TSA agent was killed in the gunfire, but police would not confirm the reports.

The gunman was described by some witnesses as a young white male. Police and fire officials said they could not confirm reports that the gunman was an off-duty TSA agent.

Some initial reports indicated that a second suspect had been arrested, but Gannon said, “This was a lone shooter,” and the gunman “was the only person that was armed in this incident.”

David Bowdich, FBI special agent in charge, declined to provide any details of the investigation, but said, “At this point, we do not see any additional threats here at the airport.”

Aside from the alleged note, the shooter’s motives are unclear as of yet.

* * *

Update: that was quick – one has to love the social media.

 

Correction: LAX gunman NOT killed by law enforcement. Gunman is in custody.

— NBC News (@NBCNews) November 1, 2013

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

Looking at all non-equity asset classes, one would be left with the impression that the December taper is an increasingly likely outcome. Sure enough – bonds sold off again, and have been selling off constistently since the FOMC announcement. In fact they are poised to close at 2.62%, the highest yield since October 22.

The dollar, inversely, ramped higher on both EUR woes and the expectation that its destruction may “taper” in the near future.

As expected, gold did the opposite of the dollar, and Gartman’s latest reco, and continued its sell off for the third day in a row:

Thus the taper trade continued for the second day in a row in all asset classes, except stocks of course. Despite breifly dipping into the red shortly after today’s conflicting manufacturing reports, the late day ramp was once again on location, and helped push ES nearly to a new intraday high in the minutes before the close, before a shakedown took place just after the close, sending ES sliding after hours, and wiping out the entire 3:30 pm ramp in seconds.

It can be seen just where the rug gets pulled moments after the 4:00 pm close of trade.

And so we close another week of mad fun with Mr. Chairman’s, soon to be Mr. Chairwoman’s manipulated, frothy, bubbly, markets.

Finally, speaking of bubbly frothyness, here is a smattering of the recent headlines confirming just that.

• Oct. 31, Risk of London Property Bubble Is Increasing: Moody’s Analytics
• Oct. 30, Barclays CEO Reassured Regulators ‘Are On’ Housing Bubble Risk
• Oct. 30, Malaysia Has Taken Steps to Avert Property Bubble: Zeti
• Oct. 29, BlackRock’s Fink Says There Are ‘Bubble-Like Markets Again’
• Oct. 29, Dublin Home Prices Rise Most Since Crash as ‘Froth’ Signs Return
• Oct. 23, Central Bankers Will Fail Again to Deflate Bubbles: SG’s Edwards
• Oct. 23, Swedish Banks Lash Out at Government as Housing Market Overheats

“This time is different.”

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

Hint: it’s not the Irish.

In retrospect, considering India has one of the highest inflation rates in the EM world, a plunging currency and the local central government has made purchases of gold – either foreign or domestic – virtually impossible, converting one’s deflating liquid net worth into liquid alcohol for immediate consumption, with a utility that is instant and needs no discounting, is probably not a bad idea. Finally unlike gold, one can drink whiskey,

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/_Ia6UWZvlfM/story01.htm Tyler Durden

From Scotiabank’s Guy Haselmann

Yellen’s Mindset – Implementing Her Professor’s Theories

Bloomberg printed an article about Yellen’s educational background, noting that two of her professors were James Tobin and Arthur Okun.  The article is interesting because the Fed is currently trying to implement QE and “Twist” which are theories developed by these two Nobel Laureates.  Tobin attempted a form of “Twist” in the 1960’s.  He also championed Keynesian ideas and advocated government intervention to stabilize output and avoid recessions.  Okun developed an empirical “law” relating” changes in unemployment to GDP.

• The FOMC is placing great faith in these theories; thus, policies are an experiment of colossal proportion but whose effectiveness has limited supporting evidence.  Fed models try to estimate benefits, but they assume that markets remain efficient over time.  Model errors are likely to occur when trying to asses market risks, particularly because markets are typically irrational and illiquid during crisis periods.
• FOMC policy veered into unchartered waters as soon as it moved Fed Funds down to the zero lower bound.  When official interest rates were eliminated as a monetary tool, directly manipulating financial markets became the Fed’s only conduit to try to affect the broader economy.  Evidence of its effectiveness is open to debate.  Since asset price inflation has been a policy objection, knowing when to stop is critical to Fed’s credibility, especially with its history of fueling boom/bust cycles.

* * *

And some additional thoughts from Guy on markets:

FOMC Statement – Smart Tweaks to Buy Time, and Manage Expectations 

The FOMC was probably uncomfortable that market expectations for tapering had moved to March or later. Yesterday’s FOMC statement was successful at opening the possibility of an earlier move without changing overall policy direction. The statement downplayed the effects of the government shutdown and left in place the word “moderate” to describe the state of the economy, rather than downgrading it to “modest”. More importantly, the statement removed the sentence about how financial conditions had tightened.

FOMC Discussion – Growing Risks for Every Decision

The discussion in the boardroom was likely more intense than reflected by the simple changes of the statement.  The risks to tapering at this meeting had grown due to the weak September employment report, and because the market was not expecting any changes to policy.  However, there are several FOMC members who believe the risks to not tapering grow higher every day in sync with the size of its balance sheet.  The stakes are rising not just because their exit strategy becomes more difficult as the balance sheet expands, but also because the Fed has lost any sense of the market reaction function once they actually announce a slower pace of purchases. 

Markets – Expensive, but Carry and QE Trying to Keep Them That Way 

The bottom line is that the current QE policy will continue for another 6 weeks (at a minimum). The Fed is trying to “buy time” in the hopes the economy can heal further. Therefore, the attractiveness of carry and roll-down trades in Treasuries will partially offset the lack of attractiveness Treasury yields (expect a slow leak next week on 10s down to 2.62%).

• Buying equities because bonds look expensive is a bad rationale.  Equities are saturated with speculative excess based on Fed promises or the perception of promises.  This may work for a while longer, but speculators are likely playing a greater-fool-theory ‘game of chicken’.

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

From Scotiabank’s Guy Haselmann

Yellen’s Mindset – Implementing Her Professor’s Theories

Bloomberg printed an article about Yellen’s educational background, noting that two of her professors were James Tobin and Arthur Okun.  The article is interesting because the Fed is currently trying to implement QE and “Twist” which are theories developed by these two Nobel Laureates.  Tobin attempted a form of “Twist” in the 1960’s.  He also championed Keynesian ideas and advocated government intervention to stabilize output and avoid recessions.  Okun developed an empirical “law” relating” changes in unemployment to GDP.

• The FOMC is placing great faith in these theories; thus, policies are an experiment of colossal proportion but whose effectiveness has limited supporting evidence.  Fed models try to estimate benefits, but they assume that markets remain efficient over time.  Model errors are likely to occur when trying to asses market risks, particularly because markets are typically irrational and illiquid during crisis periods.
• FOMC policy veered into unchartered waters as soon as it moved Fed Funds down to the zero lower bound.  When official interest rates were eliminated as a monetary tool, directly manipulating financial markets became the Fed’s only conduit to try to affect the broader economy.  Evidence of its effectiveness is open to debate.  Since asset price inflation has been a policy objection, knowing when to stop is critical to Fed’s credibility, especially with its history of fueling boom/bust cycles.

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And some additional thoughts from Guy on markets:

FOMC Statement – Smart Tweaks to Buy Time, and Manage Expectations 

The FOMC was probably uncomfortable that market expectations for tapering had moved to March or later. Yesterday’s FOMC statement was successful at opening the possibility of an earlier move without changing overall policy direction. The statement downplayed the effects of the government shutdown and left in place the word “moderate” to describe the state of the economy, rather than downgrading it to “modest”. More importantly, the statement removed the sentence about how financial conditions had tightened.

FOMC Discussion – Growing Risks for Every Decision

The discussion in the boardroom was likely more intense than reflected by the simple changes of the statement.  The risks to tapering at this meeting had grown due to the weak September employment report, and because the market was not expecting any changes to policy.  However, there are several FOMC members who believe the risks to not tapering grow higher every day in sync with the size of its balance sheet.  The stakes are rising not just because their exit strategy becomes more difficult as the balance sheet expands, but also because the Fed has lost any sense of the market reaction function once they actually announce a slower pace of purchases. 

Markets – Expensive, but Carry and QE Trying to Keep Them That Way 

The bottom line is that the current QE policy will continue for another 6 weeks (at a minimum). The Fed is trying to “buy time” in the hopes the economy can heal further. Therefore, the attractiveness of carry and roll-down trades in Treasuries will partially offset the lack of attractiveness Treasury yields (expect a slow leak next week on 10s down to 2.62%).

• Buying equities because bonds look expensive is a bad rationale.  Equities are saturated with speculative excess based on Fed promises or the perception of promises.  This may work for a while longer, but speculators are likely playing a greater-fool-theory ‘game of chicken’.

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