Lunes 08/08/11 Semana del Fed

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Bond Inflation Gauge Strips Bernanke of Last Year’s Tools

By Daniel Kruger and Liz Capo McCormick - Aug 8, 2011 5:46 AM ET

U.S. Federal Reserve chairman Ben S. Bernanke. Photographer: Mark Wilson/Getty Images
Federal Reserve Chairman Ben S. Bernanke had twin goals a year ago: stop falling prices and boost growth. His remedies worked so well on inflation that the bond market shows he may have limited options now that the economy is slowing again.
A measure of traders’ inflation expectations that the Fed uses to help determine monetary policy rose as high as 3.23 percent last week from 2.18 percent in August 2010. The five- year, five-year forward breakeven rate, which projects what the pace of price increases may be starting in 2016, rose to the highest level since December.

Congress has agreed to $2.4 trillion of budget cuts during the next 10 years, threatening to restrain growth. After successfully boosting price expectations by buying $600 billion of Treasuries between November and June, a third round of so- called quantitative easing would risk spurring inflation, creating an impediment to the central bank’s further fueling of the biggest rally in government bonds since last August.
Fed policy makers “painted themselves into a box,” said Robert Tipp, the chief investment strategist for fixed income at Newark, New Jersey-based Prudential Investment Management, which oversees more than $200 billion in bonds. “They went to great lengths to say they were concerned about inflation expectations, they were concerned about the risk of deflation, and therefore it was okay to take these extraordinary measures. The hurdles are definitely high here for a QE3.”
Weakening Economy
As he prepares to head to Jackson Hole, Wyoming, this month for the annual meeting of central bankers, Bernanke is under pressure to renew the Fed’s efforts as reports on everything from gross domestic product and consumer confidence to manufacturing and housing show the U.S. recovery is slowing.
GDP climbed at a 1.3 percent annual rate last quarter following a 0.4 percent gain in the first three months of the year that was less than earlier estimated, Commerce Department figures showed July 29. Goldman Sachs Group Inc. economists said in an Aug. 5 report there’s a one-in-three chance of a recession within the next nine months as the bank cut its 2012 growth forecast to 2.1 percent from 3 percent.
Speculation the Fed may need to buy more bonds to juice the economy has helped spur the rally in government debt even as lawmakers fought about how to raise the nation’s $14.3 trillion debt ceiling and cut spending.
S&P Downgrade
Late on Aug. 5, Standard & Poor’s cut the U.S.’s credit rating one level to AA+ from AAA, slamming the nation’s political process and criticizing lawmakers for failing to reduce expenditures or raise revenue enough to trim the more- than-$1 trillion budget deficit.
For all the turmoil in Washington, Treasuries have returned 2.9 percent since the end of June, according to Bank of America Merrill Lynch bond indexes. That compares with a drop of 9 percent in the Standard & Poor’s 500 Index.
Yields on 10-year Treasuries tumbled 24 basis points last week, or 0.24 percentage point, to 2.56 percent, the biggest drop since August 2009 and down from this year’s high of 3.77 percent on Feb. 9. The record low is 2.04 percent, set in December 2008. The benchmark 3.125 percent note due May 2021 rose 2 2/32, or $20.63 per $1,000 face amount, to 104 27/32, Bloomberg Bond Trader prices show.
The rate was 2.48 percent today as of 10:45 a.m. in London.
Rising Rate
Even as yields fell last week, all of the money pumped into the economy by the Fed drove the five-year, five-year measure to the highest level since December. The gauge averaged 2.6 percent in the five years before the financial crisis began, and dropped as low as 1.96 percent in December 2008.
The pace of consumer price gains, which totaled 3.6 percent in June from a year earlier, exceeds 10-year yields by more than 1 percentage point, the most since September 2008.
Treasuries ended last week on a down note, tumbling after the Labor Department in Washington said payrolls rose by 117,000 workers in July, exceeding the median estimate of 85,000 in a Bloomberg News survey. Average hourly earnings climbed 0.4 percent, matching the biggest increase since November 2008.
“Given my economic outlook, they are overvalued,” Gary Pollack, head of fixed-income trading at a Deutsche Bank AG private wealth management group in New York that oversees $12 billion.
Wagers against bonds have been a losing bet. At the start of the year, the median estimate of more than 70 economists and strategists was for 10-year yields to be above 3.48 percent by now. Bank of America Merrill Lynch indexes show the securities have returned 5.3 percent this year, including reinvested interest, compared with a 3.6 percent drop in the S&P 500 index.
Bond Auctions
Even Pollack said yields “could stay where they are for the next couple of weeks” as investors hold onto government debt “until the economic picture clarifies itself.”
Bonds may be supported this week as the U.S. auctions $72 billion of three-, 10- and 30-year securities after the Bank of Japan intervened in the foreign-exchange market by selling its currency to stem the yen’s appreciation after gains of about 3.4 percent against the dollar during the past month.
Treasury data show Japan historically uses proceeds of yen sales to buy Treasuries. The nation’s purchases of U.S. debt rose following periods of intervention in March 2011, September 2010 and 2003-2004, according to Bank of America Merrill Lynch strategists Priya Misra and Shyam Rajan.
Different Environment
For all the challenges in the U.S., Bernanke is facing a different environment from a year ago when he indicated in an Aug. 27 speech to central bankers in Jackson Hole that the Fed was prepared to “do all that it can” to ensure economic recovery and that more securities purchases may be warranted if growth slowed. The Fed’s balance sheet has expanded to $2.87 trillion from $898 billion in August 2008.
Back then, the personal consumption expenditure index excluding food and energy was falling, to 0.9 percent by December 2010 from 1.8 percent in March 2010. Policy makers were concerned the economy would suffer deflation and hinder investment.
Now, the index, which the Fed uses to project inflation, has risen to 1.3 percent. The central bank forecast in June the rate would rise 1.5 percent to 1.8 percent this year, and 1.4 percent to 2 percent in 2012.
Rising core inflation rates are “the main impediment” to additional asset purchases, said Steven Lear, deputy chief investment officer at Asset Management’s Global Fixed Income Group in New York, who helps oversee $130 billion in assets. “They don’t really have the latitude to engage in QE3.”
Bigger Obstacles
While Bernanke signaled last month that the Fed has more tools to ease monetary policy, the obstacles to using them are larger. “We have to keep all the options on the table,” he said July 13 in semi-annual testimony to the House Financial Services Committee.
Besides additional asset purchases, the Fed could pledge to keep the target interest rate for overnight loans between banks at a record low, maintain the assets on its balance sheet at $2.87 trillion for a longer period, boost the average maturity of securities holdings or cut the rate it pays banks on their reserves, Bernanke told Congress.
The Fed has kept its target rate at between zero and 0.25 percent since December 2008.
Yields on Treasury Inflation-Protected Securities, or TIPS, show traders expect inflation during the next 10 years will be almost 0.75 percentage point higher than they forecast a year ago. The breakeven inflation rate, calculated from yield differences on 10-year Treasury notes and inflation-indexed U.S. government bonds of similar maturity, has risen to 2.24 percent from a nine-month low of 1.47 percent reached on Aug. 25, 2010.
Consumer Price Gains
The U.S. inflation rate reached 3.6 percent in June, compared with the average of 2.4 percent during the past decade and 2.6 percent the past 20 years.
Other measures such as real yields show investors aren’t being compensated enough for inflation. The yield on the 10-year Treasury note was lower than the pace of consumer price increases for a third month in July. The gap reached 1 percentage point Aug. 2, the most since September 2008, which was also the last time inflation was higher than 10-year yields for three months.
Investor bets show the risk “is increasing for higher inflation, and as a result, people are willing to pay more and more” for protection, said Daniel Dektar, the chief investment officer at Chapel Hill, North Carolina-based Smith Breeden Associates, which oversees $6.5 billion.
To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Liz Capo McCormick in New York at Emccormick7@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

[Victor VE]

Obama says he inherited economic problems

(Reuters) - President Barack Obama said on Monday he inherited much of the country's problems with high debt and deficits when he entered the White House, sounding a theme likely to dominate his 2012 re-election campaign.

Speaking at a Democratic fundraiser, Obama also defended his economic record and noted that problems in Europe were affecting the United States.

"We do have a serious problem in terms of debt and deficit, and much of it I inherited," Obama said. The financial crisis, he said, made the problem worse.

Democrats and Republicans agreed to a deal to raise the debt ceiling and cut government spending last week, but credit rating agency Standard & Poor's downgraded the United States, contributing to a slide in stock markets on Monday.

Obama noted that the United States had seen 17 months of consecutive private sector job growth, rising corporate profits and stabilized credit markets under his watch.

"What's absolutely true, even before these last couple days in the stock market, is that recovery wasn't happening fast enough," he said. "When you have problems in Europe and in Spain and in Italy and in Greece, those problems wash over into our shores," he said.


Zafa del problema este inutil

[ECROMGAR]

The dam works no more
After two Quantitative Easing programs, a soaring debt of 14.3 trillion dollars, and three years of artificial growth, the containment no longer works. President Obama (and he alone) insists that the social programs can be financed by raising taxes to the top notches in the income pyramid. However, this is just wishful thinking, even if you strip of all of their money to the millionaires, it would not be enough to cover the fast-increasing U.S. debt. In fact, the 2.1 trillion deficit reduction plan signed by the president is way short of the 4 trillion dollars it should be reduced in the next 10 years for the debt to stabilize. Not to mention that the plan is very unlikely to be followed.

All of this has prompted S&P to downgrade the U.S. debt by one notch, which in turn unchained a reaction among the financial institution that own U.S. Treasuries. But, where to go then? Obviously, to the U.S. Treasuries, the safest bet in the world today. This has been confirmed by the public that amid the biggest fall in the stock markets, the yields of the U.S. Treasuries had hit historical record lows.

The decision taken by S&P might or might be objective (given the gross miscalculation of 2 trillion dollars in their projections), however, the main problem here is that the economic indicators, the cruel reality, show that there is no improvement in terms of employment, by far the most important indicator of economic growth. Nonetheless, the last round of earnings of U.S. companies, surprised everyone by beating expectation on the upside. This apparently contradiction is a sign that U.S. companies have the ability to generate revenues either here in the U.S. or abroad. Mainly, U.S. companies have shifted their focus from the U.S. consumer to the foreign consumer.

The biggest fear today, is the risk of a double-dip recession. What would it be? Higher unemployment rate, negative GDP growth, deflation

[admin]

BVL cae 7.09% y suspende operaciones
08 de agosto de 2011 | 03:09 p.m.Jacqueline Martínez - jamartinez@epensa.com.peLima - Las pérdidas con las que comenzó la BVL continúan y se profundizan. El Índice General cae 7.09% hasta 18,730 puntos; el Índice Selectivo pierde 7.71% hasta 25,803 unidades; en tanto que el INCA baja 6.59% hasta 96 puntos.

Es por ello que la Bolsa de Valores de Lima (BVL) suspendió las negociaciones por 30 minutos para evitar una mayor caída por la incertidumbre internacional ante tal fuerte caída.

[admin]

Obama says he inherited economic problems

(Reuters) - President Barack Obama said on Monday he inherited much of the country's problems with high debt and deficits when he entered the White House, sounding a theme likely to dominate his 2012 re-election campaign.

Speaking at a Democratic fundraiser, Obama also defended his economic record and noted that problems in Europe were affecting the United States.

"We do have a serious problem in terms of debt and deficit, and much of it I inherited," Obama said. The financial crisis, he said, made the problem worse.

Democrats and Republicans agreed to a deal to raise the debt ceiling and cut government spending last week, but credit rating agency Standard & Poor's downgraded the United States, contributing to a slide in stock markets on Monday.

Obama noted that the United States had seen 17 months of consecutive private sector job growth, rising corporate profits and stabilized credit markets under his watch.

"What's absolutely true, even before these last couple days in the stock market, is that recovery wasn't happening fast enough," he said. "When you have problems in Europe and in Spain and in Italy and in Greece, those problems wash over into our shores," he said.


Zafa del problema este inutil

Obama es el colmo, el no tiene la culpa de nada, todo es culpa de los demas. Mejor que no hable, con lo de hoy dia, creo que ya esta demostrado que no sirva para nadam ni el, ni el modelo economico keynesiano. Que los entierren.