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March 10, 2011

3 Months From Now, US Fed Will Stop Buying

Filed under: Uncategorized — bigcapital @ 5:43 pm
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3 Months from now, US Fed Will Stop Buying.

Thursday, March 10, 2011 — http://marketpin.blogspot.com

== US Fed bond buys to finish, greenback and global stocks on radar ==

Fed’s Fisher warns could vote to stop bond buying

WASHINGTON (Reuters) – A senior U.S. Federal Reserve official warned on Monday that he would vote to scale back or stop the central bank’s $600 billion bond-buying program if it proves to be “demonstrably counterproductive.”

Dallas Federal Reserve Bank President Richard Fisher, who has repeatedly said he would not support any more bond buying after the program ends in June, said he was doubtful the purchases were doing much good.

“I remain doubtful enough as to its efficacy that if at any time between now and June, it should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue it,” Fisher said in remarks prepared for delivery to an Institute of International Bankers’ conference in Washington.

“The liquidity tanks are full, if not brimming over. The Fed has done its job,” he said.

The Fed launched its bond buying program in November to help an economic recovery that was struggling with high unemployment after the worst recession since the 1930s.

But since then, the economy has shown signs of strengthening with the jobless rate falling to a nearly two-year low of 8.9 percent in February.

Fed officials are due to meet March 15 to discuss the bond purchase program. In January, Fisher voted with the rest of the central bank’s policy-setting Federal Open Market Committee to continue it.

In comments to the bankers’ conference, Fisher said he did not feel that further monetary accommodation would help put more Americans back to work.

“It might well retard job creation, should it give rise to inflationary expectations,” he said, adding that perhaps the Fed’s policy has compromised the central bank by implying it is “a pliant accomplice to Congress’ and the executive branch’s fiscal misfeasance.”

== How About U.S dollar ? ==

Stretching out Treasury purchases past the end of June while reducing the monthly amount would help bond dealers adjust to the Fed’s withdrawal from the market, said Lou Crandall, chief US economist at Wrightson ICAP in Jersey City, N.J

NEW YORK – The Federal Reserve’s $US600 billion bond purchase program will be completed as planned, top Fed officials signalled, though they saw heightened economic uncertainty from unrest in the Middle East.

US central bank officials from Atlanta, Chicago and Dallas said they were keeping an eye on the risk higher oil prices could feed through into broader inflation, as well as their potential to hurt growth.

Atlanta Fed President Dennis Lockhart said he would not rule out more bond buys if the recovery dwindles. Dallas Fed President Richard Fisher said he would vote to end the program early if higher oil prices fed into broader inflation.

The program, announced in November to bolster a fragile economic recovery, is due to end in June. Since it began there have been signs the recovery is picking up steam.

Mr Lockhart, a policy centrist, said he was more concerned about the risk to growth from the oil price rise. He said he would be “very cautious” about increasing the size of the purchase program.

“Given the emergence of new risks, however, I prefer a posture of flexibility,” Mr Lockhart said.

He expected overall price pressures to remain subdued and warned it is too early to “declare a jobs recovery as firmly established”.

Mr Fisher, an inflation hawk, said he “fully expected” the $US600 billion program to “run its course.”

Mr Fisher told an international bankers’ conference he would vote to curtail or stop the program, however, if it proves to be “demonstrably counterproductive.”

The Fed meets on March 15 for its policy-setting meeting, at which it is expected to reaffirm its purchase plan. Fisher is a voter on monetary policy this year, Mr Lockhart is not.

In a CNBC interview, Chicago Fed Bank President Charles Evans said the Fed was closely watching rising oil prices, adding that they were “obviously” a headwind for growth.

Revolutions beginning in Tunisia and Egypt have spread to other countries in the region, including Libya and Bahrain. This has pushed the price of oil above $US100 a barrel, complicating the Fed’s objective of stimulating economic growth while keeping prices under control.

That said, Mr Evans pointed to the improving job market and said he expected economic growth of four per cent this year and next. He called the size of the purchase program “good”.

“I continue to think the hurdle is pretty high for altering our currently announced” program, Mr Evans, seen as a monetary policy dove and one of the most outspoken proponents for quantitative easing, said. Mr Evans does not have a vote on monetary policy this year.

Mr Fisher said the question will be whether the oil price rise is sustained.

“It is really a question of how that works its way through,” he said. “We have already seen very high gasoline prices. That’s one of the ways that it most affects the consumer.”

http://marketpin.blogspot.com

February 25, 2011

Fed’s Bullard says it’s time to debate completing QE2

Filed under: Uncategorized — bigcapital @ 7:52 am
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Fed’s Bullard says it’s time to debate completing QE2

Friday, February 25, 2011 – http://marketpin.blogspot.com/

BOWLING GREEN, Kentucky (Market News) – A senior U.S. Federal Reserve official said on Thursday he thinks it is time to consider tapering off or scaling back a $600 billion bond-buying program because of an improved economic outlook.

“The natural debate now is whether to complete the program or to taper off to a somewhat lower level of assets,” St. Louis Federal Reserve President James Bullard said at a Chamber of Commerce breakfast held at Western Kentucky University.

Bullard said that he expects the topic to be discussed at a Fed meeting in March. He said he would be ready to scale back the program then.

“If it was just me, I would make small changes to account for the fact that the outlook is better than it was at the time of the November decision,” he told reporters after his speech.

Bullard, an academic economist, is not a voting member this year of the panel that sets interest-rate policy. He is seen as a centrist on the spectrum of Fed officials, which ranges from opponents of aggressive actions to support growth to advocates of accommodative policies at the other.

The Fed launched its bond buying program in November to buttress a weak recovery, struggling with high unemployment after the worst recession since the Great Depression of the 1930s.

The purchases are due to end midyear, and the Fed at its most recent policy meeting showed no sign as a body of backing away, although several policymakers have questioned the need for or the efficacy of the program.

Minutes of the Fed’s January meeting showed a few officials wondering whether data showing a strong recovery would make it appropriate to consider reducing the pace or overall size of the program.

But other officials at the meeting said the outlook was unlikely to improve dramatically enough to justify any changes. There were no dissents from the Fed policy at that meeting.

Despite his confidence in the rebound, Bullard said that events in the Middle East and lingering worries about European government fiscal soundness plague the outlook.

“We’ve got plenty of concerns out there about supply developments in oil markets, and you’ve still got brewing issues in Europe with respect to their sovereign debt crisis,” he said. “But I am saying that looking at the outlook today, it’s better than it was in November.”

Bullard said that despite his rosier outlook, further easing could never be ruled out. markets-stocks

The bond purchases are the Fed’s second round of quantitative easing, dubbed QE2. Bullard said it has been an effective tool when interest rates are near zero.

“Real interest rates declined, market expectations rose, the dollar depreciated and equity prices rose,” he said.

The Fed cut short-term interest rates close to zero in December 2008.

Bullard said a jump in food and energy costs around the world could impact U.S. prices.

“Perhaps global inflation will drive U.S. prices higher or cause other problems,” he said.

U.S. inflation is near historic lows and Fed officials have until recently been worried that the U.S. economy could slip into an outright deflationary spiral. Bullard said he believes the disinflation trend has bottomed.

“Inflation expectations are higher, which I think was a success of QE2 and if we do too much and don’t pull back in time, then we can get more inflation than we intended,” he said.

Bullard said adopting an explicit inflation target would be a better way of conducting monetary policy.

Friday, February 25, 2011 – http://marketpin.blogspot.com/

February 23, 2011

Dollar May Appreciate to 1.0067 Swiss Francs

Dollar May Appreciate to 1.0067 Swiss Francs: Technical Analysis

The dollar may reverse last week’s decline and rally 6 percent to its December high against the Swiss franc, Commerzbank AG said, citing technical indicators.

“Longer-term, we target 1.0067” Swiss francs per dollar, Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank in London, wrote in a report today. The exchange rate reached that level on Dec. 1.

The dollar strengthened 0.3 percent to 94.78 Swiss centimes at 12:30 p.m. today in London. The greenback slumped almost 3 percent against the franc last week and sank to 94.25 earlier today, the weakest level since Feb. 3, Bloomberg data show.

“We would allow the slide to continue to 0.9425, from where we would favor recovery,” Jones wrote. That’s the 78.6 percent Fibonacci retracement of the rally seen in February, Jones wrote.

The dollar may test resistance at around 97.74 centimes, she said. Those levels represent the 61.8 percent Fibonacci retracement of the move down from December and the high from Jan. 11, according to data compiled by Bloomberg.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Resistance and support levels are areas on a chart where technical analysts anticipate orders to sell or buy, respectively, a currency and its related instruments

Fed’s Fisher Says More Stimulus Unnecessary

Fed’s Fisher Says More Stimulus Unnecessary

(RTTNews) – A top Federal Reserve official declared on Thursday that we would not back more monetary easing when the Fed’s $600 billion quantitative easing program winds to a close.

Richard Fisher, President of the Federal Reserve Bank of Dallas, was quoted as saying that he could not foresee any circumstances that would warrant more stimulus and suggested that the central bank should turn its attention to unwinding support.

Fisher’s comments contrast with those made by the Chicago Fed President Charles Evans, who backed the Fed’s extremely loose monetary policy and assured that it had the tools to tighten quickly if needed should inflation rise faster than expected

December 30, 2010

The Federal Want To Pressure Down U.S Dollar Worldwide

Filed under: Uncategorized — bigcapital @ 9:23 am
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The Federal Want To Pressure Down U.S Dollar Worldwide

There is a saying in the investment business, “don’t fight the Fed.”

Fed Swap Lines Purposely Keeping Dollar Weak

Central banks provided two pieces of market supportive news in the past 48 hours.

China announced its intent to buy Portuguese bonds, and the Federal Reserve extended its “swap lines” deep into 2011:

# China Ready to Buy Up to $6.6B in Portugal Debt (Reuters : http://www.reuters.com/article/idUSTRE6BL0Y220101222 )

# Fed Extends USD Swaps With Major Central Banks (Reuters : http://www.reuters.com/article/idUSTRE6BK3PS20101221 )

Via Reuters, the swap lines, at first set to expire next month, will now run til August 1st.

The lines were first opened to the ECB and SNB — the European and Swiss central banks respectively — and were later expanded to multiple additional central banks, including those of Sweden, Mexico and Brazil.

The August extension applies to the Fed’s counterparts in Europe, Japan, Canada, England and Switzerland.

So why is the Fed doing this? Straight from the horse’s mouth (official Fed statement):

“[The swap lines] are designed to improve liquidity conditions in global money markets and to minimize the risk that strains abroad could spread to U.S. markets.”

That’s the official justification. A between the lines reading is slightly more self serving: The Fed wants to keep the dollar weak — or otherwise keep it from rising too much.

As you can see, from 2002 onward the $USD had been declining — a trend perceived as good for everyone. As Americans gorged on “stuff,” the vendor finance arrangements put in place by China and Middle East oil exporters allowed the party to continue unabated.

Long term interest rates were kept low via the recycling of $USD back into treasury bonds, in turn keeping mortgage rates low and perpetuating the housing bubble. Meanwhile many emerging markets enjoyed rapid growth — courtesy of a binging U.S. consumer — as the leverage and credit boom radiated outward.

But then, as things fell apart in 2008, the $USD saw a dramatic surge. A wave of panic swept the globe as the supernova debt boom collapsed. Trillions of dollars in credit flows evaporated, and American investors effectively “short” dollars (via overseas investments and ‘carry trade” type arrangements) had to cover with a vengeance.

As the chart shows, the $USD saw another upward surge in early 2010, first on China fears, and then eurozone sovereign debt fears as the Greek situation ignited. (This is when the Economist’s Acropolis Now cover was published — a keepsake to be sure.)

So, as you can guess, one of the many fears keeping Ben Bernanke awake at night is the possibility of a surging $USD.

Not only is the dollar a “risk-off” fulcrum, balanced against “risk on” for all other paper asset classes, a rising buck is also a political headache for the Obama White House and other American interests seeking a U.S. export revival.

So, back to those swap lines. Why and how would they be an attempt to keep the dollar down?

Well, first consider what a swap line actually is. From the Federal Reserve website:

In general, these swaps involve two transactions. When a foreign central bank draws on its swap line with the Federal Reserve, the foreign central bank sells a specified amount of its currency to the Federal Reserve in exchange for dollars at the prevailing market exchange rate. The Federal Reserve holds the foreign currency in an account at the foreign central bank. The dollars that the Federal Reserve provides are deposited in an account that the foreign central bank maintains at the Federal Reserve Bank of New York. At the same time, the Federal Reserve and the foreign central bank enter into a binding agreement for a second transaction that obligates the foreign central bank to buy back its currency on a specified future date at the same exchange rate. The second transaction unwinds the first. At the conclusion of the second transaction, the foreign central bank pays interest, at a market-based rate, to the Federal Reserve. Dollar liquidity swaps have maturities ranging from overnight to three months.

In layman’s terms, we can think of a swap line as a standing guarantee of U.S. dollar liquidity. If you (as a central banker) ever need greenbacks in a pinch, you know you’ll be able to procure them instantly, no matter how “tight” the open market may be.

This standing guarantee reduces the odds of another violent $USD spike of the type we saw in late 2008. In a way, one can think of it as “short squeeze insurance.”

The many players around the world who are “short” U.S. dollars — by way of lending arrangements denominated in dollars and so on — have spiking dollar risk implicit in their positioning.

What the Fed has essentially said to these players is, “It’s okay for you to keep borrowing in dollars, because in the event of a new liquidity crisis we will create accessible dollars for you (via the channel of your local CB).”

Consider, too, the conditions under which all these central banks would be pushed to draw on their $USD swap lines at the same time.

By definition, these would be crisis conditions in which availability of $USD was scarce relative to near-term surging demand.

In such conditions, the Federal Reserve would have to create more dollars to meet existing outsized demand (as crisis-driven preferences for holding $USD, or covering short $USD obligations, would create a shortage).

So the liquidity promise is also a sort of printing-press promise: In the event of another crisis, the Fed will be on its toes and ready to “print” however much fresh $USD the world needs.

The really neat trick is, simply in making this promise, the Federal Reserve can achieve its aim of keeping the $USD down. This effect is produced even without the Fed doing anything.

How? Simple:

* The Fed has promised $USD liquidity will be there “if needed.”
* This promise can be “taken to the bank” — literally.
* Commercial institutions can thus rest easier with short-dollar liabilities.
* To wit, whether one is a bank, a commercial operator or a speculator, it’s very tempting to borrow in $USD these days — to leverage the greenback via some form of debt arrangement and participate in the “carry trade.”

But this move could also be considered risky due to the possibility of carry trade reversal and crisis-driven supply/demand crunch … and so, with the extension of the Fed swap lines, Uncle Ben has stepped up and said “Hey, no problem, carry trade away — we’ll be there in a tight spot (via printing press) to provide liquidity for you.”

And so the dollar stays suppressed, and everyone stays happy (apart from those pesky “non-core” inflation watchers, and anyone else feeling a cost of living crunch).

December 26, 2010

M&A tops $2.2 trillion in first yearly rise since 2007

M&A tops $2.2 trillion in first yearly rise since 2007

LONDON/HONG KONG (Reuters) – Mergers and acquisitions rose for the first year since 2007, potentially marking the start of a new, multiyear M&A cycle in which emerging economies account for a bigger share of global dealmaking.

Thomson Reuters data showed announced M&A grew nearly a fifth this year, to $2.25 trillion globally. The preliminary figures show emerging markets made up a record 17 percent of transactions, and energy was the busiest sector.

Next year could be busier still. Executives, bankers, big investors such as Schroders, and analysts at banks including Credit Suisse, Nomura, and Societe Generale are among those predicting a further rise.

Cheap debt, record cash piles, the need to outpace sluggish economic growth, and positive market reactions to many deals in 2010 should embolden companies to strike more deals, they say.

“We feel M&A volumes will improve next year, there’s certainly going to be more cross-border activity than ever, and Asia — again — will be a bigger part of the equation,” said Scott Matlock, chairman of international M&A at Morgan Stanley .

Deutsche Bank , the world’s fifth-busiest merger adviser, said next year could bring a bigger rise.

“The increase in M&A activity in 2011 should exceed that of 2010,” said Henrik Aslaksen, Deutsche’s global head of M&A.

“There’s more confidence, there’s ample liquidity, financing costs are attractive, and there’s an intense focus amongst corporates to identify growth opportunities,” he added. “The pipeline is very broad-based. It’s not just confined to one to two sectors.”

Senior executives on average expect $3 trillion of M&A next year, a recent Thomson Reuters/Freeman survey found.

GOLDMAN LEADS

That means 2011 could be the second of several years of rising deals — earlier this year Citi analysts said the world was “in the foothills” of a new M&A cycle. These cycles typically last years: the last peaks came in 2000 and 2007.

Bankers say a combination of cheap stocks, as measured by price-to-earnings ratios, and even cheaper debt means many deals would offer a big boost to earnings.

The optimism comes despite a slower fourth quarter and the worst spate of withdrawn deals since the height of the credit crisis: two collapsed BHP Billiton deals, in Canada and Australia, alone cut $100 billion from M&A volumes.

Jeffrey Kaplan, global head of M&A at Bank of America Merrill Lynch , said it was still “challenging to get deals done,” despite “good momentum going into 2011 for both corporate and private equity activity.”

With about a fortnight to go, Morgan Stanley is lagging archrival Goldman Sachs , after beating it to the No. 1 ranking last year for the first time in 13 years.

Goldman Sachs, under M&A head Gordon Dyal, has advised on $513.1 billion of deals to Morgan Stanley’s $499.5 billion.

‘LAND-GRAB’

Emerging markets deals hit a record $378 billion, while developed markets lagged. Global M&A increased 19 percent, while U.S. M&A rose 11 percent and activity in Europe climbed 5 percent.

Colin Banfield, Citigroup’s head of M&A for Asia-Pacific, said currency rates were aiding the region’s companies, which were growing “more ambitious” and contemplating bigger deals.

But aside from several major telecommunications tie-ups in the developing markets, and the odd banner deal such as Chinese carmaker Geely’s purchase of Volvo from Ford, many deals from newer markets were aimed at securing resources or technologies.

“We’re still in the early days of emerging markets M&A,” said Matlock at Morgan Stanley.

“When it gets really hot is when people decide they want to buy and build truly global multinational corporations, and we’re not there yet. It’s more focused on acquiring natural resources or on opportunistic deals.”

Energy and power was the year’s busiest sector, with a near-40 percent rise in announced deals to $482 billion, followed by the financial and basic materials sectors.

Asian companies including China’s Sinopec Corp and Thailand’s PTT Exploration and Production struck deals that ranged from buying stakes in oil fields to Korea National Oil Corp’s hostile takeover of Britain’s Dana Petroleum.

“Asian players, led by China, are making a land-grab for resources to fuel their economies for many years into the future,” said Jeremy Wilson, co-head of natural resources at JPMorgan .

December 12, 2010

Govt to Issue Rp2 Trillion of Bonds Next Week

Filed under: Uncategorized — bigcapital @ 8:29 am
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Govt to Issue Rp2 Trillion of Bonds Next Week

 NEWS – Theindonesiatoday.com – The Government plans to issue four series of Rupiah bonds in Dec. 14, 2010, to raise Rp2 trillion for financing the state budget.

 Yudi Pramadi, head of public relation bureau at the Finance Ministry, said that four government bonds series to be offered are SPN20111215, FR0055, FR0053, and FR0056 series with nominal price of Rp1 million per unit.

 He said SPN20111215 series is the new issuance with discount interest payment and will due in December 15, 2011. The FR0055 series is the reopening bond which carries fixed rate of 7.37% and due in September 15, 2016.

 Also the reopening bonds are FR0053 and FR0056 series. FR0053 series carries coupon of 8.25% and due in July 15, 2021 while FR0056 series with 8.37% coupon will mature in September 15, 2026.

 Yudi said the bond settlement is scheduled for December 16, 2010

November 12, 2010

Fed to buy $105B worth of bonds in first phase

Filed under: Uncategorized — bigcapital @ 8:52 am
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Fed to buy $105B worth of bonds in first phase

The euro was little changed against other major currencies. At present, the euro is worth 1.3771 against US Dollar

WASHINGTON (AP) -Thursday, November 11, 2010- The Federal Reserve will buy a total of $105 billion worth of government bonds starting later this week as it launches a new program to invigorate the economy.

The bonds will be purchased through a series of 18 operations that start on Friday and end on Dec. 9, the Federal Reserve Bank of New York said Wednesday. The purchases are the first since the Fed announced last week that it will buy a total of $600 billion worth of Treasury bonds over the next eight months.

The Fed will buy $75 billion of government debt as part of the new program. And, it will buy another $30 billion, using the proceeds from its vast mortgage portfolio.

That totals $105 billion for the first phase of the Fed’s government bond buying. The Fed last week said it anticipates buying on average $110 billion a month.

The Fed’s announcement on Wednesday helped boost stocks and bond prices.

— The Dow Jones industrial average closed up 10.29 points to 11,357.04.

The euro was last at $1.3771 , little changed from late Wednesday in New York

— Treasurys moved higher after the auction of $16 billion in 30-year bonds and after the Fed laid out its bond-buying schedule.

In late afternoon trading, the 10-year note was up 37.5 cents on the day. The slight gain lowered the yield to 2.65 percent from 2.66 percent late Tuesday as bond prices and yields move in opposite directions. The yield on the 2-year note inched lower, from 0.45 percent to 0.43 percent. The 30-year bond traded at 4.25 percent, compared with 4.24 percent late Tuesday.

Through the bond purchases, the Fed intends to push rates even lower on mortgages, corporate debt and other loans. Mortgage rates have sunk to their lowest levels in decades just in anticipation of the Fed’s action.

The goal: Cheaper borrowing costs will lure Americans to boost spending. Lower corporate bond rates will spur business investment. Higher stock prices will boost households’ wealth, which was clobbered by the recession. Fed Chairman Ben Bernanke said such a chain of events would produce a “virtuous cycle, which will further support economic expansion.” Faster economic growth in turn would prompt companies to boost hiring.

However, some Fed officials and economists don’t think the program will do much to rev up the economy and lower unemployment, which has been stuck at 9.6 percent.

And, there’s fears inside and outside the Fed that the program could lead to new problems: runaway inflation and inflated prices for commodities, bonds or stocks, creating new speculative bubbles. Gold prices have jumped. Some investors see the precious metal as a hedge against inflation.

The Fed’s program also has struck a nerve overseas. China and other countries have complained that the Fed’s bond-buying program could hurt them. Because the Fed’s program could weaken the U.S. dollar further, that makes other countries’ currencies more expensive, cutting into their exports, and fueling inflation.

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