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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

What happens when Quantitative Easing (QE2) ends in June?

Filed under: Uncategorized — bigcapital @ 1:12 am
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What happens when Quantitative Easing (QE2) ends in June?

Wednesday, February 23, 2011 – http://marketpin.blogspot.com/

The Congress : “There is no need for us to support Quantitative Easing Part 3” confirmed by the Senate last week.

I remain surprised that in the business press there is little if any discussion about what will happen when Quantitative Easing II expires in June.

From a congressional standpoint, there has been discussion designed to force an early end to the program. Others have gone in the opposite direction mentioning a possible QE3.

In my view, the economy is slowly picking up. Deflation is less an issue, manufacturing activity is up, and consumers are spending a bit more. Corporate profits have exceeded expectations for Q4 2010.

On the downside, the housing market shows no signs of improving and might not have yet bottomed. Trouble in the middle East could disrupt oil shipments. China appears to be experiencing uncontrolled inflation and an asset bubble that is about to burst. Europe is experiencing continued sovereign debt issues. Some analysts believe that the UK is in stagflation. Commodity prices are increasing rapidly. Corporations have no pricing power. The US labor market will take years to repair. And finally, US Budget deficit is out of control!!!

This all points to a tenuous financial environment at the time of QE2 expiration. For 2011, YTD stock prices might be negative.

Any yet the business press seems quiet on this issue …

Read more: Count Down to Quantitative Easing Removal ends in June.

For 2011, YTD stock prices might be negative.

Which would be unlike the quantitative easing that the CABAL (Fed) have been subjecting our economy to… The CABAL chairman told us when he implemented QE1 and Q2, that it was for the good of the economy, to spur economic growth, job creation, and keep interest rates down… Well… That’s strike one, two and three… Go grab some bench, Mr. CABAL Chairman! And that’s all I can say about that right here, right now, as this is the kinder

Since the CABAL introduced quantitative easing in March of 2009, inflation has taken off, just as I told you back almost two years ago that it would… No, we’re not seeing wage inflation, or housing inflation… But get a load of these things that have increased phenomenally since March 2009.

The average price of gas is up 69%… The price of oil is up 135%… Corn is up 78%… Sugar is up 164%… And I could go on, but I think you get the picture. Now, on the other side of the employment that was supposed to improve with QE, the number of unemployed people is up 25%… The number of food stamps recipients is up 35%… The national debt is up 32%… And then the last thing they told us would improve or remain steady was interest rates… Hmmm… Well, the 10-year Treasury is up 100 basis points in the past three months alone! Sorry to be the one that had to tell you these things, but if you only watched cable media, you wouldn’t know about these things, and when the Conference Board called to survey you about how confident you were about the economy, you would be singing the praises of the CABAL for all they had done for you!

February 9, 2011

China Hikes Shouldn’t Slow Global Growth

Filed under: Uncategorized — bigcapital @ 1:09 am
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China Hikes Shouldn’t Slow Global Growth

China has raised benchmark interest rates for the third time since October.

Unsurprisingly, rising inflationary pressures is the primary motivation behind China’s rate hike. We have been looking for another rate hike from China since they tightened in December and with prices rising due to geopolitical risks, the Lunar New Year and a recent drought in the grain producing Northeast part of the country, China did not want to take any risks, opting to preempt a further increase in inflationary pressures by raising interest rates. Given the health of the Chinese economy and the prospect of stronger global growth, we have not seen the last of China’s policy actions.

Capital Economics analysts note that they think markets are right to have taken China’s latest decision to raise interest rates in stride. The announcement has caused some jitters about the impact tightening will have on growth but these concerns should not be overplayed as the rate hikes should not do much to slow growth, they say. Aggressive monetary tightening should not be needed in China, they say.

From The Dow Jones Newswires

http://marketpin.blogspot.com/

February 08, 2011 11:29 ET (16:29 GMT)

October 21, 2010

Australian Dollar Pullback Will Be Buying Opportunity, ING Says

Filed under: Uncategorized — bigcapital @ 6:23 am
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Australian Dollar Pullback Will Be Buying Opportunity, ING Says

 

Australia’s dollar may fall to the low 90 U.S. cent level if the Federal Reserve disappoints investors looking for extra monetary stimulus, presenting an opportunity to buy the Aussie, ING Investment Management said.

A decline in Australia’s currency will enable investors to “reset” wagers on its longer-term appreciation, said Mark Robertson, a senior portfolio manager at the unit of the biggest Dutch financial services company. Fed policy makers will announce roughly $500 billion of Treasury purchases at their next meeting on Nov. 2-3, and indicate they are ready to buy more, Goldman Sachs Group Inc. said last week.

“There is a lot of expectation built into what the Fed’s going to do so it wouldn’t be surprising to see some near-term U.S. dollar strength on perhaps a winding back of some of those expectations,” said Robertson, who helps oversee the equivalent of $19 billion as part of a multi-strategies group in Sydney. A pullback in the Aussie “would be an opportunity to reset the portfolio with a little more Aussie dollar exposure,” he said.

ING Investment has been “overweight” the Australian currency since August, said Robertson, who forecasts it may strengthen to $1.10 over the next 12 to 18 months.

The Australian dollar, which briefly rose above parity with the U.S. dollar on Oct. 15, traded at 97.11 U.S. cents as of 11:35 a.m. in Sydney from 96.86 cents in New York yesterday. The currency has gained 9.9 percent in the past three months.

Fed Purchases

The U.S. dollar has dropped against all 16 of its most- traded counterparts in the past quarter amid mounting speculation the Fed will expand a program to purchase Treasuries. The central bank completed purchases of about $1.7 trillion of U.S. debt in March.

Chicago Fed President Charles Evans said yesterday the central bank will need to buy securities on a large scale several times to carry out his preferred strategy of aiming to raise inflation temporarily. Additional Treasury purchases can lower long-term interest rates, he said.

“There’s still going to be a very large and sustained increase in the amount of U.S. dollars in circulation, which has to be Aussie dollar positive,” Robertson said. “The Aussie is a bit like the price of gold, you don’t know how high it’s going to go but you just know it’s going higher.”

Gold rose to a record $1,387.35 an ounce on Oct. 14. The metal will average $1,400 next year, UBS AG analysts wrote in a report Oct. 18, increasing their forecast from $1,295.

China Rates

Australia’s dollar slid the most since June yesterday after China unexpectedly raised interest rates, sparking concern slowing growth in the Asian nation will damp demand for commodities. Australia, which is the largest shipper of iron ore and coal, counts China as its biggest trading partner.

“The rate hike will no doubt be a short-term negative for local and regional equity markets as it was slightly unexpected,” Robertson said. “The intentions behind the move should be seen as supportive of sustainable growth for China over the long term.”

Robertson forecasts that Australia’s benchmark interest rates will rise toward 5 and 5.5 percent over the next 12 months. Governor Glenn Stevens raised the key rate six times beginning October 2009 before beginning a five-month pause in June.

Analyst picks long-term strength

AMP Capital Investors chief economist Shane Oliver says while the Australian dollar is vulnerable to a correction, after rising so quickly since August, it is likely to hold around the parity level for the “next few years”, due to the strength of the economy and strong commodity prices.

“While the high $A will make life tough for trade exposed companies without a natural hedge, on balance it is more of a positive for the Australian economy. It is unambiguously positive for consumers and will help limit the extent to which interest rates have to rise,” Mr Oliver said.

Charts suggest the local currency could rise as high as $US1.0236 in coming weeks, the 161.8 per cent Fibonacci projection level of the currency’s fall between November 2009 and May 2010.

The Australian dollar has been the strongest major currency since the country skirted through the global financial crisis without falling into recession. In fact, its economy picked up steam, and the currency has surged 66 per cent since touching a low of $US0.6007 in October 2008.

Unlike other countries griping about excessive currency strength against a sliding dollar, Australia’s central bank has considered a stronger currency a natural outcome of the country’s booming resources trade and a tool for fighting inflation.

Travellers uncertain

Travellers at Sydney International Airport, who were heading on holidays on Saturday afternoon and those returning home to the US, expressed their surprise, delight and indifference to AAP.

Friends Helen Foulis and Debra Thorsen – who were flying to San Francisco, Las Vegas and New York for a two-week break – said the strong Aussie dollar was encouraging for their shopping trips.

“The shopping trips are going to be mega,” Ms Foulis said.

“Same for me, I’m going shopping for clothes, shoes, jeans,” Ms Thorsen said.

Christine Chong, who planned to visit friends and family in Los Angles, said the historic parity didn’t make much of a different to her.

“If you’re going to travel, you’ll travel,” she said.

“I don’t spend much anyway so it doesn’t make a difference.”

American business traveller Chris Phipps said the two currencies had been close for a long time.

“Being parity is like being at home and I’m going to spend the normal way,” he said.

December 18, 2009

Fed To Leave Rates Low For ‘Extended Period’

Fed To Leave Rates Low For ‘Extended Period’

 

WASHINGTON — The Federal Reserve pledged Wednesday to hold interest rates at a record low to drive down double-digit unemployment and sustain the economic recovery.

The Fed noted that the economy is growing, however slowly. And turning more upbeat, it pointed to a slowing pace of layoffs.

Still, Fed Chairman Ben Bernanke and his colleagues gave no signal that they’re considering raising rates anytime soon. They noted that consumer spending remains sluggish, the job market weak, wage growth slight and credit tight. Companies are still wary of hiring, they said.

Against that backdrop, the Fed kept its target range for its bank lending rate at zero to 0.25 percent, where it’s stood since last December. And it repeated its pledge, first made in March, to keep rates at “exceptionally low levels” for an “extended period.”

In response, commercial banks’ prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent. That’s its lowest point in decades.

Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They’re especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.

Noting the stabilized financial markets, the Fed said it expects to wind down several emergency lending programs when they are set to expire next year. That seemed to strike a confident note that the Fed thinks it can gradually lift supports it provided at the height of the financial crisis.

The central bank made no major changes to a program, set to expire in March, to help further drive down mortgage rates.

The Fed in on track to buy a total of $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. It has bought $845 billion so far. It’s also on pace to buy $175 billion in debt from those groups under the same deadline. So far, the Fed has bought nearly $156 billion.

Its efforts to lower mortgage rates are paying off. Rates on 30-year loans averaged 4.81 percent, Freddie Mac reported last week. That’s down from 5.47 percent last year.

The Fed said it has leeway to hold rates at super-low level because it expects that inflation will remain “subdued for some time.”
Fed policymakers repeated their belief that slack in the economy — meaning plants operating below capacity and the weak employment market — will keep inflation under wraps.

A government report out Wednesday showed that inflation is in check despite a burst in energy prices. Energy prices, however, are already in retreat.

Bernanke, who’s seeking a second term as Fed chief, has made clear his No. 1 task is sustaining the recovery. Last week, he and other Fed officials signaled they are in no rush to start raising rates.

At the same time, Bernanke has sought to assure skeptical lawmakers and investors that when the time is right, he’s prepared to sop up all the money. Some worry that the Fed’s cheap-money policies will stoke inflation.

Some encouraging signs for the economy have emerged lately. The economy finally returned to growth in the third quarter, after four straight losing quarters. And all signs suggest it picked up speed in the current final quarter of this year.

The nation’s unemployment rate dipped to 10 percent in November, from 10.2 percent in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago.

Still, the Fed predicts unemployment will remain high because companies won’t ramp up hiring until they feel confident the recovery will last.

Consumers did show a greater appetite to spend in October and November. But high unemployment and hard-to-get credit are likely to restrain shoppers during the rest of the holiday season and into next year.

-Financial Post-

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