The Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
Big trouble from little Cyprus – FT.com
I always enjoy Martin Wolf’s objectivity:
Many insist that any tax on deposits is theft. This is nonsense. Banks are not vaults. They are thinly capitalised asset managers that make a promise – to return depositors’ money on demand and at par – that cannot always be kept without the assistance of a solvent state. Anybody who lends to banks has to understand that. It is inconceivable that banking – a risk-taking financial business – can operate without exposure to loss of at least some classes of lenders. Otherwise, bank debt is government debt. No private business can be allowed to gamble with taxpayers’ money in this way. That is evident.
Read more at Big trouble from little Cyprus – FT.com.
Why I Am Leaving Goldman Sachs – NYTimes.com
Greg Smith: I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
Greg Smith is resigning today [March 14th] as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.
Real Recovery: America’s Debt is on the Decline
[A new report from the McKinsey Global Institute] estimated that home equity loans and cash-out refinancing increased consumer spending by a percentage point to 3 percent growth a year during the housing bubble years. But with that source of debt financing gone, retailers are more likely to see 2 percent annual growth over the next few years, which is about where it has been in recent months.
Credit default swaps are insurance products. It’s time we regulated them as such. | The Big Picture
…The law created a unique class of financial instruments [credit default swaps or “CDS”] that was neither fish nor fowl: It trades like a financial product but is not a security; it is designed to hedge future prices but is not a futures contract; it pays off in the event of a specific loss-causing event but is not an insurance policy.
Given these enormous exemptions from the usual rules that govern financial products, you can guess what happened with the swaps. A very specific set of economic behaviors emerged: Companies that wrote insurance typically set aside reserves for expected risk of loss and payout. When it came to swaps, the companies that underwrote them had no such obligation.
This had enormous repercussions. The biggest underwriter of default swaps was AIG, the world’s largest insurer. Without that reserve-requirement limitation, it was free to underwrite as many swaps as it could print. And that was just what it did: AIG’s Financial Products unit underwrote more than $3 trillion worth of derivatives, with precisely zero dollars reserved for paying any potential claim.
via Credit default swaps are insurance products. It’s time we regulated them as such. | The Big Picture.
The Myth Of Cash On The Sidelines – Jim Bianco | The Big Picture
Last Thursday the Federal Reserve released its quarterly Flow of Funds data, current through December 2011. One of the more popular headlines from this data concerns the record amount of “cash on the sidelines.” Through Q4 2011, nonfarm nonfinancial corporate businesses held $2.23 trillion in liquid assets on their balance sheets. As the argument goes, this must be a sign of pent-up demand just waiting to be unleashed on the market.
The chart below shows liquid assets as a percentage of total nonfarm nonfinancial corporate business assets since 1952. By this measure, the “cash on the sidelines” argument is far less compelling.
via The Myth Of Cash On The Sidelines – An Update | The Big Picture.
Canada TSX: Momentum trades
Strong open-close reversal signal on Americas Petrogas [BOE], identified on March 1st. Great entry point on recovery above $4.00.
Australia: Hourly ASX 200
The ASX 200 Hourly chart shows a sharp rally and we can expect a test of 4300/4320 tomorrow. Breakout would signal an advance to 4450*. Reversal below the trend channel is unlikely, but breach of support at 4250 would warn of another correction.
* Target calculation: 4300 + ( 4300 – 4150 ) = 4450
Forex: Euro, Pound Sterling and Yen
The euro is weakening against the greenback, testing medium-term support at $1.30. Failure would indicate a test of primary support at $1.26 and continuation of the down-trend. Respect is unlikely, but would suggest a test of the declining trendline.
* Target calculation: 1.26 – ( 1.35 – 1.26 ) = 1.17
Pound Sterling rallied against the Aussie Dollar, testing the new resistance level at $1.50. The down-trend is likely to continue and breach of the rising trendline would warn of another decline, with an immediate target of $1.42*.
* Target calculation: 1.46 – ( 1.50 – 1.46 ) = 1.42
The US Dollar is approaching its target of ¥85 Japanese Yen. Expect retracement to confirm the new support level at ¥80, followed by an advance to ¥90*.
* Target calculation: 85 + ( 85 – 80 ) = 90
Forex: Australia, Canada and South Africa
A stronger greenback and weaker commodity prices are likely to depress resource-rich currencies. Canada’s Loonie stood up surprisingly well, mainly because of rising crude oil prices. 63-Day Twiggs Momentum recovered above zero, indicating a primary up-trend. Breakout above $1.01 would strengthen the signal, offering a target of the 2011 high at $1.06.
* Target calculation: 1.01 + ( 1.01 – 0.95 ) = 1.07
The Aussie Dollar weakened along with commodity prices. Failure of support at $1.04 would warn of a correction to primary support at $0.96. Penetration of the rising trendline and reversal of 63-day Twiggs Momentum below zero would strengthen the signal.
The Aussie Dollar found support at R8.00 South African Rand. Expect a rally to test the upper range border at R8.50, but failure of support would test the long-term trendline at R7.50*. Penetration of the trendline and/or reversal of 63-Day Twiggs Momentum below zero would warn of a primary down-trend.
* Target calculation: 8.00 – ( 8.50 – 8.00 ) = 7.50