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Big Banks See Better Than 50/50 Odds of QE3 – Real Time Economics – WSJ
Wall Street’s biggest banks expect the Federal Reserve‘s 0% interest rates to persist into at least 2014, and see good odds the Fed will provide additional stimulus to the economy in the near term, according to a Federal Reserve Bank of New York survey of primary dealers.
…..The median expectation that the Fed could provide additional stimulus in the form of bond buying that would push the balance sheet beyond its current $2.9 trillion level stands at 60% over the year.
via Big Banks See Better Than 50/50 Odds of QE3 – Real Time Economics – WSJ.
TaxVox » Blog Archive » A Medicare Reform Plan That Just Might Work
Senator Ron Wyden (D-OR) and House Budget Committee Chairman Paul Ryan (R-WI) did a remarkable thing: They announced a bipartisan plan to fix Medicare, probably the most contentious of policy issues.
And amazingly, what they came up with might just work…….
Ryan-Wyden would work like this:
- Those 65 and older would receive a subsidy to purchase insurance. They could either buy traditional Medicare or a private policy that met government benefit and marketing standards.
- Private insurers would have to offer plans at least as good as fee-for-service Medicare and be barred from denying coverage based on pre-existing conditions.
- The subsidy would be tied to the cost of the second-lowest cost private plan or traditional Medicare. This would be relatively generous.
- Seniors would buy coverage through an insurance market that would very likely mimic the exchanges in the 2010 health law.
- For the first time, the proposal would cap Medicare cost growth. Thus, instead of continuing Medicare as an open-ended entitlement whose costs automatically rise with health expenditures, the program would impose a global budget on the program. In theory, at least, the combination of market competition and this overall budget would slow the growth of Medicare costs. This could be the most contentious element of the entire plan.
- The plan would provide additional subsidies for low-income seniors but increase premiums for those with high-incomes. It would also offer a new catastrophic benefit.
- It would apply only to those who turn 65 in 2022 or later.
via TaxVox » Blog Archive » A Medicare Reform Plan That Just Might Work.
Emerging Trends in Real Estate 2012 – CRE Console Blog
For 2012, U.S. real estate players must resign themselves to a slowing, grind-it-out recovery following a period of mostly sporadic growth, confined largely to “wealth island” real estate markets—the primary 24-hour gateways located along global pathways.
via Emerging Trends in Real Estate 2012 – CRE Console Blog.
Comment: ~ Commercial real estate yields are following Treasury yields lower. This may present short/medium-term capital gains but long-term pain when Treasury yields revert to their normal range.
2011 Financial Report Of The U.S. Government – David Merkel
To pay down liabilities like these would require the permanent allocation of an additional 8% of GDP. Where would we find the will to do that? I suspect as a result that we will see real decreases in Medicare benefits — things that won’t be eligible for payment. Hospice care will be indicated at higher frequency when healing an old person would be costly. So just be aware that something has to change, either taxes have to rise, or Medicare benefit levels have to fall.
via 2011 Financial Report Of The U.S. Government – Seeking Alpha.
Santa Rally or Grinch in Disguise? | The Big Picture
If the crisis is resolved and the rally is real, then why is it that:
1) Treasury yields in the U.S. are still at panic levels and NOT confirming the collapse in the VIX?
2) Bear sectors (Utilities, Consumer Staples, and Healthcare) are have not significantly underperformed?
3) Bullish Sectors (Technology, Consumer Discretionary) have underperformed?
4) European long bonds yields have NOT budged, with Italy’s 10 year-yield reaching 7% again?
5) Emerging Markets have FAILED to rally in a convincing way
6) Gold and Silver are NOT rallying on a reflation trade
White House’s Krueger: Lack of Demand Holding Back Economy – Real Time Economics – WSJ
A lack of demand is causing the weak economy rather than uncertainty over taxes, regulation and economic policies, according to Alan Krueger, the chairman of President Barack Obama’s Council of Economic Advisers.
via White House’s Krueger: Lack of Demand Holding Back Economy – Real Time Economics – WSJ.
The path to recovery: how to bring the debt binge under control
The debt binge since 1975, fueled by an easy-money policy from the Fed, has landed the US economy in serious difficulties. Wall Street no doubt lobbied hard for debt expansion, because of the boost to interest margins, with little thought as to their own vulnerability. There can be no justification for debt to expand at a faster rate than GDP — a rising Debt to GDP ratio — as this feeds through into the money supply, causing asset (real estate and stocks) and/or consumer prices to balloon. What we see here is clear evidence of financial mismanagement of the US economy over several decades: the graph of debt to GDP should be a flat line.
The difference between domestic and private (non-financial) debt is public debt, comprising federal, state and municipal borrowings. When we look at aggregate debt below, domestic (non-financial) debt is still rising, albeit at a slower pace than the 8.2 percent average of the previous 5 years (2004 to 2008). Public debt is ballooning in an attempt to mitigate the deflationary effect of a private debt contraction. Clearly this is an unsustainable path.
The economy has grown addicted to debt and any attempt to go “cold turkey” — cutting off further debt expansion — will cause pain. But there are steps that can be taken to alleviate this.
If private debt contracts, you need to expand public debt — by running a deficit — in order to counteract the deflationary effect of the contraction. The present path expands public debt rapidly in an attempt to not only offset the shrinkage in private debt levels but also to continue the expansion of overall (domestic non-financial) debt levels. This is short-sighted. You can’t borrow your way out of trouble. And encouraging the private sector to take on more debt would be asking for a repeat of the GFC. The private sector needs to deleverage but how can this be done without causing a total economic collapse? The answer lies in government spending.
Treasury cannot afford to borrow more money if this is used to meet normal government expenditure. Public debt as a percentage of GDP would sky-rocket, further destabilizing the economy. If the proceeds are invested in infrastructure projects, however, that earn a market-related return on investment — whether they be high-speed rail, toll roads or bridges, automated port facilities, airport upgrades, national broadband networks or oil pipelines — there are at least four benefits. First is the boost to employment during the construction phase, not only on the project itself but in related industries that supply equipment and materials. Second is the saving in unemployment benefits as employment is lifted. Third, the fiscal balance sheet is strengthened by addition of saleable, income-producing assets, reducing the net public debt. Lastly, and most importantly, GDP is boosted by revenues from the completed project — lowering the public debt to GDP ratio.
Public debt would still rise, and bond market funding in the current climate may not be reliable. But this is the one time that Treasury purchases (QE) by the Fed would not cause inflation. Simply because the inflationary effect of asset purchases are offset by the deflationary effect of private debt contraction. Overall (domestic non-financial) debt levels do not rise, so there is no upward pressure on prices.
Infrastructure investment should not be seen as the silver bullet, that will solve all our problems. Over-investment in infrastructure can produce diminishing marginal returns — as in bridges to nowhere — and government projects are prone to political interference, cost overruns, and mismanagement. But these negatives can be minimized through partnership with the private sector.
Projects should also not be viewed as a short-term, band-aid solution. The private sector has to increase hiring and make substantial capital investment in order to support them. All the good work would be undone if the spigot is shut off prematurely. What is needed is a 10 to 20 year program to revamp the national infrastructure, restore competitiveness and lay the foundation for future growth.
There are no quick fixes. But what the public needs is a clear path to recovery, rather than the current climate of indecision.
S&P 500 and DJ Europe
The S&P 500 index is headed for medium-term support at 1160. 21-Day Twiggs Money Flow warns of (medium-term) selling pressure. If support at 1160 fails, primary support at 1075/1100 is unlikely to hold — offering a target of 900*. Reversal below the rising trendline on 63-day Twiggs Momentum would indicate continuation of the primary down-trend.
* Target calculation: 1100 – ( 1300 – 1100 ) = 900
Dow Jones Europe index is also headed for primary support, at 205. Failure is likely and would offer a target of 160*. Reversal of 13-week Twiggs Money Flow below zero would warn of rising selling pressure.
* Target calculation: 210 – ( 260 – 210 ) = 160
FedEx Profit Climbs 76% – NYTimes.com
FedEx expects continued moderate economic growth, with trade flows staying volatile, executives told analysts in a conference call after the company reported results on Thursday.
FedEx, driven by online holiday orders, delivered about 17 million packages on Dec. 12 — twice the average daily shipments — in what was its busiest day in its 40-year history.