Category: Economy

Analysis of the global economy

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FRB: Press Release–Federal Reserve issues FOMC statement–September 21, 2011

The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets.

………The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools as appropriate.

via FRB: Press Release–Federal Reserve issues FOMC statement–September 21, 2011.

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Fed Shifts Bond Portfolio – WSJ.com

The Fed is trying to ease financial conditions without taking the more controversial step of increasing the amount of money that it’s pumping into the financial system, since it will be using money already generated from other programs. A bond buying program the Fed completed in June was widely criticized internally and externally because it pumped $600 billion of newly printed money into the financial system, sparking fears of inflation……..

The more potent step of launching a new round of bond purchases that would further expand the Fed’s $2.867 trillion balance sheet remains a possibility, but inflation likely would need to slow much further to spur Fed officials to take that step……..

Economists aren’t so sure that the Fed’s latest gambit will do much to spur growth.

“The odds are ‘Operation Twist’ won’t work,” Anthony Sanders, a real-estate finance professor at George Mason University, said before the Fed action. The housing market has shown no reaction to interest rates that are already at record-low levels, he said. Freddie Mac’s latest survey finds the average rate on 30-year, fixed-rate mortgages at 4.09%, the lowest level in more than 50 years.

via Fed Shifts Bond Portfolio – WSJ.com.

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Of course it’s right to ringfence rogue universals – Martin Wolf

Thank you, UBS. As a member of the UK’s Independent Commission on Banking, under Sir John Vickers, I could not have asked for a better illustration of the unregulatable risks to which investment banks are exposed than Thursday’s announcement of a loss of $2bn in “unauthorised trading”. No sane country can allow taxpayers to stand behind such risks.

That is the kernel of the case for ringfencing of retail banking from investment banking, recommended in the ICB’s final report.

via Of course it’s right to ringfence rogue universals – FT.com.

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How to Prevent a Depression – Nouriel Roubini – Project Syndicate

The risks ahead are not just of a mild double-dip recession, but of a severe contraction that could turn into Great Depression II, especially if the eurozone crisis becomes disorderly and leads to a global financial meltdown. Wrong-headed policies during the first Great Depression led to trade and currency wars, disorderly debt defaults, deflation, rising income and wealth inequality, poverty, desperation, and social and political instability that eventually led to the rise of authoritarian regimes and World War II. The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.

via How to Prevent a Depression – Nouriel Roubini – Project Syndicate.

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Number for the day is 45.0%

The percentage of containers that were shipped empty from the Port of Los Angeles during the 2011 financial year was 48.42% (or 1.8 million twenty-foot units). Incoming containers received empty were a mere 3.42%. Our number for the day is the net 45.0% of incoming containers that are returned empty to their port of destination.

Shippers attempt to fill containers on their return journey, even at super-low rates, in order to offset the cost of completing the round-trip. Empty containers indicate failure to locate manufactured goods that can compete in these export markets. This affects not only the shipper, but the entire economy. You see, those containers leaving the West Coast are not really empty. They contain something far more valuable than the goods being imported. They contain manufacturing jobs — and the infrastructure, skills and know-how to support them.

In 2012, if you need an independent gauge of how successful the President’s jobs program has been, check this number.

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Harpex Container Index stalls

The Harpex Index of container ship rates is retreating. Failure of support at 600 would warn of another test of the 2010 low. The index, calculated by Harper Petersen ship brokers, reflects international demand for container vessels and is a useful measure of international trade in light manufactured goods. Falling international trade would have the greatest impact on export-oriented Asian markets like China, Taiwan, Japan and South Korea.

Harpex Container Ship Index

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Flight to safety

10-Year Treasury yields fell to a new low on Friday, warning of further falls in the stock market as investors seek save havens in Treasurys and precious metals.

10-Year Treasury Yields

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Transport stocks warn of declining economic activity

Bellwether transport stocks Fedex and UPS are both in a primary down-trend, warning of a decline in economic activity.

Fedex and UPS

* Target calculation: 85 – ( 100 – 85 ) = 70

Deutsche Post-DHL shows a similar drop of about 30% from its 2010 peak, indicating that European and international shipping are unlikely to fare any better.

Deutsche Post - DHL

* Target calculation: 12 – ( 14 – 12 ) = 10

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Jobs Paralysis Raises Odds of Fed Action – Real Time Economics – WSJ

Job market paralysis in August increases the chance the Federal Reserve will do something new to help the economy……. The current environment is pushing the Fed towards action. A week ago, Chairman Ben Bernanke told a gathering of the world’s top economic officials he was expanding the length of the upcoming September Federal Open Market Committee to give policy makers additional time to talk about what the Fed can do, which by itself increased the odds something was going to happen.

via Jobs Paralysis Raises Odds of Fed Action – Real Time Economics – WSJ.

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