Is This The Most Successful Trade Of The Last Decade?
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World View & Market Commentary.
Forest first; Trees second.
Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
Personal income rose modestly in September but wages & salaries were healthy. Meanwhile, spending was up notably while inflation was mixed. Personal income in September edged up 0.1 percent, following a 0.1 percent dip in August. The latest number fell short of the consensus forecast for a 0.3 percent gain. Importantly, the wages & salaries component rebounded 0.3 percent, after declining 0.1 percent in August. Sluggishness in income was from a dip in interest income and from flat government benefits.
Consumer spending ramped up, gaining 0.6 percent, following a 0.2 percent rise in August. The September figure beat analysts' median forecast for a 0.3 percent increase. By components, durables jumped 2.2 percent after a 1.1 percent decline in August. Nondurables increased 1.1 percent, following a 0.6 percent rise. About half of the nondurables increase was price related. Services rose 0.2 percent after a 0.3 percent gain in August.
Turning to inflation numbers, the headline PCE price index increased 0.2 percent after gaining 0.3 percent in August. The consensus called for 0.2 percent gain. The core rate slowed to no change from up 0.2 percent in August. The market expectation was for a 0.1 percent rise.
Year-on-year, headline prices are up 2.9 percent, compared to 2.9 percent in September. The core is up 1.6 percent on a year-ago basis, down slightly from 1.7 percent in August.
Today's report is relatively strong-at least for this recovery. Headline income is sluggish but the important wages & salaries component is moderately healthy. Personal spending is robust although price gains played a partial role. Core inflation softened and this gives the Fed room for further accommodation if the FOMC chooses.
On the news, equity futures slipped a bit.
Growth in benefit costs eased substantially in the third quarter and helped to bring down the employment cost index to a quarter-to-quarter plus 0.3 percent in the third quarter from outsized 0.7 percent and 0.6 percent gains in the prior two quarters. The reading is far below the Econoday consensus for plus 0.6 percent. The year-on-year rate slowed to 2.0 percent vs the prior quarters' 2.2 percent and 1.9 percent.
Benefit costs slowed to plus 0.1 percent in the third quarter, down from 1.3 percent and 1.1 percent in the prior two quarters. Wages & salaries rose a respectable 0.3 percent, following a run of 0.4 percent gains. But the year-on-year rate of plus 1.6 percent, the second in a row, is below the core CPI rate of plus 2.0 percent and well below the overall CPI rate of plus 3.9 percent.
Finally, Europe has a dealRemember when our banks were required to “raise their capital requirements?” Immediately Hank Paulson pushed for, and got, the ability to pay the banks for “excess reserves.” Those “excess reserves” are now parked to the tune of $1.6 Trillion, all earning interest paid for by the people of the United States. The Europeans are simply taking from the playbook of the U.S.. All you need to do, then, is look at the result here – the stock market zoomed for a few months and then petered out, while simultaneously creating inflation for the things people need to live. There you go, expect more un/underreported inflation, and expect to revisit the Euro problem again and again until the people finally remove those who control the production of money.
NEW YORK (CNNMoney) -- European Union leaders announced an agreement early Thursday on debt crisis measures, including a hard-fought deal with private sector investors to take a 50% loss on Greek bonds.
The agreement came at the end of marathon talks to finalize the policy response to the government debt and banking problems threatening the stability of the euro currency and global economy.
The response aims to resolve three related problems: the debt crisis in Greece, instability in the banking sector and a sorely outgunned bailout fund.
Under the new plan, Greek bondholders voluntarily agreed to write down the value of Greek bonds by 50%, which translates into €100 billion and will reduce the nation's debt load to 120% of economic output from 150%.
Charles Dallara, director of the Institute of International Finance, which represented the private sector in the talks, welcomed the agreement. In a statement, he said private investors agreed to the 50% discount "with the support" of €30 billion of official private sector funding.
The agreement also calls for a new €100 billion financing program for Greece, which will be funded partly by the International Monetary Fund, according to an official EU statement.
Stronger bailout fund: The leaders agreed on two ways to increase the firepower of the EU bailout fund, known as the European Financial Stability Facility. The methods will each leverage the fund by four or five fold, the statement said, boosting its resources to about €1 trillion.
The fund will be used to partially insure new issues of government bonds. In addition, it will be supplemented by the creation of one or more special investment vehicles, which will be open to private sector players such as sovereign wealth funds.
China has already expressed interest in backing the special investment mechanism. The possibility that China could back the the rescue effort helped lift U.S. stock prices late Wednesday.
Bigger bank reserves: The EU government heads also agreed to raise capital requirements for banks vulnerable to losses on euro-area government bonds.
"The overarching goal of the exercise is to foster confidence in the European banking sector," said European Council president Herman Van Rompuy.
Banks would be required to sharply increase core capital levels to 9% to create a buffer against potential losses.
Based on market rates in September, banks will need to raise a total of €106 billion to meet the new targets, according to the European Banking Authority.
That compares with estimates from the International Monetary Fund and private sector economists that ranged between €100 and €300 billion.
The banks would have until the end of June 2012 to meet those new requirements, according to a statement.
José Barroso, president of the European Commission, said the technical work needed to complete the measures will be completed "in the coming weeks."
"The key is implementation," said Barroso. "It is not enough to make commitments."
EU Sets 50% Greek Writedown, $1.4T in Rescue Fund“Long on words, short on details…” That’s because when you are making money from nothing, you don’t want to tell the world exactly how you’re going to do it, but it doesn’t matter because printing money from nothing is still printing money from nothing, all of which goes to benefit those who produce it – the further you are from that production, the more economically disenfranchised you will be.
European leaders cajoled bondholders into accepting 50 percent writedowns on Greek debt and boosted their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) in a crisis-fighting package intended to shield the euro area.
The 17-nation euro and stocks climbed while bond spreads narrowed after leaders emerged early today from a 10-hour summit in Brussels armed with a plan they said points the way out of the quagmire, albeit with some details still to be ironed out.
“Overall the outcome is better than we anticipated one week ago,” Laurent Bilke, global head of inflation strategy at Nomura International Plc in London, said in an interview. “There are several issues left open, but I do believe that getting a more necessary debt relief for Greece is a pretty important step.”
Last-ditch talks with bank representatives led to the debt- relief accord, in an effort to quarantine Greece and prevent speculation against Italy and France from ravaging the euro zone and wreaking global economic havoc. Greek Prime Minister George Papandreou will address the nation at 8 p.m. in Athens to outline the summit’s ramifications for the country at the eye of the two-year sovereign debt crisis.
“The world’s attention was on these talks,” German Chancellor Angela Merkel told reporters in Brussels at about 4:15 a.m. “We Europeans showed tonight that we reached the right conclusions.”
Measures include recapitalization of European banks, a potentially bigger role for the International Monetary Fund, a commitment from Italy to do more to reduce its debt and a signal from leaders that the European Central Bank will maintain bond purchases in the secondary market.
The euro advanced to a seven-week high against the dollar, rising above $1.40 for the first time since September. It was at $1.4007 at 11:48 a.m. in Brussels. The Stoxx Europe 600 Index surged 2.6 percent.
“It’s long on words, short on detail,” said Peter Dixon, an economist at Commerzbank AG in London. “The solution that’s been put in place now gives us enough ammunition to stave off any immediate problems but we may well run into other problems down the track.”
The summit was the 14th in the 21 months since Europe pledged solidarity with Greece, and came amid mounting global pressure for the bloc to deliver a credible anti-crisis toolkit before a Group of 20 meeting Nov. 3-4 in Cannes, France.
Economic growth finally strengthened in the third quarter-and the component mix is more favorable than expected. GDP growth improved to a 2.5 percent annualized increase in the third quarter, following an anemic 1.3 percent in the second quarter. The advance estimate matched market expectations for a 2.5 percent gain.
Demand numbers also improved as final sales of domestic product increased an annualized 3.6 percent in the third quarter after a 1.6 percent rise the prior quarter. Final sales to domestic purchasers (excludes net exports) gained 3.2 percent, following a 1.3 percent gain in the second quarter.
Strength was led by business fixed investment with personal consumption expenditures gaining momentum also. PCEs advanced 2.4 percent, following a 0.7 percent rise the prior quarter. Strength was led by durables with services also accelerating. Nondurables growth was soft. Net exports improved but at a slower rate. Inventory growth was positive but at a slower pace. Government purchases-on weakness in state & local spending-were flat but an improvement over a modest dip in the second quarter. Residential investment posted a modest gain but slowed from the prior quarter.
On a year-ago basis, GDP is up 1.6 percent, matching the pace in the second quarter.
Economy-wide inflation according to the GDP price index held steady at a 2.5 percent pace and equaled consensus forecasts for a 2.5 percent boost.
Today's report is good news, showing that economic momentum has picked up a bit. The component mix is particularly encouraging as final sales have picked up.
HighlightsThis number needs to be below 350k to reflect real job growth, it’s been years of nothing but job shedding. Taking credit for “jobs saved,” is nothing but more fraud designed to cover-up Fraud.
Initial jobless claims are holding steady in a narrow range just above 400,000. Claims came in at 402,000 in the October 22 week, a bit better than expectations. The four-week average of 405,500 is 10,000 below the month-ago period to hint at mild improvement for the October employment report.
Continuing claims in data for the October 15 fell 96,000 to 3.645 million with the four-week average of 3.701 million nearly 50,000 lower on the month-ago comparison. Improvement for continuing claims is an uncertain mix between hiring and benefit expiration. The unemployment rate for insured workers dipped one tenth to 2.9 percent.
There are no special factors in today's data, data continuing to suggest that employers, busy with production, are not scaling back their workforces.
The volume of mortgage applications bounced back from the prior week's Columbus Day lull. Purchase applications rose 6.4 percent in the October 21 week with refinancing applications up 4.4 percent. Rates were steady in the week with the average 30-year fixed-rate loan at 4.33 percent for conforming loan balances ($417,500 or less) and up slightly to 4.68 percent for jumbo loan balances ($417,500 or greater).
The headline is sluggish but outside of transportation, durables orders are showing broad-based strength. New factory orders for durables declined 0.8 percent in September after slipping an unrevised 0.1 percent the prior month. The September decline was in line with analysts' estimate for a 1.0 percent drop. Excluding transportation, durables rebounded 1.7 percent, following a 0.4 percent decrease in August. The market median forecast called for a 0.5 percent boost in durables excluding transportation.
The only major industry category to decline in September was transportation which dropped 7.5 percent after rising 0.6 percent in August. Weakness was primarily in aircraft with defense down 33.9 percent and nondefense down 25.5 percent. Some of the weakness in transportation was in autos, which is baffling, given recently healthy sales. Motor vehicles dipped 2.7 percent after a 9.1 percent drop in August.
Outside of transportation, orders were healthy across the board. Increases were seen in primary metals, up 2.6 percent; fabricated metals, up 1.9 percent; machinery, up 1.8 percent; computers & electronics, up 1.0 percent; electrical equipment, up 1.9 percent; and "other," up 1.0 percent.
Looking at private capital equipment related numbers, nondefense capital goods orders posted a healthy 2.4 percent gain, following a 0.5 percent rise in August. Shipments for this series, however, softened with a 0.9 percent dip in September but followed a strong 3.1 percent jump in August.
Overall, durables orders point to continued gains in manufacturing. Again, hard data are running stronger than surveys and anecdotes. On the news, equity futures improved somewhat.
I announce my candidacy for the Libertarian Party nomination for President of the United States. Now here’s my promise to you; if elected as your President, I will take office on January 20, 2013 – interestingly, that occurs on my 65th birthday. I promise that on that day, I will do three things:
1. I will put an end to government borrowing. No More National Debt! The United States will replace Federal Reserve Notes by re-issuing debt-free U.S. Notes, and gradually pay off the National Debt with them.
2. I will put an end to the ability of commercial banks to control the Quantity of money in our system through what is essentially counterfeiting. This has been a massive fraud on the people of the United States. We, the people, will take back the money power from the big banks and return the American economy to monetary stability and prosperity.
To ensure this system is enforced, I will appoint a Special Prosecutor experienced in matters of fraud to prosecute to the full extent of the law those who have abused our system in the past to serve as an example for the future.
3. I will abolish the Internal Revenue System and the income tax – both personal and corporate — and implement a fair, simple and equitable consumption tax in accordance with the U.S. Constitution. This is how we funded our government for the first 100 years, and we can do it again.
Home prices, at best, may be stabilizing according to Case-Shiller data that show no change in the adjusted composite-20 index for August. The reading ends three prior months of 0.1 percent declines (July revised downward from no change). The unadjusted reading, at a very weak plus 0.2 percent vs plus 0.9 percent and plus 1.1 percent in the two prior months, points to price contraction in August given that monthly readings in this report are three-month averages. Nevertheless, the unadjusted year-on-year pace of minus 3.8 percent is the best reading since February in what hints at a flattening in the slope of price contraction. At 10:00 a.m. ET this morning, the FHFA house price index will be released.
When examining debt, it is wise to always consider the income that is there to support that debt. Unfortunately, debt has been allowed to far outstrip income. An important concept is that Debt Saturation actual works to cap income - this is because the weight of carrying more and more principal and interest stifles real economic activity! And this is why increasing debt into a debt saturated condition actually causes unemployment to worsen. Note in the chart below how Federal Receipts have stagnated in relation to Federal Debt, that is a debt saturated condition:
Index of Federal Receipts Vs. Federal Debt:
Note in the chart above that these values have been indexed in order to get them on the same scale - in reality income is much smaller as a percentage of debt with Federal Receipts only $2.5 Trillion.
The national activity index improved to minus 0.22 in September from a revised minus 0.59 in August, still below zero to indicate below trend growth for the sixth straight month. The three-month average improved to minus 0.21 from an unrevised minus 0.28.
Employment-related indicators moved to slightly positive ground as did production-related indicators. Sales, orders & inventories also moved to the positive side. Consumption & housing improved slightly but remains deeply negative.
PMI Group Mortgage Insurance Unit Is Seized by Arizona; Payouts Cut to 50%
PMI Group Inc. (PMI), the mortgage insurer that was ordered in August to stop writing policies, said a unit that sells such coverage was seized by Arizona authorities and will pay out claims at 50 percent starting tomorrow.
The Arizona insurance regulator has full possession, management and control of the unit, PMI Group said in a statement on its website. Bill Horning, a spokesman for PMI, didn’t respond to a message seeking comment.
In August, the Arizona Department of Insurance told PMI that the unit, PMI Mortgage Insurance Co., was to halt sales of new policies and stop making interest payments on $285 million in surplus notes. PMI, which is based in Walnut Creek, California, said it needed to provide the regulator with a plan to improve its ability to meet policyholder obligations.
“The department may take appropriate action, including commencing conservatorship proceedings” if PMI fails to satisfy regulators’ demands, the company said on Aug. 19.
That same month, PMI Group posted its 16th straight quarterly loss.
The worst U.S. housing crash in seven decades has pressured mortgage insurers, which pay lenders when homeowners default and foreclosures fail to recoup costs. Home prices fell 3.3 percent in the 12 months through July as a U.S. unemployment rate of more than 9 percent sapped the confidence of potential home buyers.
DEBT SATURATION - Occurs when collective income can no longer service more principal and interest under current credit terms & conditions. Debt saturation can occur for you personally, for your family, and it can occur for the people collectively. It can also occur, and has occurred, for local municipalities, city, state, and Federal governments, as well as corporations (financials in particular). Because the same income earners ultimately are responsible for all these debt (a key concept), there is a point that occurs overall, that point I call Macroeconomic Debt Saturation. Debt saturation can occur and then recur as credit terms are changed - for example, the lowering of interest rates moves the allowable amount of debt prior to reaching saturation up.
DIMINISHING PRODUCTIVITY OF DEBT - Is the phenomena of decreasing real productivity gains for a given amount of debt creation. In a non-saturated economy, the introduction of credit does work to increase productivity. However, approaching the Macroeconomic Debt Saturation point, the productivity gain begins to decrease, and at the saturation point is zero, turning negative as we get beyond the Debt Saturation point.