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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.
This White House video explaining how financial market reform is going to make things better has been popping up quite a bit recently, in most cases, just so it can be ridiculed.
I was reserving judgment until I heard, “For banks, there’s no more betting. Just banking. Plus, banks will be prevented from growing so large that they put the entire economy at risk if they were to fail”. That’ll be the day…
An anonymous source claiming to work for the Federal Reserve in Washington and known to me only as OMGWDKWTFWAD has forwarded what is believed to be the first draft of the August monetary policy statement from Federal Open Market Committee meeting.
This seems to confirm recent rumors that the Fed will soon change the language behind their pledge to keep short-term interest rates low for a very long time in order to spur an economic recovery. Unfortunately, this is likely to prompt even more analysts to realize that this is all just an exercise in futility and that the U.S. is quickly turning into Japan, the important distinction being that we can’t fund our own budget deficits.
The National Association of Realtors reported that existing home sales fell 5.1 percent in June, down from an annual rate of 5.66 million units in May to just 5.37 million units last month, the lower sales total attributed to the end of the homebuyer tax credit.
As shown below, what is interesting about the recent decline is that sales peaked a full two months before the tax credit expired instead of during the same month that the government giveaway ended, as was the case when the first round of tax cuts expired last fall.
Note that in the graphic above, sales totals during the last month of the tax credit in November and June are shaded black in order to better see how different an impact the end of the tax credits had on sales. While seasonal adjustments are no doubt involved, the decline in sales during May and June are likely evidence of very little demand left to be “pulled forward”, what is widely seen as the fundamental flaw in this program.
Despite yesterday’s somewhat sanguine view, if Federal Reserve Chief Ben Bernanke really thinks that the U.S. economy is headed for serious trouble due to various traps that have been encountered (said traps having previously been set by the deflation and/or liquidity monsters), he has more company with each passing day. Earlier today in “the land of deflation”, one former Fed head lent his support to this view as reported by Reuters.
Former Federal Reserve board member Lawrence Lindsey said on Thursday it will be “obvious” by the end of this year that the U.S. economy has entered a “deflationary trap.”
“We know from (Fed) Chairman (Ben) Bernanke’s recent comments that it is now at least a concern … By the end of this year I think it will be quite clear,” Lindsey said in an economic forum in Tokyo.
“I would expect by December we will see further quantitative easing” by the Fed, he said.
December seems like such a long time away…
Paul Krugman sketched out the situation for Bernanke creating a new “Fed misery index” that he chose to call a “Fed fail index” since he figures the central bank deserves an “F” for the job it’s been doing in achieving full employment and stable prices.
Like many others in recent years, this discussion again strikes me as something that historians will look back upon in a few decades and wonder, “What were those guys thinking? They run an economy on asset bubbles for twenty years and then they wonder why normal monetary policy doesn’t work any more.”
Doug Kass of Seabreeze Partners is sticking by his recent prediction that the lows for the year have already been seen for equity markets. He talked to the fast-talking crew of CNBC’s Fast Money yesterday to share some of his latest thinking.
Kass favors the upside noting, “we could get this massive asset reallocation out of fixed income into equities”, arguing that pensions funds and retail investors who shunned stocks because they were too risky will flock back to equities after the bond bubble bursts.
MUST READS
Bernanke: Recovery ‘unusually uncertain’ – CNN/Money
Fed ready to step in if economy falters again – Washington Post
Financial Overhaul is Law, Now Comes Battle Over Rules – Bloomberg
Bank reform brings mortgage aid for the unemployed – MarketWatch
Bernanke’s Fed Exit Door Now Swings Two Ways – Baum, Bloomberg
Loan-modification failure of the day – Salmon, Reuters
Gold Coin Sellers Angered by New Tax Law – ABCNews
Excess Capacity and Housing – Calculated Risk
Time for a Monetary Boost – HuffPo
MARKETS/INVESTING
Oil reverses losses, heads for $77 – Reuters
Gold prices retreat as metal remains under $1,200 – MarketWatch
So, is it really another lost decade for equities? – FT Alphaville
California Teachers Fund Earns 12% After Record Loss Last Year – BusinessWeek
Oil prices may dip to $40 by year end – Commodity Online
Roubini Global Economics: Don’t Jump into Gold – CNBC
ECONOMY/WORLD/HOUSING/FED
The Case for Deflation – Seeking Alpha
Senate votes to extend jobless lifeline – CNN/Money
Euro Passes Stress Test as Debt Panic Ebbs – Bloomberg
Confusion as Europe prepares for bank test release – Reuters
Chinese state firms in hot seat after U.S. admission of bribery – MarketWatch
Zandi: ‘Stop Subsidizing Housing Industry with Tax Deductions’ – WSJ
Is HAFA a Better Solution than HAMP? – HousingWire
Ending Interest on Reserves Won’t Help – WSJ
The Fedfail Index – Krugman, NY Times
By Tim Iacono, Since 2005
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