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Calls for Tim Geithner and Larry Summers to Resign

August 24, 2010 By Chuck Leave a Comment

House minority leader John Boehner (R) today has called for Treasury Secretary Timmy Geithner and White House adviser Larry Summers to resign.

Boehner said President Obama’s team lacks “real-world, hands-on experience” in creating jobs that are needed for a full economic recovery. The Republican lawmaker cited reports that some senior aides complained of “exhaustion,” including the recently departed budget chief Peter Orszag.

“President Obama should ask for – and accept – the resignations of the remaining members of his economic team, starting with Secretary Geithner and Larry Summers, the head of the National Economic Council,” Boehner said in the morning speech to business leaders at the City Club of Cleveland. The mass dismissal, he added, would be “no substitute for a referendum on the president’s job-killing agenda. That question will be put before the American people in due time. But we do not have the luxury of waiting months for the president to pick scapegoats for his failing ‘stimulus’ policies.” {…} (Washington Post)

While I am quite sure John Boehner’s call for the Obama economic team to resign is along political party lines I have to join him in the call for Geithner and Summers to resign. This should come as no surprise to my long term readers for I have been solidly against Ben Bernanke and the Presidents economic team, especially Tim Geithner.

Ben Bernanke and his merry men at the FOMC have missed every clue leading up to the economic disaster while outsiders kept arguing (including me) that the economy was headed for the toilet.

When Mr. Tim Geithner was at the New York Fed, prior to becoming Treasury Secretary he was joined at the hip to Wall Street. It was his job to be ‘close’ to Wall Street. And as Treasury Secretary  Mr. Geithner continues his old ways with the ‘go easy on Wall Street’ approach as evidenced by the ridiculous financial reform (FINREG) bill that is now law of the land.

Larry Summers, the only good thing I have to say about Mr. Summers is, well, I’ll have to get back to you on that one because I can’t think of anything good right now.

The Obama administration did strike back today with a report from the Comical Congressional Budget Office that sates the stimulus added anywhere between 1.7 to 4.5 percent to real GDP. And that the stimulus increased the number of full time jobs by 2.0 to 4.8 million.

Ok, we have heard of the media claiming green shoots were everywhere last Spring. Now I know where all those green shoots went when they wilted, they are being smoked in Washington, D.C.

Lets say for a moment that the stimulus did add to the GDP by as much as 4.5%. What does that tell you about the ‘real economy’? Take away the stimulus and organic growth is still negative. A point I have opined about for a very long time here on my site. It is not what the stimulus does in the short term, it is the state of organic growth that matters. And with each passing day it is becoming more and more apparent just what the organic growth is really like. It’s not a pretty picture.

Impact of Stimulus

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Filed Under: Market Updates Tagged With: , , , ,

FOMC Says Pace of Recovery Has Slowed – Invokes QE Lite

August 10, 2010 By Chuck 1 Comment

The FOMC has softened their view on the U.S. economy and invokes quantitative easing ‘lite’.

Release Date: August 10, 2010

For immediate release

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh.

Voting against the policy was Thomas M. Hoenig, who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee’s ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve’s holdings of longer-term securities at their current level was required to support a return to the Committee’s policy objectives.

1. The Open Market Desk will issue a technical note shortly after the statement providing operational details on how it will carry out these transactions

At first blush this appears to be a concerted effort to keep rates low by having the NY Fed buying up treasuries. A stable dollar policy at the FOMC seems to be all but forgotten as the perhaps intended consequence of today’s QE ‘lite’ announcement has sent the dollar tumbling. A new downtrend in the dollar? Maybe, too soon to see how this plays out. If the FOMC wanted to devalue the dollar then their actions today is a super start in trying to improve the export business.

Does any of this take the double dip recession chances off the table? No it does not. This is another effort to try and kick-start lending that has in my view a low return on investment for the U.S. government. In other words they will risk much to gain little.

The implications of today FOMC announcement will be analyzed and scrutinized for days to come. How this plays out in the next few days remains up in the air. This was not a home-run by the Fed, it is a photo finish and the referees are still looking at the replay.

Filed Under: Market Updates Tagged With: , ,

Fridays Stock Market Action – Technical Bounce Fueled by Hopes of More Quantitative Easing

August 8, 2010 By Chuck Leave a Comment

Following in the footsteps of the recent series of bad economic data, the monthly employment situation report issued on Friday morning did not deviate from the recent ‘bad’ news concerning the economy.

The employment situation data caused a ‘stop in your tracks‘ and sell reaction in the major indices at the market open. The S&P 500 never reached my target price for entering a short position and I was not about to short the hole as we traders refer to the action that occurred on Friday morning. Remember it always comes down to achieving the best entry, chasing a position (long or short) is dangerous to your capital.

The S&P 500 (SPX cash index) sold down and reached the lower wedge line I discussed many times over the past week. This lower wedge line provided a text book market bounce that created a flood of short covering, sending prices higher in a nearly panic buying frenzy into the close.

What also fueled the afternoon recovery was a report circulating from Goldman Sachs that they lowered their full year GDP outlook for the United States. So if Goldman Sachs, and others, are lowering their outlook for the economy then why did the market rally? For this answer we only need to look at Ben Bernanke and his merry men at the FOMC. The market believes that the recent series of poor economic data and forecasts will put new pressure on the Fed to initiate another round of monetary easing.

This “easing” could be in the form of the Fed buying additional assets, a new round of stimulus spending, or any number of other “prop up the economy with toothpick” scenarios that failed to work in the first round. Organic growth continues to be missing, and without that any measures to prop up the economy will be once again simply be a temporary fix to what is a systemic cancer of debt spreading throughout the economy.

The FOMC will be meeting tomorrow and will announce their latest rate decision along with policy statement on Tuesday at 2:15pm (US ET). One investment firm is already out saying that the FOMC will have to respond to the deteriorating economic conditions right away and announce new measures as early as this week. Ben Bernanke and his printing press happy cohorts are in a bind. In his FOMC statement this Tuesday he can’t turn a blind eye to the recent economic news which has been worse than expected. But what more can he do without further endangering the sovereign rating of the United States?

Ben Bernanke needs to fully acknowledge in his statement that economic conditions have deteriorated, no playing with words anymore. He must convince the markets he knows things are not improving. And he has to be tough and not announce additional easing measures which has up to now failed to work and has only pushed the nation further into debt. The market would probably not like that, but reality sucks.

Back to the S&P 500 chart. I am still planning on initiating short positions if the top wedge area is reached. I will have more on the market action and especially the S&P 500 chart activity in the market video which will be posted later this evening.

8 8 2010 5 37 49 PM Fridays Stock Market Action Technical Bounce Fueled by Hopes of More Quantitative Easing

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Filed Under: Market Updates Tagged With: , , ,

Ben Bernanke States Economic Outlook is Unusually Uncertain

July 21, 2010 By Chuck 2 Comments

Ben Bernanke’s written opening statement to Congress says the economic outlook is “unusually uncertain”. Coming from the always rose colored glass wearer this is a rather bold statement.

Full written text is provided below:

Ben Bernanke Testimony to Congress

Filed Under: Market Updates Tagged With: , , ,

FOMC Policy Statement

June 23, 2010 By Chuck Leave a Comment

First the statement from the FOMC:

Release Date: June 23, 2010

For immediate release

Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time.

Prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee’s flexibility to begin raising rates modestly.

What is different in this policy statement is the softenening of economic growth potential

{…} Financial conditions have become less supportive of economic growth on balance {…}

This is the first time in nearly 10 months that the FOMC has stated that economic growth may be less than expected. At least they acknowledge that economic conditions have been deteriorating. Other than that it was the same usual statement of low rates forever.

Filed Under: Market Updates Tagged With: ,

Beige Book for June 2010 – Three Blind Mice

June 9, 2010 By Chuck 1 Comment

The Federal Reserve today released their latest beige vague book. Once again the Fed’s regale us in their wisdom and assessments of the economy.  After reading this report I’m reminded of the old fairy tale “Three Blind Mice”

FED Beige Book – June 9 2010

Filed Under: Market Updates Tagged With: , , ,

Federal Reserve To Hold Another Expedited Meeting

June 6, 2010 By Chuck 1 Comment

The Federal Reserve is going to hold another cone of silence meeting tomorrow:

Advance Notice of a Meeting
under Expedited Procedures

It is anticipated that the closed meeting of the Board of Governors of the Federal Reserve System at 11:30 a.m. on Monday, June 7, 2010, will be held under expedited procedures, as set forth in section 26lb.7 of the Board’s Rules Regarding Public Observation of Meetings, at the Board’s offices at 20th Street and C Streets, N.W., Washington, D.C. The following items of official Board business are tentatively scheduled to be considered at that meeting.

Meeting date: June 7, 2010

Matters to be Considered:

1.
Review and determination by the Board of Governors of the advance and discount rates to be charged by Federal Reserve Banks.

A final announcement of matters considered under expedited procedures will be available in the Board’s Freedom of Information and Public Affairs Offices and on the Board’s Web site following the closed meeting.

I always get concerned about the future even more when the Fed’s start meeting under expedited procedures.

Let us just hope that Ben Bernanke does not communicate using a shoe phone.

shoe phone

Filed Under: Market Updates Tagged With: , ,

Bank of England Governor Calls for a Federalized Fiscal Union

May 14, 2010 By Chuck

Bank of England (BOE) Governor Mervyn King states that the European Union should move towards a federalized fiscal union. Additionally he states that the United States is not all that different than Greece in regards to the debt.

That is a bold statement and it reflects the stresses in the entire Euro region and the growing debt crisis here in the United States.

[…] I do want to suggest that within the Euro Area it’s become very clear that there is a need for a fiscal union to make the Monetary Union work. But if that is to happen there needs to be also a mechanism to enable other countries that have lost competitiveness to regain competitiveness. That requires actions, probably structural reforms, changes in wages and prices, in the countries that need to regain competitiveness. But it also needs a solid and expansionary state of domestic demand in the stronger economies in Europe. […]

[…] America, and many other large economies including the UK, share some of the same problems as Greece with its public finances:

Every country around the world is in a similar position, even the United States; the world’s largest economy has a very large fiscal deficit. And one of the concerns in financial markets is clearly – how will this enormous stock of public debt be reduced over the next few years? And it’s very important that governments, both here and elsewhere, get to grips with this problem, have a clear approach and a very clear and credible approach to reducing the size of those deficits over, in our case, the lifetime of this parliament […]

[…] It is absolutely vital, absolutely vital, for governments to get on top of this problem. We cannot afford to allow concerns about sovereign debt to spread into a wider crisis dealing with sovereign debt. Dealing with a banking crisis was bad enough. This would be worse. […] (BOE)

Ben Bernanke, are you listening to your British counterpart?

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