First, more on sovereign debt issues this morning: Part 2B: More on Historic Sovereign Default Research
This will be a busy week. The key economic report this week will be June retail sales to be released on Wednesday.
On Monday, the June Ceridian-UCLA Pulse of Commerce Index (based on diesel fuel consumption) will be released. Also on Monday at 10 AM ET, Fed Chairman Ben Bernanke will open the Fed’s small business forum: Addressing the Financing Needs of Small Businesses.
On Tuesday, the National Association of Independent Business (NFIB) will release the small business optimism survey for June at 7:30 AM. The May Trade Balance report will be released at 8:30 AM by the Census Bureau. The consensus is for a slight decrease in the U.S. trade deficit to $39 billion (from $40.3 billion). Also on Tuesday the Job Openings and Labor Turnover Survey (JOLTS) for May will be released at 10 AM by the BLS. This report has been showing very little turnover in the labor market.
On Wednesday, the June Advance Monthly Retail Trade Report will be released by the Census Bureau at 8:30 AM. The consensus is for a 0.2% decline in retail sales (flat ex-autos). Also on Wednesday, the MBA will release the mortgage purchase applications index. This has been very weak after the expiration of the tax credit, although refinance activity has picked up significantly as mortgage rates have fallen.
Also on Wednesday, the May Manufacturing and Trade Inventories and Sales report from the Census Bureau will be released at 10 AM. This has been suggesting that the inventory adjustment is mostly over. At 2 PM the Fed will release the minutes of the June 23rd FOMC meeting.
On Thursday, the initial weekly unemployment claims will be released. Consensus is for a decline to 445K from 454K last week. The Producer Price index will be released at 8:30 AM. Consensus is for a slight increase in the PPI. The July Empire State manufacturing survey will also be released at 8:30 AM. The consensus is for a slight decrease from the June reading.
Also on Thursday the Federal Reserve will release the June Industrial Production and Capacity Utilization report at 9:15 AM. Expectations are for production to decrease slightly and capacity utilization to fall to 74.0% from 74.7% in May. If so, this will be the first decline since June 2009. The Philly Fed Business Outlook Survey for July will be released at 10 AM, and the consensus is for a slight increase.
On Friday, the June Consumer Price Index will be released at 8:30 AM. Expectations are for a slight decrease of 0.1% in the CPI. At 9:55 AM the July Reuters / University of Michigan's Consumer sentiment index will be released. The consensus is for a slight decrease in the index.
Also this week, the June rail traffic report from the Association of American Railroads (AAR) and June LA port traffic will probably be released and the FDIC will probably be busy ...
Three posts on Sovereign debt:
Part 1: How Large is the Outstanding Value of Sovereign Bonds?
Part 2. How Often Have Sovereign Countries Defaulted in the Past?
Part 2B: More on Historic Sovereign Default Research
And a summary of last week:
 Image: Calculated Risk |
Click on graph for larger image in new window.
The June ISM Non-manufacturing index was at 53.8%, down from 55.4% in May - and below expectations of 55. The employment index showed contraction in June at 49.7%.
This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.
The employment index is showing contraction again after one month of expansion.
Image: Calculated Risk
This graph shows the 4-week moving average of weekly claims since January 2000.
The four-week average of weekly unemployment claims decreased this week by 1,250 to 466,000.
The dashed line on the graph is the current 4-week average.
Initial weekly claims have been at about the same level since December 2009.
Image: Calculated Risk
The MBA reports: The seasonally adjusted Purchase Index decreased 2.0 percent from one week earlier.
"The Purchase Index has decreased eight of the last nine weeks."
This graph shows the MBA Purchase Index and four week moving average since 1990.
There has been a mini-refi boom because of the low mortgage rates, but the purchase index has fallen sharply to the levels of 1996.
Back in 2002, a professor turned Federal Reserve official by the name of Ben Bernanke gave a widely quoted speech titled “Deflation: Making Sure ‘It’ Doesn’t Happen Here.” Like other economists, myself included, Mr. Bernanke was deeply disturbed by Japan’s stubborn, seemingly incurable deflation, which in turn was “associated with years of painfully slow growth, rising joblessness, and apparently intractable financial problems.” This sort of thing wasn’t supposed to happen to an advanced nation with sophisticated policy makers. Could something similar happen to the United States?
Paul Krugman
Not to worry, said Mr. Bernanke: the Fed had the tools required to head off an American version of the Japan syndrome, and it would use them if necessary.
Today, Mr. Bernanke is the Fed’s chairman — and his 2002 speech reads like famous last words. We aren’t literally suffering deflation (yet). But inflation is far below the Fed’s preferred rate of 1.7 to 2 percent, and trending steadily lower; it’s a good bet that by some measures we’ll be seeing deflation by sometime next year. Meanwhile, we already have painfully slow growth, very high joblessness, and intractable financial problems. And what is the Fed’s response? It’s debating — with ponderous slowness — whether maybe, possibly, it should consider trying to do something about the situation, one of these days.
The Fed’s fecklessness is, to be sure, not unique. It has been astonishing and infuriating, as the economic crisis has unfolded, to watch America’s political class defining normalcy down. As recently as two years ago, anyone predicting the current state of affairs (not only is unemployment disastrously high, but most forecasts say that it will stay very high for years) would have been dismissed as a crazy alarmist. Now that the nightmare has become reality, however — and yes, it is a nightmare for millions of Americans — Washington seems to feel absolutely no sense of urgency. Are hopes being destroyed, small businesses being driven into bankruptcy, lives being blighted? Never mind, let’s talk about the evils of budget deficits.
Still, one might have hoped that the Fed would be different. For one thing, the Fed, unlike the Obama administration, retains considerable freedom of action. It doesn’t need 60 votes in the Senate; the outer limits of its policies aren’t determined by the views of senators from Nebraska and Maine. Beyond that, the Fed was supposed to be intellectually prepared for this situation. Mr. Bernanke has thought long and hard about how to avoid a Japanese-style economic trap, and the Fed’s researchers have been obsessed for years with the same question.
But here we are, visibly sliding toward deflation — and the Fed is standing pat.
What should it be doing? Conventional monetary policy, in which the Fed drives down short-term interest rates by buying short-term U.S. government debt, has reached its limit: those short-term rates are already near zero, and can’t go significantly lower. (Investors won’t buy bonds that yield negative interest, since they can always hoard cash instead.) But the message of Mr. Bernanke’s 2002 speech was that there are other things the Fed can do. It can buy longer-term government debt. It can buy private-sector debt. It can try to move expectations by announcing that it will keep short-term rates low for a long time. It can raise its long-run inflation target, to help convince the private sector that borrowing is a good idea and hoarding cash a mistake.
Nobody knows how well any one of these actions would work. The point, however, is that there are things the Fed could and should be doing, but isn’t. Why not?
After all, Fed officials, like most observers, have a fairly grim view of the economy’s prospects. Not grim enough, in my view: Fed presidents, who make forecasts every time the committee that sets interest rates meets, aren’t taking the trend toward deflation sufficiently seriously. Nonetheless, even their projections show high unemployment and below-target inflation persisting at least through late 2012.
So why not try to do something about it? The closest thing I’ve seen to an explanation is a recent speech by Kevin Warsh of the Fed’s Board of Governors, in which he declared that doing what Mr. Bernanke recommended back in 2002 risked undermining the Fed’s “institutional credibility.” But how, exactly, does it serve the Fed’s credibility when it fails to confront high unemployment, while consistently missing its own inflation targets? How credible is the Bank of Japan after presiding over 15 years of deflation?
Whatever is going on, the Fed needs to rethink its priorities, fast. Mr. Bernanke’s “it” isn’t a hypothetical possibility, it’s on the verge of happening. And the Fed should be doing all it can to stop it.
Christine’s first commission cheque! In one week of work right after her licensing. Wow！ Congratulations by Mr. DeBeers Wong, her boss and mentor. Well done Christine. We are very encouraged. Cheers!
Our warmest welcome to the Sp.Ace Community, Christine and Yvonne! Thank you for becoming part of something bigger with us in your endeavor to redirect your lives as well as making a difference to us . Welcome!
Up until a few days ago, gold only seemed to be going in one direction. But there have been shifts all over the place. The euro is rallying, stocks are slumping, and the dollar is slumping.
As such, the recent decline in gold doesn't just look a brief step down, but potentially an actual reversal in direction.
A growing crowd has been calling gold a bubble of late, and there's no obvious place for it to stop falling.
Now the place that was used for privileged fox hounds hunts in the early 20th century is looking for a new owner. Horse lovers are most welcome, but the property is large and beneficially zoned so it can be used for multiple purposes, such as: "a beautiful estate, a equestrian facility, a church or school location," or up to nine residential subdivisions.
At least one famous football player looked at the property (we were asked to not reveal the name), and Morgan Stanley reportedly used the location for a photo shoot.
Want the price? You'll have to make a bid.
 Image: Wikimedia |
It's hard enough that scores of IPOs around the world have been canceled due to weak global markets, but now Agricultural Bank's IPO pricing could look expensive if Chinese stock markets swoon further.
Already, the apparent valuation discount for the IPO, based on forward price-to-book ratio, had fallen to 5.3% as of Sunday, from 10.5% on June 24th.
The narrowing discount, the result of a drop in shares of publicly traded rivals such as Industrial & Commercial Bank of China Ltd., may make it harder for Chairman Xiang Junbo to raise the maximum $20.1 billion he’s seeking in Hong Kong and Shanghai. It may also dim the prospect of eclipsing ICBC’s record $21.9 billion IPO in October 2006, even when taking into account an option to boost the sale by 15 percent.
“We’re not in an environment where people are going to be biasé about valuations, and as things have sold off, it’s put some pressure on them,” said William Fries, a fund manager at Santa Fe, New Mexico-based Thornburg Investment Management, which oversees about $57 billion.
Then again, maybe a 5% change to your price-to-book discount really matter that much when your forecast book value is an educated guess at best, and could disappear in a heartbeat due to surprise loan losses, off-balance sheet issues, etc..
Still, as potentially the world's largest share listing, the outcome of Agricultural Bank's IPO could make or break the Chinese market's perception of its own sentiment. Few investors want to feel like there's little investor appetite to buy stocks coming after them.
Agricultural Bank of China Ltd.'s (1288.HK) upcoming initial public offering has attracted pledges of subscription from institutional investors including China-based fund management firms and Hong Kong-based investors and banks, a person familiar with the deal said Monday.
China Cinda Asset Management Corp., Great Wall Fund Management Co., China Taiping Insurance Group Co., Hong Kong-listed Bank of East Asia Ltd. (BKEAY, 0023.HK), Wing Lung Bank Ltd. and Hong Kong tycoon Joseph Lau Luen-hung are among those institutional investors, the person said.
Thus let's hope these early reports of institutional demand represent large actual quantities of IPO subscriptions.
Given the recent volatility you might think that we’d be seeing very negative signals in the sentiment data, however, the data continues to be mixed. The most recent Investor’s Intelligence survey showed bearish sentiment hold steady at 41%. This is a relatively mild level bearishness given the current environment. Previous major market bottoms have occurred at substantially lower readings.
Small investors, on the other hand, are exhibiting a bit more fear. According to the AAII small investor sentiment plummeted in the most recent week:
“Bullish sentiment, expectations that stocks will rise over the next six months, plunged 9.8 percentage points to 24.7%. This is the lowest bullish sentiment has been since November 5, 2009. The historical average is 39%.
Neutral sentiment, expectations that stock prices will remain unchanged over the next six months, edged up 0.2 percentage points to 33.3%. The historical average is 31%.
Bearish sentiment, expectations that stock prices will fall, jumped 9.6 percentage points to 42%. This is the eighth consecutive week that bearish sentiment has remained above its historical average of 30%.”
Charles Rotblut at AAII detailed the move:
“The ongoing volatility in the market continues to affect individual investor sentiment. While there had been some hope two weeks ago that a short-term bottom was being established, the continued downward movement of stock prices has further frayed nerves.”
Gold is modestly higher since yesterday's US market close, but basically it's been a very quiet session for THE ONE TRUE CURRENCY.
Here's a quick look.
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