Beijing's devaluation of the yuan allowed it to fall by its biggest one-day margin in a decade. The central bank said the 1.9% decline was due to changes aimed at making the way it sets exchange rates more market-oriented. The U.S. dollar also gained against the yen, Indian rupee, South Korean and other Asian currencies.'
http://americasmarkets.usatoday.com/2015/08/11/stocks-tuesday-23/
Optimists take the view that, like a skilled pilot, Fed chairwoman Janet Yellen will be able to bring the size of the balance sheet down smoothly and steadily without hitting too much turbulence.
Pessimists, however, believe the pilot is flying blindly through dense clouds with a faulty radar and constant risk of storms, making the policy normalisation process particularly risky.
"For me the new thing to look out for is what they do to the portfolio," says Robert Michele, chief investment officer at JPMorgan Asset Management. "We know about moving the [interest rate] corridor. What we should be worried about is what they do with the balance sheet."
The Fed's strategy for reducing its bloated balance sheet has evolved over time, but in September policy makers said the Fed will cease or start phasing out reinvestments only after it first begins increasing short-term interest rates. The balance sheet would shrink in a "gradual and predictable manner", but the details were left unclear — as well as the timing, which will depend on how economic and financial conditions evolve.
One market concern is that allowing assets to roll off automatically as they mature could lead to a jagged path of balance-sheet reduction. BlackRock's Investment Institute pointed out in a recent report that a third of the Fed's entire Treasury portfolio, about $785bn, comes due by the end of 2018. Allowing the balance sheet to deflate that quickly could spook markets.'
http://www.ft.com/intl/cms/s/0/520377e8-037e-11e5-b55e-00144feabdc0.html#axzz3bGOeKjV8
Economic Headwind
Not only is the dollar's rise reducing price pressures, making it harder for the Fed to tighten, it's also acting as an "economic headwind reducing the need to tighten," said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.
The FOMC made a nod to the dollar's impact on the economy in its policy statement, noting that export growth has weakened. Yellen was more explicit in her press conference, saying that exports would be a "notable drag" on growth this year and tying that to the strength of the dollar, which she said partly reflected the strength of the U.S. economy.
Yellen said the currency's rise was also "holding down import prices and, at least on a transitory basis at this point, pushing inflation down."
"The Fed sees the stronger dollar as effectively tightening conditions in the U.S.," said Jonathan Wright, a professor at Johns Hopkins University in Baltimore and a former economist at the Fed's Division of Monetary Affairs. "They are worried about what will happen to the dollar and financial markets when the Fed starts tightening with much of the rest of the world at negative interest rates." '
'This exam, given in 23 countries, assessed the thinking abilities and workplace skills of adults. It focused on literacy, math and technological problem-solving. The goal was to figure out how prepared people are to work in a complex, modern society.
And U.S. millennials performed horribly.
That might even be an understatement, given the extent of the American shortcomings. No matter how you sliced the data – by class, by race, by education – young Americans were laggards compared to their international peers. In every subject, U.S. millennials ranked at the bottom or very close to it, according to a new study by testing company ETS.
"We were taken aback," said ETS researcher Anita Sands. "We tend to think millennials are really savvy in this area. But that's not what we are seeing."
The test is called the PIAAC test. It was developed by the Organization for Economic Co-operation and Development, better known as the OECD. The test was meant to assess adult skill levels. It was administered worldwide to people ages 16 to 65. The results came out two years ago and barely caused a ripple. But recently ETS went back and delved into the data to look at how millennials did as a group. After all, they're the future – and, in America, they're poised to claim the title of largest generation from the baby boomers.
U.S. millennials, defined as people 16 to 34 years old, were supposed to be different. They're digital natives. They get it. High achievement is part of their makeup. But the ETS study found signs of trouble, with its authors warning that the nation was at a crossroads: "We can decide to accept the current levels of mediocrity and inequality or we can decide to address the skills challenge head on."
The challenge is that, in literacy, U.S. millennials scored higher than only three countries.
In math, Americans ranked last.
In technical problem-saving, they were second from the bottom.
"Abysmal," noted ETS researcher Madeline Goodman. "There was just no place where we performed well."'
'consider the Congressional Budget Office estimates of actual median household income. Measured in 2013 dollars, after-tax median income rose briskly from $46,998 in 1983 to $70,393 in 2008 but remained below that 2008 peak in 2011. The sizable increase before 2008 is partly because the average of all federal taxes paid by the middle fifth has almost been cut in half since 1981—from 19.2% that year to 17.7% in 1989, 16.5% in 2000, 13.6% in 2003 and 11.2% in 2011.
Census Bureau estimates of median "money income," on the other hand, do not account for taxes, so they miss a major source of improved living standards. They also exclude realized capital gains, public and private health insurance, food stamps and other in-kind benefits. Even so, the Census Bureau's flawed estimate of median income rose 13.7% from 1984 to 2007 before falling 8% from 2007 to 2013.
Both CBO and Census estimates show only six years of middle-class stagnation…
In their original 2003 study, Messrs. Piketty and Saez mentioned one rapidly expanding source of missing income—disappearing dividends in tax-return data. These were "due mostly to the growth of funded pension plans and retirement savings accounts through which individuals receive dividends that are never reported as dividends on income tax returns."
The same is true of interest and capital gains accumulating inside such tax-free savings accounts. These have grown to nearly $20 trillion, according to a 2014 report by Tax Foundation economist Alan Cole.
Messrs. Piketty and Saez shrink the total income numbers further by subtracting all transfer payments, such as Social Security and unemployment benefits, and excluding all health and retirement benefits provided by private employers or government agencies. The result, as Brookings Institution's Gary Burtless noted, is that, "The Piketty-Saez measure [of total income] excluded 24% of NIPA [National Income and Product Accounts] 'personal income' in 1970, but it excluded 37% of 'personal income' in 2008." It excluded 40% of personal income by 2011. '
http://www.wsj.com/articles/alan-reynolds-the-mumbo-jumbo-of-middle-class-economics-1425340903
The Fed chairman told a US Senate committee on Tuesday that if the central bank modified its guidance to markets, rate moves could follow at any meeting, as she prepared global investors for interest rate rises later this year.
http://www.ft.com/intl/cms/s/0/e7475446-bc34-11e4-b6ec-00144feab7de.html#axzz3SgPuTM78
The history is that monetary policy is not ultimately a very effective tool at solving real economic structural problems. It can try for a while but the problem then is that it's only temporarily effective, and when you can't do it anymore you get the explosion yesterday in the Swiss market.
One of the things I've tried to argue is look, if we believe that monetary policy is doing what we say it's doing and depressing real interest rates and goosing the economy and we're in some sense distorting what might be the normal market outcomes at some point, we're going to have to stop doing it. At some point the pressure is going to be too great. The market forces are going to overwhelm us. We're not going to be able to hold the line anymore. And then you get that rapid snapback in premiums as the market realizes that central banks can't do this forever. And that's going to cause volatility and disruption…
But if you think Germany is tough with Greece, you should see how it behaves at home.
The current dilemma now facing Europe is partly an outgrowth of Germany's own countrywide obsession with avoiding excessive debt.
It's a focus born out of long historical experience, which has helped to turn responsible spending into both a personal and a civic virtue. Germany is a place where cash remains king; some retail outlets, including IKEA locations, don't accept credit cards.
At the national level, the German federal government recently balanced the budget for the first time in 45 years. Starting in 2016, it will be bound by a constitutional measure restricting its borrowing, something known as the "debt brake."
The unwavering focus on fiscal discipline is a source of consternation for those who see Germany's debt phobia as unhealthy for Europe and for its own future. In an era of ultra-low interest rates, they say, Germany should seize the chance to borrow cheaply and use the funds to update its infrastructure and make an investment in long-term prosperity.
"We are not in a situation where the balanced budget should be the first priority," said Ferdinand Fichtner of the German Institute for Economic Research in Berlin. "It would make more sense to take a bit more money and invest in public goods."
But such arguments have found little traction so far within the German government.
After Anton Siluanov, the finance minister, laid out the government's long-promised "anti-crisis" package in a live broadcast on state television last week, economists unanimously dismissed as inadequate his laundry list of half-measures and a vague promise of a 10 percent budget cut.
"That plan is nonsense," the Russian oligarch Aleksandr Y. Lebedev said in an interview, describing it as throwing away money to rescue some of Russia's worst companies. "Lots of words and little specific."
President Vladimir V. Putin weighed in briefly, repeating that along with keeping tight control over government finances, "We need to change our economy's structure."
Yet a wide array of business owners, economists and former senior government officials said in interviews that they expected the Kremlin to react to the crisis the way it had in 2008, the last time it faced a precipitous decline in oil prices — with disaster management, but no fundamental changes.
"They are trying to get by, manage it strategically and hope that oil prices rise, hope they can make a few adjustments and it will all go away," said Kenneth S. Rogoff, an economics professor at Harvard University who recently attended a high-level economics conference in Moscow. "There is no appetite for fundamental reform. They are just going to wait."
The World Bank has projected the Indian economy to grow at 6.4% in 2015-16 from an estimated 5.6% in 2014-15. India's GDP is expected to surpass that of China's by 2017.'
The benchmark Shanghai Composite Index SHCOMP, -7.70% plunged 7.7% to close at 3,116.35, posting its biggest daily percentage decline since June 2008 . Prior to Monday's heavy loss, the index was up 4.4% for the month to date, extending gains after finishing 2014 with a sharp 53% advance.
The plunge in mainland China helped to push Hong Kong's benchmark Hang Seng Index HSI, -1.51% down 1.5%, with the Hang Seng China Enterprises — which tracks Hong Kong-listed mainland Chinese companies — off 5%.
The China Securities Regulatory Commission, the nation's top market watchdog, announced Friday that a dozen brokerage firms had been punished for violations of margin-trading rules after a two-week overhaul. Infractions included allowing customers to delay margin repayments by longer than currently allowed. '
http://www.marketwatch.com/story/china-stocks-plunge-amid-regulator-crackdown-on-margins-2015-01-19
For investors worried about growth in China and the world this year, the data poses two questions:
Will the soft numbers and expectations of further weakness force the central bank to pump hundreds of billions of dollars into banks system-wide to prop up growth? And if so, what does that mean for Beijing's attempts to reform its economy?'
Previously the GSE's bought only mortgages in which the buyer made 10 to 20 percent down payments. That was revised downward to 3 percent and even zero. Such subprime mortgages proliferated until in 2008 when they accounted for more than half of U.S. mortgages, 76 percent of which were on the books of the GSE's or government agencies such as the FHA.
This was in line with the policy priorities of the Clinton and Bush administrations. They hailed the increase of homeownership from the 64 percent that prevailed from the mid-1960s up eventually, and temporarily, to 69 percent.
They emphasized the importance of increasing homeownership by blacks and Hispanics who did not qualify as creditworthy under traditional credit standards, which were treated as superstitions.
The result was a house price bubble of unprecedented magnitude. Low-down payment mortgages inflated housing prices because buyers could afford a larger house with the same down payment. Above-average households, though not the intended beneficiaries of lowered mortgage standards, took advantage of them by converting inflated housing values into cash by refinancing their mortgages.
The problem metastasized into large financial institutions because of imperfect information and perverse government regulations. Fannie and Freddie classified as subprime only those mortgages they bought through traditional subprime lenders -- an action for which their officers were later sued by the Securities and Exchange Commission…
Could it happen again? Wallison points out that government regulators are once again reducing the credit standards for mortgage seekers. The argument, as in the 1990s and 2000s, is that traditional standards are misleading and unduly prevent low-income and minority households from buying homes.
Fannie and Freddie are now purchasing the large majority of mortgages and announced last month they would buy mortgages with only 3 percent down payments. The qualified mortgage standards laid down by HUD and other regulators in October allowed for mortgages with zero down payments.
That sounds like a recipe for another housing bubble -- and for mass foreclosures, which hurt the policies' intended beneficiaries -- and perhaps for another financial crisis as well. '
Let us begin with a look at the free-falling oil market. Oil-producing countries would of course like to reverse the current trend. Some would curtail production to push prices up, but the rest have learned from experience that collective restrictions only benefit the countries that do not comply. Like it or not, intergovernmental decisions won't alter the factors underlying the fall in the price of oil. One key element is the global deceleration of economic growth, particularly in China, a large energy consumer. Add to this the entry of fracking into the oil game, notably in the United States - just one factor expanding the global supply of energy.
These joint developments substantially push down the demand for, and consequently the price of, oil - so much so that financial economist Anatole Kaletsky asserts that $50 for a barrel may well become a price ceiling rather than a floor...
The same inability to bypass market laws is at work in China. There, the problem stemmed from a centralized frenzy to promote investment without due consideration of expected returns. Thus, Chinese economists estimate that "ineffective investment" reached the astronomical figure of $6.8 trillion between 2009 and 2013.
http://www.realclearworld.com/articles/2015/01/22/a_global_lesson_in_basic_economics_110924.html
"Now the prices are around $45-$55, and I think maybe they reached the bottom and will see some rebound very soon," OPEC Secretary-General Abdulla al-Badri said on Monday, according to Reuters.
If that wasn't enough to put oil bears on the back foot, at least temporarily, Badri also said it would be possible to see crude climb to $200 a barrel or higher "if you don't invest in oil and gas," Bloomberg reported.
That is an interesting scenario, since shale production is seen as relatively resilient, with firms able to ramp production up in relatively short order as prices rise.
It also stands in contrast to remarks by Prince al-Waleed bin Talal, the billionaire Saudi businessman, who earlier this month predicted oil would never again trade north of $100 a barrel'
