Stocks - Seasonal Performance II

[flow5]

Bruce:

www.ssa.gov/oact/ProgData/investheld.html

The Social Security trust funds, managed by the Department of the Treasury, are the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds. Since the beginning of the Social Security program, all securities held by the trust funds have been issued by the Federal Government.

There are two general types of such securities:

1.special issues—securities available only to the trust funds; and
2.public issues—securities available to the public (marketable securities).
The trust funds now hold only special issues, but they have held public issues in the past.

Monthly reports from the Bureau of Public Debt provide data on the amount held at the end of the month by type of security, interest rate, and maturity date. The two forms below allow you to access such data. Data are available for 1990 and later.

[flow5]

February was the first month in the last 23 years (as far back as I chose to check) where money flows (MVt), increased over the January seasonals. And that was due to an increase in the transactions velocity of money, not an increase in the money stock (M1).

Changes in Vt can be corroborated using several stats, one being the currency-deposit ratio (which I have yet to check). Even so, the strength in MVt is due to reverse in June. I used crash to describe the downswing. That's hyperbole. The upcoming decrease in MVt is a flight-to-safety anomaly. But stocks will fall, & that will be tradable. As we get closer to that date the evidence will be clearer.

[flow5]

As Operation Twist ends in June, June, will be an excellent time to short long-term bonds (or perhaps have already started falling), . Contrary to Operation Twist's $400b Maturity Extension Program's objective (the program was initiated on Sept 21, 2011 -- when the Daily Treasury Yield Curve for the 10 year security was 1.88%), has failed to keep a lid on interest rates, leaving yields higher, now @ 2.29%.

With stagflation (business stagnation accompanied by inflation), levels increasing, inflation expectations will increase, and as that is the largest component of long-term interest rates, bond prices will probably fall substantially.

[flow5]

Bernanke:

"Continued accommodative policies” can accelerate the economic recovery and reduce unemployment,"

Look for "countervailing intervention"

[flow5]

The dollar, interest rates, & stocks bottom in June. However it appears from other posts that most of the traders are looking for the same senario. That said, events could end up turning around earlier than anticipated.

[bimetalaupt]

Mar 25, 2012 9:32:08 GMT -5 flow5 said:

Bruce:

www.ssa.gov/oact/ProgData/investheld.html

The Social Security trust funds, managed by the Department of the Treasury, are the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds. Since the beginning of the Social Security program, all securities held by the trust funds have been issued by the Federal Government.

There are two general types of such securities:

1.special issues—securities available only to the trust funds; and
2.public issues—securities available to the public (marketable securities).
The trust funds now hold only special issues, but they have held public issues in the past.

Monthly reports from the Bureau of Public Debt provide data on the amount held at the end of the month by type of security, interest rate, and maturity date. The two forms below allow you to access such data. Data are available for 1990 and later.

Flow5,
I think we are in agreement on the size of the Funds..It is clear that SS system was set up by FDR to support the Government through bonds. I have seen a model that suggested the Depression was elongated due to the SS System taking money out of the economy and competing with banks and long term insurance investment firms for deposits.

There used to be a rather large single payment life that paid life long income..Praetorian Order, a fraternal insurance company based in Dallas.. had such a policy.. My late Father in law was the actuator for this policy and everyone was priced alone. Every one paid more then the same total investment from SS ( Both employee and employer combined)

Just a thought,
Bruce

[Aman A.K.A. Ahamburger]

I have seen a model that suggested the Depression was elongated due to the SS System taking money out of the economy and competing with banks and long term insurance investment firms for deposits.

That was the entire problem with FDR's plan. It was all about debt!! Had the cash go into the banking system our entire system would operate in a more functional manner.

[flow5]

...One of the preconditions the U.S. needed in 1929 was a much larger national debt, and a willingness on the part of the Congress, the Administration, and the business community to tolerate an adequate expansion of the national debt. In 1929 the national debt was less than $17 billion, and the banks held only a small proportion of that amount. We needed a larger debt and a much more rapidly expanding debt in the 1930’s, not only to “prime-the pump”, but to meet the monetary management needs of the Fed. Note: Both Roosevelt and Hoover in 1932 ran on platforms calling for balanced budgets...

...The open market operations of the Fed require a depth of market that will enable the Fed to buy or sell billions of dollars worth of treasury bills on any given day without deeply disturbing the bill rates. Another of the many lessons from the Great Depression was the realization that if a financial panic is allowed to reach crisis proportions, monetary policy becomes useless, totally ineffective...

...Estimates by the Department of Commerce put the net debt figure as of the end of 1939 at $183.2 billion compared with a figure of $190.9 billion as of the end of 1929. I.e., for the period encompassing the Great Depression there was no over all debt expansion...

[Aman A.K.A. Ahamburger]

What about after the Depression though Flow? As we can see "bailing out" the banks can create debt for the UST. However this debt as we can see is more manageable, not just because of bonds, but because there is a way to recoup some of the money that has been put out there in open operations.

Another of the many lessons from the Great Depression was the realization that if a financial panic is allowed to reach crisis proportions, monetary policy becomes useless, totally ineffective...

Truer words have never been spoken, JMO, this is why the idea of an all controlling Federal Reserve is a joke. If things got bad enough, there is nothing that the FED could do.

[flow5]

The U.S. Treasury used to recapture 97-98 percent of the net income from the interest bearing assets held in SOMA. But with the introduction (in Oct 2008), of the payment of interest on excess & required reserves (& with roughly half of the FED's holdings in shorter term securities), this revenue has been significantly reduced.

The FED's assets on its balance sheet (stemming from its credit & liquidity funding facilities), should have been offset by raising reserve & reserve ratio requirements. Contrary to Milton Friedman, legal reserves are not a tax, i.e., considering the "basic process of money creation in a "fractional reserve" banking system".

And any debt should be evaluated in terms of 1) the size of the debt 2) how the debt is financed; a. from savings or, b. commercial bank credit, & 3) the purpose for which the debt is incurred.

[flow5]

The adage "Sell in May & Go Away" is mis-construed. This seasonal move is based upon one of "The Federal Reserve Act of 1913's" principle functions: to provide liquidity to the commercial banks when they need it.

----------------------...
"It was anticipated that credit extended by the Federal Reserve Banks to commercial banks would rise and fall with seasonal and longer term variations in business activity"..."From the beginning, the Federal Reserve was reasonably successful in accommodating the seasonal swings in the demand for currency—in the terminology of the act, providing for “and elastic currency”.
----------------------...

The FED's seasonal mal-adjustments (holiday’s, etc.), have their roots in the fallacious "real bills" doctrine. I.e., the "trading desk" systematically, & invariably, drains liquidity during the month of May. (unless monetary policy objectives conflict with the regular cyclicality).

Selling this May will be more pronounced than usual this year (if the FED doesn’t foresee the decline in real-output/(MVt)) approaching, & thus apply countervailing intervention. I.e. because both the seasonal & short-term rate-of-change in MVt fall together.

[flow5]

OK, I'm not the market devotee that I once was. Just made my calculations from my last update on FRED's weekly release dated 1/2/12 -- which included subsequent revisions (which is a long time to ignore the data). I was surprised to see that velocity has suddenly surged in the last 6 weeks. Relative to comparable time periods, this represents an extended upsurge for this figure.

It is as one blogger commented on another article: that any unusual increase in the stock of our means-of-payment money portends an increase in the rate-of-change in its rate-of-turnover (money velocity).

[Aman A.K.A. Ahamburger]

Mar 31, 2012 7:39:36 GMT -5 flow5 said:

The U.S. Treasury used to recapture 97-98 percent of the net income from the interest bearing assets held in SOMA. But with the introduction (in Oct 2008), of the payment of interest on excess & required reserves (& with roughly half of the FED's holdings in shorter term securities), this revenue has been significantly reduced.

The FED's assets on its balance sheet (stemming from its credit & liquidity funding facilities), should have been offset by raising reserve & reserve ratio requirements. Contrary to Milton Friedman, legal reserves are not a tax, i.e., considering the "basic process of money creation in a "fractional reserve" banking system".

And any debt should be evaluated in terms of 1) the size of the debt 2) how the debt is financed; a. from savings or, b. commercial bank credit, & 3) the purpose for which the debt is incurred.

That is exactly it flow, the problem is that the NEw Deal was financed through bonding debt to the UST. When in reality it should have been built through the banking system. No?

I know that topic was SS and the Great Depression but let face it there are huge shortfalls on all SS around the globe now. Just because SS didn't cause extra debt in the 30's having less and less people paying in than taking out is the fundamental flaw in the system so in fact YES there was massive debt made in the depression because of SS it just took 80 yrs to show up.

[flow5]

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[flow5]

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[flow5]

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The Monetary Base [sic]

Flawed as the AMBLR figure is (Adjusted Member Bank Legal Reserves), it was superior to the Domestic Adjusted Monetary Base (DAMB) figure, which is generally cited. The DAMB figure included AMBLR plus the volume of currency held by the nonblank public (Milton Friedman’s “high powered money”).

Any expansion or contraction of DAMB is neither proof that the Fed intends to follow an expansive, nor a contractive monetary policy. Furthermore any expansion of the non-bank public’s holdings of currency merely changes the composition (but not the total volume) of the money supply. There is a shift out of demand deposits, NOW or ATS accounts, into currency. But this shift does reduce member bank legal reserves by an equal, or approximately equal, amount.

An expansion of the public’s holdings of currency will cause a multiple contraction of bank credit and checking accounts (relative to the increase in currency outflows from the banks) ceteris paribus. To avoid such a contraction the Fed offsets currency withdrawals by open market operations of the buying type (e.g., purchases of governments for the portfolios of the 12 Reserve Banks). The reverse is true if there is a return flow of currency to the banks. Since the trend of the non-bank public’s holdings of currency is up (ever since 1930), return flows are purely seasonal and cannot therefore provide a permanent basis for bank credit and money expansion.

An aside note: all currency gets into circulation, directly or indirectly, through the liquidation of time deposits, by the cashing of demand deposits. There is one exception in demand deposit creation; those historical instances when the U.S. Treasury borrowed from the Federal Reserve Banks. However, it cannot be said (as of time deposits), that increases in the public’s holdings of currency reflect prior commercial bank credit creation. It is more appropriate to say that expansions of currency are accompanied by concurrent expansions of Reserve Bank Credit.

Although the DIDMCA of March 1980 made all depository institutions maintain uniform reserve requirements (thereby expanding the “source base” from 65% of the commercial banks to 100% of the money creating depository institutions), Paul Volcker’s unconventional reserves-based-operating-procedure” was unsuccessful. This was because the BOG attempted to target only non-borrowed reserves (when at times, 10% of all legal reserves were borrowed). I.e., $1b of reserves in 1980 (borrowed or otherwise), supported $16b of M1. I say Volcker “attempted” because legal reserves grew at a 17% annual rate-of-change, from April 1980, until the end of that year. This presaged a 19.1% surge in nominal GNP in the 1st qtr 1981. Contrariwise, this so-called “operating procedure” (monetarism), was never “abandoned”, it was never tried.

Between 1942 and September 2008, member commercial banks operated with no excess legal reserves of consequence. However legal reserves were actually only “binding” between c. 1942 until 1995. Since 1995, increasing levels of vault cash (larger ATM networks), retail and commercial deposit sweep programs, fewer applicable deposit classifications (including the "low-reserve tranche" & "exemption amounts"), & lower reserve ratios, have combined to remove most reserve, & reserve ratio, restrictions.

Subsequent to this period (in conjunction with the Emergency Economic Stabilization Act of 2008), Regulation D was amended, & the Board gave the District Reserve Banks the authority to pay the member banks quarterly interest on their (1) required and (2) excess reserves. As a result of the FED’s quantitative easing programs, unused excess reserves expanded dramatically (reserves contingent upon the FOMC’s remuneration rate, vis a’ vis competing returns). This new policy instrument (IOeRs), are contractionary & induce dis-intermediation within the non-banks (where the non-banks shrink in size & the commercial banking system’s size remains the same).

The DIDMCA’s legislation also permitted the Federal Reserve Banks to offer the money creating depository institutions, monthly earning credits on their contractual clearing balances (prudential reserves). These clearing balances are not included in the “source base” (the base for the expansion of money and transmission of credit). The growth in these balances accelerated after the December 1990-92 cuts in, and removal of, specified reserve requirements. Since then, clearing balances have moved inversely (as a replacement), with the diminishing volume of required reserves.

Intra & inter-bank clearings, (debits and credits) are safeguarded from imbalances (overdrafts), using supplementary reserves (known as day-light-credit). Thus the actual “source base” includes 4 inter-bank balances held at their District bank, (owned by the member banks): (1) excess, (2) required, (3) contractual clearing, & (4) supplementary.

Excess reserves are equal to total reserves (which since 1959 includes liquidity reserves, i.e., surplus and applied vault cash), minus the member bank’s (2) required reserves, minus (3) required contractual clearing balances. The volume of excess reserves represents the banking system’s, unused, or its potential, incremental lending capacity. With this incremental lending capacity the banks have the legal capacity to “create credit”.

The Reserve Requirements Simplification Rule (scheduled for introduction on July 12, 2012), amends Regulation D (Reserve Requirements of Depository Institutions), by reducing the member bank’s administrative and operational costs by:

(1) creating a common two-week maintenance period
(2) creating a penalty-free band around reserve balance requirements in place of using carryover and routine penalty waivers
(3) discontinuing as-of adjustments related to deposit report revisions and replacing all other as-of adjustments with direct compensation
(4) eliminating the contractual clearing balance program

Regulation D, by commingling legal reserves with required reserves, has made the job of monetary management more difficult.

In our Federal Reserve System, 90 percent of “MO” (domestic adjusted monetary base) is currency. There is no “expansion coefficient” assigned to the currency component. And the currency component of MO is so prominent, and the proportion of legal reserves so negligible (and declining); that to measure the rate-of-change in currency held by the non-bank public, to the rate-of-change in M1 (where 54% is currency), is, yes, to measure currency vs. currency (semen hoc ergo propter hoc); in probability theory and statistics, not a cause and effect relationship.

Complicating the measurement of the monetary base is the fluctuation in the percentage of foreign currency circulation, to domestic currency circulation. The FED’s research staff estimates that foreigners hold one half to two thirds of all U.S. currency (this spread can result in a wide margin of error). Inflows and outflows of foreign-held U.S. currency (seldom repatriated) are attributed to political, and price, instability (as well as to seasonal flows), and all are immeasurable in the short run. I.e., the domestic monetary source base equals the monetary source base minus the estimated amount of foreign-held U.S. currency.

The “shipments proxy” estimate of foreign-held U.S. currency uses data on the receipts and shipments of currency, by denomination, at the Federal Reserve’s 37 cash offices nationwide (note: > 80 percent of foreign-held U.S. currency are $100.00 bills). Because of its influence on the DAMB, quarterly estimates of foreign-held U.S. currency are reported in the Feds “Flow of Funds Accounts of the United States” & in the BEAs estimates of the net international investment position of the United States.

The volatility of the (1) K-ratio, the public’s desired ratio of currency to transactions deposits (or currency-deposit-ratio), and the volatility in (2) the ratio of foreign-held, to domestic U.S. currency, both influence the trend rate for the cash drain factor (the movement of the domestic currency component of the DAMB). And the evidence points to sizable (& unpredictable), shifts in the money multiplier (MULT – St. Louis), for the constantly changing shifts in the composition of the “M’s”.

The Federal Reserve Bank of Chicago uses legal reserves (“t”-accounts), exclusively, to explain the creation of new money and credit in the booklet “Modern Money Mechanics”. The booklet is a workbook on bank reserves and deposit expansion (changes in a bank’s deposits-loans resulting from open market operations). The stated purpose of the booklet is to “describe the basic process of money creation in a "fractional reserve" banking system” - the monetary base plays no role at all in this analysis.

It is therefore both incorrect in theory, and thus inaccurate in practice, to refer the DAMB figure as a monetary base [sic]. The only base for an expansion of total bank credit and the money supply is the volume of legal reserves supplied to the member banks by the Fed, in excess of the volume necessary to (1) offset currency outflows from the banking system & (2) offset fluctuations in the level of member bank’s reserve balances (diverted & detained via the remuneration rate), in the 12 District Reserve Banks. The adjusted member bank legal reserve figure is that base.

[flow5]

Maybe those who follow the Elliott Wave Theory (the alternate counting theory), can identify support & resistance levels -- but I can't.

"Flexibility" becomes involved when following & interpreting the fundamental market drivers. Keep in mind that "Bulls make money, Bears make money, but Pigs get slaughtered". And I''m not advocating "scalping". But variables can change. Seasonal cyclicality can change. I.e., "change is the only constant".

VELOCITY HAS CHANGED:

1/9/2012 ………. 1.23
1/16/2012 ………. 1.24
1/23/2012 ………. 1.27
1/30/2012 ………. 1.3
2/6/2012 ………. 1.3
2/13/2012 ………. 1.32
2/20/2012 ………. 1.33
2/27/2012 ………. 1.35
3/5/2012 ………. 1.36
3/12/2012 ………. 1.36
3/19/2012 ………. 1.36
3/26/2012 ………. 1.36

March's figures have become counter-cyclical (showing increasing strength).

[flow5]

This is monumental, indeed historic. The Fed has finally (just recently), discovered the real expansion coefficient:

See: bit.ly/yUdRIZ

Quantitative Easing and Money Growth:
Potential for Higher Inflation?
Daniel L. Thornton

Banks were formally constrained by legal reserves (i.e., the money multiplier worked from 1942 until 1995). Now most member banks are not "bound" by reserve requirements. Now reserve requirements do not prevent the CBs from expanding commercial bank credit (CBs, S&Ls, CUs, & MSBs, etc.).

[flow5]

Velocity has turned south in the last 2 weeks. Money flows (MVt) has started falling too. The roc in MVt drops 7 percentage points from April's month-end to May's month-end. The roc in MVt then drops 12 percentage points from May's month-end to June's month-end.

The calculations & analysis has been tempered by structural changes. These changes will somewhat offset the drop in the roc in MVt. Nevertheless the trend will be down.

[flow5]

Velocity has turned south in the last 2 weeks. Money flows (MVt) has started falling too. The roc in MVt drops 7 percentage points from April's month-end to May's month-end. The roc in MVt then drops 12 percentage points from May's month-end to June's month-end.

The calculations & analysis has been tempered by structural changes. These changes will somewhat offset the drop in the roc in MVt. Nevertheless the trend will be down.

[flow5]

"Contrary to economic theory, & Nobel laureate Dr. Milton Friedman, monetary lags are not "long & variable". The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are historically, always, fixed in length (mathematical constants). However the lag for nominal gdp (the FED's target??), varies widely."

Assuming no quick countervailing stimulus:

MVt can be used to see the future -- but you can't always tell what happened in retrospect -- because the FED tries to fix their mistakes. For example you can’t even tell (by the historic measure of MVt), there was a downdraft in May of 2010.

Targeting nominal-gDp is for dummies. I.e., the target should be real-gDp. I just don't think the FED would be as good at forecasting real-gDp vs. nominal-gDp.

The upcoming 2 month downswing is almost on top of us. This particular period would make a good case for targeting nominal-gDp. Real-gDp will fall (for 2 months), but inflation will not change much (i.e., it looks like stagflation).

In order to smooth out the upcoming disruption (change in job creation), the FED should target nominal-gDp in the next 2 months. Any blip in inflation will later be erased (be transitory as Bernanke says), as the FED targets nominal-gDp (because the constant time lag for inflation is longer than the constant time lag for real-output). Thus the longer-term time lag for inflation will serve to reduce any short-term injection of liquidity by the FED (an injection accompanied by the resultant short-term increase in inflation’s rate-of-change (roc)).

This is just because both the longer-term average (roc) for inflation (as well as its historical ratio to real-output), is mathematically lower, than the longer term (roc) in real-gDp (given that real-gDp is allowed to recover & the inflation component of nominal-gDp moderates).. I.e., it extremely unlikely by targeting nominal-gDp -- that the (roc) in inflation will grow faster in the longer-run than the (roc) in real-output.

This process (concept), is more pronounced coming out of a recession. The FED can boost real-gDp (with a larger injection of liquidity), for up to 3 qtrs, & then apply the brakes (dis-inflation). Real-gDp will then increase at a faster (roc) than re-flation does during this period. And later inflation will subside as the FED shifts to a “tighter” (de facto), money policy (nominal-gDp target).

[Aman A.K.A. Ahamburger]

Apr 15, 2012 14:51:47 GMT -5 flow5 said:

Velocity has turned south in the last 2 weeks. Money flows (MVt) has started falling too. The roc in MVt drops 7 percentage points from April's month-end to May's month-end. The roc in MVt then drops 12 percentage points from May's month-end to June's month-end.

The calculations & analysis has been tempered by structural changes. These changes will somewhat offset the drop in the roc in MVt. Nevertheless the trend will be down.

Bruce says MMXIII says the same thing... Stay

[flow5]

Ready to break:

11-Oct ,,,,,,, 0.26 ,,,,,,, 0.13
11-Nov ,,,,,,, 0.24 ,,,,,,, 0.14
12-Dec ,,,,,,, 0.25 ,,,,,,, 0.16
12-Jan ,,,,,,, 0.25 ,,,,,,, 0.16
12-Feb ,,,,,,, 0.29 ,,,,,,, 0.15
12-Mar ,,,,,,, 0.26 ,,,,,,, 0.13
12-Apr ,,,,,,, 0.24 ,,,,,,, 0.14
12-May ,,,,,,, 0.24 ,,,,,,, 0.10
12-Jun ,,,,,,, 0.27 ,,,,,,, 0.04
12-Jul ,,,,,,, 0.25 ,,,,,,, 0.04

Real-output falls: 14 -> 4 (April month-end to June month-end)...
with no change in inflation. That's called stagflation (business stagnation accompanied by inflation).

Fed intervention is inescapable.

[flow5]

Economics is a science. There is no ambiguity in forecasts: In contradistinction to Bernanke (and using his terminology), forecasts are mathematically “precise”. The “science” of mathematical economics currently shows that the rate-of-change (roc), in monetary flows (our means-of-payment money Xs its transactions rate-of-turnover), falls from April’s month-end until June’s month-end. So the FED acts in JUNE.

I.e., contrary to economic theory, & Nobel laureate Dr. Milton Friedman, monetary lags are not “long & variable”. The lags for monetary flows (MVt), i.e., the proxies for (1) real-growth, and for (2) inflation indices, are historically, always, fixed in length (i.e., mathematical constants).

Aggregate monetary demand is measured by the monetary flows (MVt) not nominal gDp, To those who may question the validity of using transaaction data with gDp data, there is evidence to prove rates roc’s in nominal gDp can serve as a proxy figure for roc’s in all transctions. Roc’s in real gDp have to be used, of course, as a policy standard.

[flow5]

NO special "credit or liquidity program" is required to buttress the roc in nominal gDp. What’s required is a quick response. FED intervention could come in the form of liquidity injections via the expansion of, or the decomposition of, Federal Reserve Bank credit.

For example, when Federal Reserve Banks expand credit, by buying U.S. obligations, the balance sheets of the District Reserve Banks reflect an increase in earning assets and an equal increase in IBDD liabilities, i.e., the member bank’s excess reserves. The volume of FRB-IBDDs is almost exclusively related to the volume of Reserve Bank credit.

The FED has many options. It can extend credit & purchase securities in order to change the composition (maturities, lending spreads, or instruments, & mix of public or private securities), but not the total quantity, of its assets (qualitative & credit easing). It can target the date of purchase, the quantity purchased, & ultimately -- the scale of their open market operations of the buying type (quantitative easing), etc.

I’d be watching 2 things. The federal funds effective rate (weighted average of inter-bank lending transactions) & the daily Treasury yield curve (the yield curve rates are based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market).

www.newyorkfed.org/markets/omo/dmm/fedfundsdata.cfm

www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

The one month Treasury security just fell on (4/19, 4/20, 4/23), from c. 7-8% to 4%. Either the economy is slowing, or the FED has started easing (but it’s probable due to the European Common Union liquidity crisis – i.e., an increase in the demand for loan-funds, not an injection of new liquidity to increase the supply of loan-funds).

If the FED is easing then Federal Reserve Bank credit on the H.4.1 should be growing. Unless you’re a primary dealer (“trading desk” counterparty), you’ll have to guess what the FOMC is up to. The H.4.1 is published only on Thursdays. That’s a long time between trades

[flow5]

"The frequency of overnight RPs on Fridays tends to be in the lower end of range over the maintenance period. For reserve maintenance purposes, Fed balances on Fridays COUNT FOR THREE DAYS rather than one. Because banks want to avoid ending up with extra balances for three days, they are more eager to lend (rather than borrow) in the market on Fridays. Clouse and Dow further point out that banks are less willing to borrow on Fridays because reserves on Fridays are more expensive from their perspective. Together, these factors lead to a downward pressure on the funds rate on Fridays and, all other things equal, the Desk tends not to inject as much money into the system on these days"

I'd watch the effective FFR on Friday. If the rate doesn't look like it will settle towards the low end of the trading range, I'd enter shorts.

[flow5]

The FED just upped its forecast for real-gDp in 2012 by .2% It raised its forecast for inflation by approximately .4%. That's creeping stagflation (business stagnation accompanied by inflation). That's also 2012's theme (because the wrong variables have been plugged in to its "policy rule"). It also adjusted its prediction for unemployment (it will fall .3% more).

But their forecast is also absurd. The FED is in the driver seat. The FED decides how fast it will allow nominal gDp to grow (ngDp's design should be its mandate). It can't control the mix (how much inflation vs. how much real-output), it can only "lean against the wind". Within 2-3 weeks the BOG is going to wonder where its forecasts went wrong.

[flow5]

The DOW peaked on March 15 @13,252.76. The DOW bottomed April 10 @12,715.93. Projection still is right on target. Top May 4-7th.

[flow5]

The FED should permit the roc in MVt (the proxy for inflation) to spike during the May-June period (as real-output falls). I.e., the FED should target nominal gDp in the next 2 months, rather than adhering to its inflation mandate. The subsequent jump in inflation will be transitory -- because the lag for producing inflation is much longer than the lag for producing real-growth. And once support operations for nominal gDp have passed, the FED can tighten (adjust it’s nominal gDp target).

This year FED policy has been modeled to produce increasing rates of stagflation (business stagnation accompanied by inflation). I.e., nominal gDp's mix (ratio), between its inflation component (numerator), divided by real-gDp (denominator), will narrow over 2011's, i.e., (a deceleration in real-gDp & an acceleration in inflation).

[flow5]

The FED just upped its forecast for real-gDp in 2012 by .2% It raised its forecast for inflation by approximately .4%. That’s creeping stagflation (business stagnation accompanied by inflation). That’s also 2012’s theme (because the wrong variables have been plugged in to its “policy rule”).

But their forecast is also absurd. The FED is in the driver seat. The FED decides how fast it will allow nominal gDp to grow (ngDp’s design should be its mandate). It can’t control the mix (how much inflation vs. how much real-output), it can only “lean against the wind”. Within 2-3 weeks the BOG is going to wonder where its forecasts went wrong.

===================
GDP grew only 2.2% in Q1 vs expectations of 2.5% and hopes for 3.0%. The deflator rose just 1.5% vs the forecast of 2.1% which means that NOMINAL GDP rose only 3.7% vs the estimate of 4.6% and below Q4 of 3.9%.

===================

The PCE DEFLATOR rose 2.4% and the core rose 2.1%. Bottom line, a 2.2% REAL GDP print is disappointing, especially in light of the mild winter and the nominal GDP gain of just 3.7% is the weakest since Q2 ’11

I.e., (the average increase in prices for all domestic personal consumption), increased at a faster rate than real-output (stagflation).