Fed Watch Thread

[flow5]

Let’s remember that 23% of the CPI and 40% of core CPI is Owner Equivalent Rent. If they are right, that adds about 3% to total CPI and 6% to core CPI! Will the Fed be telling us to focus on core inflation in 12-18 months?

seekingalpha.com/article/259141-end-of-qe2?source=dashboard_macro-view

The Producer Price Index was out this week, and it was way up – 1.6% for the month, or an annualized 20%+. Even if you look at the last year, it was up a real 5.8%. That is inflation in the pipeline.

"Crude" goods, which is basically materials before there is any value added, are up 28% from a year ago and pushing an annualized 35-40% for the last six months. Those costs are filtering in to final finished products. And when you add in the supply-related problems from the recent disaster? It is not a pretty picture for profits.

My friends at Macroeconomic Advisors have reduced their first-quarter GDP projection to 2.5%. Morgan Stanley has dropped theirs from 4.5% less than six weeks ago to 2.9% today. That is a huge drop in a short time for a forecasting model. Forecasts at other economic shops are being slashed as well. States and local governments, as I have continuously noted, are cutting more than 1% of GDP from their budgets as I write. -- JOHN MAULDIN

[flow5]

Home Prices Going Higher This Spring?

Eric Landry, On Friday March 18, 2011, 7:00 am EDT

In an August 2010 Stock Strategist, "Housing: A Tale of
Two Time Periods," we surmised that home prices would be pressured for at least the remainder of 2010 but that the long-term outlook for at least stable prices was actually pretty good. Unfortunately, the first part of the forecast turned out to be spot on--home prices sank 3.5% between July and December according to the popular Case-Shiller 20-city index. The expiry of the federal homebuyer tax credit, combined with high levels of existing inventory, a weak economic recovery, and terrible consumer sentiment, made for difficult back half of 2010 in the housing market, to say the least.

Today, we're becoming more constructive on near-term prices. In fact, we wouldn't be surprised to see a decent upward move in the popular Case-Shiller indexes in the very near future. Figure 1 shows that listing prices in the index have already started a rebound after a horrendous December. While these median listing prices often suffer distortions from changing mix, they've proven to be a relatively reliable predictor of short-term movements in the popular Case-Shiller indexes.

To see graphics associated with this article, click here:
news.morningstar.com/articlenet/article.aspx?id=374143

As can be seen on the chart, median prices showed a very positive signal in spring 2009, an event that preceded a most unlikely multi-month period of increasing home prices. This year, we see good odds that the same dynamic will take place, with modestly increasing prices set to surprise all but the most contrarian observers. In fairness, prices generally enjoy seasonal strength starting in the spring and lasting through summer. We think there's something more at work here. Notwithstanding terrible February housing start numbers, recent talk from the builder community is that traffic has been a pleasant surprise so far this spring selling season. That dynamic, combined with other evidence, suggests to us that the market may finally be able to stand on its own in some markets. In addition, underlying Case-Shiller data suggest that several cities actually started to perk up in December, a full two months before this crucial period. San Francisco, Denver, Washington, D.C., Miami, Atlanta, Boston, Portland, and Dallas have all shown price trends improving in December from the prior couple of months (either lessening declines or outright sequential gains). Only Tampa, Detroit, and Seattle are showing demonstrably worse trends in December, in our opinion. Bottom line, we think home prices may pleasantly surprise some people in the not-so-distant future.

But the long term is where the real money is made, and unfortunately the above-mentioned analysis isn't going to much help outside six to eight months. Forecasting anything longer requires insight into household formation, interest rates, the availability of mortgage products, consumer confidence, inventories, and a host of other things. Even so, by looking at several factors we can get a decent sense as to whether the market is in some semblance of balance, a situation that generally yields at least stable prices in the intermediate term. Today, we think balance may be slowly returning after being tilted heavily in favor of weaker home prices for more than four years. Does this mean we are likely to enjoy uninterrupted increasing prices for years to come? No, but it does mean homeowners are unlikely to have to endure anything resembling the past five years anytime soon.

Over the Worst?
So what gives us hope the intermediate term may yield a more stable picture than the past several years? Mainly that new supply injected into the market over the past several years has been so constricted there's likely significantly fewer surplus homes in existence today. Sound absurd? Well, Figure 2 shows the degree to which actual new housing has been curtailed over the past several years. Traditionally about 17% of existing home sales, new home sales are currently more than 10 points below that level, illustrating the degree to which homebuyers are choosing existing homes over new.

To see graphics associated with this article, click here:
news.morningstar.com/articlenet/article.aspx?id=374143

This is good news. The most material way in which total housing supply is affected is through new construction and mother nature. And the fact that new building has been almost nonexistent for a long time (both primary and rental) is beneficial to the overall supply/demand picture. As we've mentioned many times before, foreclosure activity is not "new supply," as every single foreclosure processed over the past several years was already accounted for in the existing housing stock before the keys were mailed back to the bank.

True, the surge in foreclosed units represents an excess of "available for sale" inventory units, a situation that has pressured prices for some time. But as prices have fallen more into line with prevailing rents, that pressure is subsiding. Several sources are indicating swiftly declining rental vacancy rates and firming rents throughout the country. This tilts the rent/buy decision in favor of the latter and also induces landlords into purchasing more primary housing and converting to rental properties. Both are beneficial to the primary housing market and likely to stem the widespread price pressure seen over the past four years.

Figure 3 shows the inventory of both existing and new homes for sale. As is clear, new-home inventory traditionally leads existing home inventory. And the good news is that new-home inventory can hardly go any lower. Already back to levels not seen since 1968 (a period that featured a bit more than half of today's households), it's clear there isn't much new-home inventory in the system. Existing homes are a different story, but even here the long-term trend now appears to be lower.

To see graphics associated with this article, click here:
news.morningstar.com/articlenet/article.aspx?id=374143

People talk a lot about foreclosures, as they have for several years. We believe the market has largely priced in the fact that many of these units are coming back onto the market. Many sit in poor locations, are too big, and feature amenities that are uncompetitive in today's market. For these reasons, we don't see any reason the market can't get back onto its feet well before the last foreclosure is processed.

To wrap it up, we think the short-term signals point to higher home prices over the next couple of months, but a longer-term stabilization is less certain. Even so, builders have been injecting new supply into the market at a rate well below normalized demand for years now, and the supply/demand balance may not be that far out of line as a result. If, somehow, buyers can make their way back into the market--and there are signs this is happening--longer-term stabilization may not be so far-fetched.

[usaone]

I agree Flow5!

Housing will surprise this spring and summer.

[flow5]

Real theories of the business cycle predict that the public would feel worse off if inflation rose (due to supply shocks). In contrast, demand-side models predict that an unanticipated fall in inflation would make the public feel worse off. That’s because demand shocks reduce inflation by shifting AD to the left, which also reduces real GDP, and hence real national income. Even though inflation falls, NGDP growth falls even more rapidly. With low demand for investment goods, real interest rates also tend to fall.

The following article suggests that the public regards this as a demand-side recession, where lower inflation actually seems like higher inflation:


Inflation spooked the nation in the early 1980s. It surged and kept rising until it topped 13 percent.

These days, inflation is much lower. Yet to many Americans, it feels worse now. And for a good reason: Their income has been even flatter than inflation.

Back in the ’80’s, the money people made typically more than made up for high inflation. In 1981, banks would pay nearly 16 percent on a six-month CD. And workers typically got pay raises to match their higher living costs.

No more.

Over the 12 months that ended in February, consumer prices increased just 2.1 percent. Yet wages for many people have risen even less — if they’re not actually frozen.

Social Security recipients have gone two straight years with no increase in benefits. Money market rates? You need a magnifying glass to find them. . .

The median U.S. inflation-adjusted household income — wages and investment income — fell to $49,777 in 2009, the most recent year for which figures are available, the Census Bureau says. That was 0.7 percent less than in 2008.

Incomes probably dipped last year to $49,650, estimates Lynn Reaser, chief economist at Point Loma Nazarene University in San Diego and a board member of the National Association for Business Economics. That would mark a 0.3 percent drop from 2009. And incomes are likely to fall again this year — to $49,300, she says.


Just to be clear, I am referring to the entire three-year-long recession and sluggish recovery, not the last couple of months. During recent months there has been a modest supply shock, due to events in Libya and more recently in Japan. It’s too soon to know the severity of these two shocks.

In the comment sections of posts, there is a disturbing tendency of people to make the following mistake: They notice that monetary stimulus often raises commodity prices more than other prices. They notice that supply shocks often raise commodity prices more than other prices. They infer that monetary stimulus can cause a supply shock.

In fact, monetary stimulus raises commodity prices if -- and only if -- it raises expected future output. There is no other mechanism. In contrast, supply shocks reduce expected future output. Don’t confuse AS and AD shocks.

Note: I obviously mean “real commodity prices” when I refer to commodity prices in the preceding paragraph. Several commenters previously pointed out that one could find theoretical mechanisms by which QE could raise commodity prices and reduce AS. In macroeconomics one can find theoretical arguments for almost any proposition.

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

Sticky prices, i.e., limited downward price flexibility in our product & labor markets.

[flow5]

Forecast: Calif. home prices to rise 23%March 23rd, 2011, 6:18 am · 34 Comments · posted by Jon Lansner

Beacon Economics has an updated housing forecast our for California — and it’s pretty optimistic: The real estate forecast calls for average home gains of 0.6% this year; 3.2% next year; 5.4% in 2013; 6.7% in 2014; and 7.8% in 2015.

All told, Beacon is basically projecting that California home prices will jump 23% in five years ($57,800) — from a typical selling price of $256,136 in 2010 to $323,368 in 2015. Depending on one’s view, that projected 2015 pricing would equal to the highest since 2008, back at early 2004 levels — or still 38% off the 2007 peak.

Jordan Levine, research manager at Beacon Economics, says the optimism is driven by, ”rising employment and incomes, which we project to grow by between 4% and 6% on the income side and 2% to 3% on the employment side.”

He adds: “We also have some pent-up demand for homes due to such slow household formation during the downturn. Our calculations show that we are currently only building 1 home for every 9-plus new residents over the past year, so that will begin to put upward pressure on the market as the economy begins to heal. Additionally, many of the homes currently being sold are distressed properties, so as the mix changes to slightly better and non-distressed properties, the median sale price will also increase. So, the short answer is that this is being driven in part by a healing economy and partly a shifting mix away from as many distressed homes as we move out into the future.”

[flow5]

This message has been deleted.

[flow5]

date..........1 mo 3 mo 6 mo 1 yr.. 2 yr 3 yr..5 yr 7 yr 10 yr 20 yr 30 yr
03/01/11 0.07 0.14 0.16 0.25 0.66 1.15 2.11 2.81 3.41 4.24 4.48
03/02/11 0.12 0.13 0.17 0.26 0.69 1.18 2.16 2.86 3.46 4.30 4.54
03/03/11 0.12 0.13 0.16 0.29 0.79 1.32 2.30 3.00 3.58 4.40 4.64
03/04/11 0.11 0.12 0.16 0.26 0.68 1.20 2.17 2.88 3.49 4.34 4.60
03/07/11 0.10 0.11 0.16 0.25 0.70 1.22 2.19 2.90 3.51 4.36 4.61
03/08/11 0.07 0.11 0.16 0.26 0.73 1.27 2.22 2.93 3.56 4.41 4.66
03/09/11 0.07 0.10 0.15 0.26 0.70 1.21 2.16 2.86 3.48 4.35 4.60
03/10/11 0.04 0.08 0.14 0.25 0.65 1.13 2.05 2.74 3.37 4.25 4.53
03/11/11 0.04 0.08 0.13 0.24 0.64 1.12 2.06 2.76 3.40 4.29 4.54
03/14/11 0.05 0.09 0.14 0.22 0.61 1.07 2.00 2.70 3.36 4.25 4.52
03/15/11 0.07 0.10 0.14 0.23 0.63 1.08 2.00 2.68 3.33 4.21 4.47
03/16/11 0.06 0.10 0.14 0.21 0.58 0.98 1.87 2.56 3.22 4.11 4.38
03/17/11 0.06 0.08 0.14 0.24 0.60 1.02 1.91 2.59 3.25 4.15 4.42
03/18/11 0.06 0.07 0.14 0.23 0.61 1.05 1.96 2.64 3.28 4.17 4.43
03/21/11 0.06 0.10 0.16 0.25 0.67 1.12 2.04 2.72 3.34 4.20 4.45
03/22/11 0.07 0.10 0.16 0.25 0.68 1.14 2.07 2.73 3.34 4.19 4.44

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

Here, short-term rates (1 month), have turned prior to long-term rates (30 year).

You trade US Treasury Bond futures "with" or "against" the seasonals depending on the "pressure points". Minor movement now should transform into a major movement in another month.

S&P/Case -Shiller Home Price Indices next release date is March 29th.

[flow5]

www.treasury.gov/press-center/press-releases/Pages/tg1112.aspx

First, tax cuts and incentives – over the past two years, the President has signed into law 17 different tax cuts for small businesses, including eliminating capital gains taxes on key small business investments and raising the amount small businesses can expense to $500,000 – making it easier for small businesses to invest and hire more workers.

Second, we’ve put significant resources into support for innovation, particularly in health care and clean energy. And in those industries, small companies are often the most innovative.

And third, we have developed several special credit programs, through and alongside SBA, including loan guarantees and capital investments to encourage lending – such as the Small Business Lending Fund – and support for state small business credit programs.

[flow5]

The weighted average remaining life of the MBS held in the SOMA at the end of 2010 was estimated to be about 4.2 years.25 While not strictly comparable, the average maturity of Treasury holdings was 6.4 years at the end of 2010. 26 At the end of 2006, the average maturity of Treasury securities, which accounted for all outright holdings in the SOMA at that time, was 3.4 years. Thus, in addition to being both larger and including many non-Treasury securities, the SOMA portfolio consisted of a proportionately larger amount of longer-term securities at the end of 2010 than it did before the onset of the financial crisis.27

www.newyorkfed.org/markets/omo/omo2010.pdf
Domestic Open Market Operations During 2010

[flow5]

WASHINGTON – Today, the U.S. Department of the Treasury announced that it will begin the orderly wind down of its remaining portfolio of $142 billion in agency-guaranteed mortgage-backed securities (MBS). Starting this month, Treasury plans to sell up to $10 billion in agency-guaranteed MBS per month, subject to market conditions...

Treasury acquired its portfolio of agency-guaranteed MBS under authority provided to it by Congress under the Housing and Economic Recovery Act of 2008. These purchases of agency-guaranteed MBS helped preserve access to mortgage credit and promote economic stability during a period of unprecedented market stress and volatility.

www.treasury.gov/press-center/press-releases/Pages/tg1111.aspx

[flow5]

(MNI) - Research released by the Federal Reserve Bank of Cleveland Thursday finds that lost household wealth has been a drag on the pace of the recovery, but also suggests that the economy may be on the verge of a stronger upswing.

Cleveland Fed economists Timothy Bianco and Filippo Occhino, in an Economic Commentary, write that "falling home and financial asset prices have combined to weaken the average household's balance sheet, and this has helped to slow down the current recovery."

The economists examine the role that household balance sheets have typically played in postwar business cycles and assess their importance in explaining why some recoveries, including the current one, have been weaker than others.

Bianco and Occhino note that the "very strong" pace of past recoveries has not been seen during the current recovery. They note that "it took three years for real GDP to return to where it was just before the start of the recession."

Seeking to explain the sluggishness of the recovery, the economists maintain that "one factor behind the slow recovery has been the weakness of household balance sheets."

"During the financial crisis, the values of real estate assets and financial assets plunged, lowering household net worth and raising leverage," they write. "To repair their balance sheets, households have been increasing their saving rate, raising the average from its pre-recession level of around 2% to its current level above 5%."

"This deleveraging process has slowed consumption and, as a result, the recovery," they added.

Bianco and Occhino find that balance sheet shocks have played "a greater role" in slower recoveries such as this one and that "since about 1985, balance sheets have deteriorated more in response to adverse macroeconomic shocks than they used to."

"As a result they have amplified and propagated the direct contractionary effects of the shocks," they say.

However, on a more hopeful note, the economists say their research results also suggest conditions may be "improving."

"While households have been saving at a high rate to repair their balance sheets for some time, there have been signs that this deleveraging process has attenuated," they write. "Household leverage has come down from its peak and the saving rate has leveled out."

"These signs may point to a stronger pick-up of consumption and a more robust recovery," they add.

www.clevelandfed.org/research/commentary/2011/2011-05.cfm

[flow5]

The worst housing crash in history is official: Lesson from the Great Depression Part 29. New home sales fell 80 percent from 1929 to 1932 and fell 82 percent from 2005 to 2011.þ

[flow5]

BULLARD:

March 26 (Bloomberg) -- U.S. Federal Reserve policy makers should review whether to complete a second round of quantitative-easing purchasing due to end in June because of strong U.S. economic data, Federal Reserve Bank of St. Louis President James Bullard said.

“The economy is looking pretty good,” Bullard told reporters in Marseille, France, today. “It is still reasonable to review QE2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short.”

While the economy is clearly stronger than last summer and fall and QE should be reviewed, uncertainties remain, including Japan, Middle East political tensions, the U.S. fiscal position and the European sovereign debt crisis, Bullard said. U.S. first-quarter gross domestic product may not be as strong as anticipated several weeks ago, and some strengthening may get pushed into the second quarter, he said.

The U.S. economy grew at a 3.1 percent annual rate in the fourth quarter, led by a jump in consumer spending that will be hard to match early in the year as energy prices surge. Surging oil prices sparked by turmoil in the Middle East may erode consumers’ purchasing power, and supply constraints caused by the Japan earthquake and its aftermath slow the pace of recovery this quarter.

“The oil price increases so far is not enough to derail the U.S. recovery at this level,” Bullard said. “If oil prices stabilize where they are, we’ll be fine.” Prices would have to go substantially higher for there to be a “significant and material effect,” he said.

“We have to weigh those in the decision” on whether to stop the Fed’s QE2 program earlier than planned, Bullard said.

Interest Rates

U.S. central bankers have said they will keep interest rates near zero for an extended period. In contrast, European Central Bank officials indicated this month that uncertainty caused by Japan’s earthquake may not deter them from raising interest rates next month.

“We’re far away from normal policy,” Bullard said. “I think it’s important to take a few steps back to normality. Even if you make a few small moves, monetary policy will still be accommodative for some time to come.”

While the economy may still suffer shocks, the “balance sheet should be contingent” and the Fed should be ready if the economy turns down, he said.

“If the economy is as strong as I think it is then I think it may be reasonable to send a signal to markets that we’re going to start withdrawing our stimulus, and I’d start by pulling up a little bit short on the QE2 program,” Bullard said. “We can’t be as accommodative as we are today for too long, we’ll create a lot of inflation if we do that.”

Balance Sheet

If the Fed opts to start withdrawing stimulus and tighten policy, it should start with the “balance sheet” by selling bonds first, then changing its wording about keeping interest rates near zero for an “extended period” and then raising interest rates, Bullard said.

Bullard has warned since last July about a risk of Japanese-style deflation in the U.S. while calling for purchases of Treasury securities to reduce the threat. Bullard, 50, voted in favor of the Treasury purchase program in November and has rotated this year into an annual non-voting position.

Bullard said last month the U.S. central bank may need to reduce the amount of purchases in light of stronger U.S. economic data. Philadelphia Fed President Charles Plosser and Richmond Fed President Jeffrey Lacker have also urged a review of the purchases in light of a strengthening economy and concern over future inflation.

“It looks like inflation is bottoming out and if we continue that, I think we will have gone past” the worst, he said. “We seem to be turning the corner there, but I would want to see more data on that.”

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

BULLARD must have been reading my posts.

[flow5]

This message has been deleted.

[flow5]

25. March 2011 at 09:54

Nominal gDp just took a hit:

2010 jan ,,,,,,, 0.13 ,,,,,,, 0.538
feb ,,,,,,, 0.056 ,,,,,,, 0.507
mar ,,,,,,, 0.072 ,,,,,,, 0.558
apr ,,,,,,, 0.056 ,,,,,,, 0.552
may ,,,,,,, 0.067 ,,,,,,, 0.477
jun ,,,,,,, 0.038 ,,,,,,, 0.474
jul ,,,,,,, 0.078 ,,,,,,, 0.499
aug ,,,,,,, 0.031 ,,,,,,, 0.49
sep ,,,,,,, 0.045 ,,,,,,, 0.542
oct ,,,,,,, -0.01 ,,,,,,, 0.386
nov ,,,,,,, 0.041 ,,,,,,, 0.321
dec ,,,,,,, 0.099 ,,,,,,, 0.32
2011 jan ,,,,,,, 0.089 ,,,,,,, 0.155
feb ,,,,,,, 0.089 ,,,,,,, 0.23
mar ,,,,,,, 0.118 ,,,,,,, 0.307
apr ,,,,,,, 0.088 ,,,,,,, 0.218
may ,,,,,,, 0.098 ,,,,,,, 0.19

First column rate-of-change in the proxy for real-output.
Second column rate-of-change in the proxy for inflation.

[flow5]

Only price increases generated by demand, irrespective of changes in supply, provide evidence of inflation. There must be an increase in aggregate monetary demand, which can come about only as a consequence of an increase in the volume and/or transactions velocity of money. The volume of money flows must expand sufficiently to push prices up, irrespective of the volume of financial transactions, and the flow of goods & services into the market economy.

In the current environment, price increases attributable to supply shocks as applied to specific commodities, even if of temporary duration (transitory as Bernanke says), create price distortions that foster stagnation, & unemployment, & generally lower prices, if not “validated” by an offsetting expansion of monetary flows. But “validation” in the present mix of economic forces will give us stagflation (since the consumer’s balance sheet is already full blown).

Distortions now exist which diminish the prices and demands for substitutable products. In other words, the economy ceases (to the extent monopolistic and/or supply side shocks penetrate the system), to be self-regulatory. A massive diversion of purchasing power from non-petroleum & food prices increases, will weaken most sectors of the economy, lowering overall business activity.

The essence of a free self-regulatory) capitalistic system is price flexibility, downward as well as upward (think sticky prices). Lacking this flexibility, downswings in the economy are not self-correcting. Unemployment causes more unemployment. Bank & other business failures beget more failures. Since the economy lacks the capacity to rejuvenate itself, additional government intervention is inevitable (perhaps leading to command economy).

[flow5]

Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr
03/01/11 0.07 0.14 0.16 0.25 0.66 1.15 2.11 2.81 3.41 4.24 4.48
03/02/11 0.12 0.13 0.17 0.26 0.69 1.18 2.16 2.86 3.46 4.30 4.54
03/03/11 0.12 0.13 0.16 0.29 0.79 1.32 2.30 3.00 3.58 4.40 4.64
03/04/11 0.11 0.12 0.16 0.26 0.68 1.20 2.17 2.88 3.49 4.34 4.60
03/07/11 0.10 0.11 0.16 0.25 0.70 1.22 2.19 2.90 3.51 4.36 4.61
03/08/11 0.07 0.11 0.16 0.26 0.73 1.27 2.22 2.93 3.56 4.41 4.66
03/09/11 0.07 0.10 0.15 0.26 0.70 1.21 2.16 2.86 3.48 4.35 4.60
03/10/11 0.04 0.08 0.14 0.25 0.65 1.13 2.05 2.74 3.37 4.25 4.53
03/11/11 0.04 0.08 0.13 0.24 0.64 1.12 2.06 2.76 3.40 4.29 4.54
03/14/11 0.05 0.09 0.14 0.22 0.61 1.07 2.00 2.70 3.36 4.25 4.52
03/15/11 0.07 0.10 0.14 0.23 0.63 1.08 2.00 2.68 3.33 4.21 4.47
03/16/11 0.06 0.10 0.14 0.21 0.58 0.98 1.87 2.56 3.22 4.11 4.38
03/17/11 0.06 0.08 0.14 0.24 0.60 1.02 1.91 2.59 3.25 4.15 4.42
03/18/11 0.06 0.07 0.14 0.23 0.61 1.05 1.96 2.64 3.28 4.17 4.43
03/21/11 0.06 0.10 0.16 0.25 0.67 1.12 2.04 2.72 3.34 4.20 4.45
03/22/11 0.07 0.10 0.16 0.25 0.68 1.14 2.07 2.73 3.34 4.19 4.44
03/23/11 0.06 0.09 0.15 0.24 0.69 1.13 2.07 2.75 3.36 4.20 4.44
03/24/11 0.04 0.09 0.17 0.26 0.72 1.19 2.14 2.82 3.42 4.25 4.48
03/25/11 0.04 0.09 0.18 0.30 0.79 1.26 2.20 2.87 3.46 4.28 4.51
====================

Long-end turn? PIMCO finally right? BEA's gDp higher in 4th qtr (report on 25th).

Short-end saying not yet. Bill Gross "What I would point out is that Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%.”

[flow5]

1/1/1998 ,,,,,,, 85.125 ,,,,,,,
4/1/1998 ,,,,,,, 85.329 ,,,,,,,
7/1/1998 ,,,,,,, 85.656 ,,,,,,,
10/1/1998 ,,,,,,, 85.914 ,,,,,,,
1/1/1999 ,,,,,,, 86.298 ,,,,,,, 0.0138
4/1/1999 ,,,,,,, 86.602 ,,,,,,, 0.0149
7/1/1999 ,,,,,,, 86.924 ,,,,,,, 0.0148
10/1/1999 ,,,,,,, 87.23 ,,,,,,, 0.0153
1/1/2000 ,,,,,,, 87.924 ,,,,,,, 0.0188
4/1/2000 ,,,,,,, 88.37 ,,,,,,, 0.0204
7/1/2000 ,,,,,,, 88.903 ,,,,,,, 0.0228
10/1/2000 ,,,,,,, 89.371 ,,,,,,, 0.0245
1/1/2001 ,,,,,,, 89.979 ,,,,,,, 0.0234
4/1/2001 ,,,,,,, 90.59 ,,,,,,, 0.0251
7/1/2001 ,,,,,,, 90.874 ,,,,,,, 0.0222
10/1/2001 ,,,,,,, 91.151 ,,,,,,, 0.0199
1/1/2002 ,,,,,,, 91.469 ,,,,,,, 0.0166
4/1/2002 ,,,,,,, 91.881 ,,,,,,, 0.0143
7/1/2002 ,,,,,,, 92.284 ,,,,,,, 0.0155
10/1/2002 ,,,,,,, 92.828 ,,,,,,, 0.0184
1/1/2003 ,,,,,,, 93.496 ,,,,,,, 0.0222
4/1/2003 ,,,,,,, 93.776 ,,,,,,, 0.0206
7/1/2003 ,,,,,,, 94.304 ,,,,,,, 0.0219
10/1/2003 ,,,,,,, 94.799 ,,,,,,, 0.0212
1/1/2004 ,,,,,,, 95.626 ,,,,,,, 0.0228
4/1/2004 ,,,,,,, 96.435 ,,,,,,, 0.0284
7/1/2004 ,,,,,,, 97.131 ,,,,,,, 0.0300
10/1/2004 ,,,,,,, 97.862 ,,,,,,, 0.0323
1/1/2005 ,,,,,,, 98.766 ,,,,,,, 0.0328
4/1/2005 ,,,,,,, 99.438 ,,,,,,, 0.0311
7/1/2005 ,,,,,,, 100.461 ,,,,,,, 0.0343
10/1/2005 ,,,,,,, 101.309 ,,,,,,, 0.0352
1/1/2006 ,,,,,,, 102.071 ,,,,,,, 0.0335
4/1/2006 ,,,,,,, 102.973 ,,,,,,, 0.0355
7/1/2006 ,,,,,,, 103.756 ,,,,,,, 0.0328
10/1/2006 ,,,,,,, 104.218 ,,,,,,, 0.0287
1/1/2007 ,,,,,,, 105.349 ,,,,,,, 0.0321
4/1/2007 ,,,,,,, 106.169 ,,,,,,, 0.0310
7/1/2007 ,,,,,,, 106.706 ,,,,,,, 0.0284
10/1/2007 ,,,,,,, 106.943 ,,,,,,, 0.0261
1/1/2008 ,,,,,,, 107.416 ,,,,,,, 0.0196
4/1/2008 ,,,,,,, 108.33 ,,,,,,, 0.0204
7/1/2008 ,,,,,,, 109.539 ,,,,,,, 0.0265
10/1/2008 ,,,,,,, 109.216 ,,,,,,, 0.0213
1/1/2009 ,,,,,,, 109.484 ,,,,,,, 0.0193
4/1/2009 ,,,,,,, 109.558 ,,,,,,, 0.0113
7/1/2009 ,,,,,,, 109.75 ,,,,,,, 0.0019
10/1/2009 ,,,,,,, 109.665 ,,,,,,, 0.0041
1/1/2010 ,,,,,,, 109.952 ,,,,,,, 0.0043
4/1/2010 ,,,,,,, 110.488 ,,,,,,, 0.0085
7/1/2010 ,,,,,,, 111.045 ,,,,,,, 0.0118
10/1/2010 ,,,,,,, 111.141 ,,,,,,, 0.0135

[flow5]

1/1/1998 ,,,,,,, 10103.425 ,,,,,,,
4/1/1998 ,,,,,,, 10194.277 ,,,,,,,
7/1/1998 ,,,,,,, 10328.787 ,,,,,,,
10/1/1998 ,,,,,,, 10507.575 ,,,,,,,
1/1/1999 ,,,,,,, 10601.179 ,,,,,,, 0.0493
4/1/1999 ,,,,,,, 10684.049 ,,,,,,, 0.0480
7/1/1999 ,,,,,,, 10819.914 ,,,,,,, 0.0475
10/1/1999 ,,,,,,, 11014.254 ,,,,,,, 0.0482
1/1/2000 ,,,,,,, 11043.044 ,,,,,,, 0.0417
4/1/2000 ,,,,,,, 11258.454 ,,,,,,, 0.0538
7/1/2000 ,,,,,,, 11267.867 ,,,,,,, 0.0414
10/1/2000 ,,,,,,, 11334.544 ,,,,,,, 0.0291
1/1/2001 ,,,,,,, 11297.171 ,,,,,,, 0.0230
4/1/2001 ,,,,,,, 11371.251 ,,,,,,, 0.0100
7/1/2001 ,,,,,,, 11340.075 ,,,,,,, 0.0064
10/1/2001 ,,,,,,, 11380.128 ,,,,,,, 0.0040
1/1/2002 ,,,,,,, 11477.868 ,,,,,,, 0.0160
4/1/2002 ,,,,,,, 11538.77 ,,,,,,, 0.0147
7/1/2002 ,,,,,,, 11596.43 ,,,,,,, 0.0226
10/1/2002 ,,,,,,, 11598.824 ,,,,,,, 0.0192
1/1/2003 ,,,,,,, 11645.819 ,,,,,,, 0.0146
4/1/2003 ,,,,,,, 11738.706 ,,,,,,, 0.0173
7/1/2003 ,,,,,,, 11935.461 ,,,,,,, 0.0292
10/1/2003 ,,,,,,, 12042.817 ,,,,,,, 0.0383
1/1/2004 ,,,,,,, 12127.623 ,,,,,,, 0.0414
4/1/2004 ,,,,,,, 12213.818 ,,,,,,, 0.0405
7/1/2004 ,,,,,,, 12303.533 ,,,,,,, 0.0308
10/1/2004 ,,,,,,, 12410.282 ,,,,,,, 0.0305
1/1/2005 ,,,,,,, 12534.113 ,,,,,,, 0.0335
4/1/2005 ,,,,,,, 12587.535 ,,,,,,, 0.0306
7/1/2005 ,,,,,,, 12683.153 ,,,,,,, 0.0309
10/1/2005 ,,,,,,, 12748.699 ,,,,,,, 0.0273
1/1/2006 ,,,,,,, 12915.938 ,,,,,,, 0.0305
4/1/2006 ,,,,,,, 12962.462 ,,,,,,, 0.0298
7/1/2006 ,,,,,,, 12965.916 ,,,,,,, 0.0223
10/1/2006 ,,,,,,, 13060.679 ,,,,,,, 0.0245
1/1/2007 ,,,,,,, 13089.316 ,,,,,,, 0.0134
4/1/2007 ,,,,,,, 13194.148 ,,,,,,, 0.0179
7/1/2007 ,,,,,,, 13268.458 ,,,,,,, 0.0233
10/1/2007 ,,,,,,, 13363.488 ,,,,,,, 0.0232
1/1/2008 ,,,,,,, 13339.175 ,,,,,,, 0.0191
4/1/2008 ,,,,,,, 13359.046 ,,,,,,, 0.0125
7/1/2008 ,,,,,,, 13223.507 ,,,,,,, -0.0034
10/1/2008 ,,,,,,, 12993.665 ,,,,,,, -0.0277
1/1/2009 ,,,,,,, 12832.619 ,,,,,,, -0.0380
4/1/2009 ,,,,,,, 12810.012 ,,,,,,, -0.0411
7/1/2009 ,,,,,,, 12860.800 ,,,,,,, -0.0274
10/1/2009 ,,,,,,, 13019.012 ,,,,,,, 0.0020
1/1/2010 ,,,,,,, 13138.832 ,,,,,,, 0.0239
4/1/2010 ,,,,,,, 13194.862 ,,,,,,, 0.0300
7/1/2010 ,,,,,,, 13278.515 ,,,,,,, 0.0325
10/1/2010 ,,,,,,, 13380.651 ,,,,,,, 0.0278


real-gDp

[flow5]

1/1/1998 ,,,,,,, 8600.6 ,,,,,,,
4/1/1998 ,,,,,,, 8698.6 ,,,,,,,
7/1/1998 ,,,,,,, 8847.2 ,,,,,,,
10/1/1998 ,,,,,,, 9027.5 ,,,,,,,
1/1/1999 ,,,,,,, 9148.6 ,,,,,,, 0.0637
4/1/1999 ,,,,,,, 9252.6 ,,,,,,, 0.0637
7/1/1999 ,,,,,,, 9405.1 ,,,,,,, 0.0631
10/1/1999 ,,,,,,, 9607.7 ,,,,,,, 0.0643
1/1/2000 ,,,,,,, 9709.5 ,,,,,,, 0.0613
4/1/2000 ,,,,,,, 9949.1 ,,,,,,, 0.0753
7/1/2000 ,,,,,,, 10017.5 ,,,,,,, 0.0651
10/1/2000 ,,,,,,, 10129.8 ,,,,,,, 0.0543
1/1/2001 ,,,,,,, 10165.1 ,,,,,,, 0.0469
4/1/2001 ,,,,,,, 10301.3 ,,,,,,, 0.0354
7/1/2001 ,,,,,,, 10305.2 ,,,,,,, 0.0287
10/1/2001 ,,,,,,, 10373.1 ,,,,,,, 0.0240
1/1/2002 ,,,,,,, 10498.7 ,,,,,,, 0.0328
4/1/2002 ,,,,,,, 10601.9 ,,,,,,, 0.0292
7/1/2002 ,,,,,,, 10701.7 ,,,,,,, 0.0385
10/1/2002 ,,,,,,, 10766.9 ,,,,,,, 0.0380
1/1/2003 ,,,,,,, 10888.4 ,,,,,,, 0.0371
4/1/2003 ,,,,,,, 11008.1 ,,,,,,, 0.0383
7/1/2003 ,,,,,,, 11255.7 ,,,,,,, 0.0518
10/1/2003 ,,,,,,, 11416.5 ,,,,,,, 0.0603
1/1/2004 ,,,,,,, 11597.2 ,,,,,,, 0.0651
4/1/2004 ,,,,,,, 11778.4 ,,,,,,, 0.0700
7/1/2004 ,,,,,,, 11950.5 ,,,,,,, 0.0617
10/1/2004 ,,,,,,, 12144.9 ,,,,,,, 0.0638
1/1/2005 ,,,,,,, 12379.5 ,,,,,,, 0.0675
4/1/2005 ,,,,,,, 12516.8 ,,,,,,, 0.0627
7/1/2005 ,,,,,,, 12741.6 ,,,,,,, 0.0662
10/1/2005 ,,,,,,, 12915.6 ,,,,,,, 0.0635
1/1/2006 ,,,,,,, 13183.5 ,,,,,,, 0.0649
4/1/2006 ,,,,,,, 13347.8 ,,,,,,, 0.0664
7/1/2006 ,,,,,,, 13452.9 ,,,,,,, 0.0558
10/1/2006 ,,,,,,, 13611.5 ,,,,,,, 0.0539
1/1/2007 ,,,,,,, 13789.5 ,,,,,,, 0.0460
4/1/2007 ,,,,,,, 14008.2 ,,,,,,, 0.0495
7/1/2007 ,,,,,,, 14158.2 ,,,,,,, 0.0524
10/1/2007 ,,,,,,, 14291.3 ,,,,,,, 0.0499
1/1/2008 ,,,,,,, 14328.4 ,,,,,,, 0.0391
4/1/2008 ,,,,,,, 14471.8 ,,,,,,, 0.0331
7/1/2008 ,,,,,,, 14484.9 ,,,,,,, 0.0231
10/1/2008 ,,,,,,, 14191.2 ,,,,,,, -0.0070
1/1/2009 ,,,,,,, 14049.7 ,,,,,,, -0.0195
4/1/2009 ,,,,,,, 14034.5 ,,,,,,, -0.0302
7/1/2009 ,,,,,,, 14114.7 ,,,,,,, -0.0256
10/1/2009 ,,,,,,, 14277.3 ,,,,,,, 0.0061
1/1/2010 ,,,,,,, 14446.4 ,,,,,,, 0.0282
4/1/2010 ,,,,,,, 14578.7 ,,,,,,, 0.0388
7/1/2010 ,,,,,,, 14745.1 ,,,,,,, 0.0447
10/1/2010 ,,,,,,, 14871.4 ,,,,,,, 0.0416


nominal-gDp

[flow5]

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[flow5]

y-o-y nominal gDp is > 4% for the last 2 qtrs

qtr-qtr real gDp is 3.1% in the 4th qtr.

qtr-qtr Gross domestic purchases price index is 2.1% for the last 2 qtrs

SELL SHORT T-BOND FUTURES sell short May 3rd

Next gDp release April 26.

[flow5]

How many contracts to short. But if bonds continue to trade lower prior to the report, I enter positions early.

[flow5]

Rates bottomed 3/16. Market reversal is accelerating (4.38 now 4.58). 30 year lost 7basis points today. Went short.

[decoy409]

Ok Frank, so they are 3 notches yet above junk. I believe I grasp how the US is getting away with it. 'It' is that since Portugal missed it's 2010 deficit reduction yet so did we. As you know we are still grabbing at straws to address our 2010 deficit reduction yet are in 2011 and behind in that as well. And here comes the 2012 fiscal budget not even worked upon. So what's the solution and it sure is just not reducing health care. Wherever these things happen at,the IMF seems to be right there to provide austerity with cake bailouts. So is this the crossroad for the US?

(I just know you love copy and paste)

June 28,2010 US Austerity Coming Says Obama – How it Will Affect You
www.darwinsmoney.com/us-austerity/

Jan. 18,2011 22 Painful Signs That Austerity Has Arrived In America
Read more: www.businessinsider.com/austerity-in-america-2011-1#ixzz1InRExEmu

And the bets are on at 170-1 that the US won't be able to reduce it's deficit even if there is a plan. The 170 is countries from the latest G20 party.

[decoy409]

As I figured,no answers to legit concerns of question.

[flow5]

I don't know enough to have any opinion on Portugal's fiscal mess. But, I wonder why they don't leave the EU when the ECB refuses to assist them.

[flow5]

This message has been deleted.

[flow5]

A month ago, Zero Hedge first reported that Bill Gross had taken the stunning decision to bring his Treasury exposure from 12% to 0%: a move which many interpreted as just business, and not personal: after all Pimco had previously telegraphed its disgust with US paper, and was merely mitigating its exposure. This time, in another Zero Hedge first, we discover that it is no longer business for Bill - it has now become personal (and with an attendant cost of carry). In March, Pimco's flagship Total Return Fund (TRF) has now taken an active short position in US government debt: -3% on a Market Value basis (or $7.1 billion), and a whopping -18% on a Duration Weighted Exposure basis. And confirming just what PIMCO thinks of US-related paper is the fact that the world's largest "bond" fund now has cash, at a stunning $73 billion, or 31% of all assets, as its largest asset class on both a relative and absolute basis. We repeat: cash is more than PIMCO's holdings of Treasurys and Mortgage securities ($66 billion) combined. To paraphrase: in March PIMCO was dumping everything related to US rates (see chart below). This is the first net short position that PIMCO has had in Government-related debt since the Great Financial Crisis of 2008, and going positive in February of 2009 only after it became clear that the Fed would commence monetizing US debt one month later. This is the closest that Gross has come to making a political statement and is now without doubt putting his money where his mouth is. The only event that could possibly derail Gross' thinking is a huge market crash forcing a rush to Treasury safety. Alas, as has been made all too clear recently, US debt is no longer the safe haven it once was. Which begs the question: when will the TRF break out a "gold" asset holdings line item

[flow5]

John MASE: "Check this out: on April 6, 2011, Commercial Bank Reserve Balances with Federal Reserve Banks totaled $1.503 trillion (Federal Reserve Release H.4.1); for the two weeks ending April 6, 2011, Excess Reserves at depository institutions in the United States averaged $1.431 trillion (Federal Reserve Release H.3); and on March 30, 2011 Cash Assets held by Commercial Banks in the United States were $1.558 trillion (Federal Reserve Release H.8).

All these measures of excess cash in the commercial banking system seem to center around $1.5 trillion.

The Federal Reserve also reports that on March 30, 2011 the cash assets held by Foreign-Related (banking) Institutions in the United States totaled $702 billion or right at 45 percent of the cash assets held by commercial banks in the United States on that date!"

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

Assets and Liabilities of Foreign-Related Institutions in the United States 1
Not seasonally adjusted, billions of dollars
LINE 25

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

MASE's conclusion: "The published figures indicate that a very large portion of the funds the Fed is injecting into the economy is going into the “carry trade” and contributing to the spread of American liquidity throughout the world"

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

Cash assets declined from $478b in FEB to $354b in NOV. Thereafter cash assets of foreign-related financial institutions grew to $702 as of March 2011.


Normally, a preponderance of foreign short-term claims on the U.S. is indicative of dollar weakness. This time appears no different as of 2010-08-25 the Trade Weighted Exchange Index: Major Currencies (DTWEXM) had a short-term peak of @ 76.9985 & has steadily fallen to 70.4822 as of 2011-04-01 roughly coinciding with the anticipation of additional quantitative easing (rumors of QE2).

However the dollar has been falling irregularly since 2009-03-09 @ 86.2914 (a level not seen since 2006). However the dollar has been falling almost this entire decade from a high @ 113.0886 on 2002-01-28.

The dollar's fall and its pervasive inflationary impact is due to several factors: (1) the carry trade, (2) the trade deficit, & (3), the dollars created abroad.