Astronomers are confident that before the explosion of the space, which progremel almost 14 billion years ago, the universe was compact size. Since then, it gradually cools and expands. If in terms of astronomy in the expansion there is nothing wrong, the lenders and investors believe the expansion, or inflation, by force, destroying the value of their capital. Some astronomers have read that the universe will eventually cease to grow and then, after billions of years, again sduetsya "and become a compact, what a powerful explosion followed by another. When six months ago, an avalanche of financial systems, investors and lenders were afraid of deflation. It seems that policy is successfully coped with the task of getting rid of the fear of deflation that is now a trend of non-risky assets again threatens its emergence. The current situation has had a strong influence on psychology and asset prices. The financial and economic crisis has fundamentally different from the "Great lull" in the last quarter century, when, it seemed, was able to tame the business cycle and the role of the state was for the most part limited. It seems that in the psychology of investors have been parallel changes. Against the background of expectations of rising inflation and the dollar fluctuated more strongly than usual.
What does not entitle them to sleep
Given the above, my unscientific survey of investors and investment managers indicated that they did not sleep at night because of fear of inflation. Some believe that inflation is derived from the monetary and fiscal policies. Another situation appears even more grim, as the consumers to the ears mired in debt, and the public sector should be inflationary policies to alleviate the burden of debts and simulate default. Recently in the U.S. went out on price indexes of consumers and producers. Given the prevailing concern, they must be carefully analyzed. Economists and politicians often pay attention to core inflation, which does not include energy and food, not because people do not consume these goods, but because they are generally volatile in the short term. However, the overall inflation over time, becomes the base, rather than vice versa.
In May, core producer prices fell by 0.1%. This is the first decline in October 2006 if the total annualized rate fell to 5%, the base went up by 3%. Nevertheless, there is reason to believe that in the coming months, the overall rate could start to recover, as a base - to decline. Rising oil prices suggests that energy will continue to have a strong impact on prices. At the base level of growth has declined sharply. In the past (annualized) - almost double. Overall consumer prices rose by 0.0096%, while core consumer prices increased by 0.0145%, both can be rounded up to 0.1%. Over the past year, overall consumer prices fell by 1.3%. Against the backdrop of growth in energy prices lower inflation, a point behind us. Over the past three and six months, the overall inflation rate remained unchanged. Benchmark annualized at 1.8% corresponds exactly to its six-month average.
In the next couple of months, possibly lowering the benchmark. There are at least three proofs of this development. The most insignificant of them is the fact that, according to Government estimates, in May, prices for cars have increased, while sales remained weak, and other indicators point to the dealer issues related to the sale of past collections. These price increases could become uncontrollable. Secondly, the excise tax on tobacco products has helped to raise the benchmark in March and April, but the trend of increase is no longer valid. In the third place, a role played by the comparison. Last June and July of basic consumer prices grew by 0.3% in each month. Such good performance is likely to have to be replaced by a more modest figures. So, in the third quarter of the final core CPI may come down to 1.5%, and even below.
Where is the money?
Different credit spreads, such as the LIBOR-OIS and TED talk about the dramatic improvement in capital markets. This is confirmed by the increase in the stock market, in addition, a number of banks returned the money received under the program of TARP. But the problem is that magical tool for the creation of credit is still severely damaged. Recognize this is partly agree with the other reason for exaggerating the threat of inflation. The balance of the Federal Reserve has increased from $ 871 billion last May to $ 2.055 trillion. This is due to two factors. Issue of additional Treasury Bills Finance United States, which, in fact, the Fed passed, and the establishment of additional reserves, or printing money. " These factors are considered by many to pose a risk of inflation. According to the proponents of monetarism, reserves in excess of the required size, are called "excess reserves" and fuel inflation. The main importance is what banks do with these reserves. The answer sounds short: nothing. Figuratively speaking, the banks are sitting on the mountain of excess reserves held with their creator, that is from the Fed itself. According to the most recent data, the surplus reached almost $ 800 billion - that little bit more of all funds for anti-crisis program TARP. Before the crisis, excess reserves has been minimal - only a couple of billion dollars. This means that two-thirds razduvshegosya the balance of the Fed, which was so concerned about investors, the Fed is in itself. This is not a race for assets or goods, as He is not involved in the circulation of capital. In fact, the risk of inflation exaggerated because the exaggerated "real effective" increase in the balance of the Fed.
FOMC
Last week the Operations Committee on the open market, the Fed held a regular two-day meeting. As expected, he left the target rate for federal funds at the current level of 0-25 bp In an accompanying statement, investors have found confirmation that the Fed fulfills two of its obligations. The first is that for some time to keep rates low. Since late May, the effective rate on federal funds shifted closer to the top of the range. After a recent meeting of the Committee stated that, according to his expectations, the economic environment will require that the federal funds rate to remain low over a long period of time. There are rumors that officials may enhance the effect by setting a fixed period of time, as did several other central banks. For example, they may say do not expect a raise rates to 2 second quarter of 2010 associated with the purchase of treasury bonds for the $ 300 billion by the end of the third quarter. Despite expectations, the leadership of the Central Bank is not reported an increase in the size of the transaction or the extension of the program. So what now for investors, all hope is only at the August meeting, FOMC, which will be the last before completing purchases. However, officials from the Federal Reserve should keep to convince all that these deals are not aimed at a certain interest rate. Of course, it is expected to increase after the completion of the free fall of the economy, easing the credit crisis and prevent the frightening of deflation. Meanwhile, the Fed has to mark time. At the same time, if the Bank has announced the extension of transactions for the purchase of long-term assets, this silence signals expected by investors to determine a reasonable exit strategy.
Marc Chandler, Brown Brothers Harriman
What does not entitle them to sleep
Given the above, my unscientific survey of investors and investment managers indicated that they did not sleep at night because of fear of inflation. Some believe that inflation is derived from the monetary and fiscal policies. Another situation appears even more grim, as the consumers to the ears mired in debt, and the public sector should be inflationary policies to alleviate the burden of debts and simulate default. Recently in the U.S. went out on price indexes of consumers and producers. Given the prevailing concern, they must be carefully analyzed. Economists and politicians often pay attention to core inflation, which does not include energy and food, not because people do not consume these goods, but because they are generally volatile in the short term. However, the overall inflation over time, becomes the base, rather than vice versa.
In May, core producer prices fell by 0.1%. This is the first decline in October 2006 if the total annualized rate fell to 5%, the base went up by 3%. Nevertheless, there is reason to believe that in the coming months, the overall rate could start to recover, as a base - to decline. Rising oil prices suggests that energy will continue to have a strong impact on prices. At the base level of growth has declined sharply. In the past (annualized) - almost double. Overall consumer prices rose by 0.0096%, while core consumer prices increased by 0.0145%, both can be rounded up to 0.1%. Over the past year, overall consumer prices fell by 1.3%. Against the backdrop of growth in energy prices lower inflation, a point behind us. Over the past three and six months, the overall inflation rate remained unchanged. Benchmark annualized at 1.8% corresponds exactly to its six-month average.
In the next couple of months, possibly lowering the benchmark. There are at least three proofs of this development. The most insignificant of them is the fact that, according to Government estimates, in May, prices for cars have increased, while sales remained weak, and other indicators point to the dealer issues related to the sale of past collections. These price increases could become uncontrollable. Secondly, the excise tax on tobacco products has helped to raise the benchmark in March and April, but the trend of increase is no longer valid. In the third place, a role played by the comparison. Last June and July of basic consumer prices grew by 0.3% in each month. Such good performance is likely to have to be replaced by a more modest figures. So, in the third quarter of the final core CPI may come down to 1.5%, and even below.
Where is the money?
Different credit spreads, such as the LIBOR-OIS and TED talk about the dramatic improvement in capital markets. This is confirmed by the increase in the stock market, in addition, a number of banks returned the money received under the program of TARP. But the problem is that magical tool for the creation of credit is still severely damaged. Recognize this is partly agree with the other reason for exaggerating the threat of inflation. The balance of the Federal Reserve has increased from $ 871 billion last May to $ 2.055 trillion. This is due to two factors. Issue of additional Treasury Bills Finance United States, which, in fact, the Fed passed, and the establishment of additional reserves, or printing money. " These factors are considered by many to pose a risk of inflation. According to the proponents of monetarism, reserves in excess of the required size, are called "excess reserves" and fuel inflation. The main importance is what banks do with these reserves. The answer sounds short: nothing. Figuratively speaking, the banks are sitting on the mountain of excess reserves held with their creator, that is from the Fed itself. According to the most recent data, the surplus reached almost $ 800 billion - that little bit more of all funds for anti-crisis program TARP. Before the crisis, excess reserves has been minimal - only a couple of billion dollars. This means that two-thirds razduvshegosya the balance of the Fed, which was so concerned about investors, the Fed is in itself. This is not a race for assets or goods, as He is not involved in the circulation of capital. In fact, the risk of inflation exaggerated because the exaggerated "real effective" increase in the balance of the Fed.
FOMC
Last week the Operations Committee on the open market, the Fed held a regular two-day meeting. As expected, he left the target rate for federal funds at the current level of 0-25 bp In an accompanying statement, investors have found confirmation that the Fed fulfills two of its obligations. The first is that for some time to keep rates low. Since late May, the effective rate on federal funds shifted closer to the top of the range. After a recent meeting of the Committee stated that, according to his expectations, the economic environment will require that the federal funds rate to remain low over a long period of time. There are rumors that officials may enhance the effect by setting a fixed period of time, as did several other central banks. For example, they may say do not expect a raise rates to 2 second quarter of 2010 associated with the purchase of treasury bonds for the $ 300 billion by the end of the third quarter. Despite expectations, the leadership of the Central Bank is not reported an increase in the size of the transaction or the extension of the program. So what now for investors, all hope is only at the August meeting, FOMC, which will be the last before completing purchases. However, officials from the Federal Reserve should keep to convince all that these deals are not aimed at a certain interest rate. Of course, it is expected to increase after the completion of the free fall of the economy, easing the credit crisis and prevent the frightening of deflation. Meanwhile, the Fed has to mark time. At the same time, if the Bank has announced the extension of transactions for the purchase of long-term assets, this silence signals expected by investors to determine a reasonable exit strategy.
Marc Chandler, Brown Brothers Harriman
No comments:
Post a Comment