Bundesbank attacks Greek rescue as a threat to stability

German Bundesbank fired a warning shot to the side of Chancellor Angela Merkel (Angela Merkel), boycotting the joint plan of EU-IMF to rescue Greece, considering that this plan will undermine the economic stability, and probably illegal.

Ultra-hawk Axel Weber (Axel Weber), who heads the Bundesbank, said the decision to connect to the IMF could make matters worse by arguing that the EU can apply more stringent fiscal discipline. Photo: Reuters

Yield of two-year Greek bonds rose by 136 basis points in early trading to 8.3% from 5.2% last week. Later, the market has stabilized, when Athens declared a 40% reduction of budget deficit during the first quarter, suggesting that conservation measures are yielding results.
The document contains the Bundesbank diatribe agreement, approved by European leaders two weeks ago, it says that the joint plan was adopted without consultation with central banks and is the monetization of debt. "This agreement will lead to destabilization of the economy, like that should not be underestimated."
According Rundschau, a joint rescue operation between the IMF and the EU will turn the Bundesbank in the "press" for the purchase of Greek bonds. Such actions violate the European principle of "no salvation".
Hans Redeker (Hans Redeker), head of foreign exchange division at BNP Paribas, said that the report greatly strengthens the tone of criticism of the European Monetary Union in Germany. With professors already going to file a complaint with the Constitutional Court in order to stop the plan to rescue Greece. "Such actions severely limit its room for maneuver Merkel" - he said.
Ultra-hawk Axel Weber (Axel Weber), who heads the Bundesbank, said that the decision to connect to the IMF could make matters worse, arguing that the EU would be applied to more stringent fiscal discipline.
In the report acronym IMF (IMF) ironically painted as "Inflation Maximising Fund" (maximizes Inflation Fund), stating that the foundation fund "softened" under pressure Dominique Strauss-Kahn (Dominique Strauss-Kahn), French socialist and Keynesian. These actions shift the focus from the "fiscal cleansing" to the "growth-oriented" financial policy. Selection for such purposes reserves the Bundesbank can not be justified "- the report said.
At least, Mrs. Merkel will be extremely problematic to weaken its insistence on "market rates" on any loans for Greece. The officials spoke about the numbers that are close to 6%, to avoid moral hazard, but it angered Greece. She hopes to hold below 4.5%, as Portugal or Ireland. The representative of the Greek government said yesterday that his country had imposed "barbaric conditions" (barbarous conditions).
Jean-Claude Trichet (Jean-Claude Trichet), ECB president, minimized the rift between Berlin and Brussels, saying that the EU's assistance to Greece was "very, very serious undertaking, and nobody should be windy relate to the statement signed by the Heads of State" .
"Taking into account all the information that I have, I believe that Greece is not considered a default," - he said after the meeting of the Board of Governors. The Bank left interest rates at record low level of 1%.
Lourent Bilko (Laurent Bilke), European economist at Nomura and a former official of the ECB, said that Greece is actually located outside the market. "We believe a more likely course of events, which will force Greece to change the strategy and ask for help. In fact, there are no prerequisites to wait for "accident".
At Barclays Capital say that to restore confidence and funding needs, Greece should be at least 40-45 billion euros, which will help buy time for reform.
As expected, the ECB has postponed plans to tighten collateral rules, thereby eliminating the risk of loss of Greek banks vital security from Frankfurt for another year. In the analysis IOBE said that funding ECB Greek banks in the first quarter rose to 65 billion euros. The ECB will impose fines for "fat" on the lower classes of shares, but it will not address sovereign debt. This is an atypical aid Greece, Italy and other major debtors.

Jean-Claude Trichet President European Central Bank, to change the subject of the ongoing rift between Berlin and Brussels. Photo: Bloomberg

Kellow Julian (Julian Callow) from Barclays said that the sharp fluctuations in the Greek mask, and the good news: "contagion" has not spread to central Europe and Ireland. "Greece is now regarded as an isolated incident, since it came to a crisis with already very high debt. Ireland managed to avoid, despite how much it cost the banking sector ", - he said.
In any case, the euro looks much stronger after the events of the last two weeks. Analysts say that for the Greek default there are serious reasons, and if it happened, that in itself would have been losses for the currency union.

 

 

The Telegraph

Deflation on the prowl as Bernanke shuts down his printing press

U.S. Federal Reserve has finished purchase of mortgage securities, debt agencies and the Treasury at 1.7 trillion dollars (1.1 billion pounds) that was a ruse "credit easing, allowed Bernarke, Ben (Ben Bernanke) create an incentive equal to 12% of GDP.

As noted by Beijing with a certain share of doubts created by the Federal Reserve money supply was more or less proportionate to the credit needs of Washington last year.

We will never know how correct it was to become nuclear powers. In my opinion, and I'm afraid it does not coincide with the opinion of readers, Ben and the British Bernarke Mervin King (Mervyn King) saved us from potential disaster. We were too close to the critical point, described by Irving Fisher (Irving Fisher) in "Causes of debt deflation during the Great Depression» (Debt Deflation Causes of Great Depressions), then there is a time when the ship draws up water and turns instead adjust to the natural rate.

The work of professor from Berkeley Ichgrina Barry (Barry Eichengreen) states that the rate of collapse of global trade, industry and capital markets within six months after the crisis, Lehman was even faster than in the early 1930's. How quickly we forget and how easily seduced by 76% Fund Rally, thinking that this is a storm in a teacup. Now, however, expect retribution through taxes.

1.7 trillion dollars, created out of nothing, disappear, as the bonds sold on the open market. Hopefully, not so fast. Easy money to soften the blow from reduced spending. Even talk about the end of quantitative easing - the desire to tighten. And although the U.S. economy is again creating jobs (+114.000 in March), the rejection of registration of temporary employment has led to false signals in 2002 and 1982. The broader index U6 unemployment rose to 16.9%.

Bond lyncher asked who would assume the role of the Fed, to absorb the flow of debts incurred by the Washington, whether they are from the Treasury Obama or Fannie Mae and Freddie Mac - the mortgage giants from death row.

The yield on ten-year Treasury securities soared by 30 basis points to 3.94% for two weeks. Alan Greenspan (Alan Greenspan) called this a "canary in the coalmine" for sovereign debt of the United States.

There is a surge in profitability, although core inflation (truncated mean personal consumption expenditure) fell like a stone, touching a record low of 1.04% in February. Money multiplier Fed is languishing at the level of 0.815, while continuing to deflate.

Basic fixed mortgage for 30 years rose to 5.08% from 4.71% in December. The housing market in the U.S. is too painful to move eto.Pprodazhi new homes fell four months in a row, dropping to a half-century minimum in February. The current number of unsold homes to sell 8.6 months without new construction. 24% of mortgage loans in negative difference between the cost of credit and debt.

Bernarke now takes the fateful decision to dislodge the support from the credit market, despite the fact that broad money M3 fell by an incredible 6% in September. If the M3 gives early warning of 6 to 12 months - is to be feared.

Bernarke does not take into account the M3, regarding such eccentricity monetarist "medieval witchcraft." Signs of the M3 is certainly not stable for many years. Perhaps this happens because of the movement of portfolios. But the rejection of the simple observation of it was the root of many problems in the past four years. If Bernarke attention, he would have seen the need for an explosion of the credit bubble before. It also would avoid the disastrous mistakes in the early summer of 2008. Hetzel, Robert (Robert Hetzel), chief economist at the Federal Reserve in Richmond, wrote about monetary policy during the recession of 2008-2009, the central banks themselves have triggered a crisis by refusing to quickly cut interest rates when the economy was collapsing from March to July 2008.

Remember this moment. Rates have fallen from 5.25% to 2%. Oil and copper prices were extremely high. "Inflyatsionisty" they shouted, accusing the Fed's laxity in the 1970's, some "high-flying birds from the Fed were to agree.

Fetzel said that the Fed "effectively tightened" policy in June 2008 with the help of tough statements, which resulted in the growth of futures by half a percentage point in September 2008. Obvious proof that the rate of monetary growth has long been falling, have been ignored.

The ECB went even further, raising interest rates in July, when the euro zone is already deeply immersed in a recession. We know what happened. Lehman, AIG, Fannie and Freddie - they collapsed in September. Wheels fall off the global financial system.

I fear that the Fed will repeat the mistake, in this case, reversing the quantitative easing too soon. The problem lies in the ideological doctrine Bernarke, namely "kreditizme.

Do not confess if Fed Chairman false religion? Was Milton Friedman (Milton Friedman) rights, arguing that the money supply is the most important role, not a loan facility?

From this profound doctrinal answer may depend, whether the Atlantic economy to exceed its critical velocity or slide towards recession again?

 

 

 The Telegraph

The Ecstasy of Fiscal Policy

Say you're a political adviser. You are in West Hollywood, sit together with the party sponsors in a strip club in style sadomasochistic, and they pay their bills, and, of course, you think about what this great country. Sharply by a sense of gratitude, and you want them to repay. Would you like to avert a looming financial disaster in the country.

The problem, as you see it, is that unlike you, other Americans have grown in prosperity and carelessness. Two hundred years they have lived in danger. There have been booms and busts of economic cycles, devastating epidemics and natural disasters, which comes without warning. Such conditions were forced to be cautious. The thought of going up excessive debt, filled their moral horror.

However, in recent years, life has become safe. This undermined the fear of debt, private and public. In 1960, debt households in the country accounted for 55% of national income. By 2007 it had grown to 133%.

In 1960, the politician would be removed from office if he allowed the federal debt doubled in a decade. Nowadays, politicians soon be fired if they try to stop it.

These days, voters want low taxes, about 19% of GDP. And they want to spend a lot, about 25% of GDP by 2020. As a result, the federal debt, which was at around 41% of GDP two years ago, is projected to soar to 90% of GDP in 2020, according to the Congressional Budget Office. By that time, only interest payments will be $ 900 billion a year.

This whole mess, you repeat yourself, called democracy and moral decay. Should be a moral revival. Who will be able to cope better than you yourself? God sent you to Earth, to control the electorate for the benefit of the country.

First, you must change the social norm. The financial crisis had helped to convey to people the idea that too much debt - it's dangerous, but there will probably still need a crusade against the pollution of waste and smoking, to finally bring this idea into every home. Do you think of Warren Buffett (Warren Buffett) on television. Oprah (Oprah). Tom Hanks (Tom Hanks). Someone should remind the country that excessive debt is selfish.

Secondly, all associated with a deficit, you must convert. Teachers would say: "You're badly behaved. Eat your broccoli. Accept lower standards of living. "

Thank God, it is still a nation Billy Mace (Billy Mays). The message should read: "The U.S. may be richer and brighter!". Debt reduction should be associated with renewal and prosperity, and not with the pain and sacrifice.

This means that deficit reduction should be included in policies to achieve economic growth. Michael Gratz (Michael Graetz) from Columbia University proposes to replace the current tax code is a horrible 14% VAT, to reduce corporate tax rate, and introduce a fair tax on income from two limitations over 100.000 dollars. Many people have ideas about how to come to the welfare state. The answer they should be: can we afford to have a powerful system of social protection only if it would be more effective.

In this case, you will have to mobilize the political class. Now some people think that they have chosen officials are so "rotten", that is not only the elected commission can save us. Snob. Stories such commissions - a history of failures. Stuart Butler (Stuart M. Butler) of the Heritage Foundation and Henry Aaron (Henry J. Aaron) at the Brookings Institution argue that in a democracy is simply impossible to rewrite the terms of the social contract without the consent of society. Commission - is good, but they should participate in broader democratic processes.

The method by which this can be done is to release from the polarized structure of the committees. Invite a dozen selected senators and members of the White House, and collect them in the same room three times a week for six months.

Once they come up with a plan to reduce debt, send them to the presidential commission on the deficit, which providentially created Obama.

Obama was not recklessly brave on this issue, and fought against the powerful political pressures on a number of mechanisms that are gaping loopholes in order to achieve expenditure control, such as payments under the program of free medical care, and pensions out of current income. If he had the necessary support, he would have done everything correctly.

When the secret plan of the Congress will be held at the White House Commission on deficiency can present it as a result of independent politicians eksperitzy. This may give some political cover to legislators, and all the guys in editorials and analytical centers will go down in ecstasy. You will convince all that such actions make the government less intrusive. You will persuade business that it's easy. You'll convince liberals that the rich will bear the heaviest burden. Everyone will pay something, but all will see their benefits.

If you can do this, you will save the country. If not, it will be the fall of Rome, and you might as well can stay in a nightclub.

 

 

The New York Times

Termination of the Fed buying MBS, along with increasing self-confidence

By the end of the program of the U.S. Federal Reserve worth 1.25 trillion dollars to buy mortgage securities guaranteed by Fannie Mae and Freddie Mac, investors behave with surprising calm.

And just a few months earlier, many worried that without the continued intervention of the central bank, mortgage loans can be quite expensive and discourage potential buyers, driving the market for a new recession. Now, exit the Fed is seen no more than a minor episode. Such events may be a sign that the financial system again seeping confidence.

Of course, there are reasons for an optimistic point of view of investors, and the timing was just as much. First, many traditional buyers of these mortgage-backed bonds or left out of the game, or buy fewer bonds than allow their portfolio. According to Credit Suisse, they, along with index funds, now account for 18% of the market, down from 25% before the Fed came into the game.

However, most are not now a huge selection of alternatives for investments that would meet their strict criteria, which means it can fill the empty space left by the Fed. Banks with cash reserves after raising their level of capital is also attractive to potential buyers, said that the owner of JPMorgan, Jamie Dimon (Jamie Dimon) at a conference last month.

Bondholders are also hoping to catch the wind. According to Credit Suisse, Fannie and Freddie back in the hands of mortgage investors, 136 billion dollars between April and June, because the moment they purchase bad loans from mortgage pools underlying the existing bonds. This should ease the way the Fed. If we assume that investors get paid back in the market, those dollars would be enough to replace the central bank's recent purchase of three to four months.

Still, market observers are likely to think that the end of the program of the Federal Reserve will have some impact. Many expect the spreads of mortgage securities, or the risk premium increased only from 0.15 to 0.2 percentage points, which would be a slight deviation from about 1.5 percentage point narrowing of spreads since the peak of panic in November 2008. There is too much money waiting for the weakness of the market and that his attack when spreads rise more than stated.

This may be true. But here's the question: Should investors were so keen to mortgage securities, are precisely will not get them at a low price, even if prices fall below the expected level? Over the past 15 years, mortgage spreads, combined with the Treasury maturities, reached an average of 1.45 percentage points from the expected value without the help of the Fed. It is hardly in such a situation, the transaction will be possible.

Moreover, the Fed seems to be slowly changing its attitude to the conservation of purchased mortgage-backed securities. In public statements last week, Fed Chairman Ben Bernarke and several colleagues, seemed to pay more than expected, attention to asset sales, as the method of the Central Bank to exit from the extraordinarily soft policy.

Nobody expects the Fed's emergency sale of its securities, it would be foolhardy, given the fragility of the housing market and a consistently high level of unemployment. However, since the Fed now owns about 25% of outstanding mortgage bonds, any talk about the actual sales have far greater concern than if the Fed simply stopped buying.

The risk of interest rates also looms large. As the economy grows, interest rates should also rise. This means that a smaller number of U.S. borrowers will repay their loans early and investors will keep bonds longer than expected, which will be a potential cause of discrepancy between the financing and timing of assets. Moreover, it can lead to a drop in bond prices, creating losses, at least on paper. Of course, investors can hedge the risks on interest rates, but it has never been an ideal insurance for mortgage securities.

And finally, frightened by the behavior of financial markets should give investors pause. Not only because of what happened with the yield on the last week, but also because of the ratio of interest rate swaps, the main instrument of the mortgage market to hedge against interest rates falling below the yield of Treasury securities, this accident could make the hedge less effective. Alarm calls are not yet apparent, but this is a timely reminder to investors that are relaxed due to the fact that the Fed comes out with the mortgage market that the more traditional risks are still not gone away. 

 

 

Reuters, Mar 30

Sharp statements regarding China ignore the economic realities

Last week, Washington was again to discuss their concerns about China and its currency. At a time when there are many other important issues facing the US-China relations, many of us do not understand why the problem of currency worries Congress the most. Once every six months, this time on April 15 U.S. Treasury checks, whether China currency manipulator ", and it is not clear whether such a fuss even help someone else.

Indeed, from a macroeconomic point of view, the timing of this could not be more inappropriate. About four weeks ago, Obama introduced a plan to double exports over the next five years. Very ambitious, given the past weak dollar and rising domestic demand in many developing countries, including China, but the U.S. has a chance to achieve this goal. So why follow the path of retribution "eye for an eye" if the course of events and so can turn in the opposite direction?

There are three main problems which need to focus American policy: domestic demand in China, its trade relations with other countries, and exchange rates.

With all due respect to domestic demand in China, it is clear that he is now far too strong, and certainly not at that level, so that you can blame China that its influence on the world economy "is not great." Approximately thirteen years we have used our own GDP for China, the so-called index of Chinese activity Goldman Sachs. Currently, he is growing annually by 14 percent or more. In fact, and this is the trick, if Washington and the other would maintain silence, China's policy would become even more vigorously to contain inflationary pressures by, inter alia, the introduction of more flexible exchange rate.

Take a look at several indicators of data to local or global companies that do business in China, published data on consumption and investment, or, more importantly, the trade data, true. Talk to someone who is involved in any level of consumer business, whether it be Tesco, Walmart, or Louis Vuitton, as well as look at their records. Chinese consumption is probably true is growing by about 15%, which compares with 2-3% growth for the American consumer.

While the involvement of China in the rest of the world is saved, the worst in the current crisis is not a strong Chinese exports, but the strong imports. The forthcoming publication of reports on trade in just a few days before the report of the Treasury is likely to show a huge increase in imports, in absolute terms and relative to exports. A similar situation is observed not only in China but also in many other important countries with high levels of foreign trade. Indeed, quite surprisingly, that the trade turnover between Germany and China shows strong growth so that if the trend until the next spring, they will exceed the growth of trade with France. Last year, China announced that its balance of payments surplus amounted to 5.8% of GDP, significantly below the levels predicted by many people in Washington. In 2010, the surplus could be closer to 3% (by the way, the level below 4% is considered a "balance" in the Peterson Institute for International Economics).

Which brings me to exchange rates. I spent much of his career, working on models of exchange rates, and familiar with all the difficulties. We develop our own model for many years at Goldman Sachs, including the yuan. At the moment, and this is very strange, our model shows that the yuan is very close to its fair value. Model usually shows that the currency is undervalued by 20%, but in past five years the situation has changed. Of course, we are less confident in the accuracy of the model than the conventional monetary model, given the huge changes in the growth dynamics of the Chinese and the world at large.

This brings us to the irony of the question. Why American politicians have to click on the buttons of protectionism at the very moment when there is clear evidence that the opposite outcome of events will only benefit? In addition, all should be clear that linking the yuan to the dollar lost its meaning, which, incidentally, recently the president of the People's Bank of China.

 

 

By Jim Neal - Chief Economist, Goldman Sachs

The volatility of the economy - a problem for stocks

It may happen that instead of inflation, namely the volatility of the economy will be a real test for the stock markets in the coming years.

The consequences of an unprecedented set of circumstances and political action is very foggy outlook for economic growth and inflation. For investors, the stock market, this means much less certainty in the forecasts as profits, and methods of assessment to which they are accustomed to for 25 years before the current crisis.

In fact, not necessarily low interest rates and inflated balance sheets of central banks can cause inflation. This is true, but it is also possible and the Japanese deflationary scenario. There are far more tangible chance of serious shocks of inflation, economic growth and changes in monetary policy than in any other period since the Second World War.

This is the end of the so-called Great Moderation, a design that keeps the economic growth and inflation in the necessary framework. This, to a greater extent, was an illusion, but as long as it existed, investors were willing to pay more for profit companies.

The more stable economic growth, the more predictable is the company's profits. Sustained inflation is also a great boon for investors, it makes it easier to discount future flows of funds, but also leads to a smaller number of painful mistakes of officials. In the end, much easier to go 60 miles per hour on straight, flat road, than that which was littered with sharp turns, sudden ups and downs.

Long-term moderation, as a rule, enhances this effect. Investors are more inclined to diversify the flow of investments for future profits.

In this period is remarkable is not that investors have become more cautious, but how quickly confidence returned to him. Price / earnings ratios in the United States is currently close to 14-15, and resumed growth, while below the last peak, but still well above levels at which it was in 1970 and 1980. Price / earnings ratios fell throughout most of the last decade, driven by the downward bursting Internet bubble more than the disappearance of the illusion of moderation.

Volatility of inflation is much stronger, it is at levels that are not recorded in the 1980's.

"We came to a rare moment when the figures are much higher than their normal levels for such examples of economic instability," - wrote William Hester (William Hester) of the Hussman Funds in the commentary to investors.

This can happen because investors put no more that politicians will try to simultaneously suppress growth and control inflation, and that they will do anything for the previous stimulation of economic growth. Betting Bernarke and against the Depression was the right strategy in 2009, but at the moment the situation is more complicated.

Demographic support the deterioration of the stock market

Bond, Tim (Tim Bond), strategist at Barclays Capital in London, thinks that the moment the stock market valued more or less correct, but assumes that in the coming years it will put pressure combination of factors, including economic instability.

Demography, as Bond says, will help to reduce support for the shares, as the baby-boom generation ages and begins to retire. As soon as the middle-aged people are preparing for retirement, they are likely to hold fewer shares, as at the time of retirement they would have to spend all their savings. This should put pressure on stock prices at least 10 years, unless of course the Chinese and Indian long-term investors will not suddenly developed an interest in the stock market.

I am willing to bet that the motion will be the other way.

It is also true (and understand), why lower levels of global economic growth is necessary in order to reduce inflation in the goods. If such a situation would have continued, it will become a headache for bankers and investors from Beijing to Washington.

In the end, because we have been formally introduced reflation, the biggest risks to price / earnings come from the political mistakes. They are of two types: intentional and unintentional.

For central bankers now much more difficult time because they know the actual situation in the economy. Nobody knows what really happens U.S. interest rates when the Fed will end support: neither you nor I, of course, not the Fed. No one knows when or how the banks will start lending again, accelerating the rate of money in the economy, and with it, and inflation. Fed may be done with good intentions all terribly wrong.

In addition, the unemployment rate is extremely high, and it will take years to make it down to acceptable levels. May continue to handle the huge budget deficit would be correct in these circumstances: politically, economically or morally, but hard to argue that this development would not create temptation for central banks and does not increase the risk of economic instability. 

 

 

Reuters

10 reasons why it is not a bull market

Kevin Kessidli (Kevin Cassidy), a senior credit analyst at Moody's recently talked about the $ 700 billion risky higher-yielding corporate debt, which has already appeared on the horizon and said: "The avalanche накроет us in 2012 or later, regardless of whether or not the company try something do anything to avoid it.

Minyanville offered a similar assessment of how the corporate debt of $ 871 billion in September 2008, enlarged by the end of the year. We think that there are two possible scenarios: the credit cancer, eat up financial footing, or car accident, which ruined the system to pressure world debt. Read "Pirate's Booty", released on Minyanville.

I agree that another flood would be the tip of the Credit Mountains, while the risk has passed from the corporate coffers of sovereign savings, value is the aggregate of the causes and effects. And, despite the alarming parallels with the financial crisis in 2008, and with a modern extension, experienced investors continue to monitor corporate credit, like clockwork to assess the recession.

Because the shares have beaten 18-month maximum, we are left to wonder, will remain at the same level as the possibility of corporations, when they were again forced to pay. Credit markets show a surrealistic effect and only in such a perspective in the stock market has enough room to maneuver.

Because it begs the question: Who will beat the bell, when back problems?

Predators are waiting

No one denies that the bulls dominated year after year. At that time, how can you disagree with synthetic catalysts, price - this is the final arbiter of various financial views. The market is never wrong, we must never allow anyone's opinion affect the way of earning money.

As for investors is extremely important corporate credit, there is a long list of risks, waiting in the wings. Realizing that such information can lead increased fears, I describe 10 reasons why we are seeing a cyclical bear market with a long and painful consequences.

1. There remain questions about the assistance of Greece to pay the debt of 20 billion euros, which will be addressed in April and May. Such actions are not tied to boundaries, if you want an agreement is reached, this method will be tested, when it begins to sink following "rescue". Read "A Five-Step Guide to Contagion", published by Minyanville.

2. New legislation on health can add hundreds of billions of dollars to Ithaca gaping budget deficit. This gap could be reduced only by the growth of taxation and strict approach to the initiatives, but not because of the proportional growth or decline of consumption. Of course, such events can occur only when the relationship of governments and markets will be higher than ever.

3. State budget break up, and a recent Pew Center report estimated unfunded pension liabilities in the eye-popping $ 452 billion. Although, I hope that the package of federal grants, as discussed in January, would like to transfer money from one pocket to another. Read "Ten Themes for 2010".

4. Databases shaky at best, and explosive at worst. Since the "big division" still continues to grow (the red states against blue), Main Street against Wall Street, the wealthy against the poor - Social acrimony has passed into the social unrest in some parts of the world, and economic difficulties lead to geopolitical conflicts.

5. It is too much complacency, which can be measured by traditional means, such as the index of volatility (VXO 15.25, -0.29, -1.87%). Although we have seen long periods of subdued volatility (2004-2006) and the fierce debate over the demonstration effects of these measures, risk premiums are at levels that were last recorded in June 2008, just months before the financial crisis.

6. Campaign against Google Inc. -China and the USA-Toyota Motor Corp. to the EU-Greece, continue to point to protectionism. This posturing on the other side of globalization are clearly thriving.

7. While this unemployment rate ranges below 10%, almost one in five Americans - the unemployed. This means that they do not work, stopped to look, do not work on specialization or underemployed, because they can not find a place with full employment.

8. Economic point of view. At interest rates is only one path, the ratio of price to earnings will never be close to the point of incidence, and the ratio of debt to GDP ratio will approach or exceed 100% in all countries of the Group of Seven in 2014, with the exception of Germany and Canada, according to John Lipsky (John Lipsky) from the IMF.

9. With Congressional oversight has warned that commercial property losses the banks could reach $ 300 billion since 2011. Almost half of those loans that are concentrated in small establishments with total assets of less than $ 10 billion for the same banks accounted for almost half of all loans for small businesses. Read "What to Expect from the Commercial Real Estate Crisis".

10. It's easy to forget about the crisis in the housing sector, in terms of relevance, this problem is practically in the past. We must remember that a huge number of mortgage securities incorrectly positioned in the best case, worst case, they are toxic, and are in the balance of private and public institutions, and, accordingly, in bank accounts across America. This is in addition to the appearance of "sunk" mortgages (negative equity) and to foreclosure across the country.

Recall

Do I think that the system broke down in the process of repair? No, I believe in a lot of opportunities, after we took the medicine from the debt destruction. Read "The Great Expression"

This process may take 5-7 years, but it certainly is hard to say, much depends on how the will to develop multi-linear dynamics, which includes adjustments to rates, the evolution of loans, $ 500 trillion global derivatives, bilateral administrative reforms, changes in social attitudes, geopolitical instability and trade relations.

Perhaps we are faced with an echo before the coming retribution? Of course, markets are no longer natural, and we must respect both sides of the financial equation. Depending on the direction in which the emphasis will be placed and used for trumps, the result we obtain is only one way to reconcile these seemingly disparate point: move cautiously, making a time only one step.

Yielding to pressure at the end of the quarter, though the rates of anxiety is increasing, the market psychology remains one of the most important of four indicators. The last round of the fundamental data points (profit) beat expectations in the aggregate, the bulls also pick up the baton technical S & P above 1150 and the banking index over 50 (the resistance comes into play S & P 1200) and while the structural drivers of the U.S. is currently stable, we have not heard about the status of other sources.

If you had asked me about the short term, I would suggest that the ribbon reaches the highest level at the end of the fourth quarter to S & P 1200, in accordance with the best bad developments. Remember, when the S & P 1150 has been overcome, has opened a lot of positions on the decline, which was removed before the natural layer of demand. Since then, we will follow the movements of capital in the second quarter, which should help to formulate a report by early April.

Each of us has a unique time horizons and risk profiles, because the blind surf so dangerous. I do not believe in reasoning, I believe in activism and individual responsibility for our financial decisions. I hope that made his stroke in the big picture, which added some information, thanks to which we find our way.

MarketWatch

Mar 24

White House Passes Historic Health Bill

Adjustments relating to abortion, have become the most significant changes in the bill, Democrats have been approved, but the Republicans had expected growth of its constituencies.

President Obama, joined by Vice President Joe Biden (Joe Biden), addressed the nation on Sunday evening after the final vote.

The biggest changes in decades in the field of health have been taken on Capitol Hill on Sunday evening, which was the culmination of generations of Democratic attempts to achieve universal health insurance.

Faced with condemnation of voters in the autumn, the Democrats know that they can overcome the fear of the bill, which is 1 / 6 of the U.S. economy. The final battle in the meeting room once again exposed the contradictions that have split the Congress and the nation last year.

The White House there was a final vote on the bill the Senate on health care by a margin of seven votes (219 to 212), showing the advantages of the numerical superiority of Democrats. During the final roll-call vote, all Republicans and 34 Democrats, adhering to the views of Republican, voted in the negative.

After some time had been approved a bill amending the Senate bill (220 votes against 211), this measure was needed to attract support from the White House. These changes are currently made in the Senate, who is expected to action this week. All the Republicans voted against the companion bill, as Democrats and 33.

President Obama, who built his electoral program for major health reform, helped nominate her at the last minute, promising to issue a government order, which makes it clear that the $ 940 billion bill will not be paid money for abortions. This convinced the Republican Bart Stupak (Bart Stupak), abstention, a Democrat from Michigan, to vote "for" and bring with him, at least, 7 colleagues.

President Obama spoke shortly before midnight in the White House. "While experts say that this is impossible, we have risen above the level of our politics," - he said, starting to vote. "We have proved that the government is still working for the people."

Much had to be moved for the approval of the bill, which has caused many in Washington controversy in the past year, ranging from voting on Christmas Eve and ending with an unexpected election as a Republican from Massachusetts Scott Brown (Scott Brown), who changed the plans of the Democrats.

"You will join those who approved the program for the elderly health care and social security, the program for health care for all Americans," - said House Speaker Nancy Pelosi (Calif.) (Nancy Pelosi), calling on Democrats to unite their efforts. "This is a true American way, which will support the traditions of our country."

Minority Leader John Boehner (John Boehner) (Ohio) criticized the bill and said that the Democrats are going against the will of its people. "Shame on the party, shame on every one of you who have exchanged wishes of the people of the country on their own," - he said. "Our decisions today we betray their values."

Republicans hope to use this bill to reduce the Democrats to minority status, citing polls showing that most Americans against the bill, Democrats also believe that the law will immediately support them.

According to the U.S. Congressional Budget Office (CBO), the bill will extend health care for 32 million Americans who currently do not have insurance. This program will provide insurance every American the same opponents would try to appeal this decision in the courts. In order to reach more people, the bill expands the Medicaid program, federal public health program for the poor, and gives grants to families whose total annual income is $ 88,000.

The Democrats emphasize the introduction of popular provisions in the bill, for example, the requirement for insurance companies to take already sick people. Republicans criticized the tax increase, and claimed the bar for medical assistance for the elderly needed to finance subsidies.

A wide-ranging Senate bill was designed to quickly become law with the support of the White House. Some doubts remain concerning the package of changes, which are now engaged in the Senate. Democratic leaders said that they have the necessary votes for approval, but the Republicans are trying to undermine or make it change in order to make adoption more difficult. These changes were to increase the size of subsidies and reduction of "at no suggestions of some senators, which aroused a storm of protests.

According to CBO, this package will keep the budget deficit is not lower than $ 143 billion over 10 years. Republicans called this an unrealistic estimate. CBO also assumes that 95% of U.S. residents will be insured by 2019, today it is 83%.

Sunday circulation was greeted with protests activists Tea Party, which filled the Capitol Hill, Republicans also expressed dissatisfaction with the negotiations among Democrats in the last minute. "Where is the transparency of action? Where these backroom deals? "- Asked Republican Jack Kingston.

The bill, which is almost buried in January due to the fact that the Democrats lost their majority (60 votes) in the Senate, so necessary to overcome Republican resistance, fuel grassroots anger. Activists chanted for passing through Congress, Democrats: "Kill Bill (kill the bill)!".

The focus on Sunday was focused on the issue of abortion. Several Democrats, led by Republican Stupak, has been refused to support the bill, arguing that the legislation does not go down so far as to hold the funds from paying for abortions. They appreciated the disposal of Obama, but the Roman Catholic Church and other groups against abortion does not seem so enthusiastic.

Someone from the Republican Party, shouted: "The murderer of children!" That belonged to Stupak, who defended the bill in the White House.

A significant number of the business community opposes the changes, arguing that the bill was too broad in scope and will require increased tax revenue. "It will make us one of the most vysokooblagaemyh regions in the world, and this will affect people's appetite for investing in medical innovation," - said Bill Hawkins (Bill Hawkins), the executive director of the Medtronic Inc., Which manufactures medical equipment. He said that his company may reduce, at least 1,000 jobs because of rising taxes by 2.3% for medical equipment manufacturers.

Insurers face tough regulation, given that new rules will dictate to them how much they will profit and who they should insure.

Hospitals, doctors, drug manufacturers and a group AARP supported the restructuring of the system, saying it would reduce spending on health and everyone can get medical care.

"This is not about health," - said Republican James Cliburn (James Clyburn) from South Carolina. "This is an attempt to extend the basic fundamental rights of people who are not so powerful."

Franzi Levin (Francee Levin), an actress from Colombia, where 57 years, said she was unable to obtain insurance payments, when it shot down a drunk driver. "I think that now I can get some help, which would have been a blessing for me" - she said.

However Kolhoun Catherine (Catherine Calhoun) from Seynt Frantsvilya said she worried that her husband's employer refuses to insure themselves and their families will have to apply to set up an insurance fund in order to get help. This can lead to what she would have to find new doctors to its seven-year son Billy, who suffers from a rare bone disease.

"Maybe I will have to deal with people who will not have sufficient expertise to treat such diseases," - said Mrs. Kolhoun.

In anticipation of a vote, Obama urged Democrats to focus on those who will help and not to worry about the political difficulties. "A good policy - it is good policy," - he said.

Republicans said they expected large changes in the autumn. "I would be more likely opponent of the bill and said:" Let's start anew, "- said Senator John Kornin (Texas) (John Cornyn), chairman of the national Republican senatorial committee. "This will be the determining factor in November 2010, and, if passed, in 2012, when the president will run for re-election.

In accordance with the legislation, consumers will see changes in a few months. Insurers will not be able to put lifetime limits on coverage. Children can be insured under the tutelage of their parents to 26 years. Changes may be bumpy, as insurers are warning that will not accept the changes so quickly.

Most of the bill will not take effect until 2014. Once the tax benefits and free medical care will be expanded, most Americans will have to be insured or to pay annual contributions equal to $ 695, or 2.5% of revenue.

Employers had to provide for insurance coverage or pay a fine of up to $ 3000 per employee. These data suggest that the Senate ultimately will have to adopt a package of changes approved by the White House.

The increase in taxes necessary to finance the program, will cover various industries from insurers to solariums. During the next decade, the new rates, equivalent to $ 108 billion will fall on insurers, drug manufacturers and companies that produce medical equipment. Families earning more than $ 250,000 a year will pay a higher tax on medical care for the elderly, and will pay a higher tax on income such as dividends. Volumetric insurance plans would translate into 40% tax, since 2018.

The second bill, led by the Senate, Obama will be ready to fulfill the second great goal: to modernize the federal credit program for students. This will put an end to subsidies for banks and credit responsibility will shift to the federal government. This part of the package of changes is still awaiting approval of the Senate.

 

 

The Wall Street Journal

Spin, science and climate change

Adjustment of the legislative framework, stopped at 6 months, again showed signs of life in Washington. This week, senators and industry groups were discussing a compromise bill on the introduction of mandatory controls over carbon emissions. And although the green activists around the world waited for American action 20 years now, no hurry to celebrate. Even if the discussion would result in the law, it will be only a pale shadow of past hopes.

Trouble in Copenhagen - one of the reasons. So much effort is applied in such a modest result. The recession changed everything. Most managers can take care of the planet, but in reality they think more about their benefits, especially in hard times when they do not want to bear additional costs. Unpleasant arguments of the American Health Ministry did not help: it is not very convenient time for the bill, which needs the support of both parties. Prevented even the cold winters of the northern hemisphere. When on earth are two feet of snow, the threat of global warming seems not so relevant.

Hence the three questions. As far as science is not accurate? Do I need to adjust policy measures? And what should be done to avoid such confusion in the future? Underlying all three questions is another story. The problem lies not in science itself, but in the way that politicians use to instill public confidence in it, while the scientific issues are often simply can not be one hundred percent certainty.

What was right and what is not

When the government to think seriously about climate change, in 1989 the Intergovernmental Panel on Climate Change had made strides in this direction. The Expert Group was established to involve scientists in solving the problems associated with climate change, and in order to compel the government to rely on the conclusions of these scientists. This greatly helped the fundamental science. There have certainly timed how about the revaluation extent of the problem, and due to its underestimation. The reports shed light on recent developments in climate science. Predicted different scenarios: from moderate global warming by 1.1 degrees Celsius by the end of the century, before the infernal 6.4, and illustrated that all the uncertainty approach.

However, the ambiguity of science runs counter to what they want policy. They and their voters prefer certainty. So the "6 months to save the planet" will soon find support than "there is a high probability, but completely impossible to be sure that serious climate change could harm the biosphere, depending on the level of economic growth, population and innovation." Politicians, like journalists, tend to simplify and exaggerate. Therefore the British government and allowed advertising using children's slogans: "Jack and Jill went up the hill to fetch a pail of water. Extreme weather conditions caused by climate change have led to drought.

Such an approach in the short term could cause some voters to support measures to combat climate change. However, the assumption that British children face a future realities of the desert, very dangerous. This week the British advertising standards committee condemned the Government for infantile advertising.

In November, shortly before the climate summit in Copenhagen, discovered a large stock of e-mails from researchers and Climate Center Climatic Research Unit of the University of East Anglia, for some unknown reason snared. Letters discovered the truth about the reluctance to share data, greatly spoiled the mood, if not put into question the freedom of information Britain in principle, but also showed an aggressive attitude toward peer assessment instruments colleagues and a clear desire to insure the science to politicians. Around the same time, it became clear that in the last IPCC report stated that the Himalayan glaciers will disappear by 2035 instead of 2350. The initial reluctance of the group to solve this problem was a mistake, and the study further problems in the group raised the question of how they work.

How bad is it? Skeptics point out that each error has a tendency to exaggerate the extent of climate change. Distortion scientists strengthened the position of those who refute the evidence so that politicians could not spend money to combat carbon emissions. Thus, the shameful mistakes of scientists changed the perception of the problem. They, however, did not change the science.

As the results of the briefing, the majority of respondents still believe that the warming caused by human activities. Sources of doubt that seemed plausible in the past, namely: the temperature discrepancy between the measurements of the satellite and on the ground, doubts about the warming, which could be reduced due to water vapor, were largely dispelled, though, and need to work on it more. If temperature measurements over the past 1000 years are not significant, they have very little to the overall history. If there are problems with the measurement at weather stations, you can use data from ships and other sattelitov.

Insurance catastrophe

There remain large uncertainties, but there are arguments in favor of action, not vice versa. If it were known that global warming will be limited to 2 degrees Celsius, then the world may have decided to live with it. But the range of possible outcomes is huge, and one of them - catastrophic, and the cost of its prevention is relatively low. Just as the landlord pays a small amount of insurance to protect their homes from misfortune, the world must do the same.

Our newspaper does not see the point in changing their views on the subject. Science is helping the Government realize the moment when you need to resort to action. IPCC to suffer from the feeling that they are a tool of politicians. The greater the distance between them - the better. And instead of children's approach and similar advertising, the government should treat voters as adults. Climate change does not require a creative approach to promote concrete action, uncertainty and fear, and so are good motivators.

Economist

China Leans Toward Yuan Float

Professors and politicians alike agree that the mechanism of RMB exchange rate is suitable for a new round of reforms.

Monetary policy of the Chinese government is at a new juncture. Several quasi-governmental and independent research organizations conducted earlier this year closed the discussion of exchange mechanisms, and submitted proposals to the central bank and politicians.
What's next? Everything indicates that China intends to resume the reform of the exchange rate, which were halted in July 2008 with the start of the international financial crisis.
During a press conference on March 6, deputy chairman of the People's Bank of China Su Ning (Su Ning) said that the central bank would decide when to begin the process of eliminating "special mechanisms of exchange and provide a specific timeframe based on the economic situation.
"Exit" has been interpreted by markets as a sign that the central bank allows the yuan meet their real value. The rumor that the yuan would allow a one-time adjustment rate of 2% -3% coverage of the entire market. "Some Chinese financial institutions have already begun to get rid of U.S. dollars", - said the executive director of a major financial institution in Hong Kong.
Discussion rate adjustments led to different reactions in the market. China's export sector was the strongest opponent of the proposed changes, stating that the sudden appreciation of the yuan would be equivalent slammed on the brakes of the global economic recovery.
Some economists say that, relying only on the economic perspective, it is impossible to measure whether the yuan to move upward or downward. They recommend a policy of a fixed rate, instead of blindly at the moment of action when faced with uncertainty. If reform of the exchange rate will cause rising expectations of further increases in the value of the yuan, the flow of hot money in China will increase sharply, creating a glut of liquidity and may bubble out of the assets that will reproduce the situation after the reform of the exchange rate in 2005.
Nevertheless, some argue that the reforms of the exchange rate is better happen sooner rather than later. Despite international pressure, and even though that further reform of the exchange rate again point to the adjustment of the yuan, in this situation, there are distinct advantages.
Exports have increased sharply since China became a leader of the world economic recovery. Effective exchange mechanisms will not only reasonable fixed prices for exports and imports, increasing China's trade position, but it could also potentially contribute to the normalization factor is not sold and traded goods. This could balance the important factors of production, as domestic labor, land and natural resources. It will also increase the level of consumption and benefit the national economy.
Caixin chief economist Yiping Huang (Huang Yiping), a professor at Beijing University National School of Development, is a supporter of market mechanisms. "Yuan needed market-oriented mechanisms, rather than a one-time adjustment," - said Huang.
The current position of the Chinese government on exchange rate policy aimed at maintaining the yuan's exchange rate within a framework that polismeykery consider fair and balanced. With this in mind, senior managing director who is familiar with exchange controls, said that the progressive movement in the future could bring more benefits than a sudden leap.
"No matter what method is chosen, the policy of exchange rate adjustments should be proactive, managed and implemented gradually. Actions at the pre-emption - a top priority ", - said the executive director. "Adjustments in rates of exchange, of course, will be carried out gradually. Occasional sharp corrections appropriate for polismeykerov.
Various schemes
Ting Lu (Lu Ting), economist at Bank of America Merrill Lynch China, confident of a rapid adjustment. "In the medium and long term, we are definitely going to watch freely floating yuan and correction", - said Liu. "The question is: what scheme to choose."
Relatively extreme scheme will lead to rapid and one-time adjustment of the RMB against the U.S. dollar, which would have confirmed the predictions. One-time adjustment usually leads to an increase of about 20% and shall be held within three to five years.
Many experts are against this, calling such actions by radical methods. A senior official of the central bank said that any talk of a substantial one-time adjustment of the RMB will only occur at the level of academic theories and not feasible at the political level. "There were no significant adjustments to the yuan has never been" - said a bank official. "Enterprises can not rely on it."
A more likely scenario would have anticipated resumption of conservative, floating exchange mechanisms, which used the central bank from July 2005 to July 2008, and allowed the yuan to gradually adjusted against the U.S. dollar.
However, the shortcomings of the floating method are obvious. If the market expects the yuan to unilaterally would be adjusted against the U.S. dollar over a long period of capital from abroad will fall gradually in China, which will lead to a jump in foreign reserves and asset prices, as well as an overabundance of liquidity.
In addition, the combination of strong expectations and the actual adjustments, gradual adjustments would result in accelerating the pace of changes in value of the yuan. Yuan rose by 3.35% against the U.S. dollar in 2006, 6.8% in 2007 and 6.9% in the first seven months of 2008.

Some experts have advocated the internal price reforms and "moderate inflation" rather than reform the exchange rate, as a more correct way to achieve de facto revaluation of the yuan.
The method of redistribution of wealth through the prism adjustment yuan was criticized for a fundamental flaw: the increasing prices of essential everyday goods will lead to negative consequences.
The chief economist of China International Capital Corp., Ha Dzhiming (Ha Jiming), said that people can still rent an apartment, if the value of houses will be out of reach. But if food prices rise, it will be bad for everyone, including people with low income, that could pose a threat to social stability.
Basket Currency
A source close to the central bank, said that incremental adjustments to suit most of all, as there are supply flexibility for reform of the exchange rate. If circumstances permit, said the source, the government properly can extend the daily range of fluctuations of the yuan.
Other experts expressed the need for "new methodology" for determining the exchange rate mechanism, for example, in the method a basket of currencies.
Ha recommends letting the yuan to be valued based on a basket of currencies. Similar views are held by Ding Zhizhi (Zhijie), Dean of the School of Banking and Finance in the University of International Business and Economics, who called for "de-dollarization" of the yuan.
Ding recommends the establishment of exchange rates based on the proportion of trade volume of exports and imports, on the cash basis of which each country will be represented in the total trade of China. Cart must consist of 18 currencies, he said, with the share of euro 17.91%, 14.68% of the U.S. dollar and other currencies totaled 56.15% of the total. "It is extremely important to promote sustainable trade", - he said.
A source close to the central bank, said that the authorities should determine the weighted ratio for a basket of currencies, considering first the proportion which the currency is in commercial transactions. Currently, over 70% of international trade transactions made in U.S. dollars, the remaining 30% rate in the euro and pound. Most of the debt of the Chinese foreign debt ($ 400 billion dollars) are denominated in dollars and borrowing money to repay debt, has required a certain amount in dollars. Fluctuations in the market and would require appropriate adjustments.

There are different views as to whether to disclose the specific weight of each currency in the basket. Liu and Huang in favor of copying the Singaporean system of exchange rates, as the authorities did not disclose the weight of the currency, and yet the system allows for adjustments to specific rates based on market conditions.
If China takes the approach of Singapore, the daily setting of the central rate of the yuan relative to fluctuations in the currency basket will revolve around variations of the nominal effective exchange rate of the yuan. "Advantage" of this method lies in the flexibility and freedom of action during the fluctuations in foreign currency ", - said Huang.

Caixin Online

Fed Pledges to Keep Rate Low for 'Extended Period'

Fed officials have confirmed the promise of maintaining the basic interest rate close to zero during the "long period" and also confirmed that emergency measures to support the housing market will end as scheduled at the end of this month.

Although the economy and continues to be strengthened, polismeykery noted that "the restoration of the housing market was sluggish at low levels," and "employers are still reluctant to increase the deduction for salaries."

Securities and shares rose as some traders trimmed bets that the central bank will raise interest rates over the next twelve months. Fed Chairman Ben Bernarke trying to determine how long to keep borrowing costs low to create self-sustaining recovery from the worst recession since 1930-ies.

"Recovery is intermittent at best," - said Dine Swank (Diane Swonk), chief economist at Mesirow Financial in Chicago. "Business, finally coming to the stage of spending their cash flow, but the real estate market and better prospects for recovery remain bleak."

Yield ten-year Treasury securities fell by 5 basis points, or 0.05% to 3.65% at 15.44 in New York. The S & P 500 rose by 0.7% to 1,158.51. The June eurodollar contract rose 3 basis points to 98.475.

An earlier report of the Ministry of Commerce showed that housing starts fell by 5.9% in February, which contributed snow storms in some parts of the country, and administration officials, Obama said at a congressional hearing that the unemployment rate probably will remain elevated for a prolonged period .

Growth prospects

According to surveys of economists in a Bloomberg news service this month, the economy will probably grow 2.8% in the first quarter of 2009, after 5.9% growth rate in the fourth quarter of 2009, which served as an impetus for the slower pace of inventory reduction.

Politicians "are still quite concerned about the transition from leaping fluctuations in the cycles of stock movements and fiscal policy to the private final demand," - said Michael Feroli (Michael Feroli), economist at JPMorgan Chase & Co. in New York.

Fed officials have confirmed that their program buying mortgage securities agency in the amount of $ 1.25 trillion and about $ 175 billion of debt agencies will be completed by the end of March.

"The Committee will continue to monitor economic outlook and financial changes, will use its policy instruments needed to support economic recovery and price stability", - said in a statement FOMC.

Retail

Retail sales unexpectedly rose in February, consumer credit grew in January for the first year, commercial mortgage-backed bonds are returned to growth. Meanwhile, the Fed is focused primarily on inflation, which without taking into account fluctuations in the prices of food and energy, slightly varies.

Thomas Hoenig (Thomas Hoenig), Kansas City Fed president, objected to a second meeting in a row, and said that "hopes for a prolonged period of low interest rates on federal funds is not justified because it may lead to the accumulation of financial imbalances and increased risk for long-term macroeconomic and financial stability ", - said in a statement.

The Fed kept the target federal funds rate on overnight loans between banks in the range from 0 to 0.25% from December 2008. Politicians have begun to use the phrase "long-period" from March 2009 and repeated on this day.

Loss of jobs

Economic growth helps to prevent the loss of jobs. Employment decreased an average of 27,000 per month from November to February, compared with 252,000 people from July to October. U.S. could add nearly 300,000 jobs this month, which will be the biggest increase in four years - said David Grinlou (David Greenlaw), chief economist for fixed income at Morgan Stanley, New York.

The unemployment rate remained unchanged at around 9.7% in February.

"Things are definitely going up the hill," - said Jeffrey Immelt (Jeffrey Immelt), CEO of General Electric Co., At a conference in Washington on March 11. "Cases in the credit markets have improved significantly. Most of the indicators are going up or move in this direction.

"However, the long road ahead", with high unemployment and large structural problems "in the economy," said Immelt, who is also a board member of the Federal Reserve of New York.

According to Bloomberg, the borrowers have raised the U.S. corporate bond market to a record $ 1.24 trillion last year. Although in comparison with that pace, there is much lower, but still the issue of bonds increases, an increase of $ 284.3 billion.

Additional yield

According to the indices Bank of America Merrill Lynch, the demand for yield has led investors to demand for corporate bonds, instead of falling yesterday to 267 basis points, the public debt, or 2.67% from a peak of 888 bizisnyh points during the credit crisis in December 2008. The widening gap indicates that the annual interest savings of almost $ 60 million for every $ 1 billion of bonds sold.

Inflation showed some signs of growth. Fed's preferred price index, which includes the cost of food and energy, grew by 1.4% in January compared with a year earlier, and will be below the long term at 1.7% -2%, which are necessary for policy makers in general inflation.

Politicians believe that inflation risks remain low, although some are still worried because of deflation. Inflation expectations have remained stable in recent months, even with the excess capacity in the economy. Inflation expectations for the year ahead, which were formulated by Thomson Reuters University of Michigan Survey, averaged 2.7% over the past six months compared with 2.8% six months earlier.

Labor costs

Officials may also be concerned about the drop in labor costs, - said Marvin Gudfrend (Goodfriend), a former director of research at the Federal Reserve of Richmond. According to a report published earlier this month, the rate of depreciation of the workforce was 5.9% in the fourth quarter.

"We can not say that passed the period when there was a risk of deflation in the cost per unit of labor," - said Gudfrend, who currently works as professor of Carnegie Mellon University's Tepper School of Business in Pittsburgh.

At the end of this month, the Fed's planned purchase of mortgage debt caused a slight change in mortgage rates. The rate on a fixed 30-year mortgage securities fell to 4.95% from 4.97% for the week ending March 11, compared with a record low 4.71% in December.

Bloomberg

The truth about speculators: they are doing God's work

At the moment, in the financial markets, a lot of nonsense and hype. This quest for the effect in pure form: speech written for shearing ovations or impress on the public.

French Prime Minister Fillon Francis (François Fillon) hastened to Berlin to meet German Chancellor Angela Merkel (Angela Merkel), so that they can sit down together and write a letter to José Manuel Barroso (José Manuel Barroso), which asked the President of the European Commission to consider and prevent speculation. In Basel, in the meantime, Mario Draghi (Mario Draghi), chairman of the board on financial stability, has just promised a general tightening and something he called "systemic regulation.

"Speculators" are on everyone's mind. Every day, a politician or senior official somewhere in Europe with a sense of overthrows the word "speculators", and then continues to demand immediate action, penalties, or all together.

In these attacks are no specifics. It is not necessary. Speculators - this is bad, huh? And if there is more, for example, during the discussion of those horrible credit default swaps, typically what happens is some confusion with those who buy, sell, sell short, regardless of what is currently done by people with modified derivatives.

Never mind. Speculation - is evil, because speculators do not produce any wealth. Parasitic capital. Case closed.

Populist rhetoric comes to most rank and file. It is understandable that people in Europe, faced with austerity want anyone accusing anyone, anywhere, using their misery, all this brings the blood of mortals to a boil. Because flashy speech work. Good policies are driving under the heel of the bad guys, albeit belatedly.

The problem is that speculation on financial markets - this, too, that the dust in the eye for the political system, all together they play a crucial role. Populist attracts the attention of the electorate is politically recognizable and, ultimately, wins the election. Similarly, speculators, unknown, or vice versa, make markets more efficient by providing liquidity, which makes trade possible, which ultimately leads to more adequate prices. They help us to allocate capital as efficiently as possible.

How, then, it turns out that the political elite does not know this? Do not forget that European leaders, that we live in a market economy?

Obviously, there is a need for training on the subject.

Merkel and others could start with the classic book by Philip Karreta (Philip Carret), "The Art of Speculation", published 80 years ago (reissued in 1997).

Yes, the contents of the book may cause myocardial infarction in Athens, Berlin and Paris ( "Speculators increased earnings by borrowing funds ... short positions are important for organizing the market ... trader, sell short, never hurt a trader who makes a purchase), but prose coach and now an equally elegant and instructive, as well as 80 years ago.

Check this:
"Those who condemn the stock market speculation, usually mean the stock market gambling. Speculators - these are people who use the mind as well as ink for issuing orders to their brokers. They play an essential role for society. "

"As water is constantly seeking its level, in response to gravity, and also the price of the securities markets are always tending to her evaluative level. Speculation - this is the stage at which adjustments are made. The emerging new industry to generate new demand, bringing in the new society wealth and requires extensive new capital. Speculators are exploring it, buy the securities of the industry, promote its economic prosperity and provide a new credit basis.

"Thus, the speculator - the authorized investors seeking to bring market prices in accordance with the investment value, opening up new reserves of capital for growing businesses, ending the support of those enterprises that were unable to efficiently use what they have been received."

Kerret taught that speculators and speculation affect every part of our lives: from retail sales on the street to a new line of naturalized hedge funds in London Mayfair and Greenwich, in Connecticut, which are frowned upon looking at the external impact on the European Monetary Union. Indeed, even the most conservative self-proclaimed "investors" are always part of speculators.

Here are some excerpts from his instructions: "In fact, speculation is inseparable from the investment. The investor must take into account a certain degree of speculative risk; intelligent investor will seek a certain degree of speculative profits. If he has time, temperament, abilities, investors can go even further and search for speculative profits at the expense of dividends and interest income from its capital. "

"At the same time it provides investors with a valuable service, acting as his representative in search of the most profitable channels for investment, increasing competitiveness of investment stocks, helping to keep the financial machine that is designed primarily to serve the investors."

Karret, it should be noted, was not a market speculator. However, he took the risk of creating one of the first U.S. open-end fund, Fidelity Investment Trust, which later became better known as the Pioneer Trust. He died 12 years ago, when he was 101 years.

His teachings are relevant today, as never before. Greece, Italy, Britain and others under 'speculative attack, are in this position, because there is a perception that "these dark days."

"Authorized agent" said that in the western world a big problem with debt, because a simple correction of the legislative or regulatory framework for these agents did not correct the situation.

Carette also pointed out that speculators are telling the truth about what is happening or will happen in the near future. For a number of European countries, though now would be overwhelming.

Keynes and the Chinese (government) speculator

Keynes quite convincingly describes the horror of speculation (although he did not write about their own actions in the currency markets). He is right, but the current attacks on speculators are driven by the French and the Greeks, and suggest that the movement of the markets in the state, will be good. However, it is not.
We reached the third level, where we spend the intellectual resources of the assumption regarding the average expectations of the average outcome of events. However, I believe that there are those who are in the fourth, fifth, etc. stages.
Today, trading in the third stage is carried out computers with the help of specialists at exchange analysis, which calculates the average expectation. Traders engaged in credit default swaps - an excellent example of Keynes' point of view: they traded swaps and put on the bonds, based on its assessment of the average expectations of the average outcome of events. Only the bank, in effect, acts as a market maker CDS, while at one stage away from the "socially useful" trade, so beloved regulators.
The arguments of Keynes, as usual, are still valid today, and stand for the majority of attacks on markets:
Common assessment, which came as the result of the mass psychology of a large number of ignorant, heavily dependent on the swings of public opinion with regard to factors which do not really play a big role for future profits. In hard times, particularly when the assumption that the current situation will remain the same as the least likely, the market will be subject to waves of optimism and pessimism, even though such sentiments are unreasonable and do not have a sound basis for a reasonable calculation.
And:
A professional investor and speculator, in fact, not at all interested beyond the reach of long-term projections of likely returns on investment during the whole period of their existence, and in anticipation of changes in the basal short-evaluate the behavior of the masses.
Finally:
Among the principles of orthodox finance no more antisocial than the fetish of liquidity. This principle makes one forget that there is no such determination, as the liquidity of investment for society as a whole. The actual, private goal for most investors today is "premature start," as Americans like to say, in order to outwit the crowd, and give the wicked, the depreciation of half a crown to his companion.
Thus, short-term speculation subordinates all short-term circumstances, and focuses on the general opinion, instead of common approaches to value, because the general opinion, and moves the market.
In general, he's right. Market fundamentalists are wrong, that has already been proven many times. But this does not mean that there is a better system. Keynes concludes his chapter on the assumption that the state, "which is able to calculate the marginal productivity of capital assets over the long term and based on the fundamental social benefits will play a much more significant role.
Extremes that could be a disaster, we saw in Soviet Russia. Central planning does not work. I do not think that Keynes believed these extremes, but China, which is now so admired its mix of state planning and capitalism, shows the danger of a strong government hand in the allocation of capital.
LA Times tells of one example of excessive investment, notably the airport for $ 57 million with 50 employees, through which passed 151 people over the past few years (yes, they all could fit in a Boeing 737). For such examples do not need to go far, the most famous of them: Ordos, "empty Chinese city" - video, you can see on YouTube.
My view is simple: the government can not better than the markets to assess long-term investments, at least, it might be tempted to misuse and wasteful allocation of capital. Markets can not be right all the time, but in most cases it is. When from time to time, they become ineffective, the government should intervene, but remember: it can be as trying to move up, and down. Five years ago there was no financial ministers, who have complained that speculators erroneously allowed the country to take such risks at almost the same level as Germany.
We hope to extricate himself: pay attention to warning speculators error excessive influence of "animal instincts" market crowd in altering our system, particularly banking, so that the systemic errors in the allocation of capital are minimized.