February 23, 2012
Conversation Starter
Five Minutes With Bluford Putnam
Bluford Putnam has served as managing director and chief economist of CME Group since May 2011. He is responsible for leading economic analysis on global financial markets by identifying emerging trends, evaluating economic factors and forecasting their impact on CME Group and the company's business strategy. He also serves as CME Group's spokesperson on global economic conditions and manages external research initiatives. He recently talked with JLN Managing Editor Christine Nielsen.
Q) The head of the Philadelphia Federal Reserve Bank warned recently against efforts to accelerate the nation’s economic recovery, citing the threat of inflation. According to Charles Plosser, the Fed has taken several steps to help revive the economy, and with a very accommodative monetary policy already in place, officials must guard against the medium- and longer-term risks of inflation. Would you agree with his assessment?
A) FOMC members and the market participants have deep divisions over the current relative balance of the risks of higher inflation versus slipping back into recession. At the current time, my perspective is that both risks are now very low. If the FOMC, however, keeps the Federal funds rate near zero through the end of 2014, as they have suggested they may do, then I think the risks of inflation will trump recession risks. But my view is that the FOMC may not follow its own guidance if my U..S economic outlook proves correct and 2012 is a strong growth year with the unemployment rate in the 7.5 percent territory and falling by the fourth quarter. The Fed provides rate guidance, not commitments.
Q) How would you describe the current economy, and the outlook for the economy in the near term?
A) The 2012 outlook for the U.S. economy is the best it's been in years. We see 3.5 percent to 4 percent real GDP growth in 2012, with the unemployment rate falling through 8 percent and to 7.5 percent by the fourth quarter.
The really important thing to understand about 2012 is that it's not 2011. Those things that scared you to death in 2011 have pretty much diminished.
See the full interview here: http://jlne.ws/zQUNnX
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CBOE Futures Exchange Puts Real Estate on the Radar
By Sarah Rudolph
CBOE Futures Exchange (CFE) launched futures on the Radar Logic 25-Metropolitan Statistical Area (MSA) RPX Composite Index on Feb. 2. We wanted to learn more about the index and the futures contracts, so JLN Options Newsletter editor Sarah Rudolph sat down to talk with John Angelos, director, institutional marketing, credit derivatives, at the Chicago Board Options Exchange.
The credit crisis was disastrous for the market in mortgage-backed securities and spelled the end for over-the-counter mortgage-backed-security (MBS) derivatives that could help hedge those portfolios. Now the CBOE Futures Exchange (CFE) is aiming to give the MBS market a tool to mitigate risk through new real estate futures contracts.
CFE’s entrance into the space is a revival of sorts, using the Radar Logic RPX Composite Index (RPX), which tracks U.S. residential housing values and is one of several Radar Logic 28-Day Real Estate indexes on which CFE is planning to offer futures contracts. CFE’s contracts follow an over-the-counter version of the RPX index that had traded for four years, up until the credit crisis, when the securitization market dried up and OTC trading disappeared, creating a void. But mortgage-backed-security portfolios haven’t disappeared; they still exist all over the U.S., and MBS portfolio managers need a new way to hedge their exposure, according to John Angelos of the CBOE.
The idea evolved from portfolio managers who came to Michael Feder, the owner of Radar Logic, to help them find a way to fill that void by creating a tool to mitigate their risk. They introduced Feder to the CFE, which came up with a futures contract based on the Radar Logic cash Index.
See the full interview here: http://jlne.ws/zeffr5
Lead Stories
Consumer Comfort Highest in Almost Four Years
Consumer confidence in the U.S. increased last week to the highest level since April 2008 as more Americans had a favorable view of their finances.
http://jlne.ws/yLjUB3
Jobless claims hold steady at 4-year low
Reuters via Yahoo! News
WASHINGTON (Reuters) - New claims for unemployment benefits were unchanged last week, holding at the lowest level since the early days of the 2007-2009 recession and giving a fresh sign the battered labor market is healing. Workers filed 351,000 initial claims for state unemployment benefits, the Labor Department said on Thursday.
http://jlne.ws/AqdvLe
**CN: What were you doing in the early days of the recession?
You know the deficit hawks. Now meet the deficit owls
Washington Post
About 11 years ago, James K. "Jamie" Galbraith recalls, hundreds of his fellow economists laughed at him. To his face. In the White House. It was April 2000, and Galbraith had been invited by President Bill Clinton to speak on a panel about the budget surplus. Galbraith was a logical choice.
http://jlne.ws/y11wxK
The Federal Reserve's Rule-Making Secrecy
Swampland
The Wall Street Journal has a thoroughly reported story today on the rise in regulatory secrecy at the Federal Reserve. On 45 of 47 of the draft or final regulatory measures voted on by members since the passage of the Dodd-Frank financial reform bill in July 2010.
http://jlne.ws/ybW1uQ
Fed's Fisher says economy brighter, no need for QE3
Reuters via Yahoo! News
(Reuters) - Dallas Federal Reserve Bank President Richard Fisher said on Thursday U.S. economic conditions were improving and repeated his view that further easing from the U.S. central bank was not needed. "The tone is a lot better. It's not brilliant; we don't have enough new hiring taking place, (but we're) definitely moving in the right direction," Fisher told CNBC television.
http://jlne.ws/zBbhfC
Volcker Said to Lobby SEC Chairman Personally on Volcker Rule
BusinessWeek
Former Federal Reserve chairman Paul Volcker met in person with U.S. Securities and Exchange Commission Chairman Mary Schapiro this week to discuss the proposed ban on proprietary trading named for him, according to a person familiar with the meeting.
http://jlne.ws/x4APM3
Federal Reserve Driven Inflation Hurts Savers
James Rickards is a hedge fund manager in New York City and the author of Currency Wars: The Making of the Next Global Crisis from Portfolio/Penguin.
http://jlne.ws/zFypVY
Libor Probe Said to Expose Collusion, Lack of Internal Controls
BusinessWeek
Global regulators have exposed flaws in banks' internal controls that may have allowed traders to manipulate interest rates around the world, two people with knowledge of the probe said.
http://jlne.ws/zwKgEq
New York Federal Reserve Said to Plan Sale of AIG-Linked Mortgage Bonds
Bloomberg
The Federal Reserve Bank of New York will seek bids for more of the mortgage bonds assumed in the government rescue of American International Group Inc. (AIG) after it was approached by a potential buyer, according to two people with knowledge of the plan.
http://jlne.ws/A0H8Je
Federal Reserve Chairman Bernanke says nation's community banks are stronger
New Haven Register
WASHINGTON - Federal Reserve Chairman Ben Bernanke says the health of the nation's community banks has strengthened, despite what he calls a frustratingly slow economic recovery.
http://jlne.ws/ACrObT
Community banks may get smaller TARP bills
The Standard-Times
WASHINGTON - Community banks that still owe billions of dollars to the Treasury Department's bailout program may get a break, as Treasury may sell the stakes it got in the banks via its Troubled Asset Relief Program (TARP) to third parties.
http://jlne.ws/wnaiGx
*CN: As of last month, 372 banks still owed $16.8 billion in TARP funds.
Tri-Party Repo Task Force to Take Diminished Reform Role
BusinessWeek
A Federal Reserve-sponsored group working to improve efficiency in the market for borrowing and lending securities will take a diminished role in efforts to cut systemic risk in the market for dealer financing.
http://jlne.ws/wGKgxm
Fed Regional Bank Directors Predicted 'Moderate' Growth in 2012
Bloomberg
Directors at the Federal Reserve's regional banks last month saw "moderate" growth in 2012 even as the U.S. economy showed signs of strengthening.
http://jlne.ws/wBetao
Obama to offer corporate tax reform plan
CNN
The Treasury Department will unveil President Barack Obama's corporate tax reform plan Wednesday -- a framework that would reduce the overall rate paid by corporations, a senior administration official told CNN.
http://jlne.ws/yVawgR
Geithner Bond Returns Trail Paulson While Beating Rubin
BusinessWeek
Timothy F. Geithner, who took over the Treasury Department in the midst of the worst financial crisis since the Great Depression and oversaw the almost doubling of U.S. public debt, has done better for investors than Robert Rubin while falling short of Henry Paulson.
http://jlne.ws/wccKVz
Greece readies launch of debt swap for rescue
Reuters via Yahoo! News
ATHENS (Reuters) - Greece's parliament was expected to endorse a debt swap with private bondholders on Thursday that forms the core of its 130-billion-euro bailout, despite new protests against tough budget cuts demanded in return for the rescue deal.
http://jlne.ws/w13JbX
Low Yields Likely To Linger, Barclays Says
Nasdaq
Even as equities-dominated portfolios have failed to bring home impressive returns for at least a decade, a structural change in the supply of low-risk assets
http://jlne.ws/xjh8wU
Strauss-Kahn Freed After Questioning in Prostitution Inquiry
Bloomberg
Dominique Strauss-Kahn, the former head of the International Monetary Fund, has been released from police custody after almost two days of questioning as part of an investigation into a French prostitution ring.
http://jlne.ws/A8nBpN
EU expects eurozone to suffer mild recession
Associated Press via Yahoo! News
The 17-nation eurozone economy will suffer a modest recession this year despite recent signs of stabilization, particularly in financial markets, the European Union's executive branch said Thursday.
http://jlne.ws/xQoOh2
Deutsche Bank Says ECB to Wind Down LTROs After Three-Year Loan
BusinessWeek
The European Central Bank's second tranche of three-year loans next week may mark the end of its "generous" provision of long-term funding, according to Deutsche Bank AG.
http://jlne.ws/wGxdxu
Fannie, Freddie legal fees: $110 million and counting
CNN Money
A watchdog agency said Wednesday that the legal tab for former leaders of mortgage finance giants Fannie Mae and Freddie Mac is at least $110 million.
http://jlne.ws/xg7mvx
Greece's Parliament approves terms of major debt-swap deal
http://jlne.ws/AxIcRA
Exchanges, Clearing Houses & MTFs
TriOptima and LCH.Clearnet Compression of Cleared Interest Rate Swaps Exceeds $100 Trillion in Notional
http://jlne.ws/yrVmPW
LCH.Clearnet Raise Discount On Spain,Italy Collateral Bonds
http://jlne.ws/AhDkGS
Firms & Banks
JPMorgan Wagers $72 Billion on Global Home Loans in Yield Hunt: Mortgages
Bloomberg via Yahoo! Finance
JPMorgan Chase & Co. (JPM) has more than tripled its holdings of mortgage securities without U.S.government guarantees to $72 billion.
http://jlne.ws/yvo9s2
Pimco Said to Quit Mortgage Bond Group
http://jlne.ws/yqOa7h
Regulators
CFTC Poised to Re-Propose Dodd-Frank Block Trade Regulation
BusinessWeek
The U.S. Commodity Futures Trading Commission is poised to re-propose Dodd-Frank Act regulations that would determine when swaps are big enough that their price and size don't need to be reported immediately to the public.
http://jlne.ws/yhnJqi
IMF Resources Talks Should Follow Europe Financial Firewall, Brainard Says
Bloomberg
Group of 20 nations should discuss possible further resources for the International Monetary Fund after Europe decides on its financial firewall, the U.S. Treasury Department's top international official said.
http://jlne.ws/z1eO53
Global News
Bank Of England Miles: Inflation To Keep Slowing In 2012
Nasdaq
http://jlne.ws/xbO6Vr
Fed's Inflation Target Stirs Japan Lawmaker Ire at BOJ Record
BusinessWeek
The Federal Reserve's decision to set a 2 percent inflation target last month had a ripple effect a continent away: Japanese lawmakers are invoking it as evidence that their own central bank comes up short.
http://jlne.ws/ynprjf
Gillard Urged to Follow Bernanke With Australia Loans: Mortgages
BusinessWeek
Australia's Prime Minister Julia Gillard may be forced to follow U.S. Federal Reserve Chairman Ben S. Bernanke by increasing mortgage purchases as house prices slump and the nation's biggest banks extend their grip on the home-loan market.
http://jlne.ws/wQipGs
Australia Central Bank Sees Scope for Further Rate Cuts: Economy
BusinessWeek
Australia's central bank said it has scope to ease monetary policy if needed, after keeping the benchmark interest rate unchanged this month as risks in Europe abated, minutes of its Feb. 7 meeting showed.
http://jlne.ws/AlEjQA
Polish Rates Likely to Rise on Growth Forecast
Bloomberg
Feb. 21 (Bloomberg) -- Andrzej Bratkowski, member of the Polish central bank's Monetary Policy Council, discusses the outlook for the economy, inflation and interest rates. He spoke yesterday with Bloomberg's David McQuaid in Warsaw.
http://jlne.ws/z8GKNL
Namibia's central bank leaves rates at 6.0 percent
Reuters via Yahoo! News
JOHANNESBURG (Reuters) - Namibia's central bank on Wednesday left its bank rate unchanged at 6.0 percent, citing concerns of "frail" economic growth. "Our estimate is that growth for 2011 is going to be just under 4 percent compared to 6.6 percent in 2010," central bank Governor Ipumbu Shiimi said at a briefing.
http://jlne.ws/A1qMgU
Turkish Central Bank Unexpectedly Cuts Its Maximum Lending Rate to 11.5%
Bloomberg
Turkey's central bank cut the maximum interest rate at which it lends to banks overnight to 11.5 percent from 12.5 percent, saying it was taking into account monetary easing in other economies. Bond yields dropped to a four-month low.
http://jlne.ws/AspGh4
Russia Central Bank Forex Reserves Feb 17 Down $4.7 Billion To 504.4 Billion
Nasdaq
http://jlne.ws/yoDmrc
Royal Bank of Scotland Posts a Wider-Than-Estimated Loss
BusinessWeek
Royal Bank of Scotland Group Plc, Britain's biggest government-owned lender, posted a wider full- year loss than analysts estimated after writing down Greek debt and compensating customers who were improperly sold insurance.
http://jlne.ws/xlLcXD
Thai Central Bank: 4Q11 GDP Contraction Worse Than Expected
Nasdaq
http://jlne.ws/zsp0yr
Euro-Area Central Banks Said to Swap Greek Portfolio Bonds
BusinessWeek
Euro-area central banks will swap the Greek bonds in their investment portfolios for similar securities to avoid enforced losses during a debt restructuring, a euro-area official said.
http://jlne.ws/wJ2LER
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