March 1, 2012: Bernanke: Money Market Funds Still at Risk of Runs [NEWSLETTER]

March 1, 2012

JLN Interest Rates - http://www.jlninterestrates.com


Conversation Starter
Credit Managers' Index for February Suggests Robust Future for the Economy

Columbia, Maryland: February 29, 2012—The Credit Managers’ Index (CMI) is now sitting at 55.8, rising a full percentage point above January’s reading. The index is at its highest since April 2011, a time when most indicators were pointing to a pretty solid year. It is worth noting that last year was also affected by an oil shock at about this point and a back-sliding economy in the months that followed. However, readings from this month are solid in key categories providing some confidence regarding what happens from this point.

“The mood of the country could best be described as cautious and perhaps a little encouraged as far as economic growth prospects are concerned,” said Chris Kuehl, PhD, economist for the National Association of Credit Management (NACM). The cautious part stems from the sudden spike in the price of oil and its impact on the price of gasoline. In the past, this kind of leap has been enough to send the economy hurtling into a recession, but thus far the consumer seems to be taking the hike in stride. This situation is not expected to last, Kuehl noted. If the threat of high prices is temporary, the consumer and the business community will heave a sigh of relief and will continue to focus on the good news that has dominated the start of the year. “There has been good news on the job front, better demand numbers, better growth numbers and better numbers in the CMI,” he said.

The sales number is one of the most watched and it reached a level not seen since last April (64.4). “Once there is positive movement in the general sales category, there is often improvement in the index of unfavorable factors as well,” said Kuehl. “An expansion in sales allows companies to catch up on their debt and improve their overall credit standing.” Dollar collections jumped as well, dramatically—from 56.8 to 63—and like the expansion in sales is a sign of improved business conditions. More positive movement came from the amount of credit extended, which rose slightly from 63.3 to 64.3. "This bump in overall business activity is a precursor to additional expansion," Kuehl added. The only decline for the month was in new credit applications, which fell from 61.9 to 59.5. It was not a big drop, but suggests that many of those that were looking to expand and needed credit have already made their move.

The index of favorable factors rose from 61.4 to 62.8, marking the best reading since February 2011. This is also the third month in a row that the favorable factors index has been over 60. The index of unfavorable factors has also shown improvement as it moved from 50.3 to 51.1. “The damage from the recession is still manifesting in the unfavorable categories, but at least the index has remained above 50 for the past four months, and the current reading is better than it has been since April of last year,” said Kuehl. “The theme here is that the CMI is about where it was in the spring of 2011, a period during which optimism was peaking. The problem in 2011 was that conditions deteriorated sharply after that peak and by the middle of the summer, the economy was back in the doldrums and the CMI was reversing course swiftly.” Last year, the shocks that sent the economy reeling included the hike in oil prices and the supply chain crisis precipitated by the disasters in Japan. Thus far, the 2012 economy has not been visited by a crisis of that magnitude, but the recent hike in oil is not welcome in reminding business of how fragile the recovery remains.

There was not a great deal of movement in unfavorable factors, but for the most part the movement was positive. The sense is that most of the companies that were in financial distress a year ago have fallen into two broad categories. They either succumbed to the pressures of the recession and went out of business (as suggested by the increased rate of bankruptcies this past year) or they pulled themselves together and have started to make progress. “There has been very little real shift in the numbers since this time last year, but the good news is that four of the six unfavorable factors are now over 50 and that is an improvement over last month when there were only three indicators trending in expansion territory,” said Kuehl.

The online CMI report for February 2012 contains the full commentary, complete with tables and graphs. CMI archives may also be viewed online.


**CN: The NACM's economic report hits a 10-month high with positive movement in sales and dollar collections.




Federal Reserve to Offer Viewings Of Bernanke George Washington University School of Business Lectures

In late March, Federal Reserve Chairman Ben S. Bernanke will teach a series of four classes on “The Federal Reserve and Its Role in Today’s Economy.” The Minneapolis Fed will open its doors for evening viewings of the lectures, followed by a dialogue on their content.

The classes, which begin March 20, are part of a course offered to undergraduates at the George Washington University School of Business. Viewings at the Minneapolis Fed will be held in the evening on the same day as the lectures, and after the video visitors will be able to ask questions and discuss content with Minneapolis Fed economists and staff.

This marks the first time the Minneapolis Fed has offered such a program, and seating is limited. If you are interested in attending, you must register for the event. Viewings at the Minneapolis Fed will be held on March 20, 22, 27 and 29.

Register here.




-- Christine Nielsen






Lead Stories

Bernanke: Money Market Funds Still at Risk of Runs
WSJ.com
The nearly $3 trillion money market mutual fund industry remains at risk in times of panic, Federal Reserve Chairman Ben Bernanke warned Thursday, echoing calls from other federal regulators to address risks from the industry.
http://jlne.ws/xUUW4b

Bernanke Says Economic Recovery Still Spotty
The Epoch Times
Federal Reserve Chairman Ben Bernanke warned that economic growth and job growth will remain sluggish for years.
http://jlne.ws/yw9fcH

Bernanke says Fed likely to keep rates low well into 2014
Boston Globe
WASHINGTON - Federal Reserve chairman Ben Bernanke affirmed yesterday that interest rates are likely to stay low at least through late 2014 without offering any indication that further monetary easing is under consideration.
http://jlne.ws/zjbO7O

Bernanke's prepared testimony to House panel
Reuters via Yahoo! Finance
Below is the text of Federal Reserve Chairman Ben Bernanke's prepared testimony on U.S. monetary policy and the economy to the House Financial Services Committee on Wednesday.
http://jlne.ws/zLSGip

Bernanke Says Dodd-Frank's Volcker Rule Won't Be Ready by July 21 Deadline
Bloomberg
Federal Reserve Chairman Ben S. Bernanke said the central bank and other regulators won't meet a July deadline to complete work on the so-called Volcker rule limiting proprietary trading at banks.
http://jlne.ws/zXJxzp

US Economy Is Growing Moderately: Fed's Beige Book
CNBC
The Federal Reserve said the U.S. economy expanded moderately in January through mid-February as hiring picked up a bit across several districts. The U.S. central bank's Beige Book released on Wednesday had much the same cautiously upbeat tone as the previous report and pointed to some improvement even in the battered housing sector.
http://jlne.ws/yM61VK

Fink Says Savers Need to Become Investors in 'New World'
Bloomberg
BlackRock Inc. (BLK) 's Laurence D. Fink said savers need to become more aggressive investors as returns on bank accounts and Treasuries shrink and people grow older.
http://jlne.ws/zuw8Y5

JPMorgan Says Credit, Swaps Among Trading-Revenue Leaders
BusinessWeek
JPMorgan Chase & Co. said interest- rate swaps and credit are among the biggest sources of revenue in its trading businesses, as it broke with most U.S. rivals by releasing a breakdown typically kept secret.
http://jlne.ws/wD195e

Former Fed chief urges support for Volcker Rule
Associated Press via Yahoo! News
Former Federal Reserve Chairman Paul Volcker on Wednesday urged critics of a proposed U.S. rule limiting speculative trading by banks to get behind the measure, saying that opposition to it is not in their interest.
http://jlne.ws/x88ukp

Housing secretary says FHA faces big risks
Reuters via Yahoo! News
WASHINGTON (Reuters) - The Federal Housing Administration faces "considerable risks" to its finances and the Obama administration will continue to scale back the agency's presence in the mortgage market, the top U.S. housing official said on Tuesday.
http://jlne.ws/w4oXho

Did the G20 Punt on Expanding the IMF Bailout Fund?
CNBC
U.S. futures were weaker, with European stocks mostly down. Over the weekend, the Group of 20 (G20) finance finisters punted on expanding the International Monetary Fund's own bailout fund, insisting Europe expand its own fund first.
http://jlne.ws/zIfeMh

CME Subpoenaed By Federal Grand Jury, CFTC in Probes of MF Global Collapse
Bloomberg
CME Group Inc. (CME) , the world's largest futures exchange, said it received a subpoena from a federal grand jury investigating the October collapse of MF Global Holdings Ltd.
http://jlne.ws/zLfpYy

Pandit Fast Money With Hedge Funds Proves Citigroup Dead End With Spinoffs
Bloomberg
Vikram Pandit knows one way to make big money in hedge funds: sell them.
http://jlne.ws/ymyjIP

NAR Collaborates with U.S. Treasury on Short Sale 'Help for Homeowners'
RISMedia Real Estate News
A new National Association of REALTORS collaboration with the U.S. Department of the Treasury will help REALTORS better assist homeowners who are struggling to sell their homes in a short sale. sponsored by the Treasury Department, will learn insights to help.
http://jlne.ws/AzPCS2

China Had $1.15 Trillion of U.S. Treasuries in December, Revised Data Show
Bloomberg
China, the largest U.S. creditor, held $1.15 trillion in U.S. Treasuries in December, revised figures issued by the Treasury Department show.
http://jlne.ws/wcg3li

Fannie Mae Seeks $4.6 Billion in Aid After 4Q Loss
CNBC
Fannie Mae , the biggest source of money for U.S. home loans, said on Wednesday it would seek $4.6 billion in additional federal aid after reporting a fourth-quarter loss.
http://jlne.ws/yWN6Z6

Rating agency says Greece in 'selective default'
AFP via Yahoo! News
Ratings firm Standard & Poor's on Monday declared Greece in "selective default" after banks agreed to write off more than half of their Greek debt holdings in a second EU bailout of the country.
http://jlne.ws/yZkEkZ

IMF Staff Backs Currency Intervention as a Policy Tool in Emerging Markets
Bloomberg
Currency intervention is a valid instrument for central banks of emerging markets to use alongside interest rates, the International Monetary Fund staff said in a report.
http://jlne.ws/w22W63

NASCAR: An Almost Perfect Analogy For Explaining The Fed Funds Rate
Business Insider
Monetary policy is a complex topic. But, it's important and it affects everyone.
http://jlne.ws/xJllOY

**CN: An ideal analogy, perhaps, for those who have great friends who are NASCAR team owners.


Disquiet within ECB laid bare after cash injection
Reuters via Yahoo! News
FRANKFURT (Reuters) - Some European Central Bank policymakers are alarmed that a dramatic loosening of lending policy stemming from a 1-trillion-euro wave of cash unleashed into the financial system will fuel imbalances in the euro zone and stoke inflationary pressures.
http://jlne.ws/w6jzZ1

ECB Loans Won't Boost Overall Bank Lending
Bloomberg
Feb. 29 (Bloomberg) -- Julian Callow, head of international economics at Barclays Capital, discusses European Central Bank monetary policy, bank lending and inflation. He speaks with Owen Thomas, Linzie Janis and Linda Yueh on Bloomberg Television's "Countdown."
http://jlne.ws/wcb2VC

EIB Said to Share Central Bank's Exemption From Greek Writedowns
BusinessWeek
The European Investment Bank, owned by the 27-member bloc, is getting exemptions from Greek debt writedowns in the same way as the euro area's central bank, according to two regional officials familiar with the matter.
http://jlne.ws/wkdfry

Greek Default Insurance Doesn’t Need to Pay Out After Bailout, ISDA Says
By Abigail Moses - Bloomberg
Default insurance on Greek debt won’t be paid out, the International Swaps & Derivatives Association said after it was asked to rule whether part of the nation’s $170 billion bailout was a credit event.
http://jlne.ws/x9K130

Prop-Trading Firms Said to Face Dodd-Frank Registration as Swap Dealers
Bloomberg
The U.S. Commodity Futures Trading Commission may require companies that trade swaps on their own behalf to register with the agency as dealers as the regulator considers ways of limiting their capital requirements, according to three people briefed on the regulation.
http://jlne.ws/AyxhEZ

Volcker urges more reform beyond trading curbs
Reuters via Yahoo! News
ABU DHABI (Reuters) - Former U.S. Federal Reserve chairman Paul Volcker, who lent his name to historic restrictions on banks' financial market trading, says regulators should not back down in imposing the curbs and that additional reforms to markets are necessary.
http://jlne.ws/wxQk0U

FDIC: Bank earnings hit five-year high in 2011
Houston Chronicle
FDIC: Bank earnings hit five-year high in 2011 Associated Press Copyright 2012 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
http://jlne.ws/wrV8qj

St. Louis Fed Releases Econ Ed Mobile App for the iPad/iPhone
http://jlne.ws/zg7ijk




Events

Retail Banking in Europe
March 13 and 14, 2012
Marketforce And The IEA’s 13th Annual Conference
http://jlne.ws/wNoXDO

ISDA 27th Annual General Meeting
April 30 - May 2, 2012
Only ISDA Members Eligible To Attend
http://jlne.ws/yrvU5E

48th Annual Conference on Bank Structure and Competition
May 9 - May 11, 2012
Annual Conference On Bank Structure
http://jlne.ws/xwqkLK




Exchanges, Clearing Houses & MTFs

BGC Partners To Ramp Up Investment In ELX Futures Exchange
Nasdaq
http://jlne.ws/xvpyRu

CME Group reveals subpoenas in MF Global probe
Reuters via Yahoo! News
CHICAGO (Reuters) - CME Group Inc received two subpoenas, including one for a criminal probe, in the immediate aftermath of the collapse of futures broker MF Global Holdings Ltd, the giant exchange operator said on Tuesday.
http://jlne.ws/yUy2nY

CME Says No Error in Treasury Futures Trading as Bernanke Spoke
By Matthew Leising - Bloomberg
CME Group Inc., the world’s largest futures exchange, said there is no indication of erroneous trading in 10-year Treasury futures contracts today after Federal Reserve Chairman Ben S. Bernanke spoke.
http://jlne.ws/wGnQIY

Huge Treasury Futures Sale Hits Metals, Currency Markets
By Jacob Bunge Of DOW JONES NEWSWIRES
A cascade of massive trades rolled through the Treasury futures market Wednesday morning, sparking debate among traders as to whether the selling was an error or a big investor selling out of a massive position.
http://jlne.ws/AqtSiY




Firms & Banks

Jamie Dimon: JPMorgan is still too small
CNN Money
JPMorgan CEO Jamie Dimon says his bank, the U.S.'s largest, may still be too small to succeed.
http://jlne.ws/yHTwo9

Fannie Mae, BofA At Odds Over Who Dumped Whom
Forbes
Pair disagree over who opted to let a mortgage-selling contract expire.
http://jlne.ws/zGDQD7

MF Global Collapse Prompts Clash Over Collateral
By Silla Brush and Phil Mattingly - Bloomberg
CME Group Inc. (CME) sparred with the Vanguard Group Inc. and other derivatives buyers over whether U.S. regulators should extend collateral-protection rules designed for the swaps market to the futures industry following the collapse of MF Global Holdings Ltd.
http://jlne.ws/zfxxDy

Former top Citigroup executive Terri Dial dies
Reuters via Yahoo! News
Terri Dial, a former senior executive of some of the world's largest banks and one of the leaders of Citigroup's post-crisis restructuring, has died. Dial, 62, died Tuesday of pancreatic cancer, according to media reports.
http://jlne.ws/wNac4A

JPMorgan says may face SEC action on mortgage bonds
Reuters via Yahoo! News
JPMorgan Chase & Co said it may face federal enforcement actions stemming from two investigations into mortgage-backed securities that went bad in the financial crisis. The largest U.S. bank, in a regulatory filing on Wednesday, said Securities and Exchange Commission staff told the company in January that they may recommend the commission bring cases against the company.
http://jlne.ws/zCqMcV

We Wouldn't Have Done Anything Differently: Ex-Bear CEO
CNBC
Faced with the same set of circumstances again, former Bear Stearns CEO Alan Schwartz said he probably wouldn't have done anything different as the firm cascaded toward bankruptcy.
http://jlne.ws/xzTjGh






Regulators

Fed's Pianalto comfortable with policy stance
Market Watch
WASHINGTON (MarketWatch) -- Cleveland Federal Reserve Bank President Sandra Pianalto said Thursday that she is comfortable with the current stance of monetary policy.
http://jlne.ws/yxt6Pl

Federal Reserve Bank of NY Acquires Midtown Office for $207.5M
CoStar Group
The Federal Reserve Bank of New York has acquired its approximately 560,000-square-foot, Midtown Manhattan office building at 33 Maiden Ln. for $207.5 million, or about $371 per square foot, from Merit US Real Estate Fund III, a closed-end German fund managed by Invesco Real Estate in cooperation with Hannover Leasing.
http://jlne.ws/wKdNsd

Fed's Plosser: 2014 wording does not mean much
Market Watch
WASHINGTON (MarketWatch) - The Federal Reserve's statement that it plans to hold rates steady until late 2014 if economic conditions evolve as expected doesn't mean very much, said Charles Plosser, the president of the Philadelphia Federal Reserve Bank. "At the end of the day, we will change policy when the economy tells us to change policy," Plosser said in an interview on CNBC.
http://jlne.ws/yWaTkb

Fed's Fisher: US Has Structural Problem In Banking System
FOX Business
Federal Reserve Bank of Dallas President Richard Fisher said Wednesday that the U.S. has a structural problem in its banking system, with a handful of big banks controlling much of the industry.
http://jlne.ws/wtwZMX






Global News

Bundesbank at odds with ECB over loans
By Patrick Jenkins and Mary Watkins in London and James Wilson in Frankfurt - Financial Times
The head of Germany’s Bundesbank has launched a powerful attack on Mario Draghi, president of the European Central Bank, in a sign of mounting concern in Europe’s biggest economy at measures being taken to try to contain the eurozone financial crisis.
http://jlne.ws/yAj4Nn

Tombini Says Brazil Policy Can Stimulate Growth With Inflation at Target
Bloomberg
Brazil is adopting a policy mix that has a dual goal of fueling economic growth at the same time as it brings inflation back to target, central bank President Alexandre Tombini said.
http://jlne.ws/y2TOtX

BoE's Weale sees additional up-side risks to inflation
ShareCast
LONDON (SHARECAST) - In a speech delivered last night at Cass Business School, Martin Weale - External Member of the Monetary Policy Committee (MPC) discussed several factors affecting private consumption which, together, represent a downside risk to the medium-term growth projections included in the latest Inflation Report.
http://jlne.ws/xvEyT3

Sri Lanka's Biggest Policy Overhaul Since Civil War Risks Inflation Bump
Bloomberg
http://jlne.ws/y77tTV

Uganda pursues easing policy with another rate cut
Reuters via Yahoo! News
KAMPALA (Reuters) - Uganda's central bank trimmed its key lending rate by one percentage point for the second month in a row on Thursday, saying the downward trend in inflation would accelerate through the year.
http://jlne.ws/AtuONI

Vietnam Ready to Force Bank Mergers as Bad Loans Hurt Growth
BusinessWeek
Vietnam's central bank said it's ready to force mergers among weak lenders and keep monetary policy "tight" yet flexible as it grapples with a credit crunch that has forced thousands of companies out of business.
http://jlne.ws/xYzZZB

Philippines Cuts Interest Rate For Second Time This Year
RTT News
The Philippine central bank lowered its policy interest rates by a quarter point as benign inflation helped policymakers to initiate a second easing this year and to support economic activity and reinforce confidence.
http://jlne.ws/zJJGHh

Bank of Canada not seen hiking rates until Q2 2013: Reuters poll
Reuters via Yahoo! News
TORONTO (Reuters) - Sluggish domestic growth and uncertainty about the global economy will likely keep the Bank of Canada from raising rates until the second quarter of 2013, according to a Reuters survey.
http://jlne.ws/xcC7kK

Cyprus bank Marfin takes big Greek writedown hit
Associated Press via Yahoo! News
Cyprus' Marfin Popular Bank said Wednesday it is in strategic talks with several investors after posting a huge loss of euro2.5 billion ($3.36 billion) for 2011, mainly due to a 60 percent writedown on its Greek government bond holdings.
http://jlne.ws/xlD2ax

China central bank may cut interest rates
UPI
BEIJING, Feb. 27 (UPI) -- China's central bank may cut interest rates in the second half of this year due to easing domestic inflation, economists told the China Daily.
http://jlne.ws/Ar3LFJ

Dubai bank cuts off business with Iranian lenders
Associated Press via Yahoo! News
A Dubai Islamic bank with ties to the emirate's ruling family said Wednesday it stopped doing business with Iranian banks in December, shortly before the United States approved new sanctions targeting the country's financial system.
http://jlne.ws/wcP6AQ






Disclaimer: The John Lothian, Environmental Markets, JLN Metals, JLN Managed Futures, JLN Interest Rates, JLN Options and JLN FX newsletters and blogs and MarketsWiki are products of John J. Lothian & Company, Inc. The opinions expressed in these publications are strictly those of their respective editors. They are intended solely for informative purposes and are not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is obtained from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Security futures are not suitable for all customers.

Futures and options trading involve risk. Past results are no indication of future performance.

Nothing on any John J. Lothian & Company site should be considered an endorsement by any sponsor of any web site or newsletter content.

Copyright 2011 John J. Lothian & Company, Inc. All Rights Reserved.