The Ticker Quick Views on Politics, Economics and Finance
When bond traders, known to be creatures of habit, saw the Aug. 26 calendar entry for Ben Bernanke's opening remarks at the Kansas City Fed's annual Jackson Hole Conference, they figured QE3 was a done deal.
After all, it was one year ago in opening remarks at the same conference that the same Fed chief teed up the possibility of additional securities purchases, known as quantitative easing. If the Fed were to initiate a new round of bond purchases, tradition argued for dropping a hint from the Grand Tetons later this month, not in the statement released at the conclusion of today's policy meeting.READ MORE
Aficionados of public debt fiascos may have been too busy keeping up with the serial calamities of Europe and the U.S. to register the news that former New York Governor Hugh Carey died on Sunday. Carey's alabaster great-man bust rests on a single foundation: He pulled New York City back from the brink.
By early 1975, when Carey was governor, the city had $14 billion in outstanding debt and was running annual deficits of $600 million if you believed city officials, which no one did. By the estimates of less creative accountants, the city's real deficits were closer to $2 billion. Since its debt had been downgraded in the mid-'60s, by which time the city's run of municipal profligacy was already well under way, interest payments were high and lenders were growing both nervous and scarce.READ MORE
Governments and central banks are once again the major players in deciding the direction of global financial markets. That's not a good sign for investors.
Markets' gyrations in recent days are eerily reminiscent of the volatility in late 2008 and early 2009, when Lehman Brothers went bankrupt, Congress adopted the Troubled Asset Relief Program and even a whiff of the direction of government policy could move the Dow by hundreds of points. It wasn't until the Dow hit 6547.05 and U.S. stress tests forced banks to own up to losses that a modicum of confidence and stability returned.READ MORE
William D. Cohan
It’s August. It’s hot. The airwaves have been dominated by stories about the buffoons in Washington trying desperately to avoid defaulting on the nation’s $14 trillion in debt and S&P deciding to downgrade the country’s AAA credit rating for the first time ever.
What better time for Westar Energy, a Kansas-based utility, to announce the unsatisfying news that former CEO David Wittig had just settled a long-standing financial arbitration against the company for $36 million in cash, plus $2.7 million in stock and another $3.1 million to cover his legal expenses.READ MORE
Tobin Harshaw & David Helene
We know lots of things about the congressional supercommittee created by the debt-limit compromise: It will have six members from each party; it will come up with $1.5 trillion in additional deficit reductions; its recommendations will be given fast-track privilege in the House and Senate; it absolutely cannot raise taxes, unless, of course, it totally can; it gets to order Chinese any night it works past midnight. (OK, we made that one up.)
What we don't know, however, is the most critical fact: Who will be on it?READ MORE
The better-than-expected payroll and unemployment numbers in today's jobs report mask a less-encouraging trend: The share of the U.S. population with jobs is still declining.
The Labor Department reported that 58.1 percent of people who were 16 years of age or older, and who weren't in jail or in the military, had jobs as of July. That's the lowest point since the deep recession of 1983.READ MORE
Belgium is still adding to its world-record tally for days without a full-time government (it surpassed Iraq for this unhappy distinction in February). For a country whose economy is slowing, stocks are slumping, and bond yields are surging in the midst of a continent-wide debt crisis, this is alarming.
Expansion in Belgium's gross domestic product slowed in the second quarter. The benchmark Bel20 stock-market index is down nearly 20 percent since May 2. Yields on Belgian 10-year bonds rose to 4.54 percent Thursday, the highest in two and a half years, and the premium investors demanded to hold those bonds over German bunds reached a euro-era record of 218 basis points, according to Bloomberg data. Business confidence has been declining for months.READ MORE
The signs of panic were everywhere today. Stock markets plunged in the U.S. and Europe. The flight to safety saw cash pouring into U.S. Treasury bonds, pushing yields to levels last seen in the 1950s, out of concern that the two-year recovery in the world’s largest economy is stalling. Italian and Spanish bond yields, on the other hand, soared to record levels as Europe's two-week-old deal to contain the rot of the Greek debt crisis seemed to be coming apart.
One of the best measures of fear in the market is the Chicago Board Options Exchange Volatility Index, or the VIX, a benchmark for stock options. The VIX soared to the highest in at least a year, closing at 31.66, a 35 percent gain. The last time the index reached this level was in early July 2010, when the first phase of Greek debt crisis was still rattling financial markets.READ MORE
Banks aren't making much headway in working through the giant pile of problem home loans they have accumulated. That's providing a windfall for people who can’t pay their mortgages. It also means the hangover from the housing bust is far from over.
As of June, the average homeowner in the foreclosure process hadn’t made a payment in 587 days, according to the latest data from LPS Applied Analytics. Some of those people have long since vacated their houses. Others are living rent-free, or generating income by renting out the houses.READ MORE
The global plunge in equities, which has hit financial stocks especially hard, is producing some strange anomalies for anyone curious to compare how banks value their assets with how markets do. Bank of America Corp., for example, is trading for $9.13 as I write this, down about 4 percent for the day. That gives the company a stock-market capitalization of $92.4 billion, or a paltry 45 percent of common shareholder equity.
That market cap is now less than the $92.9 billion of so-called intangible assets on Bank of America's balance sheet as of June 30, which included $71.1 billion of goodwill. (Goodwill is the accounting entry a company records when it pays a premium price to buy another.) So to believe Bank of America's books, the intangibles -- most of which are not saleable assets -- are worth more than what the market says the entire company is worth. That's a fancy way of saying investors believe huge writedowns are still needed.READ MORE
Advances in information technology are doing wonders for companies' productivity and profitability. They also provide a new reason to be biting our nails about the job market.
Corporate number-crunching is paying off as never before, according to a trio of academic researchers led by Erik Brynjolfsson of the Massachusetts Institute of Technology. Trillions of bits of data about customers' behavior are being harnessed by big banks, retailers and manufacturers. This input includes fine-grain analysis of everything from warehouse-tag signals to Internet users' click-stream behavior.READ MORE
It's kitchen-sink time in Tokyo. Until now, Japan has thrown just about everything else at its deflation problem. All that throwing created a massive pile of public debt, now 226 percent of gross domestic product.
The Bank of Japan should go ahead and, well, toss in the sink, too. The International Monetary Fund wants the BOJ to boost purchases of longer-dated government debt, corporate bonds, exchange-traded funds and securitized loans to smaller companies. Yet we're thinking too conventionally. It's not like such actions created even a smidgen of inflation since the late 1990s.READ MORE
What would it take to tip the U.S. economy back into recession? According to economists at Goldman Sachs, a rise of a couple tenths of a percentage point in the unemployment rate would do the trick.
Looking at the historical relationship between the labor market and broader growth, the Goldman economists found a consistent relationship: If the three-month average of the unemployment rate rises by at least 0.35 percentage point, the economy is either already in recession or will be within six months. As employment falls, the associated drop in income starts a vicious cycle of declining spending and hiring.READ MORE
House Republicans have got across their big message: No more taxes. Many of them are convinced that increasing the federal government’s share of taxes, relative to gross domestic product, would be a disaster for economic growth. At two Congressional hearings I attended recently, there was even serious discussion of a constitutional amendment that would fix federal government revenues relative to GDP (at no more than 18 percent).
American politicians are very much taken with the uniqueness of the U.S. No doubt we have our special strengths and some unusual weaknesses -- including very high current and projected spending on health care -- but it is also striking that if you ask independent people for a considered opinion, they find we have a great deal in common with Western Europe and other industrialized countries.READ MORE
A few weeks ago, armchair prosecutors were foaming in the press over the prospect that News Corp. might have violated the FCPA, on account of bribes that News of the World allegedly paid to British cops in exchange for news tips.READ MORE
The deal reached in Congress to raise the $14.3 trillion debt ceiling won't necessarily sink the U.S. economy. But the mechanism it has put in place for further deficit reduction has the potential to deal a heavy blow.
Economists at consultancy Macroeconomic Advisers parsed the latest debt deal to get a sense of its impact on the economy. By their estimate, the first part of the deal, which entails some $917 billion in spending cuts over the next decade, won’t be too painful. Ignoring multiplier effects, such as how consumers might change their behavior, the decrease in government spending would shave a bit more than 0.1 percentage point from growth in fiscal 2012 and less in subsequent years.READ MORE
The president's aides made the rounds of the Sunday talk shows this week and gave us a taste of the Democratic talking points for the 2012 election. Asked why, in the face of almost $1 trillion in stimulus spending, the U.S. economy stalled out in the first half of the year -- real GDP growth averaged 0.85 percent -- administration officials fell back on that old standby, "uncertainty."
On "Fox News Sunday," Gene Sperling, director of the president's economic council, attributed the economy's malaise to the "cloud of uncertainty" created by the threat of default.READ MORE
U.S. politicians' difficulty in agreeing on a solution to the government's long-term fiscal problems raises a question: How big, in historical terms, is the nearly debilitating rift between left and right? Have we been here before, or is the current crisis somehow exceptional?
The answer from the world of academia is not encouraging. Research by two political scientists, Howard Rosenthal of Princeton and Keith Poole of the University of Georgia, suggests the divide is bigger than at any point since the aftermath of the Civil War. As of the 111th Congress, their index of political polarization in the House -- a measure of the gap between voting patterns on the left and right -- was about 7% higher than its previous peak in 1905 (see chart). Given the infusion of Tea Party radicalism in the 112th Congress, the level of polarization has most likely risen further.READ MORE
Rare-earth metals are the global economy's equivalent of folkloric pixies -- tiny, elusive and vaguely considered to have all manner of miraculous powers. In fact, many rare earths are not all that rare: neodymium, which among other things is used in audio amplifiers, electric motors and wind turbines, is as common and widely spread around the globe as nickel and copper.
Enter the threat: China, with half the world's deposits of rare earths, is now responsible for 95 percent of global output. The accompanying chart, based on data released by Morgan Stanley Research on July 26, shows how production quotas and export limits instituted by Beijing in recent years have distorted markets in so-called rare-earths oxides. (Hat tip to Joe Weisenthal of Business Insider for blogging it first.)READ MORE