The Fed Resumes “Printing”

One conclusion from the Fed’s actions is that it doesn’t care as much about its inflation target as it does about improving the unemployment rate. Thus, it will err on the side of letting inflation rise, if it would improve unemployment. But holding rates too low too long fueled the housing bubble. Repeating the same game will have consequences of malinvestment in the form of new bubbles in the economy. The Fed hopes to restore employment before the negative consequences of loose monetary policy show up

Global Manufacturing Steadies as She Goes, or Does She?

The year got off on a much better foot than might have been expected, at least as far as global manufacturing is concerned. So the fall in global manufacturing has flattened out, even though the bounce back has more of a dead cat look about it than anything else. As usual in recent months the report was very much a mixed bag

The Problem with Success

Cash accounts for almost 6% of all corporate assets and the highest in sixty years. This increase is a result of a number of factors. Record profits give businesses the wherewithal. But corporations are not rewarded for the cash holdings. Moreover, the cash is held in such instruments as money market funds, commercial paper and bank deposits

El-Erian on jobs: Headline bullish but structural issues remain

Bloomberg Television has another video with PIMCO head Mohamed El-Erian, this time on the jobs number. This one number has the potential to set the tone for the short-term because it was so far ahead of consensus estimates. El-Erian cautions about getting to far into the risk-on trade because of the number though as the US still has structural issues. I would add that it is a long way to November and this is just one number. Let’s see how the picture develops

Chart of the day: Labor force participation rate at 30-year low

The jobs data were the best we have seen in a long time and well above expectations. This and the first upward revisions to the annual revisions were a pleasant surprise. While a lot of people are in disbelief because of a present bearish bias, you have to take the numbers for what they are and they are bullish. I still feel that the US economy is at stall speed and expect a second recession by the end of 2013 but I am prepared to upgrade my assessment based on how things proceed. That said, this is just one month’s data in a notoriously noisy month for employment data (See the premium post Jobless claims jump may be seasonality)

A Real Phony

A quote from Former Federal Reserve Chairman Alan Greenspan, who centrally controlled and underpriced the most over-leveraged interest rate in the world for 18 years and is now cashing in like a reality TV celebrity

Short Note on ISM Manufacturing Survey

The Institute for Supply Management reports its January manufacturing survey on February 1. The Bloomberg consensus expects a small increase to 54.5 from

Headline 4Q-2011 GDP Growth of 2.75% Masks Mixed Signals

This report is disturbing because of how the headline number masks real and troubling weakness in the more substantive details. Hopefully anyone trying to engineer the economy is basing their tinkering on better information than that provided by the BEA. In fact, it is likely that much of the negative consequences of the recent economic event can be attributed to precisely the poor quality and timeliness of the economic and monetary information available to those whose hubris drives them to such tinkering

Stephen Roach on US, the Fed, China, and Europe

Stephen Roach says the Fed is going all in in support of QE and I agree. But what else are they going to do? Look at Europe, for example. The ECB there has a hydra-headed problem with sovereigns and banks on the brink of insolvency and they too have expanded the balance sheet like mad. China faces many of the same challenges with excess credit growth and fragile financial firms in the face of asset price deflation

On building debt

I am glad to say that the overinvestment thesis is much more widely acknowledged today than it was even two or three years ago, but one myth, I think, is that most of the overinvestment excesses in China are concentrated in the real estate sector. I have always argued that it is infrastructure where the most amount of investment has been wasted

Roubini: we will see a Greece credit event, regardless of deal

Roubini said that the “probability of a recession in the United States is lower than 60 percent right now.” On Europe, he said that even if an agreement is reached on Greece, “there are going to be so many holdouts that then they’ll have a problem” and “either way you’re going to get a credit event.”

This is my take as well. In Europe, the concern has to be more Italy and Spain and whether the periphery can meet deficit targets given the poor economic outlook in the euro zone

Chart of the Day: Developed economies’ debt levels by sector

This is a great chart below via the Wall Street Journal. It shows the total debt to GDP ratios for the largest developed economies in the world broken down into four sectors: households, non-financial corporations, financial institutions and government