If the Fed Wants to Lower Bond Yields, Perhaps It Should Switch to QT
by Paul Kasriel, The Econtrarian
Whenever
I forget to mute CNBC or Bloomberg TV, I invariably hear some wag
explaining to us that the goal of the Fed's policy of quantitative
easing (QE) is to lower bond yields in order to stimulate borrowing by
the non-bank public and thus, increase aggregate spending. If, in fact,
the Fed's paramount goal is to lower bond yields, then I suggest that it
might want to consider quantitative
tightening (Q
T). Why? Because, as shown in
Chart 1, there is a
positive
correlation of not insignificant magnitude (0.57
out of a possible maximum of 1.00)
between year-over-year changes in Federal Reserve outright holdings of
securities excluding Treasury bills and the year-over-year change in the
yield on Treasury 10-year maturity securities. In other words, since
the Fed has been actively engaged in outright purchases of
longer-maturity securities (
i.e., QE), there has been a tendency for bond yields to
rise when the Fed's purchases of these securities
increases and
vice versa.
The implication of this is that if the Fed desires that bond yields decline, it ought to reduce its holdings of securities!
Read more >>
What We Read Today 25 July 2013
Econintersect: Click Read more >> below graphic to see today's list.
The top of today's reading list has ........ and the last article is ........
Averages Slide Sideways As Markets Remain Flat and Lackluster
Closing Market Commentary For 07-25-2013
Markets continued to melt upwards
throughout today's session stumbling a few times. Weakness is obviously
prevalent throughout the markets performance today. Volume overall is
low, large caps slow to rise and financial are not exactly awe
inspiring. News from the EU and China is also disturbing and is not
building confidence among investors. Then there is ol' Ben back peddling
his way out of this mess.
By 4 pm most investors were tired of this
lackadaisical whimpering source of irritation and just wanted to go
home. Maybe Mr. Market will give us some action tomorrow - up, down,
anything. I know, be careful of what you wish.
Markets Continue Remain Flat, Lackluster And Directionless
Midday Market Commentary For 07-25-2013
By noon the averages had done the sea-saw
and were once again recovering from the sessions lows but not quite
matching the previous highs. This could be considered a bearish activity
when you have lower highs and lower lows, but this the casino market -
remember?
By 12:30 the averages seemed to be on the
cusp of going in one direction, but it is anyone's guess which way that
will be. My indicators are pointing at a near term of 80% sell.
Rail Week Ending 20 July 2013: Dynamics Clearly Less Good
Econintersect: Week 29 of 2013 ending 20 July shows same week total
rail traffic (from same week one year ago) declined according to data
released by the Association of American Railroads (AAR). Railcar count
is down, but intermodal count is up.
- Weekly overall data is down, but up marginally ignoring coal and grain;
- Four week rolling average is declining (seasonally normal), and the same as the rolling average one year ago;
- 13 week rolling average is improving, and better than the rolling average one year ago;
- 52 week rolling average is declining, but better than the rolling average one year ago;
Kansas City Fed: Manufacturing Activity Expands Moderately in July 2013
3 of 4 regional surveys in July show expansion.
CCTV video: Moment of Santiago high-speed train crash caught on tape
A
high-speed train derailed outside Santiago de Compostela in northern
Spain, leaving at least 78 people dead and 178 injured. The rail
disaster was one of the worst in Spanish history and it is probably a
miracle that more were not killed.
Markets Climb Out Of Morning Lows On Moderate Green Volume
Opening Market Commentary For 07-25-2013
Premarkets were down earlier and this
mornings so-so financial reporting didn't effect the futures one way or
another. After the markets opened there was a moderate burst of red
volume that melted the averages down some -0.25%. The BTFDers jumped in
and kept the indices from descending further, but the large caps
generally remained in the red while the NASDAQ, like yesterday, was up
0.12%.
By 10 am the session trend was steadily
moving upwards where everything except the DOW was in the green. Because
of the unsteady nature of the averages I would exercise caution in
contemplating trading today.
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20 Jul 2013 Unemployment Claims Improved Again
Blue Line 4 Week Average
The market was expecting 340,000 vs the 343,000 reported. The more important 4 week moving average
improved, moving from 346,000(reported last week) to 345,250.
Read more >>
Durable Goods New Orders Strong Again in June 2013
Written by Steven Hansen
The headlines say the durable goods sector again improved significantly
in June 2013 . But this growth is not as strong as it seems as it is
concentrated in a single sector.
Read more >>
Infographic of the Day: How Interstellar Space Travel Works
Even the
fastest humans and spacecraft launched thus far would take many
thousands of years to reach the closest stars. Speeds about 75 times
faster than this would be required if we hope to make an interstellar
trip in less than a hundred years.To understand the difficulty of
interstellar travel, one must comprehend the incredible distance
involved. Even the closest star is more than 266,000 times farther away
than our own sun. Consider the speed of light. Light, the fastest thing
known, takes only 8 minutes to travel to us from the sun, but requires
more than four years to get to the nearest star.
Paul Krugman Understands Neither China nor America!
Written by Frank Li
When Paul Krugman writes, people read.
Here is a recent publication by Professor Krugman: Hitting China's Wall.
It has caused strong reactions not only in the U.S., but also in China
(Hitting China's Wall - The Chinese version). Hesitantly, I decided to
respond to Professor Krugman, holistically!
Why the hesitation? Because I am not an
economist (thankfully so)! Although I have published extensively on a
variety of subjects, including money (e.g. Money and America), I am
uncomfortable debating an economist in his terms (e.g. stats and darn
stats).
China: Stimulus Boosted
Econintersect: China is adding modestly to infrastructure spending and tax
breaks
for smaller companies in an effort to support the weakening economy.
The latest GDP results (2Q 2013) were reported and the year-over-year
growth was 7.5%. If this was the growth for the entire year it would be
the lowest GDP grwoth in 23 years, according to
Reuters. The announcement yesterday (24 July 2013) by Premier
Li Keqiang indicated that rail investment for the year was being raised
from 650 billion yuan to 690 billion yuan ($112 billion).
Utilities Sector Earnings Preview: The Good, the Bad and the Ugly
Investing Daily Article of the Week
by Richard Stavros
The
last few years may one day be described as having been a period of
lawlessness, during which Federal Reserve stimulus depressed Treasury
yields and compelled many investors to buy almost any utility stock to
preserve wealth and protect income - regardless of the underlying
fundamentals or rules of valuation.
But with the Fed's announcement that it
plans to taper its stimulus program, and the prospect of higher Treasury
yields offering competition to utilities, investors are starting to
take a cold, hard look at earnings in advance of that day (See Chart
A). And the fact that the US economy will have to sustain itself could
mean a violent shakeout in every sector, as investors begin to identify
which companies have the best prospects for growth and income once
stimulus ends.
India: Mid-Week Headlines 24 July 2013
Econintersect: Here are some top of the news stories collected by Econintersect for Wednesday 24 July 2013 and immediate preceeding days.
Economists: GDP Poor Measure of Economy
Econintersect:
James Boyce of the University of Massachusetts Amherst maintains that
there are many problems with trying to use GDP as a measure of economic
growth and the well being of society. One example he gives is the $90
billion added to GDP for the BP oil spill in the Gulf of Mexico.
Obviously that clean-up cost added no value to the economy. Things that
are omitted in the current definition of GDP are unmeasured factors such
as unpaid service work and open source software. Prof. Boyce summarizes
his thoughts in a 9 minute interview which follows the Read more
>> jump.
Chinese Airports Have the World's Worst On-Time Record
by Felix Richter, Statista.com
Travel industry monitor FlightStats has
reported that Chinese airports have the worst flight delays in the
world. The figures reveal that in June 2013, out of a worldwide
analysis, Beijing and Shanghai airports came last for on-time arrivals
and departures. They had a dismal record for on-time flights- 18.3 and
28.7 percent respectively.
Istanbul, the Turkish capital, rounded off the worst three airports
worldwide for delays with an on-time record of just 38 percent. Airports
in Paris and Rome made up the worst five. 58.7 percent of flights were
on-time at Charles de Gaulle in Paris, while Fiumicino airport in Rome
fared slightly better with an on-time record of 59.5 percent.
