This week, Congress returns to the question of what to do with the domestic auto industry, Detroit’s humbled Big Three. And the options range from awful to unthinkable. Yesterday we got a reading of auto sales in November. The story was extremely bad. Continuing the trend from October, sales were down anywhere from a third to a half, across all the manufacturers who sell in | Read More »
I think we’re all getting a quite vivid sense that President-elect Obama’s way of handling tough situations is to set his jaw, furrow his brow, stare purposefully forward, say reassuring things, but on no account to make any clear statements of intent, or to actually do anything. At least one of the consequences of this extremely risk-averse approach to leadership, is that financial markets are | Read More »
The 30-year T bond is priced to yield 3.34% this morning. The 10-year note is at 2.83%. These are extraordinary numbers, and they’re still falling fast. Three-and-six month bills are already at or near zero. This is powerful and continuing evidence that markets are uncertain and fleeing from risk. The midcurve and long-end are multi-trillion dollar asset classes that have increased in value by something | Read More »
It seems to me that focus has shifted away from China’s economic and financial doings during the acute financial crisis that began last September. The story in China for most of this year and last year has been extremely high inflation (particularly in prices for staple foods), and vigorous measures by the country’s banking and monetary authorities to reduce the formation of credit. Up till | Read More »
This is just a brief note to make you all aware that it’s being a very remarkable week in the Land of Fixed-Income and Monetary Policy. I’ll post much more on this topic as soon as I can, but the Federal Reserve has qualitatively changed the nature of their response to the financial crisis. As of this week, they’ve embarked on what is called “quantitative | Read More »
Last week was Citigroup’s turn. Citi is one of the world’s best-known banking brands, and was once America’s largest bank by market capitalization. Last week, investors knocked 60% off the value of Citi’s stock, in a nerve-rattling selloff that was too reminiscent of Bear Stearns and Lehman Brothers for comfort. Citigroup is too large to fail. It has about 200 million accounts in more than | Read More »
So this week we witnessed the jarring spectacle of three wealthy, well-dressed CEOs flying from Detroit to Washington, DC, each in his individual private jet, to ask for anywhere from 25 to 50 billion dollars of your money. Instead, Congress turned them away. Democrats (if you take them at their word) said they wanted to give Detroit a big slug of money from the Treasury’s | Read More »
To go along with the piece I wrote earlier today (here), the bond market appears to have picked up on the theme of deflation. The 30-year US Treasury bond rocketed upward in price to more than 118 and a half by today’s market close, and much of the move came late in the day. This price corresponds to an interest-rate of 3.49% for the long | Read More »
There are words you don’t ever want to use in polite company, and deflation is one of them. Unfortunately, it’s a serious possibility that we now need to consider. Yesterday, the Bureau of Labor Statistics reported that the overall level of consumer prices declined by about 1% in October. The so-called “core inflation rate” declined by 0.1%, the first such decline in more than twenty-five | Read More »
The most urgent piece of economic news and policy over the next several weeks will be the fate of the General Motors Corporation. It will take precedence over the general policy response to the worsening recession. The problems in the auto industry go well beyond the Detroit Big Three. All eleven of the major automakers with operations in North America have come under severe stress, | Read More »
I’ve been trying for days to form a perspective on what’s happening in global markets, without much luck. And I’m not talking to or reading anyone who feels very differently. Stock markets are plunging again in Europe and Asia, indicating a growing concern with falling economic output and a coming global recession. The dollar and yen continue to strengthen. Oil and gold continue to fall. | Read More »
This is a brief note to warn you all candidly that the news background for financial markets is very unfavorable this morning. European and Asian stock markets are in free fall, down around 10% as I write. That’s not a typo. Trading in S&P index futures is limit-down, and has been halted in Europe. Unless conditions change in the next few hours, expect to see | Read More »
This story caught my eye because, ever since the acute financial crisis began around Labor Day, news about how China is handling it has been very sparse. And that matters a great deal, because China’s reactions to the crisis are key to understanding whether the global financial system has fundamentally changed in recent years. The question, of course, being this: has the economic dynamism of | Read More »
There are always unintended consequences. And they’re always so easy to see in hindsight. So the government announces that banks will not be allowed to fail. What do you do if you’re a rational investor? You reason that there’s a floor under the debt-securities issued by these banks. You figure you might be able to exchange them for honest-to-goodness Treasury paper later on. So you | Read More »
I’ll go out on a ledge and say that the financial world has taken a step back from the ledge. A semblance of non-insanity has been apparent in capital and bond markets this week. Now that governments across the world have made credible commitments to prevent financial meltdown (defined broadly as chains of insolvencies among tightly-interconnected counterparties), the violent panic attacks of last week have | Read More »
The major news this morning affecting financial markets is that the Treasury is making a drastic change in its approach to the current crisis. You know about the $700 billion Troubled Assets Relief Program (TARP). As originally conceived, the idea here was to contrive ways of purchasing assets like mortgage-backed securities from banks and Wall Street firms. The purchases were to have been done at | Read More »
This post will be brief, as duty calls. You don’t need me to point out the broad carnage in financial markets this morning. It’s going to be a tough day. Margin calls will drive a lot of selling. We may get a brief respite rally after all of the weaker hands get washed out. Time frame for this would be the next several weeks. No | Read More »
The news background is relatively benign this morning. Stock markets in Asia and Europe are stronger, after five days of relentless and at times violent selling. Credit markets are just as dysfunctional as ever, but not much worse. There are several things to watch over the next several days: corporate earnings, global countermeasures to the crisis, and further aggressive actions by the Fed and Treasury. | Read More »
We’re now well into the third week of extremely disordered conditions in global capital markets, with no end in sight. The world’s stock markets have started to respond to the prospect that a long period of capital-unavailability will reduce economic growth. Henry Paulson’s $700 billion rescue plan, which seemed so radical mere days ago, is now seen to be too little, too late. Had Congress | Read More »
Here it is. That’s the Fed’s announcement of two new facilities. The Commercial Paper Funding Facility (CPFF) will create credit, to be made available to a “Special Purpose Vehicle” (SPV), as authorized under Section 13(3) (the “unusual and exigent circumstances” section) of the Federal Reserve Act. The SPV is authorized to purchase three-month dollar-denominated commercial paper from eligible issuers. There isn’t a lot of detail | Read More »
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