Putting the spice back into investing.

Investor education

Tuesday, February 08, 2005
Read this. Thank you.

Understatement of the year?

Monday, February 07, 2005
A look at the calendar shows me that we're only in February but Federal Reserve Board Governor Edward Gramlich is already stepping up to the plate to swing for a home run in the understatement of the year award. Here he goes (via Reuters):
The one thing that I think is a little bit of a worry is that if you look at the share of output that the U.S. economy devotes to building up the future -- that share is called the nation's saving rate -- that's on the low side
Wow. How nice of someone from the Fed to explain things in terms even I can follow. But wait, there's more - he also explains vendor financing asian style:
In effect, Japan and China are printing money, buying Treasury securities and building up huge hoards -- they're over $2 trillion, which is a very large share of our debt and keeping the dollar strong and their own currency weak
Yeah, that's cool, gimme more Ed, don't stop
This really hasn't happened before to this degree in the history of world capital markets
But Ed, please tell me: how long will this keep going on? I can just see you, you manly man, grasping the tiller of monetary policy firmly in your gnarled hand - you turn to me with alook of utter confidence on your face and say:
We don't know how long it can last or how long it will last.
Oh. OK then. Sorry for asking. Let's change tack here: Ed, what do you think about the Fed's monetary policy - I mean, what's your opinion on the pace of tightening?
I stand by that. I voted for it, so it must be what I think.
Oh my.
10:49 PM :: Karsten :: permalink ::


Friday, February 04, 2005
The first Friday of every month brings us the start of a weekend and jobs data. I was looking forward to both as an exceptional amount of work has forced me to keep my head down wrt real life. The weekend will bring me a brief respite from an insane workload.

The jobs data was not that amusing. Payrolls rose by 146k in January - this was nicely below the 200k consensus and caused the rolling 3m average to drop further away from the highs seen last year.

The unemployment rate managed a fall thanks to decreasing labor force participation an gains in hourly wages were very slim.

This is more of the sort of not-too-hot, not-too-cool news we've been getting over the past weeks. In particular it won't force the Fed to do anything radical - they'll continue to tighten at a measured pace (as they reiterated a couple of days ago) while the economy will continue to muddle through the proverbial soft patch.

What really bothers me is that I can't shake the feeling that we're experiencing a collective Wile E. Coyote moment in which Wile runs a while on thin air before realizing that gravity still works. In other words: it might just be that the economy is just running on momentum. Any decline in - say - manufacturing employment and/or (perish the thought) consumer spending might just kick-start the laws of Newton. If this should happen we should be prepared for the Fed to change tack pretty quickly.

Fed watching

Monday, January 31, 2005
This week will see another FOMC meeting which will most probably provide us with another 25bp hike and some much watched language regarding this august conclaves further intentions.

The thing many people will be looking for is if the "measured pace" statement remains in place. Markets are generally looking for the Fed to hike up to 3,5% by year-end. This should put us somewhere near the (cough) neutral Fed Funds rate. So does the Fed need to change the verbiage it puts out? Is there still fear out there that the FOMC will hike quickly? If there isn't we should ask ourselves if the Fed needs to retain a qualitative phrase such as "measured pace" in lieu of more neutral and - quantitative - wording.

The economic backdrop against which the Fed is working is - at least to this commentator - pretty murky. I'm pretty sure that we'll see robust, but below consensus, growth this year. Before you ask: no, I don't really see inflation popping up from behind a rock somewhere.

So having said that I would conclude that Fed watching will be fun this time around as we look at how the Fed communicates a rate hike which we just "know" will come. More fun will be had in the middle of February, when Alan Greenspan testifies before the House and Senate.

Intense Workload

Wednesday, January 26, 2005
Lots of pressure at work - so sorry for my not posting. Will try to put something up tomorrow. There's an offsite on Friday so no posting there.

Command economy anyone?

Tuesday, January 25, 2005
Overnight news from China showed that economic growth continued at a fast pace in Q4. 9.5% GDP growth is high enough to give most other policy makers a bleeding nose.

The fascinating thing about this number was that it was accompanied by another number which was much more subdued. Inflation came in at a very modest 2.4%. A look at the numbers shows that the governments cooling activities seem to be paying off. Exports and consumer demand were very robust while investment in fixed assets was slightly lower.

This data makes me more confident that China is indeed managing a soft landing and has started to contain inflationary pressure. I believe (and this is not the consensus view) that Chinese inflation will come in below the 5% rate that we saw last year and which gave rise to much angst about the further economic perspectives for China. So in all this is good news for people playing the China story via commodities and commodity linked currencies.


Friday, January 21, 2005
Many people spent large amounts of time last year worrying about inflation. I can remember reading lots of posts and "serious" analysis in the mainstream media which went on about the dangers of inflation. The hike in oil prices was seen as one of the proverbial horsemen of the apocalypse and people had serious arguments about the validity of looking at core vs. headline inflation.

If I look around right now I can't really say that anything much has happened. Inflation is still subdued - the headline number actually managed a little fall a couple of days ago. Economic growth, high energy prices and the seemingly insatiable Asian demand for commodities hasn't yet caused a massive inflationary push.

This is one of the reasons that I am more than a little skeptical about the future performance of the US economy. A whole host of leading indicators is pointing towards a slowdown which should/could occur any time now. If the Fed continues to tighten while the economy is decelerating we should stop worrying about inflation right now.

One person isn't worrying about inflation - Mr. Market has consistently revised his inflation expectations downwards over the past couple of months - and I for one trust his wisdom.