Month: April 2012

Spain: Reform, Grow or Restructure?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Tens of thousands of protestors took to the streets of Spain’s capital on Sunday to protest against new austerity measures that will hit health and education benefits.

Heavy rain kept the numbers hitting the streets down, but more protests are expected on Labor Day on Tuesday, May 1.

With borrowing costs rising for Spain, and S&P last week downgrading the euro zone’s fourth-biggest economy by two notches, pressure is growing on Madrid.

The Financial Times reports that the government of Prime Minister Mariano Rajoy is working on a so-called bad bank scheme that will see problem loans ring-fenced into one or more asset management companies in a bid to take pressure off the financial instituttions that lent billions of euros to homeowners who are now either in negative equity or unable to meet payments due to unemployment.

Rajoy said he would push on with reforms that he believes will help get some of the 5.64 million unemployed Spaniards back into work.

With unemployment at 24% and half of all young Spaniards out of work, it’s hoped that this will work, despite doubts increasingly being raised about the credibility of government austerity as a way to reduce debt.

Reform the Answer Labor reforms will help, according to Unicredit Chief Economist Eric Nielson.

“Remember that the numbers of hours worked as a share of the labor force in Spain is not materially different from most other European countries, but the distribution of jobs is,” Nielson said, following Friday’s awful jobs data.

His view is that the Spanish economy needs more part-time jobs and believes Rajoy has implemented reforms which will help achieve this.

Analysts at Barclays Capital believe the jobless rate will continue to increase well into 2013, despite reforms.

“The Spanish labor market trend, to a large extent, is a reflection of the hangover from a boom-bust in the construction sector, which for many years has been an important source of employment growth,” said Fabio Fois, a European economist at Barclays Capital.

Believing that structural labor reforms will play a role in boosting the number of Spanish unemployed, Fois believes that only growth will have a major impact reducing the number of people out of work.

Growth to the Rescue Growth is at least now on the agenda for Europe, but how the euro zone achieves it remains far from clear.

The discussion risks driving a rift between Germany and its core-partners such France and Spain, and is unlikely to lead to a growth pact anytime soon.

“There are some good reasons to be cautious over the extent to which the policymakers` apparent recognition of that will translate into any sort of improvement in the economic outlook,” said Jonathan Loynes, the chief European economist at Capital Economics, in a research note on Friday.

With economic data pointing to a fall-back into recession for much of Europe, Loynes questions the likelihood of growth coming to the rescue over the next year or two.

“Against this background, it is not surprising that euro-zone policymakers have started to worry more about growth.

But it is also very clear that they face a huge challenge to generate the solid rates of economic expansion required to make the austerity programs in place across the region a success,” said Loynes, who sees little backing from German Chancellor Angela Merkel or the European Central Bank for a comprehensive plan.

“Mario Draghis call for growth was no indication that the ECB is itself about to take much more aggressive steps – such as a move towards full-blown quantitative easing – to support the economy,” Loynes said.

With no growth, and austerity the key policy response, Spanish borrowing costs continue to rise, dragging Italy with them, and ending the short respite from the European debt crisis that the ECB`s Long-Term Refinancing Operation program gave investors in the first quarter.

Learning from the Greek experience

Labor reform, austerity measures and talk about growth pacts will not change Spain’s fate, according to an economist who predicted Greek debt restructuring.

“The time to restructure Spain’s debt burden is now, before the market declines to fund its cash needs, and before billions are squandered ‘unfixing’ its finances,” said Carl Weinberg, the chief economist at High Frequency Economics, on Monday.

“Any other course of action will not avert an eventual restructuring and will place potentially unaffordable burdens on EU public finances,” said Weinberg, who believes the sheer amount of Spanish government debt due to be rolled over in the next few years is the major problem.

“If that debt burden could be spread out smoothly over a longer period of time, the mountain of maturities over the next six years would become affordable,” said Weinberg, who says there is no time to hesitate.

“Otherwise…well, Greece’s disaster tells what to expect.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Traders watch US GDP, Europe ahead of weekend

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The first read of first-quarter US GDP Friday could drive financial markets, as investors look for signs of direction from an economy that has been sending mixed signals.

While GDP is often considered more like looking into a rear view mirror, traders are hoping this report could serve as a roadmap for what type of momentum there might be going into the second quarter.

Jobs data has been one particular concern, after March`s weak nonfarm payrolls came in at half of February`s level. A string of elevated weekly unemployment claims reports since that weak 120,000 March jobs gain has added to concerns about the strength of April`s nonfarm payrolls, to be reported next week. Claims were high again Thursday, coming in at 388,000, above the expected 375,000.

GDP is reported at 8:30 am ET, as is the employment cost index. Consumer sentiment is released at 9:55 am. Once more, there is a roster of heavyweight companies reporting earnings before the opening bell, including Procter and Gamble, Merck, Chevron and Ford. Weyerhaeuser, Newmont Mining, International Paper, Sanofi, Covidien, Simon Property, Goodyear Tire and VF Corp also report.

Europe will also be a focus Friday. The euro fell late Thursday after Standard and Poor`s cut Spain`s debt rating by two notches to BBB-plus form A. The ratings agency, in a release after the New York close, said it expects Spain`s budget deficit to worsen due to economic contraction. SandP, meanwhile, affirmed Ireland`s BBB-plus rating.

Economists expect GDP for the first quarter to show growth at a consensus 2.6%, with forecasts spanning a wide range of 1.2 to 3.6%.

“We`re above consensus. We`re at 2.9%. If we got a number like that it would ease a little bit of the growth worries,” said Michael Feroli, economist with JP Morgan. “Some of the late data we got came in a little stronger. Early on, we got some disappointing data on domestic final demand. Toward the end of the quarter, we started getting good data on inventories and foreign demand.”

Jonathan Basile of Credit Suisse said he expects GDP at 2.8%. “We don`t really have enough to go on but our forecast is 2% for Q2. We do expect a little bit of a pause before we see better performance in the second half,” said Basile.

Basile said he`s also looking at Friday`s consumer sentiment, and particularly the unemployment expectations for a read on the employment picture. “We`ve seen an uptick off a 13-year low in unemployment expectations,” he said. In the last report, the percent of people surveyed who thought there would be more unemployment in the next 12 months, rose to a level of 21%, from 19% in March.

Stocks rallied Thursday, in part on a sense of reassurance that the Fed may still do quantitative easing if the economy stumbles. But earnings have also been a catalyst, with 72% of the S&P 500 beating estimates, according to Thomson Reuters. The Dow finished up 113, at 13,204, just 60 points off the four year high it was at on April 2. The SandP ended up 9 at 1,399, and the Nasdaq rose 20 to 3,050.

The Fed Wednesday issued a post meeting statement, then released its latest forecasts before Fed Chairman Ben Bernanke held a press briefing. Those events prompted a bit more market turbulence than expected. Bond yields Wednesday first rose, then fell, and stocks rose. Stocks then rallied again Thursday.

On Thursday, bond yields rose late in the day, but were lower as traders covered shorts and reacted to a disappointing jobless claims report, earlier in the day.

“I would say it (the Fed) was more dovish relative to the (bond) market`s hopes and expectations. You still have the vast majority (of Fed officials) saying that in 2014, rates are going to be close to where they are now,” said David Ader, chief Treasury strategist at CRT Capital.

“The most important thing that I took away was Bernanke continues to leave the door open. It`s not new, but it`s not backing away from QE3,” he said. While some strategists and economists Wednesday read the Fed`s messages as more hawkish, Ader said it was the first time the Fed said in its statement that it viewed the inflationary impact of higher oil as temporary, meaning the committee does not see inflation as a problem.

Also, the Fed reintroduced Europe as a potential problem by saying strains in financial markets continue to pose “significant downside risk.” In January, it had said those risks eased.

“The Fed was a little bit of a head scratcher at the end,” Feroli said. “Definitely the committee`s forecast, not only on the funds rate but the economy, is turning a little more hawkish. Then you have Bernanke coming out, talking like nothing has changed.”

Art Cashin, UBS director of floor operations, said the weak dollar was a boost to risk assets Thursday. “I think the Dow is the lead horse. I think they`ve just decided things are a little better. Earlier on, Europe looked bad, but Bernanke and his shenanigans have the dollar a little weaker. The weak dollar has made gold go up, oil go up,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

What falling milk prices say about an economic slowdown

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The decline of milk prices this year has been a welcome development for consumers pressured by USD 4 a gallon gas, but could be a bad sign for the economy.

Falling milk prices-particularly over the past decade-have been a warning signal for a slowdown, while rising prices have accompanied upturns in the economy, according to research from Nicholas Colas, chief market strategist at ConvergEx in New York.

“That`s good news for this high-profile consumer good and its effect on inflationary expectations,” Colas said. “At the same time, milk prices have been cyclical since the Great Depression. The pullback in 2012 could therefore be a useful early warning sign about a slowing US, and global, recovery.”

Prices pulled back during the recessions of 2002-03 and 2009, while they surged in 2001, 2004, 2007 and 2011.

More recently, milk has been on a slow but steady decline since reaching a historical peak in September, falling nearly 4% at the supermarket and nearly 25% in recent days at the distributor level.

The current price of USD 3.86 a gallon is still high by historical levels, but drifting lower as demand fades.

The milk futures contract has risen 6% over the past month a half, but the American Restaurant Association expects that to fade due to a larger than expected milk cow herd.

“A more sluggish domestic economy is always bad for milk prices, so we have to treat the recent pullback as a warning sign about the national economy,” Colas said. “Moreover, exports of milk products were an estimated 13 percent of production, which means weaker prices may also be a sign of diminished demand in global markets.”

Other indicators are confirming what milk is showing, though consumer prices broadly are up 2.7% over the past year.

The Chicago Federal Reserve`s National Activity Index, though not one of the market`s more widely followed barometers, nevertheless posted a minus-0.29 Thursday, indicating economic contraction.

“An index reading of less than zero depicts an economy growing at below trend and easing pressures on future inflation,” said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. “That is a positive development set against the higher inflation projections at yesterday`s (Federal Reserve) meeting although no one wants to see growth tapering off.”

One area of which investors should take note: Colas found that demand for organic milk actually has increased 22%, translating to higher prices and perhaps indicative of a two-speed recovery where higher-end goods are trending stronger than their lower-cost alternatives.

“Not only are milk prices a useful economic indicator…and a proxy for inflationary expectations… but also a great barometer between a commodity and a differentiated good,” Colas said. “Different, in this case, is very good.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Spain downgrade proof austerity not working

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Ratings agency Standard and Poor`s downgrade of Spain`s credit rating Thursday for the second time this year highlights the fact that austerity alone is not enough to tackle the eurozone debt problem. Experts tell CNBC that European leaders need to focus on growth now.

“Clearly, austerity and growth cannot go hand in hand… I think we need to see European leaders break out of this pure austerity mode and try and do something different in terms of pro-growth policies,” Vasu Menon, Vice President, Group Wealth Management, OCBC Bank, told CNBC Asia`s “Cash Flow.”

Spain`s long-term debt was cut to Triple-B plus from A, while its short-term rating was lowered to A-2 from A-1. In January, SandP downgraded Spain along with eight other eurozone countries of their coveted triple-A status.

The latest downgrade was prompted by concerns over growing government debt amid a contracting economy. The Bank of Spain said earlier this week that the economy probably contracted 0.4% in the first quarter of 2012. Official figures are due April 30.

Austerity measures are beginning to impact European economies as they slip into recession, according to Menon.

“We can see that it`s starting to impact the economies in Europe, not just in the euro zone but in the UK as well – they`ve implemented austerity measures and look at what happened to them, they`re in a recession right now,” Menon said.

According to Marc Seidner, Managing Director, PIMCO, “If economies can grow then countries can safely delever from heightened debt level, if not, crisis continues.”

No Quick-Fix

Analysts agreed that there was no short-term solution in sight and that the European Central Bank would have to keep injecting cash into the banking system.

“In Europe, they`re basically committed to providing money to throw at the problem forever. They might need to do it for years,” Richard Jerram, Chief Economist, Bank of Singapore told CNBC Asia`s “Squawk Box.”

Menon adds, “If anybody expects any quick solution out of Europe, they`re really hoping for too much.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Traders watch US GDP, Europe ahead of weekend

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The first read of first-quarter US GDP Friday could drive financial markets, as investors look for signs of direction from an economy that has been sending mixed signals.

While GDP  is often considered more like looking into a rear view mirror, traders are hoping this report could serve as a roadmap for what type of momentum there might be going into the second quarter.

Also Read: Market Watch: Cues that may push Nifty, Sensex higher

Jobs data has been one particular concern, after March’s weak nonfarm payrolls came in at half of February’s level. A string of elevated weekly unemployment claims reports since that weak 120,000 March jobs gain has added to concerns about the strength of April’s nonfarm payrolls, to be reported next week.  Claims were high again Thursday, coming in at 388,000, above the expected 375,000.

GDP is reported at 8:30 am ET, as is the employment cost index. Consumer sentiment is released at 9:55 am Once more, there is a roster of heavyweight companies reporting earnings before the opening bell, including Procter and Gamble, Merck, Chevron and Ford. Weyerhaeuser, Newmont Mining, International Paper, Sanofi, Covidien, Simon Property, Goodyear Tire and VF Corp also report.

Europe will also be a focus Friday. The euro fell late Thursday after Standard and Poor’s cut Spain’s debt rating by two notches to BBB-plus form A. The ratings agency, in a release after the New York close, said it expects Spain’s budget deficit to worsen due to economic contraction. S&P, meanwhile, affirmed Ireland’s BBB-plus rating.

Economists expect GDP for the first quarter to show growth at a consensus 2.6%, with forecasts spanning a wide range of 1.2 to 3.6%.

“We’re above consensus. We’re at 2.9%. If we got a number like that it would ease a  little bit of the growth worries,” said Michael Feroli, economist with J.P. Morgan. “Some of the late data we got came in a little stronger. Early on, we got some disappointing data on domestic final demand. Toward the end of the quarter, we started getting good data on inventories and foreign demand.”

Jonathan Basile of Credit Suisse said he expects GDP at 2.8%. “We don’t really have enough to go on but our forecast is 2% for Q2. We do expect a  little bit of a pause before we see better performance in the second half,” said Basile.

Basile said he’s also looking at Friday’s consumer sentiment, and particularly the unemployment expectations for a read on the employment picture. “We’ve seen an uptick off a 13-year low in unemployment expectations,” he said. In the last report, the percent of people surveyed who thought there would be more unemployment in the next 12 months, rose to a level of 21%, from 19% in March.

Stocks rallied Thursday, in part on a sense of reassurance that the Fed  may still do quantitative easing  if the economy stumbles. But earnings have also been a catalyst, with 72% of the S&P 500 beating estimates, according to Thomson Reuters. The Dow finished up 113, at 13,204, just 60 points off the four year high it was at on April 2. The S&P ended up 9 at 1,399, and the Nasdaq rose 20 to 3,050.

The Fed Wednesday issued a post meeting statement, then released its latest forecasts before Fed Chairman Ben Bernanke held a press briefing. Those events prompted a bit more market turbulence than expected. Bond yields Wednesday first rose, then fell, and stocks rose. Stocks then rallied again Thursday.

On Thursday, bond yields rose late in the day, but were lower as traders covered shorts and reacted to a disappointing jobless claims report, earlier in the day.

“I would say it (the Fed) was more dovish relative to the (bond) market’s hopes and expectations. You still have the vast majority (of Fed officials) saying that in 2014, rates are going to be close to where they are now,” said David Ader, chief Treasury strategist at CRT Capital.

“The most important thing that I took away was Bernanke continues to leave the door open. It’s not new, but it’s not backing away from QE3,” he said. While some strategists and economists Wednesday read the Fed’s messages as more hawkish, Ader said it was the first time the Fed said in its statement that it viewed the inflationary impact of higher oil as temporary, meaning the committee does not see inflation as a problem.

Also, the Fed reintroduced Europe as a potential problem by saying strains in financial markets continue to pose “significant downside risk.” In January, it had said those risks eased.

“The Fed was a little bit of a head scratcher at the end,” Feroli said. “Definitely the committee’s forecast, not only on the funds rate but the economy, is turning a little more hawkish. Then you have Bernanke coming out, talking like nothing has changed.”

Art Cashin, UBS director of floor operations, said the weak dollar was a boost to risk assets Thursday. “I think the Dow is the lead horse. I think they’ve just decided things are a little better. Earlier on, Europe looked bad, but Bernanke and his shenanigans have the dollar a little weaker. The weak dollar has made gold go up, oil go up,” he said.

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© 2012 CNBC.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

ICBC chairman: China Bank ‘monopoly’ should be broken

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China`s bank “monopoly” should be broken up, Jiang Jianqing, Chairman of the country`s largest lender Industrial and Commercial Bank of China (ICBC) told CNBC, adding that a more “diversified and competitive” environment would help improve the efficiency and management of the whole industry.

“I totally agree with Premier Wen that we should break the monopoly,” Jiang told CNBC`s Christine Tan on “Managing Asia“. “In a healthy economy, you have to have sufficient competitiveness and anti-monopoly enforcement.”

Earlier this month, Chinese Premier Wen Jiabao called the country`s big banks a monopoly that needed to be broken up in order to get money flowing to cash-strapped private firms.

China`s big four state-run banks, including ICBC, Bank of China, Agricultural Bank of China and China Construction Bank, maintain dominance over the entire financial services industry, in particular the country`s credit allocation process.

There have been calls by government officials recently for more reform in the financial system. Last month China`s central bank chief Zhou Xiaochuan called for banks to accelerate lending to smaller companies and broaden financing avenues for the small and medium enterprises (SMEs).

“I think the essence of Premier Wen`s comments is that he wants to see a healthier, more diversified and more multi-ownership financial system, so as to enhance the efficiency of the financial services. This is exactly what I wish could happen,” he said.

While Jiang acknowledged the lack of competition in China`s banking sector, he also said that in other major economies 4 to 5 banks typically make up around 50 percent of total assets in the overall financial sector.

“More than 20 years ago, there were only 4 to 5 big banks in China, taking up 95 percent or more of the total assets book in the Chinese banking system. After more than 20 years of reforms, by the end of last year, the Four-Big Banks` only held 45 percent of total assets,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Geithner: US economy ‘gradually getting stronger’

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Treasury Secretary Timothy Geithner expressed confidence in the resilience of the US economy despite Europe’s woes, slammed Mitt Romney’s approach to China policy and dismissed as ‘remarkably hackish’ a Romney adviser’s critique of President Obama’s tax policy.

Geithner spoke in an interview with CNBC near Portland after touring a plant that manufactures street-cars, and as he prepares for an address in San Francisco tomorrow on economic relations with China.

“We`re gradually getting stronger,” Geithner said as new data show the United Kingdom having slipped into recession. “And Europe is doing a better job of managing their crisis.”

“The most likely thing you`re gonna see is that Europe contains the risk of a major cataclysm,” he said. “They can let these reforms take some time to work. And our economy should continue to get gradually strengthened through that.”

Geithner criticized as superficial the contention by Romney, the presumptive Republican presidential nominee, that he will improve US trade relations with China by declaring that emerging giant a currency manipulator.

“By just calling them a name?” Geithner asked. “Like you can solve problems in the world, a very complicated world we live in, by calling people names?”

“If it had been an effective way to get change in China, then bipartisan, Democrat and Republican presidents over time would have embraced that basic strategy,” he said. “But it had no merit as a basic strategy and does carry the risk of a trade war.”

Geithner also rejected GOP claims that Obama`s regulatory and tax policies have damaged the economy. He took particular aim at the contention by Romney adviser Glenn Hubbard that Obama`s spending commitments would require an across-the-board tax increase of 11 percent on Americans earning less than USD 200,000 per year.

“That`s a completely made up, remarkably hackish observation for an economist,” Geithner said of Hubbard. “The president`s fiscal reform plan would bring our deficits down to below 3% of GDP over the next four years, so that the debt burden stops growing as a share of the economy. We propose a series of tax reforms that would modestly increase the burden, but only on the top 2% of Americans. Ninety-eight percent of Americans would see no increase in their effective tax burden.”

Geithner also dismissed as a “myth” reports that Obama`s appointment of the president of Dartmouth College, Geithner`s alma mater, to the World Bank was part of a plan for Geithner to take the Dartmouth job when he leaves the administration at the end of Obama`s first term.

A “completely contrived myth,” Geithner said. “Played no role in that context.”

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed doing more harm than good: Boockvar

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Federal Reserve is doing more harm to the US economy than good by keeping interest rates artificially low and continuing its “monetary medicine”, Peter Boockvar, portfolio manager and equity strategist at Miller Tabak told CNBC.

“Bernanke has put the US economy over the past bunch of years into monetary Fantasyland,” Boockvar said on CNBC Asia`s “Squawk Box” on Thursday. “When you have rates at zero, when you have an expanded balance sheet of about USD 3 trillion, the economy is not real.”

Boockvar`s comments followed the Fed`s policy statement on Wednesday that it would hold its key interest rate near zero. The Fed also indicated the economy would have to improve before it changes its policy. A 9-1 vote accompanied the statement, which renewed the pledge to keep rates low through 2014.

Boockvar said the Fed`s policy of keeping rates at zero misallocates capital and does not create a firm foundation for growth because “the cost of money is artificial.”

“It`s on monetary medicine, painkillers you can say,” he said. “The Fed to me is an impediment, not a boost, and they should just stop what they are doing.”

The Fed`s quantitative easing or bond-buying over the past several years has coincided with gains in stock markets, but it has also stoked fears of inflation and worries the Fed won`t be able to exit without causing turmoil in the bond markets and a jump in interest rates.

“At some point, the extraordinary policy (of bond buying) has to be reversed and it`s going to be a complete mess when it happens,” Boockvar said. “If they (the Fed) think they`re going to do it orderly, I have a big problem with that belief.”

The Fed showed no sign that it was in a hurry to start on a third bout of bond buying to stimulate the US economy, but Chairman Ben Bernanke said the central bank would not hesitate to launch another round of bond purchases if the economy were to weaken.

Longer-dated US Treasurys ended lower on Wednesday, though intermediate dated-debt turned slightly positive, after the Fed statement.

New projections released by the central bank showed the most dovish officials no longer want to put off a rate increase until 2016. Seven officials believe it would be appropriate to raise borrowing costs in 2014, up from 5 officials in January, while only 4 wanted to wait longer, down from 6, the Fed said.

Boockvar warned the Fed was creating a bond bubble by keeping rates low for so long.

“The Fed has created a tremendous bond bubble and that comes after the stock market bubble that they created in the early part of the decade, the credit bubble that they created in the middle part of the decade. And now we have an epic bond market bubble,” he said.

But Jared Bernstein, Senior Fellow at the Center on Budget and Policies Priorities and a former adviser on economic policy to U.S. Vice-President Joe Biden said the Fed`s policies were necessary given the slack in the economy.

“You wouldn`t see that in an economy with stronger underlying demand where inflationary pressures were coming from somewhere,” he said. “They`re just not there, so the Fed is taking all the necessary steps in order to provide the accommodative monetary stimulus that the economy needs right now.”

“I actually might agree with him (Boockvar) if we were talking about a fuller-employment economy with the demand contraction of the great recession behind us,” Bernstein said.

“But I`m sorry, that`s not at all what we are looking at. The real economy is still recovering, that`s why the monetary stimulus is so appropriate.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Investors face bumpy ride as Euro crisis grows: El-Erian

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A diverse set of economic circumstances around the globe are forcing investors to take an equally diverse approach to investing, Pimco`s Mohamed El-Erian said.

“Bimodal” conditions mean that those employing the simple “risk-on” or “risk-off” approaches are missing both opportunities and dangers, El-Erian said during an interview on CNBC`s “Squawk Box.”

“We are on this bumpy journey to this unusual destination, which is three to five years” long, said El-Erian, co-chief investment officer at Pimco, which runs the largest bond fund in the world. “The length depends on policymakers, and policymakers have been postponing the deleveraging, which makes this journey even more uncertain.”

In Europe, for instance, unpopular austerity measures – combined with “structural reforms that promote growth” – are necessary in Greece but not in Germany, he said.

“There`s very different narratives in Europe and people are trying to simplify too much,” El-Erian said. “In Europe, the US, this is a day and time to be very differentiated. Don`t go for the simple headliners, because they will mislead you.”

Since the onset of the European sovereign debt crisis, policymakers have debated whether to use austerity to clean up the fiscal mess that has caused government bond yields to surge, or to continue to spend in hopes of promoting economic growth.

The Dutch government fell this week after citizens there rebelled against austerity, indicating that even so-called core euro zone nations are not immune from the debt crisis.

“Today, Germany is a good house in a challenged neighborhood,” El-Erian said. “Over the next few months something is going to have to change. Either the neighborhood is going to have to get better or the house is going to come under some pressure.”

Stressing that “unfortunately, the easy gains are behind us,” he said investors will have to look for companies with strong margins, low debt and ability to grow.

“That`s what the results are telling you,” El-Erian said. “That`s what Apple is telling you, that`s what Danone is telling you. It`s important to be differentiated today.”

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed holds rate steady as recovery still drags along

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Federal Reserve, citing concerns about the pace of recovery, held its key interest rate near zero and indicated the economy would have to improve substantially for any changes in policy to take place.

The Fed said the economy’s improvement was just “moderate” and indicated that the housing market remains at a “depressed” level.

The central bank gave no indications toward any further easing measures would take place, a key consideration as the stock market looks for direction. Stocks have come off their highs following a robust rally that began in October, shortly after the Fed introduced its last easing program.

In all, the Open Market Committee statement offered little change in wording from the previous month.

A 9-1 vote accompanied the statement, which renewed the pledge to keep rates low through 2014. The discount rate remains unchanged at 0.75%.

Richmond Fed President Jeffrey Lacker was the sole committee member to vote against the wording.

“The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually,” the FOMC statement said. “Strains in global financial markets continue to pose significant downside risks to the economic outlook.”

The stock market dropped a few points after the release while long-term bond yields edged higher.

The Fed statement comes against a backdrop both of anxiety over the economy and pervasive sentiment that the central bank is unlikely to take any significant easing measures.

With the Operation Twist program coming to an end in June, the Fed is likely to wait for worsening economic conditions before taking action. The Twist is a balance sheet-neutral buying and selling of bonds in an attempt to drive down long-term lending rates.

Bernanke has been under some pressure to tip the Fed’s hand more as unemployment is improving but still high, and the housing market remains mired in a climate of dropping prices and middling sales.

The Fed has expanded its balance sheet to nearly USD 3 trillion through quantitative easing. While QE has coincided with a growth in stock market returns it also has stoked fears of inflation and criticism that the Fed does not have a solid exit strategy to unwind all the debt it has accumulated.

Yet inflation, at least at the core excluding food and energy costs, remains within the Fed’s target of 2%. Surging gasoline prices, past USD 4 a gallon at the pump, as well as persistently high grocery costs have nullified much of the case that inflation is tame.

Bernanke, though, has expressed far more concern about the jobless rate, which sits at 8.2%. He has said repeatedly he does not expect job creation to accelerate anytime soon.

The chairman follows the release of the Fed decision with a news conference, during which investors will try to parse his words for clues about future actions.

We expect he will sound cautiously optimistic on the better near-term outlook, but also concerned about the risks to the outlook from a variety of shocks, including Europe, oil prices, and the fiscal cliff,” Bank of America Merrill Lynch economists said in a note.

“As a result, we expect Bernanke to keep the Fed’s options open, acknowledging that there is no urgency for further easing now, but keeping additional asset purchases as a possibility should activity falter later this year,” they added. “If asked, we expect him to downplay the possibility of extending Twist and sterilized QE.”

© 2012 CNBC.com

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Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow