Month: May 2012

US treasurys are ‘junk’, dollar headed for collapse: Expert

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

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The greenback and the US bond market are headed for a collapse as the Federal Reserve loses the ability to service the nation`s debt with “artificially low” interest rates, Peter Schiff, CEO of Euro Pacific Capital told CNBC on Wednesday.

“As far as I am concerned, US Treasurys are junk bonds,” Schiff said on CNBC Asia’s “Squawk Box”. “And the only reason that the US government can pay the interest on the debt, and I say `pay` in quotes because we never pay our bills. We borrow the money so we pretend to pay, but the only reason we can do it is because the Fed has got interest rates so artificially low.”

The Fed has been keeping rates on benchmark 10-year Treasurys low by purchasing bonds via quantitative easing (QE), and this will ultimately be the US economy`s “undoing”, Schiff said.

“Unfortunately, we are going to get more QE than Rocky movies, because the only thing keeping this phony economy going is this QE. And the minute you take it away, it`s going to collapse,” he said.

Schiff`s comments come after two Fed officials warned on Tuesday that the US could be heading for a “fiscal cliff” at the end of the year if mandated tax increases and spending cuts are implemented. On the same day, fund manager Bill Gross, who runs the world`s biggest bond fund, told CNBC that the US will face a downgrade of its `AAA` debt rating if it did not fix its fiscal situation.

“It`s not just USD 15 trillion in terms of current debt,” Gross said on CNBC`s “Street Signs”. “It`s probably 3 to 4 times that in terms of Medicare, Medicaid, of Social Security, in terms of the present value.”

“So unless the U.S. begins to make some inroads, and that`s called the structural deficit that the CBO (Congressional Budget Office) and the IMF (International Monetary Fund) basically identified as perhaps 6 to 7 to 8 percent, greater than any country other than Japan and the U.K. Until we address that structural deficit, then yes, we`re headed to double-A territory,” he said.

Euro Pacific`s Schiff predicts weakness in the US dollar, which will put pressure on commodity prices and fuel inflation . This will in turn force the Fed to raise interest rates, he added.

“The Fed will not do it; the Fed knows the only thing propping up our phony economy is zero percent interest rates and quantitative easing. And I think when the market figures this out, it`s going to put even more pressure on the dollar,” he said.

Schiff is a well-known bear who predicted in 2008 that the dollar will collapse amid hyperinflation . That did not happen, and the dollar strengthened against most major currencies by the end of 2009.

Andrew Economos, Managing Director and Head of Sovereign and Institutional Strategy at JPMorgan Asset Management said what the Fed is trying to do is “buy time” by keeping credit cheap and encouraging banks to lend.

“Look, I am not an apologist for the Fed but at the end of the day, (Fed Chairman Ben) Bernanke is doing the only thing that he can do, which is buying time,” Economos said on CNBC`s “The Call”.

“And I think that buys us time to rectify those structural problems the bears are harping about. It allows corporates and households to continue to de-leverage and de-risk their own personal balance sheets.”

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

Bulls roll the dice, hoping for more good economic news

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

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With stocks at multi-year highs, Wall Street bulls are looking for fresh fuel for the rally in economic reports after Tuesday’s surprisingly strong manufacturing data.

Wednesday’s data includes ADP’s private-sector jobs report, which traders watch as a sort of preview to the government’s report on nonfarm payrolls, even though it often doesn’t correlate. The report, released at 8:15 a.m. ET is expected to show that 175,000 private-sector jobs were added in April. There is also the Challenger layoff report at 7:30 a.m. and factory orders for March at 10 a.m.

Tuesday’s ISM manufacturing data showed a surprising jump to 54.8 from March’s 53.4. Economists had expected the April number to show a decline, and the market was braced for weaker data after a string of negative surprises, including first-quarter GDP.

“Certainly people were caught off base. Before it came out, there was a rumor running around that it must be bad,” said Art Cashin, UBS director of floor operations.

The stronger number also dashed some concerns about Friday’s jobs report, which economists have been expecting to be about only about 30,000 to 40,000 better than the weak 120,000 nonfarm payrolls added in March.

Stocks finished the day higher, but off the highs of the day. The Dow closed up 65 at 13,279, its highest level since December 2007. The S&P 500 was up 7 at 1405, and the Nasdaq rose 4 points to 3050.

“It proves all the bears are in Europe,” said Cashin. “Europe reopens tomorrow and all the things we worried about last week suddenly could come alive again. Three quarters of the world was closed today and we got to play in our own sandbox.”

Europe’s markets were closed for the May Day holiday, and they reopen Wednesday. European PMI data is released Wednesday morning.

The euro Tuesday was just slightly lower against the dollar, but it was up 0.4% against the yen.

“What I thought was interesting was the euro had this very interesting decoupling from risk. Equities skyrocketed and the euro came off its highs” when the ISM was released, said Boris Schlossberg of GFT Forex. As the dollar strengthened on the ISM data, and the euro faded, oil also rallied. Treasurys sold off, and the yield on the 10-year moved from a low of 1.896 percent before the 10 a.m. data, to 1.945% late in the day.

Traders will also be watching a crowd of Fed speakers, including Fed Gov. Daniel Tarullo at 8 a.m. ET in New York. Tarullo is also expected to meet with the CEOs of major banks on bank stress tests and other issues.

Richmond Fed President Jeffrey Lacker speaks at 1230 p.m.; Philadelphia Fed President Charlie Plosser speaks at 1:30 p.m. on the economic outlook, and Chicago Fed President Charles Evans speaks at 6:30 p.m. at a Chicago Fed conference on strategies for economic stability and growth.

Several Fed officials spoke on Tuesday. CNBC’s Steve Liesman interviewed Chicago Fed President Charles Evans together with Atlanta Fed President Dennis Lockhart. Evans said there is “tremendous room” for more accommodation, while Lockhart said he would be “reticent to pull the trigger” on more accommodation.

Richmond Fed President Richard Lacker also spoke Tuesday and he said the Fed needs to be ready to raise rates even if unemployment is above 7%.

“We do have Lacker again tomorrow. I suspect he will be hawkish,” said Ian Lyngen, senior Treasury strategist at CRT Capital. “It’s really about the nonfarm payrolls — the big number at the end of the week.”

Besides the economic reports, there are dozens of corporate earnings, including: Time Warner, Comcast (CNBC’s parent), MasterCard, PG&E, UBS, Allergan, Barrick Gold, Devon Energy, Marathon Oil, CVS Caremark, Clorox, Rowan and Martha Stewart report ahead of the opening bell. Allstate, Green Mountain Coffee, Transocean, Zillow, Whole Food, Dreamworks Animation, Hertz Global and Hartford Financial report after the close.

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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

Fed Hawk and Dove agree: No more easing

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

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Two top officials — one with a dovish, employment-focused bent, and the other a self-avowed inflation hawk — on Monday both said they see no need for the US central bank to ease monetary policy any further. Federal Reserve

But the comments, from San Francisco Fed  President John Williams and Dallas Fed President Richard Fisher, do not mean they believe the central bank should quickly move to raise rates, which it has kept near zero for more than three years.

The economy grew at a 2.2 % pace last quarter, down from its 3% growth rate in the final three months of the year. Recent economic data, including a gauge of business activity in the U.S. Midwest, signal growth may slow further this quarter.

“I don’t think we are ready to exit yet,” Fisher, an inflation hawk, told Reuters at the Milken Institute Global Conference in Los Angeles.

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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