September 19, 2017

Markets Lower in Wake of Jobs Numbers

U.S. stocks had a mixed close after volatile trading on Friday, after job market data removed some uncertainty about Federal Reserve policy and after Russian President Vladimir Putin said he would maintain his long-standing support for Syria if the West were to attack.

The Standard Poor’s 500 index gained 0.09 points or 0.01 percent, closing at 1,655.17. The Dow Jones industrial average fell 14.98 points or 0.1 percent, to 14,922.50, and the Nasdaq Composite added 1.23 points or 0.03 percent, closing at 3,660.01.

For the week, the SP 500 is up 1.04 percent and the Nasdaq is up 1.1 percent. The Dow is up 0.6 percent after four weekly declines.

The U.S. August payrolls report showed about 169,000 jobs were added, fewer than the 180,000 that had been expected, and July’s figure was revised sharply lower. The unemployment rate fell to 7.3 percent, its lowest since December 2008, though the decline reflected a drop in the share of working-age Americans who either have a job or are looking for one.

Many analysts said despite the weak jobs report the U.S. central bank would not adjust plans to slow its stimulus, currently at $85 billion a month in bond purchases.

Kansas City Fed President Esther George, a consistent hawk who has argued for a tapering in bond purchases all year, said reducing purchases to $70 billion a month could be “an appropriate next step toward normalizing monetary policy.”

Such a reduction would be in line with expectations that have been falling in the last few months.

“Tapering is going to happen but there is a wide range of opinions in terms of how much the Fed is going to taper,” said Joseph Tanious, global market strategist at JPMorgan Asset Management in New York.

“The market is comfortable with the idea (of winding down stimulus) as it is justified by economic growth,” he said, pointing to recent data including an almost eight year high in the pace of growth in the U.S. services sector.

Investors are continuing to assess the possibility of a U.S.-led strike against Syria in retaliation for an alleged chemical weapons attack against its civilians.

Putin made clear on Friday that Russia did not want to be sucked into a war over Syria, signaling that Moscow would maintain ongoing support to Damascus in the event of foreign military intervention.

Tanious said, getting clarity on Russia’s point of view helps ease some concerns about the implications of an attack on Syria, but any U.S. intervention is likely to impact oil and other markets.

“The (equities) market is jittery and that is understandable,” he said.

Energy prices have been among the most volatile on the issue, with investors concerned that military action in the Middle East will weigh on oil supplies. U.S. crude oil has spiked almost 4 percent over the past two weeks and was up 1.7 percent on Friday.

Facebook shares rose 3 percent to $43.95 after hitting $44.56, its highest since the stock’s debut on Nasdaq more than a year ago.

American Tower Corp rose 4.6 percent to $71.91 after the company agreed to buy Global Tower Partners for $4.8 billion.

E*Trade Financial shares jumped 4.6 percent to $16.26 after Goldman Sachs upgraded the brokerage’s stock to “buy” from “neutral” two days after the company received approval to use capital from its bank subsidiary for broader corporate purposes.

Article source: http://www.nytimes.com/2013/09/07/business/daily-stock-market-activity.html?partner=rss&emc=rss

Rising Output in Factories Hints at Growth in Europe

Industrial production in the 17-nation currency zone rose 0.7 percent in June from May, Eurostat, the statistical agency of the European Union, reported from Luxembourg. The agency also revised down the size of the decline in May to 0.2 percent, from 0.3 percent.

On Wednesday, Eurostat is scheduled to release its first estimate of second-quarter gross domestic product, and expectations for good news were supported by the results of a survey that showed growing confidence in Germany.

The ZEW institute, an economic research organization based in Mannheim, said its economic sentiment indicator had risen to 42.0 points, up by 5.7 points from July, and well above its historical average of 23.7.

“The euro zone’s recession ended when the snow melted last Easter,” Christian Schulz, an economist at Berenberg Bank in London, wrote in a research note. He said the euro zone economy, having contracted for six straight quarters, “probably expanded modestly” in the April-June quarter “and will gain further momentum in the second half of the year.”

Ben May, an economist in London with Capital Economics, said the data reported Tuesday — as well as a small rebound in construction — suggested that the G.D.P. grew 0.2 percent in the second quarter, following a 0.3 percent decline in the first three months of the year.

Mr. Schulz credited the European Central Bank’s monetary policy, as well as the fading impact of austerity measures. He projected a 0.3 percent expansion in G.D.P. for the third quarter, followed by 0.4 percent growth in the fourth.

Even with second-half growth, Eurostat has estimated that the euro zone economy will contract slightly over all in 2013 before expanding by 1.2 percent next year.

Still, there is little to celebrate. More than 26 million Europeans cannot find work, and the jobless rate in countries like Greece and Spain is well over 20 percent. Economists do not expect hard-hit countries to bounce back fully for several years.

Growth in Europe is still likely to lag behind that of other developed nations like the United States and Japan, as well as rising giants like China.

June represented the fifth month of the last seven in which industrial production had risen, with the data released Tuesday confirming the findings of a survey last month of European purchasing managers.

Production of consumer durables rose by 4.9 percent in June, while output of capital goods rose by 2.5 percent.

Eurostat did not break down the data by product, but consumer durables generally include things like appliances, furniture and cars.

Industrial output in Germany, the largest euro zone economy, rose a strong 2.5 percent in June from May, but France, the No. 2 economy, posted a 1.5 percent decline.

For the European Union as a whole, Eurostat reported a 0.9 percent increase in June production.

Compared with a year earlier, industrial production grew 0.3 percent in the euro zone, and 0.4 percent in the overall European Union.

Article source: http://www.nytimes.com/2013/08/14/business/global/industrial-production-lifts-european-economy.html?partner=rss&emc=rss

High & Low Finance: The Time Bernanke Got It Wrong

You could see that this week when Ben S. Bernanke, the Fed chairman, made his semiannual pilgrimage to Capitol Hill to discuss the state of the economy. Lawmakers voiced concern about possibly excessive regulation of banks, but not about the clearly inadequate capital the big banks — and many small ones — had before the crisis.

Some of them seemed to be upset that the Fed’s policies had caused stock prices to rise. Jeb Hensarling, the Texas Republican who is chairman of the House Financial Services Committee, seemed to think that all current economic problems could be traced to President Obama’s excessive spending.

He was upset that the “Federal Reserve has regrettably, in many ways, enabled this failed economic policy through a program of risky and unprecedented asset purchases.”

Mr. Bernanke, who is probably nearing the end of his tenure running the Fed, seemed to have had such criticisms in mind last week when he assessed “the first 100 years of the Federal Reserve” at a conference in Cambridge, Mass.

In analyzing the Fed’s failures during the Depression, he seemed to be taking clear aim at some of his current critics — and perhaps at other central banks that were far less aggressive after the credit crisis.

First, he appeared to address the idea, popular in some circles, that we need a new gold standard.

“The degree to which the gold standard actually constrained U.S. monetary policy during the early 1930s is debated,” he said, “but the gold standard philosophy clearly did not encourage the sort of highly expansionary policies that were needed.” He said policy makers, following flawed economic theories, concluded “on the basis of low nominal interest rates and low borrowings from the Fed that monetary policy was appropriately supportive and that further actions would be fruitless.”

Was that a criticism of the European Central Bank under Jean-Claude Trichet, which lowered interest rates but did little else as the euro zone crisis grew? It certainly helped to explain why Mr. Bernanke felt the need to embark on quantitative easing and to focus on longer-term interest rates as well as short-term ones.

Then Mr. Bernanke pointed to “another counterproductive doctrine: the so-called liquidationist view, that depressions perform a necessary cleansing function.” That was the view pushed in the early 1930s by Andrew Mellon, the Treasury secretary, to such an extent that it angered even President Herbert Hoover, who did not, however, seem to think he could overrule the secretary. Now the comments could be read as a reproach to those, in the United States and Europe, who push for austerity above all else.

“It may be that the Federal Reserve suffered less from lack of leadership in the 1930s than from the lack of an intellectual framework for understanding what was happening and what needed to be done,” Mr. Bernanke concluded.

It seems to me that something similar could be said for the Fed before the debt crisis erupted. The intellectual framework it used simply could not cope with the idea that financial stability can itself become a destabilizing factor, as investors and bankers conclude that it is safe to take on more and more risk.

For a time, the period before the collapse was known as the “Great Moderation,” a term that Mr. Bernanke helped to publicize in a 2004 speech. Low levels of inflation, long periods of economic growth and low levels of employment volatility were viewed as unquestioned proof of success.

And what brought on that success? In 2004, Mr. Bernanke, then a Fed governor, conceded good luck might have helped, but his view was that “improvements in monetary policy, though certainly not the only factor, have probably been an important source of the Great Moderation.”

In 2005, three Fed economists, Karen E. Dynan, Douglas W. Elmendorf and Daniel E. Sichel, proposed an additional explanation for the Great Moderation: the success of financial innovation.

“Improved assessment and pricing of risk, expanded lending to households without strong collateral, more widespread securitization of loans, and the development of markets for riskier corporate debt have enhanced the ability of households and businesses to borrow funds,” they wrote. “Greater use of credit could foster a reduction in economic volatility by lessening the sensitivity of household and business spending to downturns in income and cash flow.”

Floyd Norris writes on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/07/19/business/economy/when-bernanke-got-it-wrong.html?partner=rss&emc=rss

Investors Parse Fed Report and a Four-Day Rally Fizzles

The Dow slipped and the Standard Poor’s 500-stock index edged up less than a point on Wednesday, interrupting a four-day rally as investors tried to gauge when the Federal Reserve might scale back its economic stimulus.

Minutes from the Fed’s June policy meeting, which were released on Wednesday afternoon, showed that some members of the governing board wanted more reassurance that the labor market was improving before reining in stimulus measures. Even so, consensus built within the Fed that there probably was a need to begin pulling back soon on its monthly bond buying.

The three major stock indexes recovered some ground immediately after the release of the minutes. But those gains were short-lived as investors parsed the details of the minutes.

The Dow Jones industrial average dipped 8.68 points, or 0.06 percent, to end at 15,291.66. The S. P. 500 index inched up just 0.30 of a point, or 0.02 percent, to finish at 1,652.62. The Nasdaq composite index gained 16.50 points, or 0.47 percent, to close at 3,520.76.

Investors appeared to be more encouraged by a speech from the Fed chairman, Ben S. Bernanke, that was delivered after the market closed. Mr. Bernanke said highly accommodative monetary policy was needed for the foreseeable future and that the unemployment rate at 7.6 percent may be overstating the job market’s health.

His comments sent stock index futures higher. The central bank has said it will continue buying bonds until the labor market outlook improves substantially.

“That is calming market fears,” said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, N.Y., referring to Mr. Bernanke’s comments. “Speculation that the tapering could be from September is now turning into, ‘Maybe the Fed is going stay longer.’ ”

Mr. Bernanke spooked investors last month when he said the economy’s expansion was strong enough for the central bank to start slowing the pace this year of its monthly purchases of $85 billion in bonds, known as quantitative easing.

Some in the market have pegged September as time when the Fed could start pulling back, but the minutes suggested that was not a foregone conclusion.

The S. P. 500 has risen more than 2 percent over the last five sessions, nearing its high of 1,669.16, reached May 21.

Analysts expect earnings at S. P. 500 companies to grow 2.6 percent in the second quarter from a year ago, while revenue is forecast to increase 1.5 percent, Thomson Reuters data shows.

In government bonds, the benchmark 10-year Treasury note fell 9/32 to 92 2/32, sending the yield up to 2.67 percent, from 2.64 percent late Tuesday.

Article source: http://www.nytimes.com/2013/07/11/business/daily-stock-market-activity.html?partner=rss&emc=rss

Economix Blog: Implications for Monetary Policy

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland, and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

Market watchers appear to have concluded from Friday’s better-than-expected jobs report that the Federal Reserve will soon start to taper its purchases of long-term assets.  I am heartened by the data showing an improving labor market, but am not so sure that the Fed is on the verge of backing away from its third round of quantitative easing. As I wrote last week, I see a pick-up in growth a year or two ahead.  But the near-term evolution of the economy remains uncertain, and it is this outcome on which monetary policy depends.

Today’s Economist

Perspectives from expert contributors.

Friday’s report was decent on the whole, with a total of 265,000 net new jobs, including 195,000 gained in June and 70,000 from upward revisions to April and May.  The unemployment rate held steady at 7.6 percent even as more people joined the labor force looking for work (and finding it).  Perhaps the most encouraging aspect of the report was that wages rose by 2.2 percent growth over the past year and finally appear to be outpacing inflation (we’ll find out for sure with the release of June inflation data on July 16). More jobs and higher wages together mean increased total labor income. This will support consumer spending, which was relatively anemic in 2012 and strengthened only modestly in the first quarter of 2013.

Other details of the report, however, are less positive.  While jobs were added, the average gain of just under 200,000 a month from April to June was a slight letdown from the pace of job creation in the first three months of 2013. Job creation in June tilted heavily to part-time employment, and average weekly hours for each worker did not expand as might be expected as a prelude to stronger hiring by employers who push their existing workers a bit harder before bringing on more employees. This was a good jobs report, but not amazing.

The Fed chairman, Ben S. Bernanke, said at his June 19 press conference that the tapering in quantitative easing would begin “if the incoming data are broadly consistent” with the Fed’s forecast. This includes not just labor market gains, but also accelerating growth in gross domestic product and a move of inflation back toward the Fed’s 2 percent target rate.  The key word here is “if.”

Market participants either missed the “if” or believe they know where the data are headed. Yields on 10-year Treasury notes jumped by 20 basis points to 2.7 percent following Friday’s jobs report, a full percentage point higher than the yield in early May.  Mr. Bernanke discussed the relationship between bond markets, monetary policy and the economy in a speech from March 2006 that is well worth reading today.  He explains that long-term bond yields reflect a variety of factors, including market participants’ beliefs regarding both the course of monetary policy and the strength of the economy (which in turn affects policies).  Higher Treasury yields since May might then be seen as indicating that investors expect a combination of less monetary accommodation and stronger economic growth. Lower supply of credit and more demand for it would both push up interest rates.

Data over the past three months of rising bond yields have suggested that the recovery is continuing, but are far from indicative of an economic breakout.  Rather, the bond market movement seems to reflect investors’ conclusions about the Fed’s intentions: that the start of the taper — the beginning of the end of quantitative easing — is nigh.

In evaluating this conclusion, it is useful to recall the Fed’s rationale for announcing the start of its third round of quantitative easing — QE3 for short — last September.  In his Aug. 31 speech at the Kansas City Fed’s annual Jackson Hole conference, Mr. Bernanke talked about his “grave concern” at “the enormous suffering and waste of human talent” associated with high unemployment, and the specter of long-lasting “structural damage” to the United States economy from its persistence.  With the weak labor market weighing heavily on his shoulders, the Fed chairman saw fiscal policy as moving in the wrong direction in both the short term (too much restraint) and on the longer horizon (with a lack of political will to contemplate a credible plan to address the fiscal imbalance over time).

The Fed could not have believed that QE3 would have more than a modest impact in bolstering the economy.  Indeed, Jeremy Stein, a Fed governor, said as much in evaluating long-term asset purchases in his initial speech in October 2012. The prospects for QE3 contrasted with the more meaningful impact found by research that examines the two earlier rounds of quantitative easing (especially the original round; QE2 was undertaken more as insurance against the possibility of deflation, which was seen as a risk in late 2010 when the second round of asset purchases was announced). With elevated unemployment posing a grave risk, inflationary pressures indiscernible, and the sequester about to kick in, the Fed saw itself as the only game in town for providing economic support.  Hence QE3.

Conditions have improved, but remain far from a robust recovery. With the unemployment rate still elevated, inflationary pressures will remain subdued. This is especially the case when there are 8.2 million people in part-time jobs who would prefer full-time work, on top of the discouraged workers who would be expected to rejoin the labor force as the economy strengthens.  Such a rebound in the labor force participation rate, incipient in Friday’s data, would keep the unemployment rate elevated and hold back wage gains and inflation.

G.D.P. growth in the second quarter of 2013 appears to have strengthened only modestly from the 1.8 percent first-quarter pace (the first estimate for the second quarter will be released on July 31).  An economic expansion 2 to 2.5 percent is certainly a recovery, but is not strong enough to drive a better pace of job creation and rapidly bring down the unemployment rate.  And inflation is unlikely to pick up absent a stronger job market that would sustain the wage gains seen in June.  A balanced view thus sees the Fed as still data-dependent and in the mode of wait-and-see.

Article source: http://economix.blogs.nytimes.com/2013/07/05/implications-for-monetary-policy/?partner=rss&emc=rss

Wall Street Unchanged in Early Trading

Wall Street was mostly unchanged in early trading Friday, but stocks looked likely to rack up a loss for the week, as investors were kept on their heels by uncertainty over how soon central banks will rein in their stimulus programs.

In early trading the Standard Poor’s 500-share index and the Dow Jones industrial average were a few points lower, and the Nasdaq composite was flat.

Worries over the longevity of monetary policy around the world has roiled markets recently and nerves were stretched further this week when the Bank of Japan decided to hold its policy steady. The extraordinary measures taken by policy makers to support the economy have helped fuel a rally that has raised the S.P. by nearly 15 percent this year.

Talk that the Federal Reserve, which meets next week, could begin reducing its bond buying later in the year has fueled a sell-off in global markets this week that has bruised stocks, bonds, emerging market assets and the dollar alike. On Wall Street, stocks have fallen during three of the past four days, and heading into Friday’s session, the S.P. 500 is down 0.4 percent on the week.

The dollar remained sluggish as trading in New York started, but it looked to have gained a foothold against the yen at around 95.15 and at $1.3297 against the euro.

On Thursday Wall Street jumped 1 percent after better-than-expected retail sales figures brought some relief to markets, but the mood was expected to remain fragile running into next week’s Fed meeting.

Philippe Gijsels, head of research at BNP Paribas Global Markets, said with growth patchy, he didn’t expect the Fed to reduce its support for the economy before the end of the year.

“If you have easy monetary policy and improving economic conditions, which will also help companies to produce good earnings, … then you have a lot of the building blocks in place” to drive stock market gains, he added.

Shares of Smith Wesson, the gun maker, rose in premarket trading after the company raised its outlook for the fourth quarter. The stock was up 5.2 percent in early trading.

Groupon climbed 7.7 percent after Deutsche Bank raised its rating to buy from hold, according to Benzinga.com.

With the impact of the sell-off on riskier assets settling, top European stocks climbed as much as 0.5 percent as they tracked a rebound in Japanese and Asian shares, before a late-morning wobble erased some of the gains.

Asian and European shares, as well as MSCI’s world index, have fallen for four straight weeks now, while for emerging market equities it has been five as a dash back to cash and core economies has taken hold.

Despite rebounding 2 percent on Friday, Japan’s Nikkei is nursing losses since mid-May of more than 15 percent. It is a slump that has been intertwined with a strong rebound in the yen which has seen its best run since early 2010 this week.

In Europe’s debt markets, southern euro zone bonds were back on the front foot after a mixed few sessions despite the Continent’s economic malaise. German and United States benchmark bonds were also up, adding to this week’s solid gains.

Rating agency Standard Poor’s helped sentiment toward the euro zone periphery as it kept Spanish government debt above junk status, although it left the country at risk of a downgrade by maintaining a negative outlook on the bonds.

It was a more stable situation in emerging markets assets too after the recent turbulence caused by the combination of central bank stimulus jitters and political unrest in countries such as Turkey and Syria.

Commodities, especially metals, have largely avoided the dramatic swings seen by equities and currencies this week but have not been completely immune to the market mood.

Copper has been hit by signs of slowing demand from China. It edged off a six-week low to $7,094 a metric tonne midday in Europe, while precious metals gold and platinum hovered near their recent lows.

Brent crude broke back above $105 a barrel for the first time in more than a month, however, and New York benchmark light sweet crude rose 0.8 percent to $97.44 a barrel, although analysts said the volatile dollar would remain a heavy influence on prices.

“The key driver of oil has been the weakness in the dollar rather than any fundamental factors,” said Ric Spooner, chief market analyst at CMC Markets. “Traders are wary about pushing things higher because they are confronted with a situation of plenty of supplies when seasonal demand is supposed to pick up,” he said.

Article source: http://www.nytimes.com/2013/06/15/business/daily-stock-market-activity.html?partner=rss&emc=rss

Fed Endorses Stimulus, but the Message Is Garbled

While some Fed policy makers suggested that the central bank could begin reducing its monthly purchases of government bonds as early as next month, most still want to see continued evidence of an upswing in the job market and a decline in unemployment first, according to minutes of the most recent meeting of the Fed’s policy arm that were released Wednesday afternoon.

Confusion on Wall Street over the Fed’s intentions led to a topsy-turvy day in the stock market. The major indicators were up in the morning after Mr. Bernanke testified to a Congressional committee but then fell sharply after the meeting minutes were disclosed.

In his testimony, Mr. Bernanke said that ending the $85 billion monthly bond-buying effort too soon would do more harm than good.

“A premature tightening of monetary policy could lead interest rates to rise temporarily but also would carry a substantial risk of slowing or ending the economic recovery,” he said.

While Mr. Bernanke clearly enjoys the support of a majority of the Fed’s Open Market Committee, the minutes suggested that he was finding it challenging to forge a consensus.

Under questioning from a lawmaker, Mr. Bernanke suggested that the Fed might cut back on bond purchases some time in “the next few meetings.” That statement took on greater significance on Wall Street after the minutes hinted at the more unnerving prospect of action as early as June.

Still, many analysts said the odds were against a change of direction at the Fed’s meeting next month.

“It’s been on the minds of committee members, but I don’t think the minutes mean they’re going to collectively take their foot off the gas in June,” said Erik Johnson, an economist with IHS Global Insight.

More likely, he said, would be a pullback beginning in late summer or early fall if the economy sustains its momentum. Even if that happens, the Fed will remain extraordinarily accommodative by many other measures, with short-term interest rates staying very low.

In response to a question from Representative Kevin Brady, a Texas Republican who is chairman of the Joint Economic Committee, Mr. Bernanke said that whenever the stimulus began to taper off, it would not happen in an “automatic, mechanistic program. Any change would depend on the incoming data.”

Further evidence for a move in a few months, rather than weeks, came in an interview shown on Wednesday on Bloomberg TV with the president of the Federal Reserve Bank of New York, William C. Dudley, that seemed aimed at clearing up some of the confusion.

“I think three or four months from now you’ll have a much better sense of is the economy healthy enough to overcome the fiscal drag or not,” said Mr. Dudley, who is a close ally of Mr. Bernanke.

Outside the canyons of Wall Street and the world of Fed watchers, the difference between June and August or September might not appear significant. But with interest rates at historical lows, any move to cut back on bond purchases by the Fed would undoubtedly cause an uptick in bond yields. That would affect the huge market for government and corporate bonds and force stock market investors to recalibrate their positions.

When the trading day began on Wednesday, investors were in a buoyant mood, sending stock indexes higher as Mr. Bernanke began his testimony. Markets around the world have rallied this year on hopes that the Fed and other central banks will continue to support financial markets with monetary policies.

As the day went on, though, traders began to reconsider some of Mr. Bernanke’s comments. After the details of the Federal Open Market Committee meeting on April 30 and May 1 were released, many strategists said they were surprised by the number of voices inside the Fed calling for a slowdown in the stimulus effort in the near future.

The minutes said, “A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth.”

In response, the Standard Poor’s 500-stock index finished the day at 1,655.35, down 13.81, while the Dow Jones industrial average fell 80.41 to 15,307.17. The tech-heavy Nasdaq index, which has been on a tear lately, sank 38.82 to 3,463.30, or slightly over 1 percent.

Mr. Bernanke indicated that he was not particularly worried that the stock market was moving into bubble territory, despite the 16 percent surge in the S. P. 500 since the beginning of the year.

“Our sense is that major asset prices like stock and bond prices are not inconsistent with fundamentals,” he said. Commonly used yardsticks for measuring the value of stocks, like price-to-earnings multiples, Mr. Bernanke concluded, are “fairly normal.”

Nathaniel Popper contributed reporting from New York.

This article has been revised to reflect the following correction:

Correction: May 22, 2013

An earlier version of this article incorrectly described the timing given by Mr. Bernanke of a potential Fed move. He said the Fed could prepare to “take a step down” in the next few meetings, not the next few weeks.

This article has been revised to reflect the following correction:

Correction: May 22, 2013

Article source: http://www.nytimes.com/2013/05/23/business/economy/bernanke-fed-stimulus-still-needed-to-help-recovery.html?partner=rss&emc=rss

I.M.F. Warns of Risk as Company Debt Grows

WASHINGTON (Reuters) — Easy monetary policy in the United States has led to looser standards for corporate borrowing as company debt continues to grow, posing a risk to financial stability, the International Monetary Fund warned on Wednesday.

Over all, finances around the world have improved in the last six months, and there were few clear signs of asset bubbles, the monetary fund said in its annual Global Financial Stability Report. But it also said that governments must remain vigilant and ensure they are continuing structural and banking improvements, or risk sinking into a chronic financial crisis.

In addition to companies, pension funds and insurance companies may also be taking on more risk than they should as they search for higher-yielding assets to fill a funding gap, which for pension funds stayed at 28 percent at the end of last year.

All of this is happening while the United States is still only one-third of the way through the current credit cycle, the Washington-based global lender said. Usually, looser borrowing standards emerge only in the later parts of the cycle, as happened in 2007, the I.M.F. said.

“In the United States, corporate debt underwriting standards are weakening rapidly,” José Viñals, the director of the I.M.F.’s monetary and capital markets department, said in a briefing on the report.

“This is a cause for concern that needs to be monitored.”

The appetite for riskier assets is also spilling over into emerging economies as investors search for higher yields, making these countries more vulnerable to volatile capital flows.

The I.M.F.’s analysis could add to questions about the side effects of aggressive monetary easing, which are likely to dominate meetings of finance ministers and central bankers from the world’s top economies in Washington this week.

The Bank of Japan earlier this month pledged to inject $1.4 trillion into its economy to shock it out of stagnation, fanning concerns about currency wars, rising asset prices and speculative buying.

The United States Federal Reserve’s expansive policies have also prompted worries about asset bubbles, though its easing program is in part meant to push investors to take on more risk to spur economic growth.

While the I.M.F. says it believes it is appropriate for advanced nations to keep up monetary stimulus for now — while inflation remains low and unemployment high — it is also urging policy makers to start thinking about the consequences of ending ultra-loose policies.

“I think when the patient is still under treatment, you should not suspend the medicine,” Mr. Viñals said about monetary policies. “But you should always be vigilant for the side effects of the medicine.”

Article source: http://www.nytimes.com/2013/04/18/business/global/imf-warns-of-risk-as-company-debt-grows.html?partner=rss&emc=rss

Gold, Long a Secure Investment, Loses Its Luster

And in Pocatello, Idaho, the tiny golden treasure of Jon Norstog has dwindled, too. A $29,000 investment that Mr. Norstog made in 2011 is now worth about $17,000, a loss of 42 percent.

“I thought if worst came to worst and the government brought down the world economy, I would still have something that was worth something,” Mr. Norstog, 67, says of his foray into gold.

Gold, pride of Croesus and store of wealth since time immemorial, has turned out to be a very bad investment of late. A mere two years after its price raced to a nominal high, gold is sinking — fast. Its price has fallen 17 percent since late 2011. Wednesday was another bad day for gold: the price of bullion dropped $28 to $1,558 an ounce.

It is a remarkable turnabout for an investment that many have long regarded as one of the safest of all. The decline has been so swift that some Wall Street analysts are declaring the end of a golden age of gold. The stakes are high: the last time the metal went through a patch like this, in the 1980s, its price took 30 years to recover.

What went wrong? The answer, in part, lies in what went right. Analysts say gold is losing its allure after an astonishing 650 percent rally from August 1999 to August 2011. Fast-money hedge fund managers and ordinary savers alike flocked to gold, that haven of havens, when the world economy teetered on the brink in 2009. Now, the worst of the Great Recession has passed. Things are looking up for the economy and, as a result, down for gold. On top of that, concern that the loose monetary policy at Federal Reserve might set off inflation — a prospect that drove investors to gold — have so far proved to be unfounded.

And so Wall Street is growing increasingly bearish on gold, an investment banks and others had deftly marketed to the masses only a few years ago. On Wednesday, Goldman Sachs became the latest big bank to predict further declines, forecasting that the price of gold would sink to $1,390 within a year, down 11 percent from where it traded on Wednesday. Société Générale of France last week issued a report titled, “The End of the Gold Era,” which said the price should fall to $1,375 by the end of the year and could keep falling for years.

Granted, gold has gone through booms and busts before, including at least two from its peak in 1980, when it traded at $835, to its high in 2011. And anyone who bought gold in 1999 and held on has done far better than the average stock market investor. Even after the recent decline, gold is still up 515 percent.

But for a generation of investors, the golden decade created the illusion that the metal would keep rising forever. The financial industry seized on such hopes to market a growing range of gold investments, making the current downturn in gold felt more widely than previous ones. That triumph of marketing gold was apparent in an April 2011 poll by Gallup, which found that 34 percent of Americans thought that gold was the best long-term investment, more than another other investment category, including real estate and mutual funds.

It is hard to know just how much money ordinary Americans plowed into gold, given the array of investment vehicles, including government-minted coins, publicly traded commodity funds, mining company stocks and physical bullion. But $5 billion that flowed into gold-focused mutual funds in 2009 and 2010, according to Morningstar, helped the funds reach a peak value of $26.3 billion. Since hitting a peak in April 2011, those funds have lost half of their value.

“Gold is very much a psychological market,” said William O’Neill, a co-founder of the research firm Logic Advisors, which told its investors to get out of all gold positions in December after recommending the investment for years. “Unless there is some unforeseen development, I think the market is going lower.”

Gold’s abrupt reversal has also been painful for companies that were cashing in on the gold craze. In the last year, two gold-focused mutual funds were liquidated after years of new fund openings, Morningstar data shows. Perhaps the most famous company to come out of the 2011 gold rush, the retail trading company Goldline, has drastically cut back its advertising on cable television, lowering spending to $3.7 million from $17.8 million in 2010, according to Kantar Media.

Article source: http://www.nytimes.com/2013/04/11/business/gold-long-a-secure-investment-loses-its-luster.html?partner=rss&emc=rss

Jobless Claims Continue Decline

WASHINGTON — The number of Americans filing new claims for unemployment benefits unexpectedly fell week, the latest indication the labor market recovery was gaining traction.

Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 332,000, the Labor Department said on Thursday. That was the third straight week of declines. Economists polled by Reuters had expected first-time applications last week to rise to 350,000.

The previous week’s figure was revised to show 2,000 more applications than previously reported.

The four-week moving average for new claims, a better measure of labor market trends, fell 2,750 to 346,750, the lowest level in five years, suggesting a firming in underlying labor market conditions.

The report follows news last week that nonfarm payrolls increased 236,000 in February, with the unemployment rate falling to a four-year low of 7.7 percent.

The sustained pace of steady job gains is starting to push up wages, which should support domestic demand. Though layoffs have ebbed, sluggish domestic demand has made companies cautious about ramping up hiring.

A government report on Tuesday showed layoffs in January were the fewest since 2000. The signs of strength in the labor market could intensify the debate at the Federal Reserve on the future course of monetary policy.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 89,000 to 3.02 million in the week ended March 2. The so-called continuing claims were at their lowest level since June 2008.

Separately, the Labor Department said Thursday that producer prices in February rose by the most in five months, but there was little sign of a broader increase in inflation pressures.

The seasonally adjusted Producer Price Index increased 0.7 percent last month after advancing 0.2 percent in January, the government said. The rise in prices received by farms, factories and refineries was in line with economists’ expectations.

However, underlying inflation pressures remained contained, with wholesale prices excluding volatile food and energy costs rising 0.2 percent after a similar advance in January. The so-called core index had been expected to rise 0.2 percent last month.

Article source: http://www.nytimes.com/2013/03/15/business/economy/jobless-claims-continue-decline.html?partner=rss&emc=rss