October 25, 2020

Data Points: What the Nation Got for $800 Billion

This raises an intriguing question: What did the United States get for all that money?

Like previous rounds of quantitative easing, the goals for QE3 included reducing long-term rates, in that way bolstering lending, housing and employment. Those are big tasks, especially with Congress cutting spending. And there have been improvements, both during earlier rounds and during QE3. Since September, housing and employment have strengthened somewhat, and long-term rates fell for a while. Now, though, rates are actually higher than when QE3 began.

“Data are quite mixed on whether we’ve seen an expansion of lending,” said Catherine L. Mann, Rosenberg professor of global finance at Brandeis. Lending has increased for cars and commercial property, she says, but not for small business. New mortgage origination for housing remains weak. Meanwhile, the Fed’s outsize presence in the markets for Treasuries and mortgage-backed securities may have changed those markets in ways no one can predict.

QE3 was intended to make riskier assets like stocks more appealing. And stocks, which are predominantly owned by the wealthy, have risen in price. As a Bank of England study has shown, quantitative easing disproportionately benefits those who are already well off.

The Fed had other options. It could have put cash directly into the hands of consumers who needed it. Under the Federal Reserve Act, it can print and lend any amount of money for any length of time to any person or entity, as long as it is satisfied that it is likely to be repaid. With $800 billion, for example, the Fed could have given every homeowner in the country a $10,000 loan at a near-zero rate of interest. Think of what that might have done for the economy.

Source: Federal Reserve

Article source: http://www.nytimes.com/2013/08/04/business/what-the-nation-got-for-800-billion.html?partner=rss&emc=rss

Bits: Google to Start a Cloud-Based Music Player

A month after Amazon angered music labels by starting a cloud-based music player without their cooperation, Google is doing the same thing.

Google plans to introduce its long-awaited cloud music player Tuesday at Google I/O, its developers conference in San Francisco. The service, which it calls Music Beta by Google, will let people upload their music collections to the Internet and listen to the songs on Android phones or tablets and on computers.

Google does not have licenses from the music labels, even though it has been negotiating with them for months to team up on a cloud service. As a result, users of Google’s service cannot do certain things that would legally require licenses, like sharing songs with friends and buying songs from Google.

“A couple of major labels were not as collaborative and frankly were demanding a set of business terms that were unreasonable and did not allow us to build a product or a business on a sustainable business,” said Jamie Rosenberg, director of digital content for Android. “So we’re not necessarily relying on the partnerships that have proven difficult.”

Article source: http://feeds.nytimes.com/click.phdo?i=2a03c9240265475b74faec12e9a43337

Strategies: The Wall of Worry Has Never Looked So High

Richard Bernstein, who was chief investment strategist for Merrill Lynch until April 2009, says he’s never seen anything quite like it. “This cycle is the biggest wall of worry I have ever seen or will ever see in my entire career,” he said last week, in the offices of the investment advisory firm he now runs in Manhattan.

The stock market’s 80 percent rise since March 2009 has been one of the greatest bull runs in history, he says, and while the American economy has its problems, it is clearly strengthening and corporate profits are rising. Yet anxiety about the American market is profound, he says, and many investors have been avoiding American stocks, pouring money into emerging market stocks and bonds instead. That makes no sense to Mr. Bernstein, a longtime bear who turned resolutely bullish in July 2009.

“It seems no one wants to believe in the stock market in the United States,” he said. “People don’t accept that the American economy may actually be strengthening. And they go for emerging markets, which are wildly overpriced. What in the world is going on here?”

Even now, he says, many American investors are disillusioned. There has been too much pain from the financial crisis, a severe bear market and lingering recession. Traders are unusually skittish, and, as I wrote recently, markets globally have become increasingly synchronized and volatile, with “risk on, risk off” trades overwhelming all other approaches.

Investors are certainly nervous. But is this a very steep wall of worry — a classic barrier that will be surmounted as the bull market continues? Or is it something else — a vast universe of pain that will only get worse as a bear market takes hold? David A. Rosenberg, formerly chief economist at Merrill Lynch, takes the bleaker view.

Now based in Toronto with Gluskin, Sheff, he agrees that equities in many emerging markets are overpriced. Still ferociously bearish, Mr. Rosenberg parts with his erstwhile colleague in much of the rest of his analysis. “I have great respect for Rich Bernstein, and I tip my hat to him for making that early bullish call,” Mr. Rosenberg said. “But I think that people who are still bullish right now will be in for a very big surprise.”

In a telephone conversation on Wednesday evening, Mr. Rosenberg said that the boom in the American stock market was largely caused by the “radically” expansionary monetary policy of the Federal Reserve. The Fed’s current program of “quantitative easing” — its second bout of purchases of Treasuries and other securities, known as QE2 — is scheduled to end in June.

“There’s no political support” for an extension, he said, but if the Fed ends its asset purchases, “it will be a very big deal — a bad one — for the equity markets.” Furthermore, budget cutting at the state and local level is sucking air out of the economy, and that’s likely to be accompanied by federal budget cuts, he said, with Republicans in Congress vying with President Obama to reverse the explosive growth in government debt over the last several years.

Mr. Rosenberg ticks off other “pernicious headwinds,” including geopolitical risk in the Middle East and North Africa, “acute risk of sovereign debt default” in Europe, surging oil and food prices, the battered housing market and a very tepid economic recovery “that has needed to be propped up by the Fed. “

While Mr. Rosenberg’s relentless bearishness is a minority view, many economists and strategists on Wall Street agree with aspects of it. A survey by Blue Chip Economic Indicators issued on April 10 found that economists on average had downgraded their estimates for real G.D.P. growth in the United States in 2011 to 2.9 percent, down from 3.1 percent only one month earlier. At the moment, they project growth of 3.2 percent for 2012. These are low numbers for an economy rebounding from a recession.

On the other hand, the consensus among Wall Street strategists is bullish: the Standard Poor’s 500-stock index will approach 1,500 within 12 months, according to a Bloomberg News analysis of price estimates for the index’s underlying components. That would be about a 14 percent increase over its current level.

Corporate profits are buttressing these projections. The earnings season for the first quarter began last week, and Michael Thompson, an S. P. managing director, says it will probably be the sixth consecutive quarter of double-digit earnings growth for S. P. 500 companies. Wall Street analysts expect a 12.2 percent increase over the same quarter in 2010, according to S. P.’s Capital IQ unit. Mr. Thompson said he was “guardedly optimistic,” despite rising energy prices.

The richer price of oil over the last several months — it has declined a bit since April 8 — has actually had a positive effect on corporate earnings so far, said Kevin Gardiner, head of global investment strategy for Barclays Wealth. That’s because energy companies, which have profited from the increase, account for a large share of major stock market indexes, while heavy users of energy are relatively small components.

Of course, if energy prices were to seriously crimp consumer spending — and derail the economic recovery — the implications would be very serious, Mr. Thompson said, but that isn’t happening so far. In fact, he said, “consumer spending is actually very strong.” Despite high unemployment in the United States, consumer discretionary companies are doing quite well, suggesting that spending by individuals is helping to propel a “self-sustaining” recovery, he said.

FOR his part, Mr. Bernstein readily concedes that on an “absolute” basis, the picture is hardly perfect, but he says the critical question for the markets is whether the trend is positive or negative. He’s convinced that prospects for American companies are quite bright, and expects that investors will grudgingly climb that wall of worry, moving the markets higher. He advises embracing risk in the American market in a big way. For a global mutual fund he runs for Eaton Vance, he is placing large bets on small-cap growth stocks in the United States.

“They’ll give you the best return when the market is going up,” he said. “And I think it’s going to go up.”  

Article source: http://feeds.nytimes.com/click.phdo?i=9c31cdcf9fc646c6d43828e6cfe7d8ec