201606.27
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Money Market Illiquidity Further Removes A Central Myth

It might be expected that monetary policy would fail to achieve its goal in attempting to manage the economy when it cannot even meet its own basic technical requirements. The main lever of Fed policy continues to be the federal funds rate even though it is entirely irrelevant, and has been for a long time….

201606.27
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Sector Snapshot: Defensive Sectors Take The Lead

Even before the Brexit vote, momentum was shifting to defensive sectors. The rally in weak dollar sectors – other than the gold/silver mining industry – was looking very overbought and tired anyway, so Brexit was a good excuse to take some profits. Whether the dollar can retain the strength it has gained on this historic…

201606.27
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Politics of the Monetary Noose

In June 2015, Pew Research Center conducted a poll of citizens in European countries in order to gauge public sentiment of the European integration project. They found what they thought was a rebound in favorability. The survey conducted in 2013 appeared then to have been the low point, with the 2014 update finding an uptick…

201606.27
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Liquidity And Risk

The real nature of liquidity is not what you see today but what we might find when the going gets tough. Though it is an intangible concept (not that that hasn’t kept economists from trying to quantify it), we can reasonably assume that if overall liquidity today appears impaired under relatively benign conditions, it will…

201606.26
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Bi-Weekly Economic Review

Economic Reports Scorecard While everyone was focused on the potentially negative impact of Brexit, the Census Bureau was reporting evidence of actual economic weakness in the form of the durable goods report. The report was weak pretty much across the board but the weakness in autos is particularly concerning. The auto industry, along with construction,…

201606.24
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Durable Goods Add To The Idea of Depression (Small ‘d’)

There wasn’t anything new or surprising in the advance durable goods report. Shipments (ex transportation) were flat and orders were up 1% year-over-year (NSA). Capital goods (non-defense, ex aircraft) shipments fell 3.4%, the tenth straight month of contraction, while new orders were down again (2.6%) for the sixteenth time out of the past nineteen months….

201606.24
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Back To Our Regularly Scheduled Programming (UPDATED)

It was a nice diversion while it lasted, I suppose. From the moment of the unfortunate murder of the British MP, funding markets, in particular, had been furiously “selling dollars” to get back some of the pound that was falling as Brexit had gained momentum. Media commentary talks about it as if that were the…

201606.24
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Secular Stagnation Is Eurodollar Stagnation

Last week, the St. Louis Fed published an article based on a speech that Dr. Larry Summers gave to the Homer Jones Memorial Lecture series back in April. The article included the full text of Summers’ speech and importantly the supporting material and evidence he used in his argument for “secular stagnation.” Included is one…

201606.23
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What Current Interest Rates Really Mean

On June 14, the 10-year German bund yield traded briefly below zero for the first time. It was an inauspicious record but one that defines the contradictions at the center of all this economic and monetary controversy. On the one hand, that is what central banks tell us they are after especially with QE, to…

201606.22
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The Full Measure of Slack

Near the start of her tenure, Janet Yellen in a speech given on April 16, 2014, at the Economic Club of New York declared monetary policy concerned with three big factors. The first was inflation and whether or not it was moving back to the 2% target, even though by then it had been almost…

201606.22
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Waiting For Earnings To Correct? Q1 And Forward EPS Update

EPS estimates are always in the practice of falling over time, so that natural process should be considered when comparing across the movement of the calendar. That said, however, earnings continue to defy projections of a rebound. This is not to say that analysts aren’t expecting one, only that the expectation keeps pushing further out…