Commentaries

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from Rolfe Winkler:

Lunchtime Links 1-8

Bank regulators issue interest rate advisory (FFIEC) This may sound boring, but it's rather important. The FFIEC -- a collection of bank regulators including FDIC, OCC, the Fed, OTS and NCUA -- hasn't issued such a warning since 1996. It wants banks to make sure they can handle rising interest rates....which seems to me a HUGE disincentive to lend. 5% mortgages originated today will lose mucho value as rates go back up. This is a huge reason banks "aren't lending," because up is the only direction for rates to go!

Employers unexpectedly cut jobs in December (Mutikani, Reuters) The jobs report is an important catalyst for the dollar and gold. If the employment situation improves, it will be easier for the Fed to tighten (good for dollar, bad for gold). If unemployment stays high, the Fed will keep rates low indefinitely and likely keep printing money to buy assets (bad for dollar, good for gold).

U.S. now renter's market (Timiraos, WSJ) Hooray for deflation! As I'm fond of reminding folks, rents midtown west neighborhood of Manhattan crashed over 20% last year. That's oodles of spending power freed up to pay for other things. Yes, it's probablematic for landlords and the banks to which they owe money. But it's good for the economy overall. Letting house prices fall will have a similar stimulative impact.

Why does it feel worse than reported? (EconomPic Data) Comparing Gross Domestic Product with Gross Domestic Purchases demonstrates how we lived beyond our means for so long and why getting back to equilibrium feels so painful.

from Rolfe Winkler:

Lunchtime Links 12-8

(Reader note: still working on the bugs....please click "continue reading" to see all the links)

Banks, U.S. spar over TARP repayment (David Enrich) This is the kind of thing that gives me a better feeling about Tim Geithner and Ben Bernanke. They are hammering banks to raise equity capital to get out of TARP. They have leverage and are using it productively, forcing bank shareholders to eat losses via dilution so that balance sheets are more stable. Great! Stick to your guns guys!

from Rolfe Winkler:

Video: The unemployment game show

A clever way to explain the difference between U-3 and U-6. From Mint.com.

from Rolfe Winkler:

Rosenberg: Unemployment headed to 12-13%….

...but that doesn't mean the overall employment picture will get a lot worse.

From today's "Breakfast with Dave" e-mail:

There are serious structural issues undermining the U.S. labour market as companies continue to adjust their order books, production schedules and staffing requirements to a semi-permanently impaired credit backdrop. The bottom line is that the level of credit per unit of GDP is going to be much, much lower in the future than has been the case in the last two decades. While we may be getting close to a bottom in terms of employment, the jobless rate is very likely going to be climbing much further in the future due to the secular dynamics within the labour market.

But in a nutshell, to be calling for a 12.0-13.0% unemployment rate is meaningless except that it is very likely going to be a headline grabber. The most inclusive definition of them all, the U6 measure of the unemployment rate, which includes all forms of unemployed and underemployed, is already at 17.5%. The posted U3 jobless rate that everyone focuses on is at 10.2% (though if it weren’t for the drop in the labour force participation rate, to 65.1% from 66.0% a year ago, the unemployment rate would be testing the post-WWII high of 10.8% right now). The gap between the U6 and the official U3 rate is at a record 7.3 percentage points. Normally this spread is between 3-4 percentage points and ultimately we will see a reversion to the mean, to some unhappy middle where the U6 may be closer to 15.0-16.0% and the posted jobless rate closer to 12%. This will undoubtedly be a major political issue, especially in the context of a mid-term elections and the GOP starting to gain some electoral ground.

Higher NAIRU doesn’t equal higher interest rates

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Goldman Sachs analyst Peter Berezin is jumping into the debate about the impact of a rising NAIRU – a measure of unemployment equilibrium. Felix Salmon posted on it here back on Sept. 29 and quoted PIMCO’s Mohamed El-Erian saying that 7% seems “reasonable.”

Berezin notes that the CBO estimates NAIRU at 4.8%. If it increases to the 5.8% used in the early 1990s, it still wouldn’t have a meaningful impact on the Fed’s monetary policy, which is why people care about NAIRU in the first place.  Berein says a 1 percentage point jump in NAIRU should lead to a corresponding 2 percentage point increase in the Fed funds rate.  That would take the so-called optimal fed funds rate (which takes into consideration the extraordinary measures like quantitative easing) to -3.5% from -5.5%. Even using El-Erian’s “reasonable” 7% level would still keep the optimal fed funds in the negative.

Free-trade advocates need to get real

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President Barack Obama’s decision to impose safeguard tariffs on imported tyres from China has drawn predictable howls of outrage from economists, think tank staff and editorial writers — none of whom has seen their job exported to China. It would be more constructive if they devoted the same effort to devising ways to compensate losers from globalisation in order to shore up waning public support for trade liberalisation.
Between 2000 and 2008, almost 4 million jobs were lost in U.S. manufacturing (22 percent of the total), many as the result of offshoring and increasing competition from lower-cost manufacturers in China and elsewhere in Asia.

Over the same period, the federal government provided just $1 billion per year in extended unemployment benefits and retraining under the Trade Adjustment Assistance (TAA) programme. In the fiscal year ending September 2008, TAA helped fewer than 100,000 workers who had lost jobs as a result of changing trade patterns.

Santander’s debt buy-back not necessarily a flop

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Santander’s attempt to buy back 16.5 billion euros of asset-backed debt looks, at first glance like a bit of a flop: in the end investors only sold about 600 million euros of bonds by face value to the bank.

However, the result is not that surprising, for several reasons.

First, 16.5 billion euros was always a long shot. We don’t really know how much of the debt Santander had previously acquired in one-off trades in the secondary market, making it hard to say how much it could have bought back this time.

Job declines slow, but unemployment rate jumps

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The Labor Department’s August report on the jobs market has a bit of a good news/bad news slant to it. Job cuts slowed to “just” 216K, below expectations and better than last month’s 276K (up from the originally reproted 247K). But the unemployment rate, which is calculated through a distinct survey of households rather than businesses, jumped to 9.7% from 9.4% the previous month. You’ll remember that a slide back in July made some hopeful that maybe, just maybe, joblessness has stabilized.

Still, the market doesn’t seem to be too worried, at least for the moment as Treasury yields head north. The benchmark 10-Yr note has inched up about 2BPs to 3.39% since the report hit the wires.

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