MacroScope

from Sebastian Tong:

Stop pushing and we’ll do it

The growing acrimony in the international debate over China's currency policy has led some to warn that Beijing could dig in its heels if pushed to hard to let its yuan rise. crybaby

But Barclays Capital says Beijing could let its currency strengthen as early as next month, notwithstanding its public resolve against Washington's threat to label it as a currency manipulator.

"They do have a 'If you stop pushing, we'll do it' attitude, which is kind of childish, really. But it will happen because they are the only country in the world, besides India, where there is a whiff of inflation," says Barclays' asset allocation head Tim Bond.

"It's in their own interest. It's the right thing to do."

Barclays expects the relaxation of China's de facto dollar peg to result in the equivalent of a five percent annual appreciation over the next year.

Investors should also keep the heightened rhetoric among U.S. lawmakers in perspective, Bond says.

Inflation Fears, Sputtering Wages

Inflation may not be at the forefront of worries about economy for now, but it’s certainly in the back of many investors’ minds. Not that anyone thinks price increases will be reinforced by the labor market, as per the old “wage-push” theory. A new report from the International Labor Organization showed that wage growth continued to decline around the world in 2008, falling to 1.4 percent last year from 4.3 percent in 2007. The UN group also suggested things have gotten worse this year.

The picture on wages is likely to get worse in 2009 – despite the beginning of a possible economic recovery.   Compared to the annual average of 2008, the real wages in the first quarter of 2009 fell in more than half of the 35 countries for which recent data is available.   The downward trend in wages raises some questions about the extent to which the consumption of workers and their families will be able to sustain aggregate demand for economic production once the effects of government rescue packages peter out.

This trend has not, however, succeeded in calming those spooked by unprecedented monetary and fiscal stimulus from governments and central banks around the world. Indeed, inflation-hedging is creating market niches all of its own. The Treasury, for instance, is expected to bring back 30-year Treasury Inflation Protected Securities, or TIPS, as part of its quarterly refunding announcement on Wednesday. Gorge Goncalves at Cantor Fitzgerald notes:

Uncle Sam Wants YOU: To Help Pay Off His Debts

Worried about the growing debt? You can help. In a little-known cranny of the Treasury’s website, the government asks for the help of everyday Americans in repaying the total public debt, which it tallies at a startling $11.3 trillion (or 80 percent of GDP).

In a section called “Debt to the Penny and Who Holds It,” Uncle Sam provides advice for those looking for the tip jar.

“How do you make a contribution to reduce the debt? Make your check payable to the Bureau of the Public Debt, and in the memo section, notate that it is a Gift to reduce the Debt Held by the Public.”

Bazooka Ben Bernanke?

You’ve heard of Helicopter Ben Bernanke. What about Bazooka Ben? Barclays Capital strategist Michael Pond thinks it’s time for the Federal Reserve to pull out the really big guns and announce it will buy $1 trillion in U.S. Treasury debt in order to counteract a recent jump in Treasury and mortgage interest rates.

The Fed has already said it would buy up to $300 billion, but this week’s bond market drama suggests that investors are beginning to worry that this isn’t enough.

“We tongue-in-cheek believe that the Fed needs to take the approach from former Treasury Secretary Paulson’s quote at a July 15 Senate Banking Committee meeting that ‘if you have a bazooka in your pocket and people know it, you probably won’t have to use it,’” Pond wrote in a note to clients. “While this didn’t work for Secretary Paulson, as he eventually had to use that bazooka and more, the Fed should try to come up with a big enough number that the threat of that purchasing power alone will be enough to keep rates low. For now, we believe that number is $1 trillion and recommend that the Fed make an announcement soon, rather than wait for its June 24 meeting.”  

from Photographers' Blog:

Tim Geithner : What’s In Your Wallet?

What's in U.S. Treasury Secretary Timothy Geithner's wallet? Not much.

While testifying in front of a House Appropriations Subcommittee on Capitol Hill Thursday Geithner was shown a $50 Billion Zimbabwean bank note (rendered worthless by Zimbabwe's hyperinflation) by U.S. Representative John Culberson (R- TX) and asked if he had ever seen one himself. Geithner immediately pulled a piece of Zimbabwean currency out of his own pocket and showed it off to the committee. At the next break in the hearing I approached Geithner and asked how he happened to have a piece of foreign currency in his pocket. His response was "I often have some foreign currency in my wallet. Want to see?" He pulled a very thin and mostly empty wallet from his pocket.

Amongst many empty slots in the thin weathered leather wallet there could be seen three credit or debit cards with Visa and Mastercard logos (all inserted into the wallet upside down so that the card issuers could not be seen) and an old and yellowed looking identification card of indeterminate origin.

From inside the wallet Geithner extracted a small pile of receipts and paper including a New York City MTA farecard, pointing out that there were European Euros tucked amongst the paper.

Wall Street ‘yes,’ economists ‘no’ — what’s your call?

U.S. President Barack Obama receives a daily economic briefing in the Roosevelt Room of the White House in Washington, March 23, 2009. Chairman of the Council of Economic Advisers Christina Romer (L) and U.S. Treasury Secretary Timothy (C) Geithner are also pictured. REUTERS/Larry Downing (UNITED STATES POLITICS BUSINESS)The Obama Administration’s toxic asset plan got rave reviews from Wall Street yesterday, but not so much from a few Nobel-prize winning economists.

Economists Joseph Stiglitz and Paul Krugman separately blasted the plan. Stiglitz told Reuters that the plan will rob taxpayers by exposing them to too much risk and is unlikely to work as long as the economy remains weak.

“The Geithner plan is very badly flawed,” Stiglitz said. “Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

A new hope?

Maybe, just maybe.

While it’s way too soon to sound the all clear, analysts see some cause for optimism behind the latest government effort to restore credit markets to working order. All it took was another $800 billion.

It’s no quick fix, but by backing consumer lending, the U.S. Federal Reserve and Treasury Department are concentrating on the most important segment of the U.S. economy. Gary Balter, a retail sector analyst with Credit Suisse, summed up his assessment in a one-word headline: “Finally.”

“The steps being taken today may slow the bleeding but more job losses will occur into next year. We do not see an escape from that. However, what has changed on the margin in the last two days is that the government is doing what needs to be done to unfreeze the credit markets, which points to hope and a potential bottom to the economic issues in 2009. As we show inside and is well known, there is a very high correlation of consumer spending with availability of credit.”

Beverly Hills, 9021-owe?

Anyone up for a $395 million Rodeo Drive shopping spree? 

Apparently the latest recipient of U.S. Treasury cash is the City National Bank in posh Beverly Hills.  According to the Los Angeles Times, the bank is taking part in the government’s $250 billion cash infusion and made no promises about how it would use the $395 million it’s getting.

The government funding “clearly enhances our financial capacity to make acquisitions and … to lend to a larger degree,” Russell Goldsmith, chief executive of City National Corp, told the newspaper.

About 20 banks are expected to announce soon that they’re getting government cash in exchange for preferred shares. Some members of Congress have complained that Treasury is handing over the money with too few strings attached, and they want stricter rules on how the banks must use the money.