Rinsing the "Spin" Out of the News Cycle
by Rob Kirby, Kirby Analytics. July 30, 2007
What a world we live in, eh? Interesting times. In an increasingly wired world, we all suffer from information overload, don't we? Sometimes it seems "where to consume one's news" is just as important as the content. Isn't it amazing how two news gathering organizations can "cover" the same story or event and leave the consuming public with such subtly different impressions?
Sometimes the differences in coverage are "GLARING" - other times, more subtle.
Last week, for example, Bloomberg's John M. Berry produced a piece contrasting the "political nuances" of Federal Reserve against those of the European Central Bank. Interesting stuff if you are so inclined. But a subtly included passage in this piece made my blood boil. The offending passage is in red:
July 23 (Bloomberg) -- Contrasts between the Federal Reserve and the European Central Bank are striking, and not just because the ECB has raised interest rates five times in the past year while the Fed has been on hold.
Last week, for instance, Fed Chairman Ben S. Bernanke was questioned at two hearings by dozens of members of Congress who, should they choose, have the power to give him and his colleagues marching orders on monetary policy. The Fed, after all, is part of the congressional branch of the U.S. government...
For those of you who may not know the difference, the Federal Reserve is no more "federal" than Federal Express. The Federal Reserve is a PRIVATE corporation which has been granted a monopoly to produce the nation's currency out of thin air.
It is irresponsible journalism that Bloomberg News has allowed this blatant falsehood to make it into print.
From Needed Retraction To Ongoing Contraction?
Sub-prime woes have continued to make news over the past fortnight. Getting an accurate read on the seriousness of this developing situation also seems to depend on who you believe or listen to. Officialdom tends to characterize the situation in more sanguine terms like Mr. Bernanke's reference to,
Subprime 'bumps' in the road
Other astute market watchers like PIMCO's Bill Gross and The Hat Trick Letter's Dr. Jim Willie view the developing situation a little more ominously.
Whatever the situation really is, we KNOW for a fact that the Federal Reserve has been increasingly providing liquidity in both the Mortgaged Backed and Agency Bond arenas in recent weeks.
We can empirically view the types of collateral being engaged in the Fed's Temporary Open Market Operations in data provided by the Federal Reserve Bank of New York. Last Friday's 7+ Billion in Mortgaged Backed Repos are illustrated below. By scrolling through even the last 25 Temporary Open Market Operations, one can see for themselves that Repos of this collateral type - along with Agency Debt [Fannie Mae and Freddie Mac] have demonstrably and increasingly become more-the-norm in recent days and weeks.
Deal Date: Friday, July 27, 2007
Delivery Date: Friday, July 27, 2007
Maturity Date: Monday, July 30, 2007
Type of Operation1: Repo
Settlement: Same Day
Term of Operation2: 3 Days
Operation Close Time: 09:40 AM
| Results | Amount ($B) | Rate (%) | ||||
| Collateral Type | Submitted | Accepted | Stop-Out3 | Weighted Average4 | High | Low |
| Treasury | 15.100 | 0.118 | 5.19 | 5.190 | 5.19 | 5.13 |
| Agency | 20.000 | 0.000 | N/A | N/A | 5.28 | 5.22 |
| Mortgage-Backed | 19.450 | 7.132 | 5.31 | 5.310 | 5.31 | 5.25 |
| Total | 54.550 | 7.250 | ||||
While such actions on the part of the Federal Reserve do not necessarily imply impending doom - the targeted liquidity injections are highly suggestive of squeaky wheels [or systemic stress, perhaps?] in Mortgaged Backed and Agency bond-land.
Additionally, while it has been widely publicized that corporate spreads [the rate expressed in basis points over corresponding Treasury Bond yields that corporate borrowers pay to borrow money] have widened in recent weeks - it is also true that the mitigating effect of lower Treasury Bond interest rates have served to somewhat "offset" the higher spreads.
We can visually observe the higher prices being paid for benchmark U.S. 30 yr. bonds [remember that bond prices and yields are negatively correlated] over the course of the past few weeks:
So while the Fed may speak of the economy in relatively sanguine terms, their recent actions have provided targeted liquidity injections while a "flight to perceived credit quality" process has already done some "heavy lifting" in providing near-term interest rate relief.
Today's Market
Overseas equity markets began the week on a dull note with Japan's Nikkei Index eking out a 5 point gain to 17,289. Meanwhile, North American markets firmed up nicely with the DOW ahead 92.8 to 13,358.30, the NASDAQ up 21.04 to 2,583.28 and the S & P adding 14.95 to 1,473.90. NYMEX crude oil futures lost .33 to close at 76.69 per barrel.
On foreign exchange markets the U.S. Dollar Index shed .14 to 80.67.
Interest rates were about 3 basis points higher across the curve with the benchmark 5 yr. bond ending the day at 4.64% and the 10 yr. bond ending the day at 4.81%.
The precious metals complex was higher across the board with COMEX gold futures advancing 4.70 to 665.70 per ounce while COMEX silver futures gained .22 to close at 12.92 per ounce. The XAU Index added 4.98 to 149.79 and the HUI gained 9.43 to 347.43.
On tap for tomorrow, at 8:30 a.m. June Personal Income data is due, expected .5% vs. prior .4%. Also at 8:30 a.m. June Personal Spending data, expected .1% vs. prior .5%. June Core PCE Inflation data is also due out 8:30 a.m. – expected .1% vs. prior .1%. Also at 8:30 a.m. Q2 Employment Cost Index data is due – expected .9% vs. prior .8%. At 9:45 a.m. the July Chicago PMI [Purchasing Managers Index] is due to be released – expected 59.5 vs. prior 60.2. Then at 10:00 a.m. June Construction Spending data is due, expected -.1% vs. prior +.9%. And lastly, at 10:00 a.m. July Consumer Confidence data is due, expected 109.0 vs. prior 103.9.
Wishing you all clear thinking, successful investing and a very pleasant evening.
Rob Kirby
© 2007 Rob Kirby
Contact Information
Rob Kirby | Proprietor, Kirby Analytics Newsletter - Proprietary Macroeconomic Research
Toronto, Ontario, Canada | Observations | FSU Editorials | E-mail
