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http://quotes.ino.com/chart/?s=NYBOT_DXY0Last trade 87.39 Change +0.08 (+0.09%)CLJ4 Light Sweet Crude Oil Apr (NYMEX) 36.16related articles: http://story.news.yahoo.com/news?tmpl=story&cid=568&e=17&u=/nm/column_stocks_week_dcWill Dollar Buy Another Rally for Stocks?Sat Feb 28, 8:25 AM ET By Dick Satran NEW YORK (Reuters) - Wall Street's secret weapon last year was a declining dollar, which provided extra firepower to nudge corporate earnings higher when a shaky recovery was just getting under way.
Officially, Washington always supports a strong dollar. The dirty little secret, though, is that U.S. policy makers love to see it drop like it did last year, since this bolsters exports and boosts corporate profits -- both of which help American stocks.
But now that the currency is rising in value, will U.S. stocks go the opposite way?
Not necessarily, say market strategists. Indeed, some see the greenback's recovery benefiting stocks at this point. A more stable dollar could buy more time for an equities rally, now well into its second year, by enticing foreign investors who have been sitting on the sidelines, they say. It could also dampen growing fears of inflation by reducing the cost of dollar-denominated commodities like oil and copper and help prevent a rise in interest rates.
"It would be a problem if the dollar really started a strong rally," said Milton Ezrati of Lord Abbett and Co. "But if it simply holds where it is, that would probably be the best possible outcome for financial markets."
In the latest week, stocks have risen slightly, as the dollar climbed to its highest in a month, dropping the euro to $1.24. Last week, the euro hit its all-time high of $1.29 versus the dollar, capping a rise of 57 percent from October 2000.
BOTTOM FOR DOLLAR
While the conventional wisdom is that the dollar could go still lower, some forecasters are saying the currency might be set to hit bottom soon. It's nearing historic trend lines at which it starts to reverse course. But what, if anything, would a strong dollar recovery mean for U.S. equites?
"It's hard to show just how much impact the dollar has on equities," says Avi Nachmany, director of research at Strategic Insights, a research firm that tracks fund flows.
But he adds that "you can see its impact on the flip-side." While the dollar was falling to new lows in recent months "there has been a dramatic acceleration of demand for international investments from U.S. fund investors."
In January, with the dollar hitting new lows, U.S. investors were socking cash into foreign funds at the highest level in years, Nachmany said. Some $16 billion went into global funds in January alone, out of a total $60 billion for all equity and "balanced" bond-plus-stock funds.
A recovery of the dollar, at least, might stanch the flow of money into foreign markets and possibly attract some foreign capital into U.S. markets, Nachmany said.
The biggest concern for the equity markets, though, is corporate earnings and interest rates, said Drew Matus, U.S. financial markets economist for Lehman Brothers. The dollar is only a secondary concern. The market this week was more influenced by the talk of a European rate cut than the fact that the euro was declining against the dollar.
...more...http://www.businessreport.co.za/index.php?fSectionId=552&fArticleId=361067Why, Mr Greenspan, are you holding government to higher debt standards than Joe Soap? It has been debt week for Alan Greenspan, the steward of US monetary policy.
On Monday, Greenspan dismissed the idea that households had taken on too much debt. On Tuesday, Greenspan said mortgage giants Fannie Mae and Freddie Mac had taken on too much debt, growing their balance sheets at a pace inconsistent with "systemic safety".
On Wednesday, Greenspan said the federal government was in deep sneakers unless it did something about deficit spending and debt, which would explode as the baby boomers started to retire.
Clearly what's good for the goose is not good for the gander. As long as households could service the debt, leverage did not matter, he said.
For the federal government, different rules applied. Deficits mattered because they sapped savings from "private capital formation and thus over time slow the growth of living standards", Greenspan told the house of representatives' budget committee on Wednesday.
Is Greenspan being too cavalier about household debt or just being disingenuous because his interest rate policies have triggered a borrowing binge?
US households continue to borrow at a brisk rate, enticed by rock-bottom interest rates and rising prices on their primary assets, their homes. The proportion of debt payments as a share of disposable personal income stood at 13.3 percent in the second quarter (the latest data available), little changed from the previous five quarters.
The ratio of broader financial obligations, which includes insurance payments, rents and property taxes, has edged lower from a high of 18.71 percent in the fourth quarter of 2001 to 18.09 percent in the second quarter of 2003.
Following the 1990 and 1991 recession, both ratios plummeted, along with interest rates . The federal government has benefited from the same decline in interest rates, which has reduced its net interest expense. Here, Greenspan's maths for households does not apply.
"The ratio of federal debt held by the public to gross domestic product has already stopped falling and has even edged up in the past couple of years - implying a worsening of the starting point from which policy makers will have to address the adverse budgetary implications of an ageing population and rising healthcare costs," Greenspan said on Wednesday.
What about the treasury's ability to service its debt? Its net interest expense has plummeted from a record $244 billion (R1.615 trillion) in fiscal 1998 to $153 billion in 2003. As a share of GDP, net interest peaked at 3.3 percent in 1990, falling to a 30-year low of 1.4 percent last year.
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Greenspan's solution for Fannie Mae and Freddie Mac, which are government-sponsored enterprises, is to limit the debt they issue and the assets they buy. Because of their sheer size (they guarantee more than three- quarters of the single-family mortgages in the US) and implicit government guarantee, the two mortgage giants are viewed as too big to fail, which means the taxpayer is on the hook if they do.
Households don't have the same luxury. When they get into trouble, no one bails them out. So why is it, Mr Greenspan, that households don't have to worry about total debt, and the federal government can't fall back on the same debt service ratios you advocate for households? http://www.ctnow.com/business/hc-haar0229.artfeb29,1,3628611.column?coll=hc-headlines-businessFamily Debt Closer To Crisis Than Greenspan SuggestsFebruary 29, 2004 In large numbers, they find themselves in an embarrassing quandary, pouring out their woes to a lawyer adept at counseling, or a counselor adept at the law.
The typical family in a debt crisis will owe between $25,000 and $30,000 beyond their mortgage, spread over several credit cards and other sources. They'll have a mid- level income in the range of $50,000. If they're lucky, they've found a way to keep up with the house payments.
Most likely, they've faced down a pile of medical bills. Or they've lost a decent job and landed a poor one. Maybe they've had a nasty divorce.
Just a few years ago it was highly unusual to see a debtor such as that come in with $50,000 in credit card balances. Now, says Hartford bankruptcy lawyer Kenneth Shluger, who helps many families avoid filing in court, it's almost routine.
"I would say it's probably at a crisis more now than ever," Shluger said.
Don't tell that to Federal Reserve Chairman Alan Greenspan. On Monday, two days before he dropped his bombshell advising cuts in Social Security benefits, the great economic oracle delivered a rosy overview of the consumer debt picture. Despite rising levels of borrowing, he concluded, "Overall, the household sector seems to be in good shape."
Many wags have warned that rising household debt will lead to a collapse in spending, or even a breakdown of middle-class stability. Consumer and policy groups have sounded alarms that debt levels - which shot up in the `90s - are cause for concern for more than a few families. And it's not just those at the bottom of the income scale.
Greenspan's soothing words in his speech to the Credit Union National Association were taken as a signal to set those fears aside. Well, not so fast. At a time when personal bankruptcy filings have reached all-time highs, much of the concern is well justified.
It's unusual to say this, but Greenspan simply doesn't have the numbers to back up his statement. No one does. Family debt is a crucial gauge of how we're faring, but it's woefully under-measured and widely misunderstood.
Greenspan is technically right that, on the whole, incomes and asset values are rising enough to cover a mounting stack of family obligations, as interest rates stay low. The only reliable numbers out there are the ones that look at the big picture: total family debt, total income, the total number of loan defaults.
The trouble is that the folks with the healthy incomes and the assets aren't necessarily the ones with the debt. That's the small picture, the one that isn't clear from the numbers.
<snip>
To underplay families' financial stress as a major force in this economy is to ignore not just pockets of low-income people who find themselves under water, but also vast swatches of the middle class that have lost their ability to keep up.
"He's just literally making stuff up," said Dean Baker, co- director of the Center for Economic and Policy Research in Washington. "If there's ever been a time when consumers are facing a crunch, it's now."
Baker bases his allegation partly on the notion that house values - the asset that gives most families their borrowing power - are at a bubble about to burst, like stocks in early 2000. That's a scary argument for another day, but we know this much: Many families have tapped out the equity in their homes.
If house values drop, we're in deep trouble. And if typical families want to maintain current levels of spending, their incomes will have to rise faster than inflation - something that hasn't happened since 2000.
Even without a housing collapse, the overall numbers mask large numbers of people with rising, onerous debt burdens. The available data point the way, but the numbers don't prove an argument, either way. Anecdotes from people such as Shluger fill out the story.
The Federal Reserve Board, the agency charged with measuring family debt, does so in two ways. One is a quarterly report based on what the banks say. The other is a survey of households every three years. The last survey, in 2001, showed that debt burdens - the ratio of debt to income - fell between 1998 and 2001. That's exactly the opposite of what the quarterly reports showed.
No one - among all the chairman's horses and all the chairman's men and all the chairman's women - can explain this conflict.
<snip>
Speaking of credit cards, the all-important debt ratio - the measure Greenspan used to confer a clean bill of health on household finances - only includes minimum payments on credit card debt, not average monthly payments. If you pay the typical minimum every month on a $10,000 balance, at 18 percent interest, it will take you 56 years to check that debt off your list, according to a September 2003 report by Demos, a New York-based policy group.
Beyond that, there are all sorts of reasons that the measure of debt burdens doesn't show the full extent of the problem. With many home equities tapped out, families don't have a fallback anymore, but the number of layoffs keeps rising. So, even if they eventually find work, the number of families who suffer a debt shock may rise.
...more...http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1077690777355Alarm bells sound for Fannie and FreddieBy John Dizard in New York Published: February 29 2004 20:29 | Last Updated: February 29 2004 20:29 Ordinarily, Alan Greenspan's testimony to Congress gives Prozac serious competition for medicating the over-anxious.
Last week, though, the Federal Reserve chairman's warnings about Fannie Mae and Freddie Mac, the government sponsored enterprises, or "Sodom and Gomorrah", as one friend of mine calls them, came as something of a shock. He said that "we assess as likely if GSE expansion continues unabated".
Mr Greenspan's warning was accompanied by one from Gregory Mankiw, the chairman of the President's Council of Economic Advisors, who warned: "Even a small mistake in GSE risk management could have ripple effects throughout the economy."
What's most odd about these warnings is that they appeared to come out of the blue. Over the past two or three years there has been a stream of articles, speeches, conference calls, and tedious op-ed columns by people such as yours truly about the potential systemic risk posed by Fannie and Freddie.
Since Mr Greenspan is the master of acting hyper-political while posing as non- political, and since Mr Mankiw is on a very short leash held by the White House's political operators, one has to wonder the following: what do they know that we don't know?
Is some buttress in the financial system going to fail soon? Why are the pilot and co- pilot putting on their parachutes? Should we buy some more canned food and ammunition for the country house?
Not that I don't agree with everything both men said. They were entirely correct. However, there is no chance at all that there will be limits placed on housing finance in an election year. These are ass-covering memos.
There is also a red herring buried in Mr Mankiw's remarks. He said: "The charters do not require the federal government to bail out a troubled GSE." This is true. Furthermore, the GSEs themselves say they do not need a back-up federal bailout. Their derivatives book, they say, enormously reduces their risk from a rapid increase or decrease in interest rates.
Both statements are subtly deceptive because they don't identify the parts of the financial system that would truly be at risk in the event of a serious "rate shock".
I don't believe the GSEs will have to be rescued by the Fed in a crisis. Nope. The people who sold them protection will have to be bailed out and, sorry Mr Mankiw, but the Fed does have an obligation to take care of them.
<snip>
This function gives a "liquidity discount" to mortgage interest costs. What he doesn't like is their trillion dollar purchases of their own paper and the tiny equity bases on which they do that.
In the central banking equivalent of a scrawled insult on a bathroom wall, Fannie Mae publishes a series of Fannie Mae Papers, an "occasional series on policy issues". These pour contempt on warnings such as Mr Greenspan's. In one such paper from last October, one of Fannie's distinguished contributors, Christopher Culp, wrote about "myths" he cited as a "concern of central bankers" (no names, please). One was that "Fannie Mae's use of derivatives poses systemic risk". Mr Culp, the author of the recent Art of Risk Management, trivializes the risks imposed by the $811bn of notional derivative principal Fannie had on its books last June.
He does touch on Mr Greenspan's real concern: that the counterparties for those derivative contracts are too highly concentrated among a small number of securities houses and banks. But he does so only to dismiss the problem, writing that "these concerns play much more on fear than on any actual empirical evidence legitimating the concern".
<snip>
Mr Greenspan and Mr Mankiw don't think they'll have to bail out Fannie and Freddie. They think they'll have to bail out the half dozen largest swaps and derivatives dealers who are the big banks and investment dealers. In a rapidly rising interest rate environment, the "gamma", or the rate of the rate of increase in their hedging of their obligations to the GSEs, could, or, if you believe the chairman, will, require the Fed to act as the derivatives counterparty of last resort. The math tells him this could be seriously inflationary.
Why the warning now? Here's a thought: the GSEs' purchases of their own mortgage- based securities peaked last summer and have been gently declining since, reducing its requirements for derivatives purchases. However, Fannie has privately been telling bank fixed income securities analysts that they intend to start to increase their purchases, and to achieve double-digit portfolio growth for 2004.
...more...http://www.time.com/time/magazine/article/0,9171,1101040308-596167,00.htmlWhy He's MeanspanThe Fed Chairman ruffles feathers over Social Security By DANIEL KADLEC Sunday, Feb. 29, 2004 Alan Greenspan was on an irascible roll last week, first dissing everyone who holds a fixed-rate mortgage — suckers! — and later picking on folks who collect Social Security: Get back to work, Grandma. In between, the chairman of the Federal Reserve Board scolded the big mortgage firms Fannie Mae and Freddie Mac, which make homeowning more affordable, for taking too much risk. In a couple of days' work, Greenspan went through sacred cows like an overzealous Atkins dieter.
Greenspan's most jarring rant was his call for Social Security reform. He wants to cut future payouts and delay the age at which people can collect. He would shrink future checks by indexing annual adjustments to an inflation gauge that runs a half point below the Consumer Price Index now used. He didn't offer a new retirement age, but 70 is a nice round number. (He's 78.)
In this election year, Greenspan is trying to force both sides to deal with massive economic issues. Social Security is slowly going broke, and Congress has dodged reform for decades. If we don't act, he said, we will face "one of the most difficult fiscal situations" in our history. Blame our ballooning budget deficit, which should surpass $500 billion this year. Greenspan's message: If we wish to make Bush's recent tax cuts permanent, we can't afford to do it with deficits. So Social Security needs to take a hit.
...more...http://www.ctnow.com/news/opinion/op_ed/hc-ivins0301.artmar01,1,7163145.story?coll=hc-headlines-opedFannie And Freddie In CrisisMarch 1, 2004 Freddie Mac and Fannie Mae have gone and gotten themselves in big trouble. For those of you who do not follow the business pages, I only wish we were talking about pregnant teenagers. Fannie and Freddie are the two government-sponsored mortgage companies that help most of us buy homes. Trouble is, they've run themselves into big-time debt - they've doubled the amount they owe in just the last five years. When I say big- time, try $2 trillion. And guess who's on the hook if these things go under? Congratulations, taxpayers.
Last week, Alan Greenspan, the pooh-bah of the financial world, opined in his usual Delphic style before the Senate Banking Committee: "To fend off possible future systemic difficulties, which we assess as likely if the expansion continues unabated, preventive actions are required sooner rather than later." The Wall Street Journal helpfully translates this as "Act quickly." Hard to tell with Greenspan: I yield to the Journal's long experience in Greenspan translation, but it could also mean "Push the panic button now!"
What we have here is the same thing that happened after the famous S&L deregulation in the 1980s - privatized profit and socialized risk. You may recall that that little adventure in deregulation - the panacea, according to the right - cost the taxpayers half a trillion dollars.
Fannie and Freddie were created by Congress as private companies to encourage homeownership and - in theory, on paper - the taxpayers aren't responsible if they go bust. Unfortunately, the markets have always assumed Fannie and Freddie's debt was guaranteed by the U.S. government. Should they go under and the government not pay, that would cause financial collapse and chaos and probably worldwide depression, but try not to think about it too long.
For over a year now, Fannie and Freddie's pickle has been obvious, and the experts on the financial pages have been writing, "Do something."
The fiscal irresponsibility of this so-called CEO administration is a source of constant wonder. This potential financial crisis is racing toward us like a tidal wave, gaining strength as it comes. Are they actually going to stand there like Alfred E. Neuman, saying, "What, me worry?"
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Seems to me Fannie and Freddie's mess is the perfect argument for government regulation, and not just of the two giant mortgage companies. These GSE's (gobbledygook for "government-sponsored entities") have been hedging their debt risks through hedge funds, which are in turn almost entirely unregulated. Greenspan warns that Fannie and Freddie's debt could soon be larger than the federal government's. Think about it. Remember what happened when one large hedge fund, Long-Term Capital Management, started to go under? Oops.
<snip>
Congress has already failed in its oversight responsibilities by letting the companies get into this mess. The Center for Responsive Politics reports Fannie and Freddie contributed $6.5 million to federal campaigns in 2002. Fannie has hired 14 lobbying firms, and Freddie 26. They spent $9.7 million on lobbying in the first six months of last year. According to Ralph Nader (always a reliable source in these matters, no matter what his political judgment), "The board of directors on staff of Fannie and Freddie have always been populated by former officials and political activists from both the Republican and Democratic parties who are given huge pay packages."
...more...Good Morning Ozy and all the Marketeers! Have a great day at the roulette table! :hi:
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