Tuesday, August 17, 2010

Economic Events of the Week

Tuesday – Housing Starts, Producer Price Index
Wednesday – Petroleum Report
Thursday – Jobless Claims
Friday – Regional and State Unemployment

Featured Story
Inflation, Not Deflation, Mr. Bernanke (Andy Xie in Caixin Online)

Washington Update
US Pressure Grows on Tax Cuts (Financial Times)
Voters Back Tough Steps to Reduce Budget Deficit (Wall Street Journal)
Obama to Tighten Terms of Drilling Permits (Financial Times)

Financial Markets News
Boston Fed: Economics Couldn’t Reveal Housing Bubble (Real Time Economics)
Growth Picking Up, but Fed Exit Postponed (Morgan Stanley)
Where Are Hedge Funds Placing Their Bets? (ZeroHedge)

Editorials and Commentaries
Obama Economy Facts (Keith Hennessey in New York Daily News)
Why Denmark is Shrinking its Social Safety Net (Liz Alderman in Economix)

Featured Story

Inflation, Not Deflation, Mr. Bernanke (Andy Xie in Caixin Online)

The globalization reality is that developed economies like Europe, Japan, and the U.S. will suffer slow growth and high unemployment. Stimulus is the wrong medicine for solving problems. Believing this will lead to excessive stimulus, which causes inflation and bubbles in emerging economies first and inflation in developed economies later. The wrong policy prescription pushes the global economy through unnecessary gyrations, stagflation and possibly another major financial crisis in the emerging economies. It's high time for Mr. Bernanke to wake up from his stimulus obsession.

Washington Update

US Pressure Grows on Tax Cuts (Financial Times)

Three of the most influential US business lobbying groups yesterday raised the pressure on the Obama administration to consider extending controversial tax cuts for wealthy Americans, calling it a “fool’s error” not to do so in a weak economy. The US Chamber of Commerce, the American Petroleum Institute – which represents the oil and gas industry – and the American Farm Bureau Federation – which lobbies for agricultural producers, held a joint press conference yesterday to argue that at least a temporary extension of tax cuts enacted under George W. Bush would help demand and spur investment.

Voters Back Tough Steps to Reduce Budget Deficit (Wall Street Journal)

With the November midterm elections looming, voters appear ahead of Washington in grappling with the tough choices to come, according to national polling and a focus group commissioned by The Wall Street Journal in the bellwether city of Richmond. Republicans are seen as the party most trusted to reduce the deficit by 32%, compared to 24% for Democrats, but a plurality of 40% see no difference between the two parties on the issue.

Obama to Tighten Terms of Drilling Permits (Financial Times)

The Obama administration is to severely restrict the use of environmental waivers for oil and gas companies seeking deepwater drilling permits, a practice that has come under fire in the aftermath of the BP oil spill. Monday’s announcement marks one of the most significant steps taken by the Bureau of Ocean Energy Management, Regulation and Enforcement – the federal oil and gas regulator – since the April explosion on the Macondo rig, which killed 11 people and spewed nearly 5m barrels of oil into the sea.

Financial Markets News

Boston Fed: Economics Couldn’t Reveal Housing Bubble (Real Time Economics)

Should economists and policy makers have identified the housing market bubble before it burst? The answer is most likely no, says the Federal Reserve Bank of Boston, because economic theory was not up to the challenge. The paper notes economists were clearly not of one mind about the implications of rising housing prices. Some saw them as consistent with economic fundamentals, and driven by factors like the need for shelter to house a growing population, a favored explanation of central bankers themselves during those years. Others simply punted, offering no view.

Growth Picking Up, but Fed Exit Postponed (Morgan Stanley)

There's no mistaking the slowing in incoming US economic indicators, ranging from past consumer spending and income to employment and forward-looking orders. And we are mindful of the downside risks to growth, noted below. But extrapolating the recent deceleration in the economy into still-slower growth would be a mistake, in our view. Instead, we see a moderate pickup ahead, with the 2Q downshift marking the transition to a period of unspectacular 3-3.5% growth.

Where Are Hedge Funds Placing Their Bets? (ZeroHedge)

Quarterly filings were released on Monday and all eyes are on star hedge fund managers. The WSJ reported that Paulson added but reduced his stake in CIT Group by just over one million shares. But not everyone is bullish on financials. Reuters reports the Lampert fund has trimmed its stakes in financials. In other activity, Bloomberg reports that billionaire Nelson Peltz disclosed that his hedge-fund group sold a $132 million stake in Kraft Foods Inc. that it bought earlier this year. Earlier this month, FINalternatives reported that hedge funds opened the first half with modest gains, but some of the industry’s biggest players did substantially better.

Editorials and Commentaries

Obama Economy Facts (Keith Hennessey in New York Daily News)

On the campaign trail, President Obama is talking about everything except his own economic record. He attacks his predecessor - a man for whom I worked - as his advisers promise a return to Clinton-era economics. Rather than hearing about the last two Presidents, voters may instead want the President to explain the economic realities of his own 18-month tenure and what he foresees for the next two years. To further that understanding here are some facts.

Why Denmark is Shrinking its Social Safety Net (Liz Alderman in Economix)

Denmark has long held the title of the best place on earth to be laid off. With an expensive, generous welfare state, and the world’s most lavish unemployment insurance scheme, virtually no one falls through the cracks upon losing a job. But the government unveiled an unpleasant surprise in June, when it halved the country’s whopping four-year unemployment benefits period to help mend its finances after the financial crisis.

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