Maybe this is what happens when a central bank becomes too transparent.» Read More
The Obama administration hopes that a one-year, 2 percent cut in payroll taxes will stimulate spending by consumers and give the economy a boost. But if the reaction from personal finance sites is any indication, consumers are likely to save more of the money than the administration hopes.
Take SmartMoney. This morning it came out with a rather straight-forward article entitled “What To Do With A Payroll Tax Cut.” It begins by pointing out that the Obama administration has a theory that this kind of tax cut—which delivers a small boost in workers’ paychecks—will encourage more spending and provide more economic stimulus than the Bush era rebate checks did. \(This theory is, to say the least, unproven. We pointed out some serious flaws in it yesterday .\)
The Fed: Who Still Owes What? (DealBook New York Times) DealBook itemizes what's still outstanding through emergency programs and open credit lines:"Hedge funds, pension funds and other investors have some $25 billion in outstanding loans from the Fed, some backed by subprime consumer debt. The central bank’s books are stocked with $66 billion of securities related to Bear Stearns and the American International Group, and the troubled insurer also owes $20 billion on a Fed credit line."
China: US in Worse Shape than Europe (CNBC via Reuters) Is it political—or do the Chinese really believe this? "The U.S. dollar will be safe for the next six to 12 months, because global markets are focused on the euro zone's troubles, Chinese central bank adviser Li Daokui said on Wednesday when asked about U.S. President Barack Obama's plan to extend tax cuts for all Americans. Treasurys are likely to become cheaper, the central bank adviser said. But Li, an academic adviser on the People's Bank of China monetary policy committee, said the fiscal health of the United States was in fact worse than Europe's, and that U.S. bond prices and the dollar would fall when the European economic situation stabilizes."
Dollar up on Jump in Treasury Yields \(CNBC via Reuters\) "The dollar extended gains on Wednesday on a spike in U.S. Treasury yields as a proposed extension of tax cuts raised growth expectations for the U.S. economy. Traders took their cue as the 10-year U.S. Treasury yield rose to 3.25 percent, a level not seen since late June and beyond Tuesday's high of 3.18 percent. The rise in yields was broadly seen as dollar supportive near-term, despite the adverse fiscal impact of the U.S. government's tax plan."
Today the Obama administration and congressional Republicans struck a tentative deal to extend Bush era tax cuts for another two years.
Under the terms of the proposal, income tax rates will not change for anyone—regardless of income—until at least 2013. A separate concession, included in the proposed package of legislation, would raise the estate tax exemption to $5 million.
But is this a compromise no one can be happy with—least of all the president's own party?
This phrase may be a leading indicator: "The Obama-McConnell Plan".
In what may become symbolic of a developing theme, Mary Landrieu, the senior Democratic senator from the state of Louisiana, has named the proposal just that. The Wall Street Journal reports:
I've never brought a guest such an elaborate breakfast- but when legendary investor Jim Rogers wants to come on my show- I go all out. Truth be told, it wasn't entirely Suzy Anchorwoman of me—it was secretly a good jumping off point for his favorite topic these days- inflation.
“Have you tried to buy any cotton recently? Have you tried to buy any sugar recently?" he said pointing down to the spread in front of him.
Co-hosting with me this morning on “Worldwide Exchange” over a breakfast of Diet Coke, candy and bagels, CEO of Rogers Holdings Jim Rogers was as usual all about commodities as an inflation hedge: the sugar he adores along with gold and silver.
Brian Carney, my brother and the editor of the Wall Street Journal Europe’s editorial page, explains what’s wrong with the hounding of WikiLeaks founder Julian Assange.
There’s an old adage: you can fool some of the people some of the time, but economists are foolish people most of the time.
Economists at Deutsche Bank prompted us to recall this bit of wisdom today when they raised their projections for GDP growth next year from 3.3 percent to 4.1 percent. Their reason for the raise was that the tax deal agreed in Washington, DC last night promises a payroll tax holiday. Their basic reasoning seems straight forward enough—if you increase the amount of money that shows up in the paychecks of workers, they’ll go out and spend most of that money, which will help the economy grow.
Unfortunately, it’s not so simple. In fact, temporary tax relief tends not to increase consumer spending by very much. What’s more, tax relief that comes in the form of a temporary payroll tax cut is even less likely to stimulate spending.
But first let’s give the Deutsche Bankers their due. As you’ll see, they have lots of math on their side.
It's time to bid au revoir to another idealistic European fiction .
Banks in euro zone countries have not been required to hold back any capital as a hedge against bonds issued by the governments of euro zone nations.
But reality has intervened. First Greece, then Ireland, received massive bailout packages. The danger of imminent sovereign default was real. The notion that such instruments could be treated as "risk-free" proved to be a fantasy.
"Risk Free" may have been a lovely idea. Like a world without war. Or the dissolution of national borders, as a grand utopian marketplace sprung forth from the soil that had hosted some the 20th Century's worst nightmares.
It didn't work out that way. A unified monetary policy simply did not accord with the radically different fiscal policies of the EU's member states. Historically divergent worldviews, rooted in cultural traditions of long-standing, could not be reconciled with academic theories of postmodern multiculturalism.
In a month that was supposed to be one of the toughest for hedge funds, Pershing Square Capital Management reportedly saw a 12.2 percent net gain—and a 15 percent gain before fees.
This capped off a stellar year for the hedge fund, which is run by Bill Ackman. It is reportedly up 35.5 percent before fees for the year. The returns were first reported by Bess Levin of DealBreaker, a site that frequently posts hedge fund returns.
(Full disclosure: I was the editor-in-chief of DealBreaker from early 2006 until 2008, when I handed over the reins to Levin, who had been my colleague there since mid-2006 and remains a personal friend.)
In the post-Madoff era, those kind of returns will—and should—prompt skepticism. How could Ackman produce those kind of gains?
This question sent a website called Insider Monkey digging into the SEC filings. What it found is an example of the value and dangers of investigating the returns of hedge funds.
CNBC's Patti Domm and Jeff Cox discuss the jobs report and the current dilemma of long-term unemployment.
CNBC's Patti Domm and Jeff Cox discuss the recent GDP numbers and what factors have been affecting it.
Investors give and investors take away, and nowhere has that been more true lately than in value stocks.
The Federal Reserve has asked Credit Suisse to address problems relating to the bank's underwriting and sale of leveraged loans.
In a market of 1,600 ETFs, more are pushing the limits of investing (and common) sense. We put oddball ETFs to the test.
The Fed could surprise markets Wednesday because of the wide divergence in Wall St. views about its next move.