Market Insider

Bernanke Speech: Lots Of Opinions


If you've been watching CNBC, you know there are a wide range of opinions on what Fed Chairman Ben Bernanke will say tomorrow and everybody, but everybody has one. Bernanke, as you've no doubt heard, addresses the annual Kansas City Fed symposium in Jackson Hole, Wyo. at 10 a.m. New York time.

No cameras are allowed so CNBC will report Bernanke's words from the piece of paper handed to senior economic correspondent Steve Liesman at the event. Liesman, already in Jackson Hole, points out the following comments from Lehman economist Drew Matus who says Bernanke may choose NOT to say anything that would give traders clues about monetary policy.

"Bernanke has not spoken in recent weeks so the markets will be on high alert for hints about monetary policy. In addition, the topic of the conference, "Housing, Housing Finance and Monetary Policy," is quite relevant to the markets. Nonetheless, we expect Bernanke to try avoiding any signals on current monetary policy," writes Matus.

"Bernanke made it clear more than a year ago that "in the future my communications with the public and the market will be entirely through regular and formal channels" and he has stuck to his word. For example, in the last month of distress in markets his only communication has been through formal directives from the Fed," he says.

Liesman speaks more about this with CNBC anchor Erin Burnett on "Street Signs" at 2 p.m. Matus does caution that with so many Fed policy makers out and about that some interesting tid bits could sneak out at Jackson Hole, but the conference is supposed to be an opportunity to "think big thoughts, talk to people wearing pocket protectors and hike the Grand Tetons."

Last year, Bernanke "tried very hard to avoid saying anything relevant on monetary policy. Absent a renewed major disruption to the markets, we expect him to do the same this year." Matus says it is possible that he would consider Jackson Hole a "formal channel", but the conference is supposed to be a chance to "think big thoughts, talk to people wearing pocket protectors and hike the Grand Tetons, while leaving the daily policy pressures behind."

Commercial Paper
Today's Fed report on the outstanding level of commercial paper shows the outstanding fell $62.8 billion on a seasonally adjusted basis to $1.979 trillion as of Wednesday, from $2.042 trillion a week earlier. That was less than the $90 billion drop in each of the previous two weeks and shows the total amount has dropped about 15% in the last three weeks.

"What I saw is the trend continues," said Andy Brenner of MF Global. "It was down $63 billion, and $59 billion was asset-backed so that market continues to shrink and it just continues to add to the problem the Fed has, and that is to make sure the markets operate normally. You still have a problem in that commercial paper market is partially closed. There are some things getting done but not a lot. I believe you have a lot coming off today and tomorrow for month end, and I think you'll see more toward quarter-end."

"The assets are still out there. Until you see this stuff start to trade it's going to stay on banks' books," said Brenner, co-head of structured products and emerging markets. "It seems that the European banks have more risk than U.S. banks at this point."

In a note today, Miller Tabak's Tony Crescenzi says a total $200 billion of the asset-backed commercial paper market has disappeared. "In some cases, issuers will turn to alternative sources of financing such as bank credit lines and long-term debt issuance," he writes, but notes in other cases entities could be forced to scale back or shut down their operations.

"The asset-backed commercial paper market is shrinking because of exposures to the mortgage market. It is estimated that as much as $300 billion of asset backed commercial paper market is exposed to the market. Hence, it would be rational to expect the asset-backed commercial paper market to shrink by as much as $300 billion," he wrote.

Another Fed announcement to watch today is the 4:30 p.m. report of the week's borrowing by banks at the discount window. "You'll see at 4:30 today whether banks are using the Fed borrowing window. We don't get the impression they really are," said Brenner.

More at Auction
As part of a week of record issuance, the Treasury issued $13 billion in five-year notes this afternoon, attracting above average demand this afternoon and drawing a yield of 4.25%.

We intercepted this comment that's been making the rounds of trading desks. You can't help but feel like the author was on the wrong side of some trade. "Right now, the financial market is like the titanic. The fixed income/credit markets are like being in the engine room, dealing with the mess and the flooding and the fires. Meanwhile the equity guys are up on the deck drinking champagne. Sell mortimer sell."

Hiring Gauge Shows Weakness
The Conference Board's help-wanted advertising index dipped one point in July to 25. It was 31 a year ago. The index is a measure of job offerings in major newspapers.

A second measure of online advertised job vacancies also showed a decline in July. The July jobs offered online showed a seasonal, 4.6% decline from the June level. The board says in the last three months, help-wanted advertising declined in all nine regions of the U.S., with the largest declines in the west north central region, which fell 17.4%. The mountain region was off 16.6% and Pacific region, off 16.3%.

The Conference Board's labor economist Ken Goldstein was quoted in the release, saying as of now the data does not suggest the economy is at risk of falling into recession before year end. Goldstein says the consumer sector has held up because the job market is holding up despite housing problems, higher gasoline and other expenses.

"Job but not wage, growth has slowed a little since the spring and it could slow a little more," he said. "That is the indication in the latest count in the number of print help-wanted ads. Online ad volume increases have also slowed a little this summer. In part, this reflects an economy that is slower in the third quarter than it was in the second. Both the economy and the job market could be growing a little more slowly in the fourth quarter, but not slowing dramatically."

U.S. economic growth for the second quarter grew at an annualized rate of 4.0%, up from the initial estimate of 3.4%, according to the Commerce Department report released today.

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