POMO Purchase Update

The Fed performed another POMO (Permanent Open Market Operations) purchase today.  The Federal Reserve purchases treasuries from the primary dealers infusing cash into the primary dealers (TBTF banks) to pump into the stock market.  It will be interesting to see how the market closes today on the heals of a worse than expected ADP report, the market seems to be holding up quite well so far.  Since August 17th 2010 the Fed has purchased $43.7 billion in U.S. Treasuries.  Per Zerohedge this makes the FED the 2nd largest holder of U.S. treasuries in the world, with a total of $819 billion.  Japan is the largest holder with $821 billion in July of 2010.

Operation 1 - RESULTS

Operation Date:   10/06/2010
Operation Type:   Outright Coupon Purchase
Release Time:   10:15 AM
Close Time:   11:00 AM
Settlement Date:   10/07/2010
Maturity/Call Date Range:   03/15/2013 - 08/31/2014

Total Par Amt Accepted (mlns) :	$2,069
Total Par Amt Submitted (mlns) :	$25,157

Primary dealers as of Jun of 2009:

• Banc of America Securities LLC
• Barclays Capital Inc.
• BNP Paribas Securities Corp.
• Cantor Fitzgerald & Co.
• Citigroup Global Markets Inc.
• Credit Suisse Securities (USA) LLC
• Daiwa Securities America Inc.
• Deutsche Bank Securities Inc.
• Goldman, Sachs & Co.
• HSBC Securities (USA) Inc.
• J. P. Morgan Securities Inc.
• Jefferies & Company Inc.
• Mizuho Securities USA Inc.
• Morgan Stanley & Co. Incorporated
• Nomura Securities International Inc.
• RBC Capital Markets
• RBS Securities Inc.
• UBS Securities LLC

Zerohedge expands on this activity to sum up and do additional comparisons of the FED POMO purchases, you can view this by clicking here.

ADP Non-Farm Employment Change

The ADP Non-Farm Employment number is an estimated number of employed people during the previous month, excluding the farming industry and government.  ADP is a private company that provides payroll services to many companies throughout the U.S. and therefore can estimate overall employment or unemployment.  Obviously we all know the impact of unemployment, the more people that are employed the more willing people will be to spend and as we live in a spend/growth economy that is what is needed. The forecasted number for the ADP employment change was 23k, but the actual number came in at -39k, the previous number was 10k.  This means that private sector jobs decreased by 39,000 from August to September.  The previous report from July to August of -10k was revised up to 10k, so we'll have to watch for revisions of this months report next month.  This is  much worse than was anticipated, but is a reflection of what is really occurring in our economy.

ADP reported job losses were suffered by all major sectors and all payroll sizes.  To view the report click here.

Meredith Whitney on Issues With the States

Meredith Whitney discusses here report entitled "The Tragedy of the Commons" where she outlines states that will incur financial problems in the next 12 months.  Also linked to the report are failures of banks in the states.

Jim Rogers on Commodities

In this interview Jim Rogers talks about getting into commodities that have been depressed and discusses how farming/Agriculture will do well for the next 5 to 15 years, as there is a shortage of farmers in most countries.  Jim also talks about the pessimism in the dollar and possible long term printing, plus failures in FED policy.

POMO Update

Today was another POMO (Permanent Open Market Operations) purchasing day.  Today the Fed bought $5.19 Billion worth of Treasuries.

Operation 1 - RESULTS
Operation Date:   10/05/2010
Operation Type:   Outright Coupon Purchase
Release Time:   10:15 AM
Close Time:   11:00 AM
Settlement Date:   10/06/2010
Maturity/Call Date Range:   09/30/2016 - 08/15/2020

Total Par Amt Accepted (mlns) :	$5,190
Total Par Amt Submitted (mlns) :	$23,621

The two graphs below show the correlation between POMO and the DOW performance.  The picture for the S&P mapped over is very much the same.  It sure looks like the money in POMO had something to do with todays lift in the major indices.

Though it is said that the stock market rally was due to the Japanese Central Bank rate cut to between 0.0 and 0.1 percent, as well as a better than expected ISM number.  Though these may be the reasons, but POMO Purchases may had a little to dow with it as well (or will into the coming trading day).

Monthly ISM Non-Manufacturing NMI

The September ISM Non-Manufacturing NMI was release this morning.  ISM NMI measures the diffusion of index based on 400 surveyed purchasing managers, excluding the manufacturing industry.  The survey collects information on inventories, new orders, backlog orders, prices for material and such.  This is considered a leading indicator of economic health as rising orders means that business is growing and hiring may follow.  The forecasted number was for an index reading of 52.1 and the actual headline number came in at 53.2, beating forecasts and Augusts number.

Now we need to peel back the numbers to see where the increase in the broad index comes from.   We see that New Orders, Employment, Supplier deliveries and Export New Orders rose, while Business Activity and backlog orders decreased.  New orders and Export New orders is a great sign to see those numbers moving higher again.  

Inventories also decreased which is a good sign, prices were basically flat to slightly down and imports increased.  Decreasing inventories means that they are filling orders again and using inventory to do so, this is a positive sign.

Overall this seemed like a good report.  We need to see this trend continue for a few months to declare it a trend vs. an outlier.  

Gerri Willis on Health Care Reform

Gerri Willis discusses how Health Care reform has undermined quality care.  There have been a few articles hitting the papers on how McDonalds is looking to get rid of their mini-med program for employees and the principle financial group said it was going to stop selling health insurance all together.  Gerri also highlights other impacts to the medical industry.

Monthly Pending Home Sales

Pending Home Sales is the change in the number of homes under contract to be sold, but still awaiting the closing transaction (excluding new construction).  The report is released 35 days after the month it is reported on, hence this report reflects Augusts data.  It is supposed to be a leading indicator of economic health because it has some ripple effects in the economy (possible renovations on unfinished rooms, new furniture, financial transactions & etc).  This is a measure of month over month change.  The forecast called for a 2.8% increase and the actual headline number came in at 4.3%.  This is a second consecutive month of positive growth.  The number of pending homes that actually close is probably something that needs to be tracked, as in our changed reality not all of the closing transactions actually close.

State Tax Hikes

Monthly Factory Orders

Factory orders are a monthly measurement of the change in total value of new purchase orders placed with manufacturers.  It is considered to be a leading indicator of production.  Rising factory orders signals that manufacturers will increase activity to fill the new orders.  This creates/sustains jobs and has a chain of other economic events associated with it (like ordering more materials, shipping and a host of others).  This months forecasted number was to be -0.3% but the actual headline number came in worse than expected at -0.5% (down from the previous months revised 0.5%) showing decreasing demand/growth.  This is something to be concerned about and may impact GDP if this is demand for exported (as we saw in the ISM report demand for exports were down).

New orders for manufactured durable goods decreased $2.5 billion to $191.2 billion (a 1.3% decrease).  Excluding transportation (vehicles/parts, non-defense aircraft/parts) new orders would have increased 2.0%, so it looks like transportation demand is down (keep an eye out in the auto industry).  Excluding defense, new orders decreased -1.2%, meaning that defense spending is holding up our factory orders (which is fine, just need to be aware of what it looks like without).

Fed Funds Rate Increased

The Fed Funds Rate was increased from 0.15% to 0.20% dated to 10/1/2010.  Gold and Silver has dropped in value since last week, not sure if their is a direct correlation more of an observation.

Rumors of TARP's Death Are Exaggerated

In an article by Rep. Jeb Hensarling written in the Investors Business Daily titled "Rumors of TARP's Death Are Exaggerated" Rep. Hensarling points out that TARP did not save the tax payers $20 billion as reported by Treasury Secretary Timothy Geithner, but actually cost tax payers $66 billion dollars instead.  Rep. Hensarling says TARP can not make new committments as of Oct 3 2010, but continues to fork out outlays of existing contracts previously committed to. 

Treasury has committed $460 billion in signed contracts and only $199 billion of the $386 billion actually paid out has been repaid. There's no obligation that the outstanding money be repaid to taxpayers in a timely manner.

[ Read more ... ]

FED Official Says Stimulus More Likely

William Dudley, the president of the Federal Reserve bank of NY, said economic growth has been disapointing and worries that if the economy doesn't strengthen then widespread deflation will occur. 

The Fed is considering buying more government debt to force down rates on mortgages and other loans to entice Americans to spend more. Doing so would bolster the economy.

The problem with this line of thinking is that we already have rates extremely low and it has not "enticed" Americans so far, so why now?  This should be good for Gold/Silver and will be destructive to the US dollar.  The fact that they feel economic stimulus is needed shows that the economies health is not as good as the main media says. 

Some Fed officials have clashed over how much help would come from buying more government debt, the Fed's next likely step.

It looks like QE2 is not off the table and seems more likely, further devaluating the US dollar and bolstering Gold/Silver, as confidence in fiat currencies wane. 

Despite the divisions, many economists predict the Fed will move ahead and buy more government securities — perhaps as soon as its next meeting on Nov. 2-3. The Fed is weighing that option because its traditional interest-rate lever to help the economy is already at a record low near zero and can't be cut further. 

This is why QE2 is much more likley, the Fed Funds Rate is already at 0.15% and really going to 0.0% isn't going to do much as money is essentially free already, but nobody wants it.  The problem is that we have to spend endlessly for our economy to survive, but we have hit a brick wall of debt.

A $500 billion purchase of securities would provide about as much stimulus as a half-point to three-quarters point cut in the Fed's main interest-rate lever 

Half a trillion dollars in securities purchases, will this become the new norm to continue getting a half-point cut of stimulus and how much is enough?

He argued that lower rates would help bolster the values of homes and stocks, which would support Americans' wealth and could make them feel better about spending more.

Mortgage failures are excellerating currenlty because homeowners are already in mortgages they can''t afford. Short sales and foreclosures will continue to affect home prices unless all homeowner's principle were dropped enabling them to refinance with the lower rate (mortgages at risk of default or in default are currently underwater).  How is increased QE and reduced interest rates going to make Americans more wealthy as it decreases the value of the US dollar makeing Americans poorer as their cheaper dollar buys fewer goods unless deflation follows (but isn't that what they say they are fighting here).   The stock market may go up in the short term (depending on how much money continues to flow out of Mutual funds and ETF's).  With American families and small businesses reducing tolerance for taking on more debt this doesn't seem like it will really benefit the country.  [ Read more ... ]

Economic Weekly Wrap for October 3rd 2010

This is Economicgrasps first weekly wrap-up video.  It will expand going forward to add more content on the weekly events and observations of the weeks activity.  This weeks is relatively brief and to the point.

Weekly KWN Interviews

King World News had great interviews again this week.  This weeks interview participants were Ben Davies, Robin Griffiths, Bill Fleckenstein, Hugh Hendry, Bill Fleckenstein and Art Cashin.


Ben Davies discusses his blog piece entitled "World Monetary Earthquake", monetary theory and the Bretton Woods II as the primary cause of the financial crisis.

Robin Griffiths discusses the market in general covering bonds and equities and his thoughts of a sharp downturn back to the levels of March 2009.  He also discusses the Mutual funds and how money has dried up in Mutual Funds and that Mutual fund money is all in at this point, so not much to push the market up.

Hugh Hendry discusses the Japanese credit markets, currency, the possible bond bubble and recent gold/silver movements.

Bill Fleckenstein discusses inflation/deflation, economic policies, the Fed/monetary policy and currencies.

Art Cashin who does the weekly stock market wrap-up.  Art talks about the Euro, action in the bond market,  redemptions in the stock market and quantitative easing.

Great information to keep you on top of the markets and what could possibly happen in the future.