Richmond Fed’s Lacker: Housing is a Small Part of the Economy, No Worries There
by ilene - July 13th, 2010 2:47 pm
Richmond Fed’s Lacker: Housing is a Small Part of the Economy, No Worries There
Courtesy of Jr. Deputy Accountant
Apparently my dearest most favorite Fedhead has the memory capacity of a goldfish and has conveniently forgotten what happened in housing not even two full years ago. But hey, it’s his economic outlook, not mine.
“I don’t expect a dramatic worsening” in housing, Lacker said. “Housing is such a small portion of the economy now it’s a little less capable of doing damage. I think we can withstand some shocks to housing and some fluctuations to housing.”
Sales of bomb shelters, bunkers, freeze-dried food and gold bars did notdecline on this news.
My question for dear JML is as follows: Does housing become a problem when the federal government is forced to put zombie GSEs on sheet and thereby factor in that hot mess to their overall budget considerations? Take your time, I’ll be here when you’ve got an answer. How about when the Fed is finally forced to jack up interest rates, thereby ending banks’ free money fest, thereby cutting off a large chunk of Treasury buyers, thereby pushing mortgage rates through the roof? Is it a problem then?
Lacker made his comments to reporters at the opening of Richmond Fed’s extravagant new $4 million money museum. No problems to report in central banking, that’s for sure.
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Richmond Fed: "Bubble? What Bubble?"
by ilene - February 2nd, 2010 12:59 pm
Courtesy of Tyler Durden
The latest out of the Richmond Fed is a joke of a paper that while analyzing the possibility that the entire stock market and dollar carry trade is one zero cost of capital-funded bubble, skips over this possibility and instead goes on to analyze the "factors that could contribute to a fundamentals-based explanation for the recent rally in certain risky asset markets." Spoiler alert: No bubble – it’s all based in sound reality.
In what is likely a first, the Fed quotes Nouriel Roubini:
The near zero nominal interest rate in the United States, jointly with the expansion of the Fed’s balance sheet, have created resources available to be lent. Some investors have taken advantage of those resources by borrowing in dollars at very low rates and investing in foreign assets, especially in emerging economies and commodities. The expected profits from this investment strategy have been magnified by the expectation of a weaker dollar: Once it comes time to pay off the dollar-denominated loans, the investors can repay them using dollars that are worth relatively less. In turn, this trading strategy – referred to as “shorting” the dollar – has itself contributed to the decline in the value of the dollar since investors must exchange dollars to purchase foreign-denominated assets.
In explaining what Roubini means to his intellectually subprime colleagues, Richmond Fed analyst Renne Courtois provides this enlightening narrative:
The argument of Roubini and others is that this represents a bubble because the emerging markets and commodities rallies are fueled by easy money and the carry trade, rather than economic fundamentals. Under this view, several likely factors could cause this asset bubble to burst. After appreciating during the height of the financial crisis, the dollar steadily declined for most of 2009 but eventually will likely stabilize at some point. Stabilization of the dollar would reduce returns for investors with short dollar positions. Additionally, economic recovery in the United States will raise expectations of an interest rate increase. This would cause the dollar to appreciate (since higher interest rates raise the expected return of dollar-denominated assets, all else equal), and thus cause significant losses for investors short on the dollar.
The Richmond Fed goes as far as refuting Bernanke’s recent claim that low interest rates have never, NEVER, been responsible for this arcane concept known…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.