Tuesday Morning Ruminations – Around The Net On February 3, 2015

Noted for your Tuesday morning ruminations or procrastination – take your pick.

These are some of the reports and news items that I read on Monday and early morning in preparation for the Tuesday’s action. Some of investment and trading related, some are economics related and some are for fun.

  1. Two Measures of Inflation and Fed Policy & PCE Price Index: Inflation Slips Further Below the Fed Target – As I’ve routinely observed, the general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction.
  2. Market Action Suggests Abrupt Slowing in Global Economic Activity – The combination of widening credit spreads, deteriorating market internals, plunging commodity prices, and collapsing yields on Treasury debt continues to be most consistent with an abrupt slowing in global economic activity.
  3. Chinese President Xi Jinping just made his first move against Wall Street China – What is certain, according Minnie Chan and George Chen of The South China Morning Post, is that more arrests are coming for Wall Street China. It’s a lot like what happened to China’s oil sector last year, when high-level officials were carted off for a dizzying list of transgressions — fulfilling President Xi’s promise that he would go after “powerful tigers” as well as “lowly flies.”
  4. Fed’s Preferred Inflation Measure Dives – It is hard to see how the Fed can be confident that inflation with trend back to target when looking at these numbers. They need some acceleration in wage growth to justify their intentions to begin normalizing policy, and even with such acceleration, I think their case is fairly weak in the context of the current inflation environment.
  5. Which countries managed the Great Recession better? – In the Euro area the biggest change happens in Ireland and Spain, both made it to the top 3. This means that for these two countries the labor market performance is the main drag on their GDP performance. Germany falls to the bottom half of the table suggesting that the strong German labor market performance has compensated a not too stellar growth rate of GDP per worker.
  6. Maintaining Growth in India – Fueling growth through domestic demand will have to be carefully managed. As a country that does not belong to any power bloc, India cannot afford to put itself in the position of needing multilateral support – a trap into which even developed countries, like Portugal and Spain, have fallen. There is the risk of overstimulation, with fiscal deficits fueling large current-account deficits and debts, which suddenly become unsustainable when money gets tight.
  7. What Is Plan B for Greece?
    Nonetheless, Europe needs to be much more generous in permanently writing down debt and, even more urgently, in reducing short-term repayment flows. The first is necessary to reduce long-term uncertainty; the second is essential to facilitate near-term growth.
  8. Greece’s New Finance Minister Is Brilliant. So Why Does He Make Everyone So Nervous? – “Yanis knows far more about the current situation than some of the people he will be negotiating with,” adds Stuart Holland, an economist and former British Labour Party politician who has co-authored a series of papers with Varoufakis on the euro zone debt crisis.
  9. I Survived the Global Crisis Only to Find It’s the Recovery That Hurts: Australia – “China isn’t there this time to bail Australia out of weakness, unlike 2009,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “The RBA has had to step up to the plate and do the heavy lifting this time.”
  10. PBOC Said to Mull Policy Options to Address Capital Shifts – Policy makers in the world’s second-largest economy are confronting the challenge of a mixture of capital outflows, slowing economic growth and yet — on a trade-weighted basis — an appreciating exchange rate.
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