"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Wednesday, January 12, 2011

The Beige Book, Honey Laundering, And Fiduciary Standards

The Fed's Beige Book is out for January, providing an insight into some of the economic data that will drive Fed decisions about interest rates and other stimulus activities at the next FOMC meeting.  And right now, that insight seems to point towards more of the same.  Here's some highlights from the summary:
  • Economic activity expanded moderately from 11/2010 through 12/2010.
  • Conditions were better for manufacturers, retailers, and nonfinancial service than it was for financial services or real estate.
  • Manufacturers selling into the construction sector remained weak in the Boston, Atlanta, and Dallas districts.
  • Retailers did extremely well, thanks to the holiday season.
  • Retailers and manufacturers indicate that costs are rising, but competitive pressures are minimizing cost pass-through into final prices.
  • Most businesses are cautiously optimistic about the future, and businesses in the St. Louis, Minneapolis, Kansas City, and San Francisco Districts plan to increase hiring. The Philadelphia District, on the other hand, sees conditions improving but not strong growth for 2011.
  • Production levels are high and/or increasing, although Philadelphia District manufacturers describe the flow of new orders as "erratic".
  • The Boston, Cleveland, and San Francisco Districts are concerned about rising input prices.
  • Automobile sales were up in eight districts, and tourism was strong in six districts.
  • Residential real estate and new home construction was weak across all Districts, mostly on concerns about the pace of economic recovery (particularly employment).  the Philadelphia, Atlanta, and Chicago Districts also cited trouble in obtaining credit as a constraint on demand.
  • Loan demand was down in three Districts, with an increase in only one District.  Credit quality is reported as improving across all Districts.
  • Agricultural production was weak, mostly on the fact that it's winter out there, and output prices were up.
  • Labor markets are firming, but with no real upward pressure on wages.  Three Districts (Cleveland, Richmond, and Atlanta) reported plans to increase work hours instead of hiring.
In non-market news, the US government has essentially subpoeaned 600,000 people in regards to WikiLeaks.
Rising food prices are driving a new crime with a vaguely familiar name:  honey laundering.
The European Union is in talks with the International Monetary Fund to put together a package to solve Europe's debt crisis.  No specific word on what the package would be, but it seems to include an increase in the lending ability of the bailout fund (which can only lend E250 billion).
The SEC is getting ready to release a study on the regulation of investment advisers, looking at the possibility that they should be overseen by a self-regulatory group such as FINRA (this could be out on Friday), and a second (due January 21) that explores the imposition of a uniform fiduciary standard for brokers and investment advisers offering advice to retail customers.  Both have potential for significant industry impact, but the second will - if implemented - have the most significant impact.  It would eliminate the lower suitability standard that non-advisor brokers have, that only requires them to offer "suitable" products.  Advisors, held to a fiduciary standard, must actually act in the best interests of the client.  Look for excitement in this regard in the next few months.

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