FOMC Minutes. Nothing To - Wait, Is That A QE3?

The Federal Open Market Committee minutes are out for December. Pull up the statement or the actual text of the minutes, and join me in breathless anticipation as we see what the Masters of the Economy have said. In their opinion:

1. Economic activity is strengthening, and the labor market is deteriorating less swiftly.
2. Household spending is increasing at a modest rate, but is held back by the weak labor market (see 1 above), "modest" income growth, lower housing wealth, and tight credit.
3. Business spending is picking up, but investment in structures is still down and employers remain reluctant to add to payrolls (see 1 above). Inventory and sales are beginning to match up, though.
4. Bank lending continues to constrict, but financial market conditions remain supportive of economic growth.
5. The pace of economic recovery is likely to be moderate for a time.
6. Inflation is likely to be subdued for some time.
7. The target range for the federal funds rate will remain at 0.00% to 0.25%.
8. The Federal Reserve will begin purchasing $1.25 trillion in agency mortgage-backed securities and $175 billion of agency debt. It is anticipated that all of these transactions will be executed by the end of Q1 2011.
9. The Federal Reserve will be shutting down a bunch of funding and liquidity programs, and will be allowing the liquidity swap arrangements between itself and other (international) Central Banks to expire on 2/1.
10. Thomas Hoenig voted against the policy action, arguing that economic and financial conditions have changed enough to no longer justify the extraordinarily low federal funds rate.

A lot of administrative stuff there. Items 7 and 10 are no surprise. Item 9 is a mild surprise (it does seem to indicate a belief that the worst is over). Item 8, though...

Item 8.

The purchase of $1.25 trillion in agency mortgage-backed securities, and $175 billion of agency debt. QE3, anyone?

US Motor Vehicle Sales...

...are nearly impossible to find. Seriously. I have no primary sources for this, just Reuters. Which I'm not sneering at, mind you. It's just that I like going to the source.

Overall, US auto sales rose more than 11% to a level over 13 million vehicles, handily beating expectations.

GM is reporting that their sales are up 7.5% for the year (6.3%, up to 2.2 million units, in domestic sales alone). Crossover sales were up 42%, and full-sized pickup trucks were up 29%. Ford, meanwhile, reported a 6.7% increase, while Chrysler sales were up 16% and Nissan Motor Co sales were up 28%.

Looking to 2011, GM is anticipating 12.7 million to 13.2 million light vehicle sales in the US. Ford is a little less optimistic, predicting only 12.2 to 13.2 million sales in the US, but anticipates selling 75 million to 85 million vehicles worldwide.

Factory Orders, Sanjo!

Not all that long ago, I reported that there was no real joy expected from Factory Orders. They were down overall 0.9% for October, and it was expected that they would be absolutely flat for November.

Well, that fairly bleak expectation has been blown out of the water. Overall, factory orders increased by 0.7% in November (with October's factory orders being revised upwards to only a 0.7% decrease). Here's the breakdown:

• New orders for manufactured durable goods were down 0.3%, following October's 3.1% decrease
• Transportation equipment orders were down 11.1%
• Manufactured nondurable goods orders were up 1.7%. This helped buoy up the overall orders, because this represents a total of $228.2 billion in new orders (nearly as much as the other two categories put together).

Shipments as a whole were up 0.8% (following October's 0.4% increase), unfilled orders were up 0.6% (following October's 0.7% increase), and inventories were up 0.8% (following October's 1.1% increase).

Still no word on domestic vehicle sales.

Political "Cooperation" and Robo-Signing

President Obama is on his way back from Hawaii. On Air Force One he sad, when asked about working with the new Republican majority in Congress, "I'm pretty confident that they're going to recognize that our job is to govern and make sure that we are delivering jobs for the American people and that we're creating a competitive economy for the 21st century, not just for this generation but for the next one." The Republican response was to pledge to repeal last year's health care reforms and to choke the financial reforms that were passed last year[1].

Of course, any cooperation is unlikely to be enhanced by the fact that Gene Sperling[2] and William Daley[3] making the short list for Director of the National Economic Council and White House Chief of Staff, respectively. There's nothing like bringing back officials from a previous Democratic administration to get Republicans riled up[4].

Getting away from the politics, Bank of America, JPMorgan Chase, Citigroup, Wells Fargo & Co, and Ally Financial, Inc may be getting ready to settle with 50 state attorneys general. All of the banks have been under a joint probe by all 50 state AGs into the use of "robo-signers"[5] in foreclosure proceedings other abuses of the foreclosure process. There is no word yet as to what that settlement entails, nor have the banks in question been willing to comment.

[1] This is not intended as commentary on the merits and/or flaws of either piece of legislation; rather, it is commentary on the apparent odds of actual cooperation between the two parties.

[2] The "architect of the Clinton economic plans while serving on the Clinton-Gore 1992 presidential campaign", according to Wikipedia.

[3] Secretary of Commerce during William Clinton's second term. Also, Midwest Chairman of J.P.Morgan Chase, one of the companies implicated by Major General Smedley Butler in the 1933 Business Plot. But try not to read too much into that.

[4] Or, to be fair, bringing back officials from a previous Republican administration to get Democrats riled up. Fair is fair, after all.

[5] "Robo-signing"? In a nutshell, the practice of signing off on a document that needs to be certified as true, without actually certifying the document is true. The link goes into more details.

Metrics: Domestic and Foreign

Highlights from around the world (well, from Europe anyway) and around the corner.

In Europe, Germany reported it's December 2010 unemployment rate, which remains unchanged at 7.5% Great Britain's PMI Manufacturing Index beat expectations by rising 30 bps from November to finish at 58.3 (the consensus expectation had been only 57.0). Italy's CPI rose to finish at a 0.4% increase for December (making a 1.9% increase in consumer prices for 2010). Finally, the European Union has reported its annual inflation rate, which was expected to come in at 2.1% for 2010 (up 20 bps from 2009). The actual figure is 2.2% which, while worse than expected, is not terrible.

All told, the news ranged from good (German unemployment and Great Britain's Manufacturing Index) to tolerable (EU inflation) to "bad but who cares" (Italy's CPI[1]). It's not particularly surprising that the FTSE 100 is up 2.21%, the DAX is up 0.22%, and the CAC 40 is up 0.65% on the news[2].

Winging our way over the North Pole (because, really, we usually take the Atlantic route and I'm bored with it), we have a few measures coming up in the US. Factory Orders are due out at 10 AM EST - a moderate market mover because it gives a second look at the productivity of the US manufacturing sector.. For November expectations are, in a word, bleak. October saw a 0.9% decrease in factory orders, and November is expected to be absolutely flat (a 0.0% increase). At some point today we're also expecting the Domestic Vehicle Sales (tracking sales of domestic-made cars[3], which is expected to rise 100,000 to net sales of 9.2 million for December.

Finally, the FOMC minutes are due out at 2:00 PM EST. Look for such surprises as the Fed being concerned about inflation but still expressing a willingness to keep monetary policy loose to stimulate GDP, an overall consensus to leave the target rate for the federal funds rate at 0 to 1/4 percent, and for Thomas Hoenig to vote against the policy because he's concerned about the loose money policy promoting high future inflation.

[1] They're one of the PIIGS, and has had its fair share of troubling the market anyway. It's going to take more than a 40 bps CPI increase to make European traders flinch these days.

[2] As of 8:21 AM EST. Actual numbers are subject to change without warning.

[3] No idea yet if this includes say, Toyota, which has a large factory complex in Kentucky. Or if it includes say, GM or Ford, whose vehicles are only an average of 70% domestic parts. Do we prorate?

The Markets Are Happy, And "Voodoo Economics" Takes On A Whole New Meaning

The markets decided to celebrate the New Year by throwing a little rally. The Dow ended p 93.24 (0.81%), the NASDAQ was up 38.65 (1.45%) and the S&P 500 was up 14.25 (1.13%), mostly on the good ISM Manufacturing Survey numbers. There's nothing like beating expectations to prolong the Santa Claus rally.

Winifred Jiau[1] has been denied bail on the grounds that she is a flight risk. She had originally been granted bail to the tune of $250,000, but was held in prison over the weekend because the co-signer of the bond decided not to co-sign.

In "The Markets Need More Regulation" news, the Commodity Futures Trading Commission is bracing for not getting a $92 million budget hike, and not having the funds needed to actually regulate the swaps market like the Dodd-Frank Wall Street Reform and Consumer Protection Act requires. Reports of salivating investment bankers are considered spurious[2].

Marie Laveau is now the Wall Street Journal's endorsed solution to the nation's lingering unemployment problem, as revealed on December 28th in an article about how hoodoo practitioners are aiding their clients in finding work. No word on whether or not LuckyMojo.com will be going public, but 20 years ago some venture capitalist would probably have thrown a few million at it.

If you are buying gold coins, make sure there's enough gold to make it worth your money.

And finally, don't just look back on the trading activity on the Dow in 2010. Listen to it.

[1] The latest alleged inside trader to get swept up in Operation Broken Trust.

[2] Mostly because historical precedent indicates that they really weren't going to be regulated any better anyway, so why worry?

ISM! Construction Spending! Dead Birds!

We have metrics on a Monday morning! Inconceivable![1] This is not a normal thing.

And what is it we're going to have? The Institute for Supply Management's manufacturing survey for December 2010 (expected to climb 60 bps to a level of 52.2) and Construction Spending (expected to be increasing, but with the rate of increase slipping to be up only 0.1%). The ISM survey is a huge market mover, because its seen as indicating the health of the manufacturing sector. Construction spending isn't as huge, although it is still examined. Rising construction spending is seen as an indicator of economic health and stability, but it doesn't point to the same sort of economic trickle-down that you would expect from - say - new home sales. Still, the Street will be disappointed if construction spending is unexpectedly bad. Particularly if the manufacturing survey misses expectations.

How did we actually do? The ISM Manufacturing Index came in at 57.0, missing expectations (but not badly). Construction spending handily beat expectations, coming in at 0.4% increase.

Looking to the news, China[2] has committed to continue to prop up Spanish soverign debt. "China is a responsible, long-term investor in the European financial market and particularly in Spain, and we have confidence in the Spanish financial market, which has meant the acquisition of its public debt, something which we will continue to do in the future," was the statement from Chinese Vice Premier Li kequiang.

Barron's has decided to join the "well, duh" club early with a news item predicting that, when the government begins selling off the $70 billion worth of AIG stock it owns, the price per share of AIG could drop. I'm sure everyone appreciates their insightful commentary.

Bank of America is back in the news, this time paying $1.28 billion to Freddie Mac as part of an agreement to end all claims related to mortgages sold by Countrywide[3], and also plans to record a Q4 "goodwill impairment charge" of $2 billion to its home loans unit. On the plus side for BofA, these particular bad loans weren't their fault. On the minus side, I'm not sure how much good will they have left to impair.

Look for the commercial real estate market to boom, based on the fact that the Association of Foreign Investors in Real Estate found that the United States is overwhelmingly the number 1 investment choice for overseas investors. That (probably) means climbing construction spending in 2011.

Oil is up above $92 a barrel, with some investors anticipating it will get as high as $100 per barrel. Coincidentally,[4] Russian Energy Ministry data showed that Russian oil output rose 2.2% in 2010 to a record 10.145 million barrels per day.

And finally, the city of Beebe, Arkansas rang in the New Year by watching about a thousand dead red-winged blackbirds drop out of the sky. Stone dead. For no reason anyone has been able to figure out, yet. Charles Fort would be proud.

[1] "You keep using that word. I do not think it means what you think it means."

[2] Still not wanting to replace the US as the sole economic and military superpower in the world.

{3] Specifically described as mortgages sold with faulty paperwork and other problems.

[4] I think not.