Reserve Balance and Bank Lending

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Here are some thoughts to what might happen over the next year on inflationary pressures as the result of the Federal Reserve’s newest policy. (December FOMC statement here: http://www.federalreserve.gov/newsevents/press/monetary/20121212a.htm)

As sterilization (selling short term Treasury securities to buy long term Treasury securities) ends, the Federal Reserve’s balance sheet is expected to increase over the next year with purchases of Treasury securities and agency mortgage-backed securities.

As the Federal Reserve continues to buy assets, (A) and (B) increase. Because the Federal Reserve purchases these assets in the secondary market, primary dealers and other participants that sell the securities to the Federal Reserve will be credited with money. These money ultimately find its way to banks in the form of deposits (D).

As deposit (D) increase, the banks will have to make loans (G), buy other assets (H), or hold it as reserve (C). Loans (G) and other assets (H) of the banks would correspond to money (F) in the Central Bank’s accounts. Reserves (C) of the banks would correspond to reserves (B) in the Central Bank’s account.

Pressure on inflation would be greater if money (F) increases instead of reserves (B) increases. Thus, inflationary pressure depends on what the banks do with the increase in depositions. Interest on excess reserves (IOER) is 0.25%, while deposits at some places pay 0.75%. (See here for example: https://home.ingdirect.com/rates; note that the 6 month CD pays 0.40% while the savings account pays 0.75%, which says something about the expected market conditions in the months ahead)

So, the possibilities for the banks appear to be:

1. holds the new deposit as reserves and lower the deposit rate,
2. make loans with a higher risk-adjusted return than the risk-free 0.25% via IOER, or
3. buy other assets with a higher risk-adjusted return than the risk-free 0.25 via IOER.

Option 3 would lead to a potential wealth effect – if banks buy stocks and the purchases push up the stock prices. Option 2 likely depends on the demand on loans, since supply of loans is unlikely to be the constraint with economy on recovery. I suppose either case would lead to potential inflationary pressure. 

Random: Iraqi Business Man is the New Nigerian Prince?

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While checking my spam email box, this version of the Nigerian Prince scam caught my eyes:

According to Wikipedia on the topic:

One reason why Nigeria may have been singled out is because of the comical, almost ludicrous nature of the promise of West African riches from a Nigerian Prince. According to Cormac Herley, a researcher for Microsoft, “By sending an email that repels all but the most gullible, the scammer gets the most promising marks to self-select.”^[18]

To that logic – it would seem to me that the Iraqi businessman story is more plausible.

Analysis gold prices for next week december 17-21 2012

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Analysis gold prices for next week december 17-21 2012 : The gold price has dropped for the third week running as investors head into equity markets in the hope the world economy will improve next year. Gold struggled to rise above $1,700 an ounce on Friday after an almost 1% decline on Thursday.

The move was driven by brighter news out of Asia, which traders hope will drive a global recovery next year. A snapshot of China's vast manufacturing sector underlined a brighter outlook for the economy in coming months, while a state-backed thinktank has forecast that China will grow by 8% next year – above the likely government target.

Traders are now getting into position for the new year with the view that equity markets will surge. Demand for gold – seen as a defensive investment amid falling equity markets – is therefore weakening.  The extent of the fall is exaggerated by year-end positioning. Where do you want to be for the beginning of next year? People have been looking at riskier markets like equity markets and thinking taking a defensive position in gold is not the best thing one can do."

Concerns about the US fiscal cliff, he said, have eased, with the majority of people expecting a resolution towards the end of the year or in the first week of January. "You can see [gold] easily rallying back, as we get closer to year-end, if nothing is done on the US fiscal cliff."

But the gold price is still 9% higher than it was at the start of the year, driven by uncertainty about the global economy and the extent of money printing undertaken by central banks across the globe.Printing money devalues the price of currencies. Because you can't print gold or debase it, the value of gold should go up. It's seen as a store of value.we expects the price of gold to recover again next year as central banks, such as the ECB, undertake more bond-buying operations to prop up their economies.

Gold’s sell-off on renewed concerns about the looming ‘fiscal cliff’ is overdone. Yes, a recession would be negative for gold, but the Fed’s continued commitment to easy money is the overwhelming driver for gold,

I am see still overall bearish on gold prices because the market hasn’t taken out $1,725, for next week he’s neutral on direction. “I am looking for a test of $1,675 next week but expect the market to hold. A close below $1,675 opens the door and paves the way for a move down to $1,650.

Kitco News Gold Survey
Opinions about the direction of gold prices next week are divided in the weekly Kitco News Gold Survey, with bulls outnumbering bears and those seeing sideways trading, but not enough of them to score over 50% of the survey.

In the Kitco News Gold Survey, out of 33 participants, 26 responded this week. Of those 26 participants, 12 see prices up, while five see prices down and nine are neutral or see prices moving sideways. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Those who see higher prices said they expect gold will bounce off the lows established around November at $1,675 an ounce as they expect buying interest will materialize there. They remain bullish on gold even after the metal’s surprise sell-off after this week’s announcement by the Federal Open Market Committee to add monetary stimulus to the U.S. economy.

Participants who are neutral on prices or see sideways action said either they have moved to the sidelines on gold heading into the last full trading week of the year, waiting for more normal trading conditions to resume next year. Others said given the likelihood of lighter volume and no fresh information, prices are likely to trade between $1,675 and $1,725, with prices likely to hew closer to $1,700.

analysts surveyed by Bloomberg
Sixteen of 28 traders and analysts surveyed said gold would advance next week and nine were bearish. Bullion rose 8.5 percent to $1,696.75 an ounce in London this year. Holdings in gold-backed exchange-traded products reached a record 2,629.968 tons on Dec. 13, data compiled by Bloomberg show.

Gold is poised for a 12th consecutive annual gain as central banks from Europe to China pledge more steps to boost growth. The Federal Reserve said Dec. 12 it will expand stimulus by buying $45 billion a month of Treasury securities from January. Chairman Ben S. Bernanke said the latest measures won’t offset the effects of the so-called fiscal cliff of spending cuts and tax increases scheduled to start in January.

The S&P GSCI gauge of raw materials dropped 9.4 percent since reaching a five-month high on Sept. 14, and is heading for its worst performance since 2008. The Washington-based International Monetary Fund cut its 2013 growth forecast twice since July, to 3.6 percent.

For the latest updates PRESS CTR + D or visit Stock Market news Today

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European stock market and Italian bonds down dec 11 2012

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Stock market today - European stock market and Italian bonds down dec 11 2012 : European shares and Italian bonds edged lower on Tuesday as political turmoil in Italy weighed on confidence, but moves were subdued as investors waited for German confidence data later and the U.S. Federal Reserve's end of year meeting.
Following some disappointing euro zone data this month, the ZEW survey of German business sentiment will be released at 0900 GMT, with investors hoping for signs of a pick up in confidence.

Markets were rattled on Monday by Italian Prime Minister Mario Monti's announcement he would step down early, and the pan-European FTSEurofirst 300 share index dipped 0.1 percent as trading resumed with concern continuing to weigh.

London's FTSE 100, Paris's CAC and Frankfurt's DAX started mixed, while Milan's FTSE MIB lost another 0.2 percent following Monday's sharp drop.

"There's no doubt Monti's resignation raised some concerns," said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank.

The other main focus for investors is the Federal Reserve meeting on Wednesday. It is expected to extend its asset purchase scheme and commit to buy $45 billion of U.S. debt per month.

On the bond market, German Bund futures opened slightly stronger, with focus for the session likely to be back on Italian politics. Bund futures were 10 ticks higher at 145.71 while Italian bonds continued to hurt, with yields up 7 basis points to 4.88 percent.

Late on Monday Monti had played down market fears over his decision to resign, saying there was no danger of a vacuum ahead of an election in the spring.

The comments helped the euro find some support, as it hovered above a two week low at $1.2945, up around 0.1 percent from late U.S. levels.

Source : www.reuters.com For the latest updates PRESS CTR + D or visit Stock Market news Today

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Wheat, Gold, oil, Corn, Copper Prices dec 11 2012

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Wheat, Gold, oil, Corn, Copper Prices dec 11 2012 : The Standard & Poor’s GSCI gauge of 24 commodities climbed 0.1 percent to 631.90 at 4:53 p.m. Singapore time. The UBS Bloomberg CMCI index of 26 raw materials climbed 0.04 percent to 1,577.988.

CRUDE OIL

Oil traded near the lowest close in almost a month in New York on speculation that a government report this week will show fuel stockpiles increased in the U.S., the world’s biggest crude consumer.

Crude for January delivery was at $85.71 a barrel in electronic trading on the New York Mercantile Exchange, up 15 cents, at 3:25 p.m. Singapore time. The contract slid 37 cents to $85.56 yesterday, the lowest close since Nov. 15. Prices have fallen 13 percent this year and are headed for the first annual decrease since 2008.
OIL PRODUCTS

Asia fuel oil swaps falls to the lowest level in a month. Gasoil swaps also decline.

• Fuel Oil • High-sulfur fuel oil swaps for January drop $6 to $606.50/ton at 10:28 a.m. Singapore time, according to PVM Oil Associates, the lowest since Nov. 9 • Crack spread, or HSFO’s discount to Dubai crude, little changed at $7.14/bbl • Feb. swaps trade at $2.75/ton premium to Jan. swap • Viscosity spread unchanged at $11/ton

• Middle Distillates • Jan. gasoil swaps falls 95 cents to $122/bbl, lowest since Nov. 16, PVM data show • Gasoil crack to Dubai unchanged at $19.35/bbl • Jet fuel regrade is at discount of 45 cents/bbl, meaning jet- kerosene is selling for less than gasoil
BASE METALS

Copper declined for the first time in three days as China’s output rose to a record in November and a rally to the highest in seven weeks prompted some investors to sell before the U.S. Federal Reserve policy meeting.
PRECIOUS METALS

Gold dropped for the first time in four days as some investors sold the metal after prices climbed to a one-week high amid speculation the U.S. Federal Reserve will expand monetary stimulus to boost the economy.

Spot gold fell as much as 0.4 percent to $1,706.95 an ounce before trading at $1,709.25 at 2:58 p.m. in Singapore. Bullion rallied to $1,717.36 yesterday, the most expensive since Dec. 3, as the dollar weakened.

Cash silver fell 0.6 percent to $33.075 an ounce, also dropping for the first time in four days. The metal climbed to a one-week high of $33.435 an ounce yesterday.
GRAINS, OILSEEDS, SOFT COMMODITIES

Wheat dropped to the lowest level in almost two months before a U.S. Department of Agriculture report today that may show smaller global stockpiles. Corn fell.

Wheat for delivery in March lost as much as 0.7 percent to $8.43 a bushel on the Chicago Board of Trade, the lowest price for the most-active contract since Oct. 15. Futures traded at $8.44 a bushel at 4:10 p.m. Singapore time.

Corn for March delivery lost as much as 0.5 percent to $7.2625 a bushel, before trading at $7.2675. Futures earlier gained as much as 0.3 percent to $7.32 a bushel. Soybeans for January delivery rose 0.2 percent to $14.7725 a bushel.

Palm oil fell for the first time in four days on speculation that a rally may fail to drain record stockpiles in Malaysia, the second-largest producer.

The contract for February delivery lost as much as 1.2 percent to 2,286 ringgit ($747) a metric ton on the Malaysia Derivatives Exchange, and was at 2,288 ringgit at 3:26 p.m. in Kuala Lumpur. Futures are heading for a 28 percent drop this year, the worst annual loss since the financial crisis in 2008. Rubber declined from a two-month high as some investors sold before a meeting of the U.S. Federal Reserve that may consider expanding monetary stimulus. For the latest updates PRESS CTR + D or visit Stock Market news Today

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ASSA2013 Meeting Apps

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The ASSA have a meeting app for mobile devices with information on the various seminars. Just search for “ASSA2013” in your Android or iOS app store. The meeting app has both Android and iOS versions. You can find more details here: http://www.aeaweb.org/assa2013_app.php.

For other mobile devices (or using a web browser on your laptop), there’s also an webApp with similar features at http://ep65.eventpilotadmin.com/web/page.php?page=AgendaCategories&project=ASSA13. If, like me, you’re planning to use it on your laptop with a web browser, bookmark the ep65… link. You can also use the official link: http://ativ.me/assa to go there, but this link only routes you correctly if you’re accessing it using an mobile device.

Enterprise Products dividend growth analysis

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Enterprise Products dividend growth analysis :  Enterprise Products ( EPD ) has a market capitalization of $46.58 billion. The company employs 6,900 people, generates revenue of $44.313 billion and has a net income of $2.088 billion. The firm's earnings before interest, taxes, depreciation and amortization (EBITDA) amounts to $3.736 billion. The EBITDA margin is 8.43 percent (the operating margin is 6.45 percent and the net profit margin 4.71 percent).

Financial Analysis: The total debt represents 42.58 percent of the company's assets and the total debt in relation to the equity amounts to 119.94 percent. Due to the financial situation, a return on equity of 17.43 percent was realized. Twelve trailing months earnings per share reached a value of $2.85. Last fiscal year, the company paid $2.44 in the form of dividends to shareholders.
Market Valuation: Here are the price ratios of the company: The P/E ratio is 18.09, the P/S ratio is 1.05 and the P/B ratio is finally 3.79. The dividend yield amounts to 5.05 percent and the beta ratio has a value of 0.61.For the latest updates PRESS CTR + D or visit Stock Market news Today

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