Calm and Storm

Publié le par Jean-Pierre Chevallier

Calm and Storm

Americans work: unemployment rate is low at 4.7%.
They make money, spend and save. Everything is fine.
Their real wages do not increase, allowing contain core inflation below 2% but requires them to restrict their consumption.
The demand is low, also, so the GDP growth is low, around 2% from one year to another (it is below the optimal potential of 3.5%).
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The saving increases around 8% year-on-year. It does not increase further, which means Americans fear that their situation is deteriorating in the future, but without exaggeration. Their fears do not rise,
Figure 1: http://s3.archive-host.com/membres/up/2107676425/20071116US1M2M1.gif

GDP growth is low but not at zero, but it may yet decrease…
Figure 2: http://s3.archive-host.com/membres/up/2107676425/20071116US2FRM.gif

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Everything is calm but it is a storm in the financial sector!
Chairmen of banks know the real situation of their accounts, they do not communicate because it is bad (all impairments have not been published), and they believe that their competitors are in the same situation: they have no confidence in the banks and they do not lend them money.
The interbank market liquidity shortage, the Fed was forced to re-inject $47 billion on November 15! Against $50 billion on September 19, 2001.
Faced with such turbulence, free capital took refuge on shorter maturities: yields of 3-month to 2-year have dropped to 3.3% on November 15.
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In normal conditions, the yields of 3-month are expected to remain above the bar 4%, slightly below the 10-year (which should also fluctuate in this band between 4.0 and 4.25% as it made from 2002 to 2005),
Figure 3: http://s3.archive-host.com/membres/up/2107676425/20071116US3TX02.gif

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The policy pursued by the Fed chaired by Ben Bernanke is catastrophic: markets have more confidence, the volatility is very high,

Figure 4: http://s3.archive-host.com/membres/up/2107676425/20071116US4TX06.gif

The short yields will increase above 4.0% when the situation will improve because the capital return on equity markets after the rate cut from the Fed.
Good analysis fueling speculation winning
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The spread between yields on 10-year American and German fell to 2 basis points on Nov. 15, it means zero,
Figure 5: http://s3.archive-host.com/membres/up/2107676425/20071116US5SPGER.gif

Financial markets North Atlantic have joined! 
Figure 6: http://s3.archive-host.com/membres/up/2107676425/20071116US6GER.gif

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