Thursday, April 30, 2015

Fed Funds, Bernake's Response To Taylor's Rebuke, GDP, China's Looming RE Battle & Pay Vs. Performance

A summary of federal regulatory actions and government announcements for investors on Wednesday, April 29, 2015:

In perhaps the biggest news of the day, which turned into a non-event, the FOMC released a statement from its March meeting. It reads, "economic growth slowed during the winter months, in part reflecting transitory factors." It goes on to say, "To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate." So it appears the Fed is making no changes, but this was the same thing Yellen said at the last statement and then a few days later proceeded to spin a more progressive stance in a speech at the San Francisco Fed. This isn't over. Can't wait to see those minutes.

Ben Bernake published an interesting post today titled The Taylor Rule: A benchmark for monetary policy? In it he disagrees with John Taylor's public assertions that the Fed has not followed the rule. "The rule", as created by Stanford economist John Taylor himself, is intended to "describe the interest rate decisions of the Federal Reserve's Federal Open Market Committee (FOMC)." Taylor criticized the US for its policies at a recent IMF conference in which Bernake participated and this is what Bernake had to say in response.

The Bureau of Economic Analysis (BEA) announced that real GDP increased .2% in the first quarter of 2015. Many are saying this is the reason the FOMC statement was so conservative as GDP increased 2.2 percent in the fourth quarter. The largest decrease was in personal consumption which is ironic considering the decline in energy prices. That said, it isn't surprising that demand dropped off after the fourth quarter. The real question is where GDP goes from here.

The International Monetary Fund (IMF) published a fascinating working paper about China's residential real estate sector. It suggests that the sector has been softening since 2014 which is creating a buildup of inventory in may cities. The paper provides scenarios of demand and supply as well as the adjustment needed to work against an oversupply.  In other words, China may be on the verge of a housing crisis without some sort of central bank intervention. "Smaller cities, as well as those in the Northeast region, face more challenging demand-supply dynamics. The key will be to allow the adjustment to take place, while avoiding a too sharp of an economic slowdown."

The IMF also published a working paper that hits a little closer to home entitled Financial Crisis, US Unconventional Monetary Policy and International Spillovers. "We study", said the authors, "the impact of the US quantitative easing (QE) on both the emerging and advanced economies." The answer is interesting and ultimately, as to be expected, varied. "The heterogeneous effects from US QE measures indicate unevenly distributed benefits and costs."

SEC Chair Mary Jo White made a statement at an open meeting regarding two proposals to be added to the Dodd-Frank Act. The first rule has to do with cross-border swap rules; the second has to do with pay versus performance and the need for companies to disclose the relationship "between compensation actually paid to executives and company financial performance." White is known for being pro regulation and there are no surprises here. She ends the statement with a request that shareholders, companies, and other interested parties weigh in on the proposed rules as well so this will not be a closed ruling. Commissioner Luis A. Aguilar gave a statement as well and, for the most part, is in agreement with White. Not surprisingly, Commissioner Daniel M. Gallagher gave a dissenting opinion, which is consistent with his views against increased regulation.

A federal court ordered James Harvey Mason to pay a civil penalty and restitution totaling $5.5 million for commodity pool fraud. The U.S. Commodity Futures Trading Commission (CFTC) won the order against Mason of Graham, North Carolina, imposing a $1.67 million civil monetary penalty and restitution of $3.88 million in connection with forex commodity pool fraud. Mason purportedly raised over $5 million from over 500 investors. This is just one of many cases the CFTC has tried this year dealing with commodity pool fraud.

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