A Pod Cast With Bill Cheney From John Hancock Financial on The Consumer

Consumers worried but not panicked….

Today’s highlights: M, NTT, TEF, VIP, CLWR, WFMI & KUB

Some expect yields to move higher soon

By Daniel Kruger

May 13 (Bloomberg) — Investors are the most bearish on Treasuries since June amid concern the record pace of U.S. debt sales will erode demand, a survey of Bloomberg users showed.

Participants forecast higher Treasury yields over the next six months as the U.S. government finances bank bailouts, economic stimulus plans and fund a record budget deficit, according to 1,361 respondents from New York to Tokyo to London in the Bloomberg Professional Global Confidence Index.

Treasuries are suffering their biggest losses since 1994 this year as issuance increases and investors turn to higher- yielding assets on signs the worst of the recession is over. U.S. government debt has lost 3.3 percent since December, after posting a gain of 14 percent in 2008 as investors sought a refuge from losses on securities tied to subprime mortgages, according to Merrill Lynch & Co.’s U.S. Treasury Master index.

“You have the tug of war going on between supply and the stabilization of the economy,” said Sean Simko, a survey participant who oversees $8 billion at SEI Investments Co. in Oaks, Pennsylvania. “As the economy continues to get better you’re seeing money move out of the Treasury market.”

Yields on 30-year bonds rose to an almost six-month high of 4.36 percent on May 8 from 3.55 percent two months ago. Ten-year yields surged to 3.38 percent from 2.46 percent on March 19. The 3.125 percent note due in May 2019 yielded 3.17 percent yesterday in New York, according to BGCantor Market Data.

The government will sell $3.25 trillion of debt in the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc., one of the 16 primary dealers that trade with the Federal Reserve and are required to bid on Treasury auctions.

Bond Bears

Unemployment in the U.S. grew by the smallest amount since October last month. Payrolls fell by 539,000, after a 699,000 loss in March, while the unemployment rate rose to 8.9 percent, the highest level since 1983, the Labor Department said May 8. The Commerce Department said the same day wholesalers reduced supplies of unsold goods for a seventh month in March.

The index of expectations for long-term Treasury yields rose to 67.2 from 59.66 in April. The measure is a diffusion index, meaning a reading above 50 indicates participants expect yields to rise. Participants were last more bearish on the debt in June, when the index was 70.76. Bloomberg began compiling the data in December 2007.

Participants were least optimistic on Germany’s long-term rates, with the index increasing to 68.75 from 50. French, Italian and Spanish participants were pessimistic on bonds for the first time since July.

‘Under Pressure’

Confidence in the global economy rebounded to 38.72, the highest level since the poll began, from 21.20 in April, according to the Bloomberg survey.

“Things are turning around better than people anticipated,” said Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Inc., the world’s largest broker of exchange-traded futures. “Nothing gets better overnight. Treasury yields will continue to be under pressure going forward.”

President Barack Obama’s $787 billion stimulus plan, which includes tax cuts, infrastructure spending and a goal to create or save 3.5 million jobs, will drain the budget, a Bloomberg News survey of economists from May 4 to May 11 showed. The federal deficit may jump to 12.2 percent of gross domestic product this year, more than prior estimates. Forecasts for 2010 and 2011 also exceeded last year’s 5.8 percent share.

Central Banks

Economists surveyed estimate the economy will contract 1.95 percent in the second quarter of this year, compared with a 6.1 percent annual rate in the first three months of 2009.

Sentiment has improved after global governments and central banks beefed up efforts to combat the worst economic crisis since the Great Depression. The European Central Bank joined policy makers at the Fed, the Bank of England and the Bank of Japan in saying it will buy debt securities.

The ECB last week cut its key interest rate to 1 percent, a record low, and announced it will buy 60 billion euros ($80 billion) of covered bonds. The policy, known as quantitative easing, effectively prints money to reflate the economy.

The Fed has bought $101.7 billion of Treasuries and $430 billion of mortgage securities in an effort to bring down borrowing costs in the U.S., particularly for home loans to revive the housing market.

“For a while people thought the Fed would be more aggressive to keep a lid on” yields, said Carl Lantz, a survey participant and interest-rate strategist in New York at Credit Suisse Securities USA LLC. “As you get signs of green shoots and recovery in risky assets, the Fed feels less pressure to embark on an expanded easing program.”

Related Link: Taylor Rules

Now I lay you down to sleep ($)….

By Mark Felsenthal and Alister Bull

JEKYLL ISLAND, Georgia (Reuters) – A sharp critic of the Federal Reserve and prominent authority on monetary policy on Tuesday slammed the U.S. central bank for risking inflation and warned that government action had “caused, prolonged and worsened” the country’s financial crisis.

John Taylor, a former undersecretary of the Treasury for international affairs and author of the widely cited Taylor Rule of central banking, ran his own numbers for the U.S. economy and said the Fed’s monetary stance was way too loose.

“My calculation implies that we may not have as much time before the Fed has to remove excess reserves and raise the rate,” he said in remarks prepared for a financial markets conference hosted by the Federal Reserve Bank of Atlanta.

“We don’t know what will happen in the future, but there is a risk here and it is a systemic risk,” he said.

He noted a recent Financial Times report of internal Fed estimates using the Taylor Rule. This found interest rates should be minus 5 percent at the moment to compensate for the headwinds on the U.S. economy.

But Taylor said that his own analysis suggested a rate of 0.5 percent, indicating that the Fed could have a lot less time to raise interest rates than it may currently think.

In addition, the Fed has pumped hundreds of billions of dollars into the economy to support credit markets in the face of a severe U.S. recession, and may find it very hard to remove this expansion by shrinking its balance sheet in the future.

“While Federal Reserve officials say that they will be able to sell newly acquired assets at a sufficient rate to prevent these reserves from igniting inflation, they or their successors may face political difficulties in doing so.

“That raises doubts and therefore risks. The risk is systemic because of the economy-wide harm such an outcome would cause,” Taylor said.

Taylor used these cases to illustrate examples of where government intervention had magnified market failures and turned them into system-wide problems.

However, he saw much more risk coming from the planned U.S. government budget deficits, which could place the Fed under extreme pressure to allow inflation, as this would diminish the debt burden.

“The emphasis should be on proposals to stop the systemically risky budget deficits projected out as far as the eye can see, to exit from extraordinary monetary policy actions, and to end the bailout mentality,” he said.

Giving the Fed formal responsibility for ensuring the soundness of the broader financial system would interfere with the Fed’s task of ensuring stable and low inflation and sustainable economic growth, Taylor said. Congress is considering giving systemic risk oversight powers to a regulatory agency as a way to prevent the future financial crises.

“Locating a systemic risk regulator at the Fed is not a good idea because it would interfere with its essential monetary policy function,” Taylor said.

Taylor questioned whether a systemic risk regulator would have been able to prevent the financial crisis in the first place. For example, a systemic regulator would not have been able to prevent the Fed from holding rates low for so long, he said.

Who would dare take away triple A from the Fiat Empire ?

SINGAPORE (Reuters) – The United States is at risk of losing its triple-A credit rating unless it starts putting its finances in order, a former head of the agency in charge of fiscal accountability said in the Financial Times on Wednesday.

David Walker, former director of the Government Accountability Office, cited a warning from Moody’s Investors Service nearly two years ago about ballooning healthcare and social security costs.

“Signs are abound that we are in even worse shape now, and that confidence in America’s ability to gain control of its finances is eroding,” the former comptroller general and current chief executive of Peter G. Peterson Foundation, wrote to the FT.

His comments helped push the dollar index to a four-month low as investors refocused attention on rising U.S. debt issuance, traders said.

In a nutshell climate change is not caused by man ! The theory started with Thatcher to push nuclear. Early evidence now corrected became a persistent lie so that you’ll vote for this change. But like everything else this is a tax on you the people. $27 is just for starters.You bit; hook, line, & sinker. End of lesson!

Cap And Trade Will Raise Electric Bills By $27 A Month

By Jay Yarow

The Electricity Reliability Council of Texas ran an analysis of the likely effects from a cap and trade program, on behalf of the Public Utility Commission of Texas.

The results of their analysis aren’t very promising for cap and trade advocates or consumers.

For its reference case, ERCOT found that reducing carbon emissions to 2005 levels by 2013, a carbon permit will have to cost between $40 and $60 a ton. That means wholesale power costs will increase $10 billion and a typical consumer pays $27 a month extra. They assumed a $7/MMBtu natural gas price, expected load levels and the existing and committed level of wind and other generation to get to that price.

A few more findings:

* If natural gas prices rise to $10/MMBtu, as demand increases, because it’s cleaner than coal, the increase in power costs hit $20 billion.
* If energy use slips by 10%, then credits could cost $25 and $40, meaning that monthly bills jump by $17.
* If wind power jumps by 18,456 MW as hoped, with $7/MMBtu gas, to hit 2005 CO2 emission levels, wholesale power lifts $7 billion. Consumer bills raise $22.

As Environmental Capital points out, the ERCOT simulation is good because Texas has a diverse mix of energy sources including nuclear, wind, coal and natural gas, that are pretty much reflective of the nation as a whole.