“WASHINGTON, Sept 20 (Reuters) – U.S. households increased their borrowing by the most since early 2008 in the second quarter, a development that could boost consumer spending and a lackluster economic recovery.

Household debt climbed $39.4 billion, the first gain in more than a year, to $13 trillion in the second quarter, the Federal Reserve said on Th ursday — just $2 trillion shy of the country’s total yearly economic output.

Economists said the rise in borrowing was an indication that the U.S. central bank’s accommodative monetary policy and easing financial market conditions were finally filtering through to the real economy.

“It’s encouraging news. With credit growth, one would expect to see an increase in spending and investment,” said Millan Mulraine, a senior economist at TD Securities in New York.

“While it may not necessarily be evident now, that is a sign that the recovery is likely to gain strength if this trend continues. The problem is, we are not getting strong job growth.” “

Just like letting the banks regulate themselves, the U.S. government is asking banks to help create a net against money laundering.

Full article

“Here’s a really interesting chart via Also Sprach Analyst showing the implementation of the various QE programs and market stresses.  The chart shows the Credit OAX Index as well as the VIX.  These are two well known stress indicators that spike when the markets are under duress.  QE1 and QE2 were implemented on the back of extreme market stresses.  Of course we all know what happened in 2008 and then the 2010 QE implementation came on the back of the Flash Crash and the spiraling of the Euro debt crisis.

But what’s most interesting to me is that the Fed has implemented the policy with the hopes of generating a “wealth effect” in the markets by pushing various asset prices higher with the hopes that this will create a virtuous cycle of people feeling wealthier, spending more and generating recovery.  I think that strategy puts the cart before the horse, but let’s say it actually works.  When would be the ideal time to implement such a strategy? ”

Full article

“Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s third round of bond purchases will probably fail to create jobs while risking higher inflation.

“I do not see an overall argument for letting inflation rise to levels where we might scare the market,” Fisher said Wednesday on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.”

Fisher, who doesn’t vote on monetary policy this year, opposed the Federal Open Market Committee decision last week to expand its holdings of long-term bonds with open-ended purchases of $40 billion of mortgage debt every month in a new round of quantitative easing. The Fed, led by Chairman Ben Bernanke, is seeking to boost growth and reduce 8.1 percent unemployment.”

Read more

“When it comes to predicting the outlook for stocks, you can quote Doris Day and Judy Holliday. Cry if you want to, the party’s over for stocks.

At least that’s the viewpoint of Paul La Monica, assistant managing editor for CNNMoney.

The Federal Reserve and European Central Bank have provided the spiked punch bowl that’s prompted the recent stock market boost. But they can’t keep the juice flowing much longer, warns La Monica. Take a step back and look at the ongoing challenges facing stocks and you wonder how they’ve done so well this year. ”

Read more

“Central banks around the world have taken steps to simulate their respective economies, but monetary policy won’t spur more robust global growth, Citigroup analysts say.

The U.S. Federal Reserve has said it will buy $40 billion worth of mortgage-backed securities a month from banks on an open-ended basis, a policy tool known as quantitative easing that pumps liquidity into the financial system to spur investing and job demand.

The European Central Bank (ECB) has unveiled a scheme to buy sovereign debt in the open market to lower borrowing costs in troubled countries, while the Bank of Japan recently announced plans to expand the size of a monthly bond-purchasing program to jolt its economy.”

Read more

“WASHINGTON—An insider of the secretive world of high-frequency trading is set to attack that industry Thursday on Capitol Hill, giving lawmakers a potential road map to address practices that critics say can put ordinary investors at a disadvantage and the financial system at risk.

Since rapid-fire trading firms now provide many of the buy and sell orders that support the market, investors are at the mercy of automated systems that can run amok during volatile times, according to Dave Lauer, who last year quit his job as a trader for an elite Chicago high-frequency trading outfit.

Mr. Lauer is part of a growing chorus of industry insiders blowing the whistle on approved trading techniques that they say are designed by the traders who derive the most benefit. Mr. Lauer is now a consultant on market-structure issues for Better Markets, a Washington, D.C., advocacy group funded by a hedge fund.

He plans to tell senators how he came to believe that high-speed trading has made the market less fair for many investors, according to his advance testimony for a Senate panel on computerized trading.”

Full article

New York is full of people who make big decisions about billions of dollars. To the person on the street, these decisions look rational, like something that’s part of a bigger plan.

But the course of true investing never did run smooth, and there are some traders who look to the stars to tell them what to do. Financial astrologers like Karen Starich say traders know they’re up against a lot of rich, smart people.

“They want to have that edge,” she says. “They want to know what the future is.”

Read the rest here.

“Nicholas Colas at ConvergEx plays off of Mitt Romney’s current PR troubles to point out that fund flows into ETFs have hit $47 billion for the third quarter, and goes on to predict that “ETF assets will explode” in the fourth quarter.

The $47 billion to hit in the third quarter so far is an acceleration from the first half of the year, when ETFs took in an average of $37.5 billion a quarter. Seventy-five percent of the third quarter money has gone into equity ETFs, and nearly half of that, $22.9 billion, into U.S. equities, Colas notes.

That’s not enough to offset the $40.3 billion that’s flowed out of traditional mutual funds,  he acknowledges.

The vast majority of ETF fund inflows went into so-called passive, or indexed, funds. Sector specific funds seeing the most inflows included financials, up $1.6 billion, and industrials, up $1.1 billion.

As for the fourth quarter:

“My most considered thought about Q4 2012 is that ETF assets will explode, posting further gains above and beyond even Q3’s accelerating AUM growth.  The largest driver of this expansion will be investors who wish to lock in the tax treatment of capital gains according to 2012’s regulations, rather than roll the dice on what may come in 2013 and future years.”

Full article

“The Federal Reserve should have waited for clearer signs of a flagging economy before launching its new bond-buying program, the head of the St. Louis regional Fed bank said, adding that he would have voted against it.

James Bullard, president of the St. Louis Fed, also told Reuters that he is sufficiently concerned about the risk of future inflation that he backs a controversial proposal by congressional Republicans for the Fed to return to having only a single mandate: preventing inflation.

The Fed currently has a dual focus on full employment and stable prices.”

Read more

“Mario Draghi sees reason to be “optimistic” about the euro-area financial crisis now that he’s committed the European Central Bank’s balance sheet to ending it.

That confidence depends on political leaders who have rarely missed an opportunity to miss an opportunity since Greece’s 2009 deficit blowout began upending the 17-nation euro zone. Their track record and the compromises required to put their promises into action leave Juergen Michels, chief euro- area economist at Citigroup Inc. (C) in London, skeptical.”

Full article

“Japan’s bond market is signaling the nation’s central bank won’t succeed in emulating theFederal Reserve in printing its way to an economic recovery.

Japan’s 30-year bond yield was 1.19 percentage points lower than for similar-maturity U.S. Treasuries on Sept. 14, the most since May 10 and suggesting little concern among investors that inflation will eat into the value of the yen-based debt. A Bloomberg News survey of economists showed that none anticipate inflation to meet the Bank of Japan’s 1 percent target through the end of March 2014.

Since Fed Governor Ben S. Bernanke unveiled open-ended bond purchases last week, expectations for U.S. price gains climbed to a 16-month high. The BOJ, which bolstered monetary stimulus at the end of a two-day meeting today, has so far failed to turn around a decade of falling prices that weighs on growth. Prime Minister Yoshihiko Noda has joined the deflation fight too, pledging to beat it within a year as he faces party elections on Sept. 21.

“There is a big difference in the degree of enthusiasm between the BOJ and the Fed,” said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co. “The BOJ just takes a wait-and-see attitude despite its inflation goal, while the Fed is striving to reduce unemployment.”

Full article

“The Federal Reserve’s decision to unleash a third round of bond purchases from banks to stimulate the U.S. economy will likely weaken the dollar and do little else, said Ed Moya, chief currency strategist for Trading Advantage, a leading trading education firm.

The Fed recently announced plans to buy $40 billion in mortgage-backed securities held by banks every month until the economy and labor market improve, a monetary policy tool known as quantitative easing (QE).

The announcement marks the third time the Fed has rolled out QE measures to jolt the economy since the 2008 financial crisis, with the first round seeing the Fed snap up $1.7 trillion in mortgage securities and the second round seeing the Fed buy $600 billion in Treasury securities held by banks.

QE aims to stimulate the economy by injecting the financial system full of liquidity via bond purchases that push down interest rates to encourage investing, job demand and stock market gains.

Fed Chairman Ben Bernanke claimed in a recent speech that past rounds of QE helped contribute to the creation of 2 million jobs; however, such tools carry diminishing returns and this latest round will likely do little to put jobless Americans back to work, Moya said.

“We’re ultimately going to see that it’s not going to be as effective as the first two and, ultimately, it’s just going to devalue the dollar,” Moya told Newsmax.TV in an exclusive interview.

Watch our exclusive video. Story continues below…”

Full article and video

“The International Monetary Fund (IMF) acknowledged on Monday it faced “serious challenges” in designing bailout programs for troubled euro zone countries mainly because it was restricted by the rules of the 17-member currency zone.

Analysts and some IMF member countries have expressed concern that the Fund has compromised on tough conditions in its bailouts in Europe where it has been part of a “troika” of international lenders in Greece, Ireland and Portugal.

But the IMF preliminary assessment found that the Fund actually had to impose extensive structural conditions on euro zone countries—where deep labor and market reforms were needed—compared to programs elsewhere.

“While it is difficult to judge whether all the conditions were critical, the increase in the number and depth of (Euro Area) conditions warrants scrutiny,” according to the review, which analyzed conditions attached to 159 IMF programs in the decade to September 2011.”

Full article

“BRATISLAVA (Reuters) – The European Central Bank has room to cut base interest rates below the current 0.75 percent if the economic situation warrants it, policymaker Jozef Makuch said on Tuesday.

“When it comes to lowering of interest rates, there is of course mathematically room for that… Whether the ECB will do so will be assessed at its future meetings,” Makuch told reporters as the Slovak central bank published new forecasts.

“It will be based on the current situation and future (economic) outlook… It makes no sense to speculate whether October, November, December.”

Full article

“European Central Bank Governing Council member Luc Coene said rising bond yields may force Spain into asking for aid and submitting to the ECB’s conditions for granting it.

If “markets see that Spain will not” ask for assistance, “then it will not last long before spreads will rise again, and then Spain will be somewhat forced to come back on its decision and submit to the conditionality program,” Coene said at a panel discussion in London yesterday.”

Full article

“European banks pledged last year to cut more than $1.2 trillion of assets to help them weather the sovereign-debt crisis. Since then they’ve grown only fatter.

Lenders in the euro area increased assets by 7 percent to 34.4 trillion euros ($45 trillion) in the year ended July 31, according to data compiled by the European Central Bank. BNP Paribas SA (BNP), Banco Santander (SAN) SA, and UniCredit (UCG) SpA, the biggest banks in France, Spain and Italy, all expanded their balance sheets in the 12 months through the end of June.”

Full article

“Credit Suisse has made an important point with respect to the Fed’s purchases of MBS. As we know, a mortgage borrower is long an option to prepay. That means a mortgage lender is short this same prepayment option. Therefore a buyer of MBS is an options seller and the Fed is in effect selling vol into the market.

CS: – It is important, in our view, that the Fed continue to sell volatility – explicitly or implicitly – into the markets. This is at the heart of its quest to reduce term premiums and hence term interest rates. Buying mortgages results in a direct sale of volatility (prepayment risk) to the public. Extending the rate guidance to “mid 2015” represents an implicit sale of volatility – the Fed is giving up the option to hike (arguments about the Fed’s ability to renege notwithstanding). ”

Full article

“The Federal Reserve’s attempt to stimulate the economy with a third round of quantitative easing will fail to prevent the country from sliding into a recession, says Robert Wiedemer, financial commentator and best-selling author of “Aftershock.”

To spur recovery, the Fed has announced plans to buy $40 billion in mortgage-backed securities held by banks a month, a monetary policy tool known as quantitative easing.

The Fed added it would continue to sell its short-term Treasury holdings in the market and buy longer-term instruments simultaneously, with the aim of further pushing down interest rates across the economy.”

Full video article

“Brazil’s central bank reduced reserve requirements to free up 30 billion reais ($14.9 billion) in credit as President Dilma Rousseff pushes banks to lower borrowing costs in the world’s second-biggest emerging market.

The measure came a week after Rousseff criticized Brazilian banks for overcharging for loans. Over the past year, the central bank has cut its benchmark rate by 500 basis points, more than all Group of 20 nations, though borrowing costs are still among the highest in the world. The average interest rate charged for personal loans stood at 36 percent in July.

“It was necessary for the reserve requirements to accompany structural changes” in the Brazilian economy, Aldo Mendes, the central bank director in charge of monetary policy, said in a phone interview after the measure was announced Sept. 14. “If the supply of credit increases, everything indicates that interest rates will fall.”

Full article