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Investors and Economists Agree: No QE3

“NEW YORK (CNNMoney) — More stimulus from the Federal Reserve would probably boost the stock market, but regardless, both investors and economists agree: They don’t want QE3.

In a CNNMoney survey of investment strategists, 93% said they don’t think the Federal Reserve should announce more stimulus at its next meeting. And 77% of economists surveyed agreed.”

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New Euro Bailout Fund Could Fall Short

 

“The new fund set up to bail out struggling euro zone economies may face a 150 billion euro ($189 billion) shortfall if Spain and Italy need a full bailout program before the end of 2014, according to analysts at Credit Suisse.

Yagi Studio | Digital Vision | Getty Images

However, its firepower could be significantly improved if the European Central Bank (ECB) intervenes in secondary bond markets – an outcome which has been rumored in recent weeks. (CNBC Explains: How Does the European Central Bank Work?)

The European Stability Mechanism (ESM) is one of the key pillars of euro zone leaders’ attempts to deal with the debt crisis which threatens to spread its tentacles ever further. It’s expected to come into force later this year, as a replacement for the European Financial Stability Facility (EFSF), if the German Constitutional Court rules positively on it on September 12th.”

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Citi Unit to Pull $410 Million From Paulson Hedge Funds

” The blows keep coming for hedge fund manager John Paulson, with Citi Private Bank deciding it will withdraw $410 million from Paulson & Co.’s flagship Advantage funds, according to people familiar with the decision.

Citi discussed its plan to pull capital from Paulson’s Advantage funds, which have recorded double-digit losses so far this year, on a Thursday morning call with its private bank advisers, said one of the people familiar with the decision, but who was not on the call.”

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What If the Fed Crushes the Long Term Yield Curve to 0-1% ?

“Matt Yglesias has a good piece on Slate about the Fed and inflation.  He asks if the Fed is really powerless to create inflation and mentions a point I have been saying since QE2 was implemented:

“The Fed could, on that view, simply buy all the outstanding debt in the country and then tear it all up. Wouldn’t that be a bonanza? “

So how could this work?  First, the reason why QE has been failing to a large degree is because monetary policy is about setting prices.  When the Fed sets the Fed Funds Rate target they name a price and essentially challenge the market to compete with them over that price.  The Fed could do the exact same thing at the long end of the curve.  They could come out and challenge the market to try to move the 30 year bond above 1% for instance. ”

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Hedge Funds Carry More Dry Powder, Placing Bets on Disaster

 

“Hedge funds are betting on a disaster hitting the financial markets within the next several quarters, with managers holding onto historic levels of cash.

That so-called dry powder gives them the cash they need to quickly jump in if markets sell off, according to numerous hedge fund managers and industry consultants.

“Most hedge funds I see are carrying lower market exposure than I’ve seen in some time,” said Brad Balter, founder of investment advisory firm Balter Capital Management. “This is not to say they are net short. They simply want to conserve their buying power and be ready for major opportunity sets that may arise.”

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Fed’s Bullard: Minutes Are ‘Stale,’ More Easing Isn’t Definite

“The Federal Reserve’s recently released minutes of a policy meeting that pointed to growing support for monetary-stimulus measures are a bit “stale” because the U.S. economy has appeared to improve in the last month, said Federal Reserve Bank of St. Louis President James Bullard.

The Fed’s minutes from its latest monetary policy meeting cited a need to roll out a new round of stimulus, likely quantitative easing, if the economy doesn’t pick up the pace of its recovery.

Quantitative easing, under which the Fed buys bonds such as Treasury holdings and mortgage-backed securities from banks, softens the dollar with the aim of kick-starting recovery and sends stocks and higher-risk assets climbing.”

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Dovish Hopes Rise for China as Private Survey Shows Manufacturing is Contracting More Than Expected

China’s manufacturing may contract at a faster pace in August, a private survey showed, signaling more monetary and fiscal stimulus may be needed to secure a second-half rebound in economic growth.

The preliminary reading was 47.8 for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics, after July’s final 49.3 figure. If confirmed, it would be the weakest level since November and extend to 10 months the longest run of readings below the expansion-contraction dividing line of 50 in the index’s eight-year history.”

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Fed Signals Readiness To Ease Without U.S. Growth Pickup

” Federal Reserve policy makers signaled readiness to boost record stimulus unless they are convinced the economy is poised to rebound. Recent signs of strength may not be enough to satisfy them.

Many members of the policy-setting Federal Open Market Committee said further action would probably be needed “fairly soon” without evidence of “substantial and sustainable” improvement in the recovery, according to minutes of the July 31-Aug. 1 meeting released yesterday in Washington.

“The burden of proof is to see a sustained pickup in growth and I don’t think we’re going to get that,” said Eric Green, a former economist at the Federal Reserve Bank of New York who is now global head of rates and foreign exchange research at TD Securities Inc. in New York.”

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In Huge Twist, Fed Doves Remain Dovish

WASHINGTON – Federal Reserve officials in their last meeting discussed a “number of policy tools” that the central bank might use to further stimulate the economy in the face of the weakening recovery, an official account released on Wednesday said, but they remained in wait-and-see mode.

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” the account of the meeting that ended Aug. 1 said.

With few signs of a substantial and sustainable strengthening evident this summer, the report will likely solidify investors’ expectations that the bank will take new measures this fall.

The participants in the meeting discussed a number of options to give more support to the economy, the minutes said. Those include keeping the federal funds rate near zero for a longer period than currently indicated. The Fed has said it will keep that rate low through 2014.

“It was noted that such an extension might be particularly effective if done in conjunction with a statement indicating that a highly accommodative stance of monetary policy was likely to be maintained even as the recovery progressed,” the meeting notes said.

“A few” members suggested “replacing the calendar date with guidance that was linked more directly” to the economy, or removing any guidance as to when the rate would increase.

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SEC Gives First Whistleblower Award – $50,000

NEW YORK (CNNMoney) — The Securities and Exchange Commission announced Tuesday that it had granted the first whistleblower award under a new program to a witness who helped stop a multi-million dollar fraud.

The agency did not identify the whistleblower or the case in question, but said the person will receive an award of $50,000. That equates to 30% of the total penalties collected so far by the SEC in the case, the maximum percentage allowable by law.

The whistleblower could receive additional payouts as the case progresses, the SEC said in a statement.

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Berkshire Hathaway Hits the Bid on $8.25 Billion Muni Bet

“Berkshire Hathaway terminated a large wager on the municipal-bond market five years early, the Wall Street Journal quoted a person familiar with the transaction as saying.

CNBC

In a quarterly regulatory disclosure filed this month, the Warren Buffett-owned company terminated credit-default swaps insuring $8.25 billion of municipal debt.

The paper said the early termination is deepening questions among some investors about the risks of buying debt issued by cities, states and other public entities.”

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Bundesbank Pours Cold Water Comments on ECB Bond Plan

“The Bundesbank holds to the opinion that government bond purchases by the Eurosystem are to be seen critically and entail significant stability risks,” the Frankfurt-based central bank said in its monthly report today. The new program “could be unlimited” and decisions about potentially far greater sharing of solvency risks should be taken by governments or parliaments, not by central banks, it said.”

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Bad Loans Rise in Spain to 9.42%, Second Worst Monthly Jump

Source

“MADRID (AP) — The Bank of Spain says the country’s bad loan rate shot up to a record of 9.42 percent in June, with more than €164 billion ($201.38 billion) in loans to households and businesses at least three months behind in their payments.

Spain announced in June that its banking sector, hit hard by a collapsed real estate bubble, needed a bailout. Up to €100 billion in money has been made available by the other members of the 17-country group that uses the euro, but has yet to be disbursed.

The increase from May was more than €8 billion, the second biggest monthly increase on record.

Spain is in its second recession in three years and the jobless rate is almost 25 percent. Many think it will end up requesting a full-blown sovereign bailout because of the government’s soaring borrowing costs.”

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Treasury Accelerates Withdrawal Of Fannie, Freddie Backing

“The U.S. Treasury Department today announced plans to accelerate its winddown of its backing of Fannie Mae and Freddie Mac.

Treasury amended its terms as conservator of the government-sponsored-enterprises. Treasury said the plan also includes a “full income sweep” for Fannie and Freddie.

The GSEs have been under conservatorship since 2008. Both Fannie Mae and Freddie Mac reported second quarter profits earlier this month.

Republicans in Congress have called for an end to the two taxpayer-owned companies, which now own or guarantee about 60 percent of U.S. home loans. Treasury Secretary Timothy F. Geithner has said he will propose a plan to overhaul housing finance that could include dismantling or altering Fannie Mae and McLean, Virginia-based Freddie Mac.”

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Credit Quality in China Worsens as Government Tells Banks to Speed Up Loan Process

 

China’s banking regulator told lenders to push developers for faster home sales, citing signs that credit quality is worsening, a person with knowledge of the matter said.

The China Banking Regulatory Commission told lenders they should also demand more collateral, or tell developers to sell projects or stakes, if the banks predict they’ll have difficulty repaying loans due within 12 months, the person said, asking not to be identified because the instructions aren’t public.”

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Merkel: Germany ‘is in line’ With the ECB’s Approach to Bailing Out Sovereign Debt

Chancellor Angela Merkel backed the European Central Bank’s insistence on conditions for helping reduce borrowing costs in indebted countries, saying Germany is “in line” with the ECB’s approach to defending the euro.

“Obviously time is pressing” on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track,” Merkel told reporters in Ottawa yesterday at a joint press conference with Canadian Prime Minister Stephen Harper. Euro-area policy makers “feel committed to do everything we can to maintain the common currency.”

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