Monday, August 31, 2009

Quick Notes for the Day - August 31

Thus Far, Fed, Treasury Have Made Money on Bailouts - Two Reports - In two completely separate reports, the Federal Reserve and the Treasury have made substantial sums in their efforts to stabilize the economy.

The Financial Times reported today that the Fed has made $14 billion in profits on loans made over the last two years citing officials close to the matter. Additionally, the Fed has also earned about $19 billion from interest and fees charged to institutions that tapped its liquidity facilities during the recent financial crisis. If the Fed would have invested the same amounted loaned out in three-month Treasury bills since August 2007 it would have earned $5 billion in interest according to the FT report. (Note - this report is an estimate and excludes company bailouts and purchases of long-term assets as well as unrealized gains or losses on the Fed's portfolio of mortgage-backed securities and Treasuries purchased as part of the $1.75 trillion asset purchase program.)

The New York Times also did some research and according to their estimates, the Treasury has made a profit of about $4 billion (about 15% annualized return) on the funds since eight of the biggest banks have fully repaid their obligations to the government. The newspaper stressed these initial returns don't represent a full accounting of the massive government rescue to support financial institutions and other companies during the credit crunch. The government is still on the hook for potential big losses from corporate bailouts, and the Treasury Department could face losses on mortgage guarantees, according to the article.

Chicago PMI Rises - The Chicago purchasing managers index (PMI) rose to 50 in August from 43.4 in July. This is the third straight rise in the index and is important because it did not show a contraction. Readings over 50% indicate overall business expansion.

Japan's Industrial Output, PMI Rise - Japan's Ministry of Economy, Trade and Industry reported Monday that the nation's industrial production index rose a seasonally adjusted 1.9% in July and beat expectations. Manufacturers' expectations showed the production index projected to rise 2.4% in August and 3.2% in September, though when surveyed last month, manufacturers had expected a 3.3% rise for August. Inventories, meanwhile, fell 0.2% on month in July, the seventh straight drop.

The Nomura/JMMA Manufacturing Purchasing Managers Index hit a seasonally adjusted 53.6 in August, up from the previous month's 50.4, marking the highest level since November 2006, according to Reuters. Reports cited the output index as rising to 58.7, up from 54.7. Figures above 50 represent a net expansion. However, the Reuters report added that the key export index, though gaining to 53.2 in August from 52.7 in July, had slowed its pace of growth.

Euro Zone CPI Falls - Eurostat reported on Monday that the consumer price index in the euro zone fell 0.2% in August from a 0.7% fall in July. The consensus forecast was -0.4%, before the data were released, the analysts said.

Dollar Regains Strength, Gold Falls - With the fall in equities in the Asian market Sunday night/Monday morning, the dollar strengthened against other currencies. The dollar is and has always been considered "a safe haven," so the move was expected based on the Asian trades. With the rise in the dollar, gold futures fell this morning by about 1.5%.

Happy Birthday Joe Rollins!

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