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November 11th, 2010 Michael McDonough Comments off

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The QE Trade Road Map From the Bloomberg Brief: Economics

November 3rd, 2010 Michael McDonough Comments off

When the Federal Reserve launched its unprecedented program of quantitative easing in early 2009, it was difficult to predict how various asset classes would react. Now, as the Fed considers a second round of asset purchases, the first program has left a blueprint of sorts behind that could be useful in predicting how markets might respond. The table here shows, as measured by R^2, how strongly the fluctuations in a variety of assets are correlated with the level of securities held by the Fed during the first six months of 2009. The table also displays the performance of these assets during the first half of 2009, as well as in the period since Fed Chairman Benjamin Bernanke’s Jackson Hole speech, where he laid out the case for additional quantitative easing.

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**This is an excerpt from the Brief published on 10/29/10**

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Future Updates

August 9th, 2010 Michael McDonough Comments off

I am now working as a full-time economist with Bloomberg LP, so I will only be able to make sparse updates to my personal blog.  The good news is you can still follow me on twitter where I will remain active:  http://twitter.com/M_McDonough

Thanks for reading!

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Categories: US Tags:

A Rare Divergence for GDP Forecasts Highlights Uncertainties

July 19th, 2010 Michael McDonough Comments off

Taking a random sampling of 2Q GDP forecasts for Bloomberg we can see the uncertainty facing the release schedule for 7/30.  Weaker than expected trade and and inventory data are the primary culprits behind the uncertainty, and I imagine more banks will revise down their forecasts as we move closer to the release.  Presently, I believe the market will be lucky to see the q/q annualized growth rate exceed 3.0%, and anticipate the release will come in closer to 2.7%.

Source: Bloomberg

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Categories: GDP, US Tags: ,

An Old Radio Piece

July 13th, 2010 Michael McDonough Comments off

An older piece I did on Bloomberg radio discussing the correlation between garbage and GDP.  I am more putting it up here, so I don’t lose track of the file…

Bloomberg radio 6-11-10

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Categories: GDP, US Tags:

More Seniors than Teens Now in the U.S. Labor Force

July 13th, 2010 Michael McDonough Comments off

**Story by Bloomberg’s Interactive Insight Desk…

U.S. employees old enough to retire are outnumbering their teenage counterparts for the first time since at least 1948 when Harry Truman was president, a sign of how generations are now having to compete for jobs.

Rest of the story and interactive graphics: http://www.bloomberg.com/insight/teens.html

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Categories: Labor Market, US Tags: , , ,

My Recent TV Hits

July 9th, 2010 Michael McDonough Comments off


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Categories: US Tags:

Car Sales in China a Victim of Tightening

July 9th, 2010 Michael McDonough Comments off

In a sign of China’s slowing economy passenger car sales in the country grew at the slowest pace in 15 months, moving off historic highs stoked by the country’s unprecedented fiscal stimulus. As the attached chart highlights, the spike in car sales was highly correlated to strong consumer lending growth catalyzed by the government’s stimulus package—bad news for the sector, and expectations of Chinese economic growth exceeding 10%. The Chinese government has already started, and is expected to accelerate, implementing tighter fiscal and monetary policies, which will have an adverse impact on new lending, auto sales, and general economic growth.

Chinese Car Sales vs. New Consumer Lending

Source: Bloomberg

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The IMF’s Delusions of Grandeur for China

July 8th, 2010 Michael McDonough Comments off

As everyone is aware—excluding possibly the IMF— the Chinese government has begun tapping the brakes on the country’s economic engine to prevent overheating and curtail inflationary fears.  With this in mind, the IMF surprised quite a few people yesterday increasing their 2010 growth forecast for China to 10.5% y/y from 10.0% in April; well above the current Bloomberg consensus forecast of 10.1%, which I believe holds more downside than upside risk.  Even more surprising was a downward revision to its 2011 forecast to 9.6% from 9.9%, which is likely also too optimistic, especially compared to the 9.25% Bloomberg consensus forecast.  The IMF seems to be underestimating the impact of government restrictions in the country’s real estate sector, the effect of European austerity on the country’s exports, and various other domestic lending restrictions.  Highlighting the downside risk facing the Chinese economy both this year and next, the government’s chief statistician was recently quoted as saying, “In a complex and changing world economic environment, domestic economic conditions are getting more uncertain and complex.”  The lesson here is don’t be surprised to see some disappointing numbers from China over the months ahead.  Keep your eye on the country’s weakening Purchasing Manager Indices, for clues toward future growth.

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Categories: Asia/China Tags: ,

Mortgage Delinquencies Point To Trouble Ahead

July 7th, 2010 Michael McDonough Comments off

Many investors hoped a modest decline and a leveling off in mortgage delinquencies the end of last year signaled a top for the index, but those hopes were dashed when delinquencies for all types of mortgage hit a new high during the first quarter.   Fears were further exacerbated yesterday when Lender Processing Services released their ‘Mortgage Monitor’ for May, which showed a 2.3% increase in total delinquencies, indicating the first quarter’s sharp rise may not have been a one off event.  Even more worrisome is the fact the according to LPS the amount of mortgages delinquent by 0 to 30 days rose 10% after showing some improvement during the first quarter.  According to the Mortgage Bankers Association (MBA) the national delinquency rate presently stands at 10.1%.  The rate for prime mortgages is 7.3%, and for subprime 27.2%, all of which rose during the first quarter.  Rising delinquency rates—likely due to significant under employment—means foreclosures will be a lingering issue well into the future.

Source: MBA

As an aside, it has been suggested that up to 31% of total foreclosures are actually strategic defaults, where buyers are underwater on their mortgages and essentially give up their homes to their lenders rather than paying off the mortgage now valued more than their home.  Surprisingly this could actually have a somewhat positive impact on the economy, although not the lenders, as it frees up cash flow for the borrower to consume other products—personal consumption is the largest component of U.S. GDP growth.

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