Citi Economic Surprise Index - Operation Twist announced last Sept when index went negative. Index went negative in March , now at negative 53.60 - another surprise from the Economic Surprise Index - part time workers are fount of job growth ! After yesterday's horrid NFP numbers and recent bad numbers for the economy generally , calls for QE 3 being rolled out at the Fed's June meeting predictably have commenced in earnest - note the calls for extending Operation Twist from Reinhart and Rosengren. But there's a slight problem with extending Operation Twist as they suggest.....And if there isn't QE 3 announced in less than three weeks - watch out below ! .

http://soberlook.com/2012/06/hidden-surprise-in-us-employment-report.html

( if QE is supposedly positive for job creation , why are full time jobs going away while part timers spike ? )

FRIDAY, JUNE 1, 2012

A hidden surprise in the US employment report

Today's employment report brought with it all sorts of negative economic surprises, creating a sharp drop in the Citi Economic Surprise Index.

Citi Economic Surprise Index

Bloomberg: - The Citigroup Economic Surprise Index for the U.S., which measures how much data is missing or beating the median estimates in Bloomberg surveys, fell to minus 53.6, the lowest since September. It turned negative this year in April after remaining above zero since October. The Federal Reserve announced a program dubbed “Operation Twist” to boost growth on Sept. 21, 2011, four months after the index turned negative.

One of the worst surprises buried in the report however was the fact that all the job growth came from increases in part-time jobs. The number of full-time jobs actually declined significantly.

WSJ: - ... the job growth is coming entirely from workers getting part-time jobs. The number of Americans working full-time fell by 266,000 in May, erasing all the gains of the past three months. The total employment figure only rose because 618,000 more people got part-time jobs. Many of those people would rather be working full-time: The number of people classified as “part time for economic reasons” — meaning they’re working part-time because they can’t find a full-time job — rose by 245,000 to 8.1 million.

and....

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/06/01/bloomberg_articlesM4WNSX0UQVI901-M4XW2.DTL#ixzz1wa26eTBW

June 1 (Bloomberg) -- Federal Reserve Bank of Boston President Eric Rosengren said the central bank should spur growth and cut unemployment by prolonging a program that lengthens the average duration of bonds on its balance sheet.

Continuing so-called Operation Twist beyond this month would help the Fed meet its congressional mandate to ensure full employment, Rosengren said in an interview with Bloomberg News before a Labor Department report that unemployment in May rose to 8.2 percent.

"That would have the impact of helping to reduce longer- term interest rates without expanding our balance sheet," Rosengren said yesterday. "If you were looking for something that would promote growth but didn't have an impact on our balance sheet, then certainly extending the maturity extension program would be a viable way forward."

Fed policy makers are scheduled to meet June 19-20 following a Labor Department report today that the economy added 69,000 jobs in May, the least in a year. Economists had expected the economy to add 150,000 jobs and the jobless rate to be unchanged at 8.1 percent, according to the median of a Bloomberg Survey.

Rosengren said that given his outlook for weak growth and no improvement in the unemployment rate, an extension of Operation Twist "would be a positive step that would provide some additional support to the economy and hopefully promote somewhat more rapid growth overall."

Cut Unemployment

To help reduce unemployment and boost the economy, the Fed cut its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities in two rounds of large-scale asset purchases.

The central bank started Operation Twist in September to reduce longer-term interest rates without expanding its balance sheet. Under the program the Fed sold $400 billion of Treasury securities with maturities of three years or less and used the proceeds to buy $400 billion of Treasuries with maturities of six years or more.

The Boston Fed Chief said any new accommodation would hinge on the Federal Open Market Committee reaching a consensus. Also, the form of any easing would "partly depend on how the consensus formed."

A second Operation Twist would be "limited in scope because it's limited by the amount of securities we hold," he said. "If you want to do something more substantial, then you would have to do it through greater clarity on communication or expanding the balance sheet," he said.

Record Low

The yield on the 10-year Treasury note tumbled 0.1 percentage point to 1.46 percent at 8:48 a.m. in New York. The yield reached a record low of 1.4387.

Low interest rates are not a barrier to easing because a further reduction in borrowing costs would still spark growth, Rosengren said.

A report yesterday showed initial jobless claims increased to 383,000, above the 370,000 expected by economists in a Bloomberg Survey. A gauge of business activity from the Institute for Supply Management Chicago Inc. fell to 52.7, the lowest reading since September 2009. Economists had expected a reading of 56.8 on the index.

Weaker economic reports prompted Rosengren's calls for further monetary stimulus, he said, citing his decision to advocate additional easing in a May 30 speech in Worcester, Massachusetts.

"We now know that our best estimate of first quarter GDP growth was pretty weak," he said, and reports on the labor market have been "quite weak."

"We're not actually picking up steam and some of the growth we were seeing at the beginning of the year might reflect more the unusual weather patterns," he said.

Rosengren, 54, was formerly the head of banking supervision and regulation at the Boston Fed and became its president in 2007. Fed presidents rotate voting on monetary policy, with Rosengren next holding a seat in 2013.

and....


http://www.businessinsider.com/reinhart-quantitative-easing-2012-6


Most people agree that yesterday's jobs report was a disaster.

To many, this just meant the chances of more quantitative easing had increased.  Surely, this is why gold prices spiked yesterday.

Vincent Reinhart, Morgan Stanley's chief U.S. economist, thinks there's an 80 percent chance that a new quantitative easing program is announced at the June 19-20 FOMC meeting.

"Slower employment growth, worsening strains in European markets, and a gloomier assessment of US politicians’ ability to steer clear of the impending fiscal cliff makes it likely that the Fed will mark down its already tepid forecast," he wrote in a note to clients yesterday.

Here's what he thinks it'll look like:

As our base case, we assume the Fed would purchase $525 billion in 10-year duration equivalents, $475 billion in par amount. We expect the program to last nine months and remove $53 billion par amount of securities from the market each month – in line with previous programs.

Morgan Stanley

Reinhart isn't alone in making at QE call.  Bank of America's Michelle Meyer thinks QE is inevitable.  The gold market also seems to agree that some form of monetary easing is on its way.

but extending Operation Twist can't work for the simple reason of lack of supply of ten year bonds to buy...

http://www.zerohedge.com/news/time-operation-twist-1-over-fed-will-have-quietly-completed-40-operation-twist-2-well.

By The Time Operation Twist 1 Is Over, The Fed Will Have Quietly Completed 40% Of Operation Twist 2 As Well

Submitted by Tyler Durden on 05/20/2012 21:36 -0400

• Ben Bernanke
 
• Ben Bernanke
 
• Bill Gross
 
• Goldman Sachs
 
• goldman sachs
 
• System Open Market Account
• Yield Curve

By the time Operation Twist (1) ends in just over 40 days time, on June 30, Fed Chairman Ben Bernanke, according to his previously announced "loose" target, will hope to have extended the average maturity of all bonds in the System Open Market Account (SOMA) to a record of roughly 100 months from 75 month at the onset of the program in October 2011. After all the sole purpose of Twist was to load up the Fed's portfolio with duration, forcing the rest of the market to shift its investing curve even further into risky assets, as the Fed will have effectively onboarded the bulk of securities in the 3-4% return interval. Now as we showed back in early April, hopes that the Fed will simply continue with Operation Twist 2 after the end of "season" 1, as suggested by some clueless "access journalists" who merely relay what they are told by higher powers, are completely misguided as the Fed simply does not have enough short-term securities (1-3 years) to sell, and would have at most 2 months of inventory for a continued sterilized operation. Which however, does not mean that the Fed can not be quietly ramping up its operations in the ongoing Twisting episode. Because as Stone McCarthy demonstrates, as of the past week, the Fed has already surpassed its 100 month maturity target of 100 months, and is at 102.82 months as of May 16. And this is with 6 more weeks of Twist to go: at the current rate of SOMA purchases, the Fed will have a total portfolio average maturity of just shy of 110 months by June 30 ! Which means that contrary to market expectations of what the Fed's own stated goal may have been, Bernanke will have gobbled up nearly 40% more long-dated Flow relative to estimates! In other words, Ben does not need to do a full blown Operation Twist 2 episode: by the time Twist 1 is over, he will have attained nearly 40% of the goals of the next potential sterilized operation.

Why is this important? Well, recall that over a month ago Goldman Sachs itself admitted what we have been saying for over 3 years: it is not stock that matters... it is flow. Recall the Goldman punchline:

    ...we have found some evidence that at the very long end of the yield curve, where Operation Twist is concentrated, it may be not just the stock of securities held by the Fed but also the ongoing flow of purchases that matters for yields...

And there you have it.

What the finding above means is that the Fed has been ramping risk assets, read the S&P even more than where it should have been, based on simple flow models, and that contrary to market expectations, the S&P500 should have been about 40% lower compared to where it will be on June 30 if the Fed has pursued its stated goal, and targeted solely a 100 month average maturity.

Which has a rather scary implication for the stock market: if and when Ben announces that Twist ends on June 30 with no successor program, stocks will immediately react, and realize that the Fed's SOMA account holds well more than the expected long-end, and that without further "flow" forcing more 30 year paper into the gaping maw of Bernanke, stocks will have no reason at all to maintain their prior epic surge (all else equal, which it won't be).

It also means that unless Bernanke is willing to see the stock market plunge ahead of the Obama re-election, which he isn't, or at least the President most certainly isn't, that the June Fed statement will be quite interesting, as not only will Bernanke have to maintain a program which is now uncovered to have been monetizing the long-end at a rate 40% higher than estimated, but will still have just two more months of capacity left for any potential future sterilized market propping experiments.

Which only leaves the Fed with one option: that of making Bill Gross, and all those others who are loading up on duration-sensitive securities which will benefit from an LSAP based episode, very, very happy. Of course, the list of such assets most definitely includes gold.

and Bill Gross of course says the Fed will have to go all in by purchasing MBS - which is how Gros has positioned Pimco for some time now.....

http://dailyreckoning.com/bill-gross-and-others-call-for-qe3/

05/09/12 St. Louis, Missouri – Good day. My first day back in the saddle went fairly well, the meetings were short and sweet — just the way I like them — and I got out of here at a decent time to get home and get my feet up. It was a busy day in the markets, and with no economic data to guide them, they continued to steer toward the dollar.

The currencies, metals, commodities and stocks are all on the run from the dollar this morning, all while people like Pimco’s Bill Gross and Jan Hatzius at Goldman Sachs are telling their customers to prepare for QE3, to combat a slowing U.S. economy.

Now, I don’t believe these two think QE3 is the answer that the Fed heads believe it is; I think they are simply doing what I’ve said all along, and that is telling people what we see. And with the Fed heads showing that they are bound and determined to keep the stimulus machine well oiled, they will once again feel that “they SHOULD do something.”

However, even though the thought of QE3 might be shared by a few, the rest of the market participants haven’t gotten the memo yet. The dollar is swinging a mighty hammer, and the risk takers, as I said yesterday, have all headed for higher ground. It’s a messy scene on the currency screens I have in front of me. The Japanese yen (JPY) is the only currency gaining versus the dollar this morning.

And for those of you new to class, QE is quantitative easing, and QE3 would be the third round of QE that the Fed heads implement. Now, I was told by someone that says he has friends in high places that the Fed will never call their next round of bond buying or monetizing the debt or — when you get right down to it — money printing. QE has become persona non gratis. So while we all know what they’re doing, they won’t call it QE.

And again, for those of you new to class, or a refresher for everyone else, the first two rounds of QE brought about higher stock prices, and a lower dollar against currencies and metals. So that’s why I say the dollar is rallying in the face of these comments from big-time analysts that QE3 is coming. Seems a little strange to me, how about you?

Read more: Bill Gross and Others Call for QE3 http://dailyreckoning.com/bill-gross-and-others-call-for-qe3/#ixzz1wduIN9vSYou know, while I believe that the Chinese will continue with their slow, general appreciation of the renminbi (CNY), I am having thoughts about 2008, when we saw the front of the storm. The Chinese basically held the renminbi steady until June 2010, when they announced that they would return to a general appreciation of the renminbi. Will the Chinese do that again, or have they already begun to go down in their bunker?

I ask this because the renminbi hasn’t posted a gain in over a week! Yes, we’ve seen this before, but given what I think is going on in the U.S. economy, and how badly the eurozone has stepped in the dookie, I can’t seem to get the thought that it could be 2008 all over again for the Chinese.

But let’s see, from August 2008 to June 2010, the renminbi remained steady Eddie versus the dollar, while 99% of the currencies lost ground to the dollar as a safe haven. So if that were to happen again, at least you have the potential opportunity to hold a currency that keeps your investment portfolio diversified with an allocation of an asset class that’s not dollar denominated, that holds its value in the face of dollar strength. I say “potential” because I don’t know any more than you do if this is will happen. It’s just my opinion, and I could be wrong!

So here’s the rundown this morning. The euro (EUR) has fallen below 1.30, as Greece can’t form a government and the Greeks will have to go back to the election booths. The Australian dollar (AUD) is still above parity, but is losing ground quickly, as Aussie Prime Minister Julia Gillard threw the A$ under the bus again by saying that the forecast for a budget surplus next year will allow for more interest rate cuts.

I have to stop for a minute here to say that I just don’t buy the Greek thing as the driver for further euro weakness. Initial weakness, yes… further weakness, no. It’s as if the markets are using it as an excuse to drive the euro down. Because the Greek election thing is what it is. And yes, it presents an “unknown,” which I’ve explained to you over the year that currency traders don’t like “unknowns.” But this “unknown” is more like a tempest in a teacup, for not having a Greek government doesn’t stop the eurozone as a whole from functioning.

Back to the blood in the streets — I mean the currencies and metals. Yesterday at one point, gold was down $40. It’s down another $15 this morning. Sure, go ahead and sell your gold — get that price down so that I can buy more at a cheaper price! The selling of gold, by some entity — either investors, hedge funds or governments — isn’t stopping the Chinese from buying more gold. Get this: Chinese gold imports from Hong Kong in the first quarter of 2012 (this year!) totaled 135.5 metric tons. In 2011, the first-quarter total was 19.7 metric tons

I’ve told you all quite a few times previous to this, but here goes. I truly believe that the Chinese are buying all this gold so that when they finally allow their currency to be backed by gold, in some percentage — it may not be 100%, but 25% — backing of gold, would, in my opinion, make the renminbi the most attractive currency in the world.

The Canadian dollar/loonie (CAD) lost its grip on parity to the U.S. dollar yesterday. I think traders have given up their hope on all the lathering up they got from Bank of Canada (BOC) Gov. Carney that interest rates would rise sooner than later. Canada saw some strong housing data yesterday that briefly provided a speed bump to the decline in the loonie, but eventually, the pull down from the U.S. dollar strength proved to be too much for housing data to offset.

But in case you’re keeping score at home, Canadian housing starts increased 14% in April, and like the U.S., the driver for housing starts is the multiple-family units.

The U.S. data cupboard is basically empty again today. Yesterday didn’t work out too well for the risk assets without data.

I saw this blip yesterday and it struck me as something that is important. The Federal Reserve said borrowing by U.S. consumers rose in March for the seventh month in a row. Total borrowing increased $21.4 billion, the biggest jump since November 2001.

Hmmm, very interesting, don’t you think? And they say that you can’t get a loan? Seems like we’re heading right back to where we were prior to 2008. But then, that’s just me, I guess.

Then this was sent to me by Scott Pluschau, from The New York Times. Here are the requirements to receive principal reduction on home loans at BOA:

“To be eligible for the principal reductions, homeowners will have to meet certain criteria, including: having a loan owned or serviced by Bank of America, owing more on the mortgage than their property is worth, and being at least 60 days behind on payments as of the end of January.”

OK, what do I get for continuing to honor the contract I signed with my lender? What kind of principal reduction do I receive for being good and continuing to pay on time? Have we really become a country of wimps? Take the easy way out? And what about BOA? Not that I have a problem with them, but what about giving these people some encouragement for making payments? Instead, we just give everyone the easy way out? I shake my head in disbelief of what has come of this.

recap: The dollar is swinging a mighty hammer in the face of top analysts calling for QE3 to be coming soon. Gold has really gotten whacked the past two days. China has slowed down their general appreciation of the renminbi. Is this 2008 again? U.S. consumers are borrowing at rates that haven’t been seen since 2001. Does that bother you like it does Chuck?

all of the calls for QE 3 this June or else - sets up markets for a major disappointment if the june meeting comes and goes without QE 3 being announced.....

http://www.zerohedge.com/contributed/2012-06-01/sorry-folks-qe-3-aint-coming-even-fed-doves-admit-it

Sorry Folks, QE 3 Ain't Coming... Even the Fed Doves Admit It

Submitted by Phoenix Capital Research on 06/01/2012 13:17 -0400

• Bank of New York
 
• Ben Bernanke
 
• Bill Dudley
• default
 
• European Central Bank
 
• Federal Reserve
• Federal Reserve Bank
 
• Federal Reserve Bank of New York
 
• Germany
 
• Greece
 
• International Monetary Fund
• New York Fed
 
• None
 
• recovery
 
• Unemployment
• William Dudley

Once again the US economy is tanking and everyone is talking QE 3. Sorry folks, it ain’t coming. Bernanke said point blank that it was less attractive as a monetary tool as far back as May ‘11.

Q. Since both housing and unemployment have not recovered sufficiently, why are you not instantly embarking on QE3? — Michael A. Kamperman, Waco, Tex.

Mr. Bernanke: “Going forward, we’ll have to continue to make judgments about whether additional steps are warranted, but as we do so, we have to keep in mind that we do have a dual mandate, that we do have to worry about both the rate of growth but also the inflation rate…

“The trade-offs are getting — are getting less attractive at this point. Inflation has gotten higher. Inflation expectations are a bit higher. It’s not clear that we can get substantial improvements in payrolls without some additional inflation risk. And in my view, if we’re going to have success in creating a long-run, sustainable recovery with lots of job growth, we’ve got to keep inflation under control. So we’ve got to look at both of those — both parts of the mandate as we — as we choose policy”

http://economix.blogs.nytimes.com/2011/04/28/how-bernanke-answered-your-questions/

Even the biggest monetary doves are now agreeing with Bernanke. Bill Dudley, of the New York Fed, who’s been braying for more QE for over a year had the following to say on Wednesday:

Fed's Dudley: If Growth Continues, More Fed Stimulus Unwarranted

The leader of the Federal Reserve Bank of New York repeated Wednesday his expectation that the U.S. central bank will not need to provide additional stimulus to the economy, even as he left the door open to further action.

Acknowledging the options before the central bank each have costs and benefits, New York Fed president William Dudley said "as long as the U.S. economy continues to grow sufficiently fast to cut into the nation's unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs."

http://online.wsj.com/article/BT-CO-20120530-712819.html

Folks if you’re buying into the whole QE 3 is coming on June 6^th  argument you’re out of your minds. This is an election year. If the Fed announces QE 3 now, Obama is done. Do you really think this is going to happen when even the Fed’s biggest doves are noting that the consequences of QE outweigh the benefits?

With that in mind, Europe will be collapsing as no one (not the ECB, not the IMF, not the ESM, and not even the Fed) will be stepping in to prop it up. The reason? NONE of these entities have the funds (Europe’s banking system is $46 trillion in size) to do so (bank runs are pushing leverage levels even higher in Spain, Greece and elsewhere).

Moreover, the political environments for their organizations (the US for the Fed and IMF and Germany for the ECB and ESM) will not permit a massive intervention. If the Fed cranks up the printing press, Obama loses any hope of re-election. If the ECB cranks up the printing press, Germany walks. End of story.

similarly consider this as not supporting June QE 3 ......

http://www.usanews.biz/2012/06/qe3-data-say-yes-treasury-yields-say-no.html

QE3? Data Say Yes, Treasury Yields Say No

 Michael Franzese, head of Treasury trading at Wunderlich Securities, says the market seems to have found a temporary home with 10-year yields around 1.5%. But he says the next major question is what the Fed will signal at the policy meeting later this month -- because even though weaker data is calling for more QE, yields at such depressed levels make any action less worthwhile. At this point, more stimulus would be more of a gesture to boost confidence. And many Fed officials have been quick to point out that it'd be one costly gesture.