Government-Backed Mortgage Giants

Daily Market Commentary for December 16, 2011

Six former executives at government-backed mortgage giants Fannie Mae (OTC BB: FNMA.OB) and Freddie Mac (OTC BB: FMCC.OB) have been accused of securities fraud by the Securities and Exchange Commission. (read more at Millennium-Traders.Com)
http://www.millennium-traders.com/ne...ommentary.aspx

Credit negative watch ratings has been placed on Belgium, Cyprus, Ireland, Italy, Slovenia and Spain by Fitch Ratings. The move indicates that downgrades could be issued some time in the next three months. Fitch made the move due to what it called the lack of "a comprehensive solution" to the Euro zone's debt dilemma, which has affected markets around the world over recent months.

Comments from Dallas Federal Reserve President Richard Fisher consisted of reiterating his view that the central bank has done all it can to help the U.S. economy. He added that it's time for lawmakers to do their part. "Better that the Congress and the president - the makers of fiscal policy and regulation - roll up their sleeves and get to work", Fisher said in a speech in Austin, Texas. Fisher who is a voting member of the Fed's policy committee, objected to recent efforts of the central bank to lower interest rates by buying up debt and injecting more money into the economy. Fisher said there's plenty of money available if businesses want to expand, but that other concerns are holding them back. "The Federal Reserve has done everything it can, and more, to reduce unemployment without forsaking our sacred commitment to maintaining price stability," he said. Further Fed easing is the "wrong path to follow" and could do more harm than good. Fisher said he doubts such moves will "motivate the private sector to put people back to work" as well as, might even harm the central bank's creditability. He added that the domestic economy could be threatened by events overseas in Europe or China of which the U.S. has no control over. In 2012, Fisher will lose his vote as part of the regular rotation among the 11 regional Fed banks.

Labor Department reported prices paid by consumers for a broad range of goods and services were unchanged in November, mainly because of declining energy costs. Government data showed consumer price index was flat during November, on a seasonally adjusted basis. Overall inflation, which had spiked in early 2011, has begun to moderate in conjunction with declining prices of key commodities such as oil, that play a significant role in the cost of consumer goods and services. Consumer prices remain 3.4% higher compared to 12 months ago, down from a recent annualized high rate of 3.9% seen in June. Core rate of inflation rose 0.2% in November to mark the biggest increase since August. Core prices have risen 2.2% over the past 12 months, the largest year-over-year increase since 2008. The Federal Reserve views the core rate as a better indicator of long-term inflationary trends as it strips out volatile food and energy inputs. Lower inflation, combined with a slew of reports showing the economy gaining some momentum, could also allow the U.S. central bank to stand pat. One of several major factors contributing to an improved U.S. economy since an early-summer lull is the moderation in consumer prices. Lower inflation means Americans can buy more with the same amount of money, thereby improving living standards. Since consumer spending accounts for as much as 70% of U.S. growth, the economy could grow faster and adds jobs more rapidly. Inflation will have to ease further to reduce the financial strain millions have been experiencing. Over the past 12 months higher consumer prices have easily outstripped inflation-adjusted wage increases thus, Americans have had to make do with less. For example in November, adjusted for inflation, average hourly wages fell 0.1% to $10.22 with real wages haven fallen 1.5% since November 2010. The spike in inflation since the fall of 2010 was largely driven by higher energy prices. The energy index fell 1.6% in November after a 2.0% drop in October, as lower gasoline prices accounted for most of the decline. The price of energy remains 12.4% higher compared to one year ago. In November, food prices rose 0.1% largely because of higher prices for cereal, baked goods and non-alcoholic drinks. There has been a decline in cost of vegetables, fruit, dairy, meat, poultry and fish however, over the past 12 months, food prices are up 4.6%. The government’s “food at home” index, which excludes takeout orders and restaurant purchases, fell during November for the first time since June 2010. Over the past 12 months, shelter costs are up 1.8% while medical costs have risen 3.4%. The clothing index has jumped 4.8% in the past 12 months to its highest year-over-year level since 1991.


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