Stocks and Bonds

More stories

  • 125 Shares179 Views

    in Economy

    Meme Stocks and Archegos: Fed Calls Out Financial Weak Spots

    by

    The Federal Reserve painted a picture of a generally stable financial system, but one bubbling with risk-taking that merits attention.The Federal Reserve warned about financial stability risks emanating from frothy stocks and debt-laden hedge fund bets in its twice-annual report on potential vulnerabilities in the system, pointing to the rise of so-called meme stocks as one sign that risk-taking could be getting out of hand. More

  • 113 Shares179 Views

    in Economy

    ‘A Perfect Positive Storm’: Bonkers Dollars for Big Tech

    by

    The dictionary doesn’t have enough superlatives to describe what’s happening to the five biggest technology companies, raising uncomfortable questions for their C.E.O.s.In the Great Recession more than a decade ago, big tech companies hit a rough patch just like everyone else. Now they have become unquestioned winners of the pandemic economy.The combined yearly revenue of Amazon, Apple, Alphabet, Microsoft and Facebook is about $1.2 trillion, according to earnings reported this week, more than 25 percent higher than the figure just as the pandemic started to bite in 2020. In less than a week, those five giants make more in sales than McDonald’s does in a year.The U.S. economy is cranking back from 2020, when it contracted for the first time since the financial crisis. But for the tech giants, the pandemic hit was barely a blip. It’s a fantastic time to be a titan of U.S. technology — as long as you ignore the screaming politicians, the daily headlines about killing free speech or dodging taxes, the gripes from competitors and workers, and the too-many-to-count legal investigations and lawsuits.America’s technology superpowers aren’t making bonkers dollars in spite of the deadly coronavirus and its ripple effects through the global economy. They have grown even stronger because of the pandemic. It’s both logical and slightly nuts.The wildly successful last year also raises uncomfortable questions for tech company bosses, the public and elected officials already peeved about the industry: Is what’s good for Big Tech good for America? Or are the tech superstars winning while the rest of us are losing?Americans have more money in their pockets thanks to government stimulus checks and pandemic savings, and the tech giants are getting a significant share. Their combined revenue is equivalent to roughly 5 percent of the gross domestic product of the United States.Big Tech’s pandemic big bucks have an understandable root cause: We needed its services.People gravitated to Facebook’s apps to stay in touch and entertained, and businesses wanted to pay Facebook and Google, which Alphabet owns, to help them find customers who were stuck at home. People preferred to buy diapers and deck chairs from Amazon rather than risk their health shopping in stores. Companies loaded up on software from Microsoft as their businesses and work forces went virtual. Apple’s laptops and iPads become lifelines for office workers and schoolchildren.Before the pandemic, America’s technology superpowers were already influential in how we communicated, worked, stayed entertained and shopped. Now they are practically unavoidable. Investors have scooped up Big Tech shares in a bet that these companies are nearly invincible.“They were already on the way up and had been for the best part of a decade, and the pandemic was unique,” said Thomas Philippon, a professor of finance at New York University. “For them it was a perfect positive storm.”Times weren’t so good for these companies in the last economic rough patch. In the downturn from 2007 to 2009, Microsoft’s sales dropped slightly, and its stock price fell 60 percent from the fall of 2008 to March 2009, a low point for U.S. stocks. Google and Amazon each lost as much as two-thirds of their market value.One sign of how this time is different: Amazon’s revenue is growing much faster in 2021 than it did in 2009, when the company was one-fifteenth its current size. Sales in the first quarter rose 44 percent from a year earlier, and Amazon’s profits before taxes — which have never been exactly robust — more than doubled to $8.9 billion. Businesses are addicted to Amazon’s cloud computer services, where sales rose 32 percent, and shoppers can’t live without Amazon’s delivery. Investors love Amazon, too. The company’s stock market value has nearly doubled since the beginning of 2020 to $1.8 trillion.For the other tech giants, it’s as if their brief pandemic nosedive never happened. Advertising sales typically rise and fall with the economy. But as other types of ad spending shrank when the U.S. economy contracted last year, ad sales rose for Google and Facebook. The growth was even better for them in the first three months of this year.A year ago, analysts worried that Apple would be crippled as the pandemic gripped China, which is the hub of the company’s manufacturing operations and its most important consumer market. The fears didn’t last long. In the first three months of 2021, Apple’s revenue from selling iPhones increased at the fastest rate since 2012. Sales in mainland China, Taiwan and Hong Kong nearly doubled from a year earlier.Apple’s revenue from iPhone sales in the first three months of the year rose at the fastest pace since 2012.Agence France-Presse — Getty ImagesThe tech giants are not the only companies rallying in dark times. America’s big banks have also been on a tear. So have some younger technology companies, such as Snap and Zoom, the maker of the pandemic-favorite videoconferencing app. The crisis forced all sorts of businesses to go digital fast in ways that could help them thrive. Restaurants invested in online sales and delivery, and doctors went full bore into telemedicine.But the dictionary doesn’t have enough superlatives to describe what’s happening to the five biggest technology companies. It’s all a bit awkward, really. It’s rocket fuel for critics, including some regulators and lawmakers in Europe and the United States, who say the tech giants crowd out newcomers and leave everyone worse off.Big Tech companies say they face stiff competition that leads to better products and lower prices, but their bank statements might suggest otherwise. Facebook’s profit margins are higher now than they were before the pandemic.Some of their success is explained by the peculiarities of the pandemic economy. Some people and sectors are doing awesome, while other families are lining up at food banks and while companies like airlines are begging for cash. Unlike the stock market clobbering in the Great Recession, stock indexes in the United States have reached new highs.The tech superstars have also capitalized on this moment. Alphabet and Facebook have used the pandemic to cut back in places that matter less, such as promotional costs and travel and entertainment budgets. And the tech giants have generally increased spending in areas that extend their advantages.Alphabet is now spending more on big-ticket projects, like building computer complexes, than Exxon Mobil spends to dig oil and gas out of the ground. Amazon’s work force has expanded by more than 470,000 people since the end of 2019. That deepens the moat separating the tech superstars from everyone else.Big Tech is emerging from the pandemic lean, mean and ready for a U.S. economy expected to roar back to life in 2021. Meanwhile, there are still long lines at food banks. Some American workers who lost their jobs last year may never get them back. Housing advocates are worried that millions of people will be evicted from their homes. And being Big Tech is an invitation for everyone to hate you — but you do have towering piles of money. More

  • 125 Shares149 Views

    in Economy

    Fear of Inflation Finds a Foothold in the Bond Market

    by

    There is little evidence for a big jump in prices, but some economists and bond investors fear President Biden’s policies could lead to inflation.The so-called bond vigilantes may be back, 30 years after they led a sell-off in Treasury securities over the prospect of higher government spending by a new Democratic administration.The Federal Reserve has downplayed the risk of inflation, and many experts discount the danger of a sustained rise in prices. But there is an intense debate underway on Wall Street about the prospects for higher inflation and rising interest rates.Yields on 10-year Treasury notes have risen sharply in recent weeks, a sign that traders are taking the inflation threat more seriously. If the trend continues, it will put bond investors on a collision course with the Biden administration, which recently won passage of a $1.9 trillion stimulus bill and wants to spend trillions more on infrastructure, education and other programs.The potential confrontation made some market veterans recall the 1990s, when yields on Treasury securities lurched higher as the Clinton administration considered plans to increase spending. As a result, officials soon turned to deficit reduction as a priority.Ed Yardeni, an independent economist, coined the term bond vigilante in the 1980s to describe investors who sell bonds amid signs that fiscal deficits are getting out of hand, especially if central bankers and others don’t act as a counterweight.As bond prices fall and yields rise, borrowing becomes more expensive, which can force lawmakers to spend less.“They seem to mount up and form a posse every time inflation is making a comeback,” Mr. Yardeni said. “Clearly, they’re back in the U.S. So while it’s fine for the Fed to argue inflation will be transitory, the bond vigilantes won’t believe it till they see it.”Yields on the 10-year Treasury note hit 1.75 percent last week before falling back this week, a sharp rise from less than 1 percent at the start of the year.Not all the sellers necessarily oppose more government spending — some are simply acting on a belief that yields will move higher as economic activity picks up, or jumping on a popular trade. But the effect is the same, pushing yields higher as prices for bonds fall.Yields remain incredibly low by historical standards and even recent trading. Two years ago, the 10-year Treasury paid 2.5 percent — many bond investors would happily welcome a return to those yields given that a government note bought today pays a relative pittance in interest. And during the Clinton administration, yields on 10-year Treasurys rose to 8 percent, from 5.2 percent between October 1993 and November 1994.Still, Mr. Yardeni believes the bond market is saying something policymakers today ought to pay attention to.“The ultimate goal of the bond vigilante is to be heard, and they are blowing the whistle,” he said. “It could come back to bite Biden’s plans.”Yet evidence of inflation remains elusive. Consumer prices, excluding the volatile food and energy sectors, have been tame, as have wages. And even before the pandemic, unemployment plumbed lows not seen in decades without stoking inflation.Indeed, the bond vigilantes remain outliers. Even many economists at financial firms who expect faster growth as a result of the stimulus package are not ready to predict inflation’s return.“The inflation dynamic is not the same as it was in the past,” said Carl Tannenbaum, chief economist at Northern Trust in Chicago. “Globalization, technology and e-commerce all make it harder for firms to increase prices.”What’s more, with more than nine million jobs lost in the past year and an unemployment rate of 6.2 percent, it would seem there is plenty of slack in the economy.That’s how Alan S. Blinder, a Princeton economist who was an economic adviser to President Bill Clinton and is a former top Fed official, sees it. Even if inflation goes up slightly, Mr. Blinder believes the Fed’s target for inflation, set at 2 percent, is appropriate.“Bond traders are an excitable lot, and they go to extremes,” he said. “If they are true to form, they will overreact.”Indeed, there have been rumors of the bond vigilantes’ return before, like in 2009 as the economy began to creep out of the deep hole of the last recession and rates inched higher. But in the ensuing decade, both yields and inflation remained muted. If anything, deflation was a greater concern than rising prices.It is not just bond traders who are concerned. Some of Mr. Blinder’s colleagues from the Clinton administration are warning that the conventional economic wisdom hasn’t fully accepted the possibility of higher rates or an uptick in prices..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Robert E. Rubin, Mr. Clinton’s second Treasury secretary, echoed that concern but took pains to support the stimulus package.“There is a deep uncertainty,” Mr. Rubin said in an interview. “We needed this relief bill, and it served a lot of useful purposes. But we now have an enormous amount of stimulus, and the risks of inflation have increased materially.”Mr. Rubin acknowledged that predicting inflation was very difficult, but he said policymakers ought to be ready to fight it. “If inflationary pressures do take off, it’s important to get ahead of them quickly before they take on a life of their own.”The Federal Reserve has plenty of options. Not only is it buying up debt, which keeps yields down, but the Fed chair, Jerome H. Powell, has called for keeping monetary policy relatively loose for the foreseeable future. If higher prices do materialize, the Fed could halt asset purchases and raise rates sooner.“We’re committed to giving the economy the support that it needs to return as quickly as possible to a state of maximum employment and price stability,” Mr. Powell said at a news conference last week. That help will continue “for as long as it takes.”While most policymakers expect faster growth, falling unemployment and a rise in inflation to above 2 percent, they nonetheless expect short-term rates to stay near zero through 2023.But the Fed’s ability to control longer-term rates is more limited, said Steven Rattner, a veteran Wall Street banker and former New York Times reporter who served in the Obama administration.“At some point, if this economy takes off bigger than any one of us expect, the Fed will have to raise rates, but it’s not this year’s issue and probably not next year’s issue,” he said. “But we are in uncharted waters, and we are to some extent playing with fire.”The concerns about inflation expressed by Mr. Rattner, Mr. Rubin and others has at least a little to do with a generational angst, Mr. Rattner, 68, points out. They all vividly remember the soaring inflation of the 1970s and early 1980s that prompted the Fed to raise rates into the double digits under the leadership of Paul Volcker.The tightening brought inflation under control but caused a deep economic downturn.“People my age remember well the late 1970s and 1980s,” Mr. Rattner said. “I was there, I covered it for The Times, and lived through it. Younger people treat it like it was the Civil War.”Some younger economists, like Gregory Daco of Oxford Economics, who is 36, think these veterans of past inflation scares are indeed fighting old wars. Any rise in inflation above 2 percent is likely to be transitory, Mr. Daco said. Bond yields are up, but they are only returning to normal after the distortions caused by the pandemic.“If you have memories of high inflation and low growth in the 1970s, you may be more concerned with it popping up now,” he said. “But these are very different circumstances today.” More

  • 125 Shares199 Views

    in Economy

    Bernadette Bartels Murphy, Pioneering Wall Street Trader, Dies at 86

    by

    Starting out as a secretary, she became a sought-after financial adviser in a male world and found a national platform for her views on public television.Bernadette Bartels Murphy, a rare woman on Wall Street in the 1950s whose work as a trader helped legitimize a once-derided approach to anticipating market trends, making her a respected voice in the financial world and giving her a platform on television, died on March 3 in Nyack, N.Y. She was 86.Her death was confirmed by her niece Mary Ann Bartels. Ms. Murphy died at her niece’s home.Ms. Murphy began her career at the investment bank Ladenburg Thalmann & Co. as a secretary — one of the few roles then available to women in the financial industry. But over time she became a trader and analyst who found a national audience as a regular panelist on Louis Rukeyser’s long-running “Wall Street Week,” a public television side gig of hers for 25 years.Toiling as a secretary, Ms. Murphy found that it was the work of the traders on her desk that interested her more. She began studying the movements of stocks and the overall market as a way to anticipate future trends, an approach known as technical analysis.At the time, that method of anticipating market movements was looked down on by traditionalists, who favored an approach called fundamental analysis: forecasting a shift in a stock price by gleaning the intrinsic value of a company and its shares. They referred, often derisively, to technical analysts as “chartists,” for the graphs and data tables they pored over to make their forecasts.“I had to keep my charts in the bottom drawer of my desk,” Ms. Murphy recalled in a 1992 interview with an industry magazine. “In those days, technical analysis was not considered an acceptable discipline, not in a conservative firm.”To learn more, she took classes at the New York Institute of Finance and began creating her own charts. She used the trading floor around her as her training ground, soaking up information on the interactions between the various markets her firm worked in, like corporate and municipal bonds, equities and trade orders from overseas. (After Ladenburg she went on to work for two more Wall Street firms.)She also started sharing her ideas with co-workers and industry contacts in a newsletter, “This Is What I Think,” which became her calling card, prompting clients of her firm to ask her bosses for her views on trades they were considering. By the early 1970s, she was monitoring stock portfolios for customers and sharing her forecasts with them.Her breakout moment came in 1973, when a market crash and global economic crisis sent stocks tumbling in a 21-month-long swoon.“My readings were very accurate,” Ms. Murphy said in the book “Women of the Street: Making it on Wall Street — The World’s Toughest Business” (1998), by Sue Herera. She anticipated, for example, a sharp plunge in a popular group of stocks known as the “nifty 50,” which included household names like Coca-Cola and Polaroid.“My timing was right, my anticipation of what was going to happen to stocks was on the money, so I started getting phone calls from institutions and invitations to lunch,” Ms. Murphy said in the book. “And that’s how my business began to build.”Ms. Murphy, who encouraged women to pursue Wall Street careers, appeared on the cover of a business publication for women in 1994. via Murphy familyShe started appearing on “Wall Street Week,” which aired on Friday evenings, in 1979.Within the industry, Ms. Murphy was known for her contributions to trade groups and civic organizations. She was, at various times, the president of the Chartered Market Technicians Association, the New York Society of Security Analysts and the Financial Women’s Association. She was a founding member and governor of the Chartered Financial Analyst Institute, a trustee of Pace University and a board member of the American Lung Association of New York City.“Everyone who belonged to an organization always tried to get Bernadette to join, which she often did, being a social bee,” said Sheila Baird, a founding partner of the investment firm Kimelman & Baird, where Ms. Murphy worked as the chief market analyst for many years.Bernadette Bartels was born on April 9, 1934, on City Island in the Bronx to Joseph Francis Bartels, a stationary engineer (maintaining industrial machinery and systems), and Julia (Flynn) Bartels, a nurse. She was the youngest of four children. She is survived by her sister, Julia Campbell. She earned a bachelor’s degree in history from Our Lady of Good Counsel (now part of Pace University) in White Plains, N.Y. She credited her father with urging her to use her education to pursue a career.“I certainly knew that before I married I was going to accomplish something. That was my driving force,” she told Ms. Herera. “I wanted to be a fulfilled person, confident in myself.”In 1982 she married Eugene Francis Murphy, whom she had met on Tiana Beach in Hampton Bays, N.Y., after he rescued her from a riptide. Dr. Murphy, an orthodontist, died in 1997.Ms. Murphy, who retired from Kimelman & Baird in 2015, encouraged women to pursue Wall Street careers, whether she was speaking at high schools or colleges or informally among friends and family. One of them was her niece, Mary Ann Bartels, who became a managing director at Bank of America.Ms. Bartels recalled a story Ms. Murphy often told. As a child, she said, she stopped at a waterside arcade on City Island and put a coin in a vending machine to get her horoscope. “It said her element was fire, her color was red and that, ‘You are an Aries, the ram — a trailblazer and pioneer,’” Ms. Bartels said. “She told us that story so many times, and she really lived by that every day.”Sheelagh McNeill contributed research. More

  • 75 Shares169 Views

    in Economy

    The Financial Crisis the World Forgot

    by

    #masthead-section-label, #masthead-bar-one { display: none }The Coronavirus OutbreakliveLatest UpdatesMaps and CasesRisk Near YouVaccine RolloutGuidelines After VaccinationCredit…Jasper RietmanSkip to contentSkip to site indexThe Financial Crisis the World ForgotThe Federal Reserve crossed red lines to rescue markets in March 2020. Is there enough momentum to fix the weaknesses the episode exposed?Credit…Jasper RietmanSupported byContinue reading the main storyMarch 16, 2021, 5:00 a.m. ETBy the middle of March 2020 a sense of anxiety pervaded the Federal Reserve. The fast-unfolding coronavirus pandemic was rippling through global markets in dangerous ways.Trading in Treasurys — the government securities that are considered among the safest assets in the world, and the bedrock of the entire bond market — had become disjointed as panicked investors tried to sell everything they owned to raise cash. Buyers were scarce. The Treasury market had never broken down so badly, even in the depths of the 2008 financial crisis.The Fed called an emergency meeting on March 15, a Sunday. Lorie Logan, who oversees the Federal Reserve Bank of New York’s asset portfolio, summarized the brewing crisis. She and her colleagues dialed into a conference from the fortresslike New York Fed headquarters, unable to travel to Washington given the meeting’s impromptu nature and the spreading virus. Regional bank presidents assembled across America stared back from the monitor. Washington-based governors were arrayed in a socially distanced ring around the Fed Board’s mahogany table.Ms. Logan delivered a blunt assessment: While the Fed had been buying government-backed bonds the week before to soothe the volatile Treasury market, market contacts said it hadn’t been enough. To fix things, the Fed might need to buy much more. And fast.Fed officials are an argumentative bunch, and they fiercely debated the other issue before them that day, whether to cut interest rates to near-zero.But, in a testament to the gravity of the breakdown in the government bond market, there was no dissent about whether the central bank needed to stem what was happening by stepping in as a buyer. That afternoon, the Fed announced an enormous purchase program, promising to make $500 billion in government bond purchases and to buy $200 billion in mortgage-backed debt.It wasn’t the central bank’s first effort to stop the unfolding disaster, nor would it be the last. But it was a clear signal that the 2020 meltdown echoed the 2008 crisis in seriousness and complexity. Where the housing crisis and ensuing crash took years to unfold, the coronavirus panic had struck in weeks.As March wore on, each hour incubating a new calamity, policymakers were forced to cross boundaries, break precedents and make new uses of the U.S. government’s vast powers to save domestic markets, keep cash flowing abroad and prevent a full-blown financial crisis from compounding a public health tragedy.The rescue worked, so it is easy to forget the peril America’s investors and businesses faced a year ago. But the systemwide weaknesses that were exposed last March remain, and are now under the microscope of Washington policymakers.How It StartedThe Fed began to roll out measure after measure in a bid to soothe markets.Credit…John Taggart for The New York TimesFinancial markets began to wobble on Feb. 21, 2020, when Italian authorities announced localized lockdowns.At first, the sell-off in risky investments was normal — a rational “flight to safety” while the global economic outlook was rapidly darkening. Stocks plummeted, demand for many corporate bonds disappeared, and people poured into super-secure investments, like U.S. Treasury bonds.On March 3, as market jitters intensified, the Fed cut interest rates to about 1 percent — its first emergency move since the 2008 financial crisis. Some analysts chided the Fed for overreacting, and others asked an obvious question: What could the Fed realistically do in the face of a public health threat?“We do recognize that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain,” Chair Jerome H. Powell said at a news conference, explaining that the Fed was doing what it could to keep credit cheap and available. But the health disaster was quickly metastasizing into a market crisis.Lockdowns in Italy deepened during the second week of March, and oil prices plummeted as a price war raged, sending tremors across stock, currency and commodity markets. Then, something weird started to happen: Instead of snapping up Treasury bonds, arguably the world’s safest investment, investors began trying to sell them.The yield on 10-year Treasury debt — which usually drops when investors seek safe harbor — started to rise on March 10, suggesting investors didn’t want safe assets. They wanted cold, hard cash, and they were trying to sell anything and everything to get it.How It WorsenedNearly every corner of the financial markets began breaking down, including the market for normally steadfast Treasury securities.Credit…Ashley Gilbertson for The New York TimesReligion works through churches. Democracy through congresses and parliaments. Capitalism is an idea made real through a series of relationships between debtors and creditors, risk and reward. And by last March 11, those equations were no longer adding up.The Coronavirus Outbreak More

  • 125 Shares119 Views

    in Economy

    Inflation Fear Lurks, Even as Officials Say Not to Worry

    by

    #masthead-section-label, #masthead-bar-one { display: none }Biden’s Stimulus PlanWhat to Know About the BillSenate PassageWhat the Senate Changed$15 Minimum WageChild Tax CreditAdvertisementContinue reading the main storySupported byContinue reading the main storyInflation Fear Lurks, Even as Officials Say Not to WorryPrices have yet to show much movement, but the prospect of an unbridled economy’s surging back from the pandemic has unsettled the markets.Shoppers in Southaven, Miss. Higher spending seems almost certain in the months ahead as vaccinations prompt Americans to get out and about, deploying savings.Credit…Rory Doyle for The New York TimesNelson D. Schwartz and March 10, 2021Updated 5:46 p.m. ETWhile the Biden administration’s ambitious effort to salve the pandemic’s deep economic wounds made its way through Congress, proponents insisted that funneling $1.9 trillion to American households and businesses wouldn’t unshackle a long-vanquished monster: inflation.Officials at the Federal Reserve, responsible for balancing the job needs of Americans with price pressures that could erode their buying power, have said there is little cause for worry.Yet as the legislation moved toward the finish line, inflation prospects increasingly influenced political commentary and Wall Street trading.The worries reflect expectations of a rapid economic expansion as businesses reopen and the pandemic recedes. Millions are still unemployed, and layoffs remain high. But for workers with secure jobs, higher spending seems almost certain in the months ahead as vaccinations prompt Americans to get out and about, deploying savings built up over the last year.Jamie Dimon, chief executive of JPMorgan Chase, is among those tracking the inflation threat. “There’s a very good chance you’re going to have a gangbuster economy for the rest of this year and easily into 2022, and the question is: Does that overheat everything?” he said in an interview with Bloomberg Television last week.In addition to the $1.9 trillion about to pour forth, Mr. Dimon said, $1 trillion in savings that piled up during the pandemic remain unspent.The inflation fixation has been one driver behind a sharp sell-off in government bonds since the start of the year, pairing with a stronger growth outlook to push yields on 10-year notes up to about 1.5 percent, from below 1 percent. Bonds, like stocks, tend to lose value when inflation expectations grow, eroding asset values.“I would not buy 10-year Treasurys,” Mr. Dimon said.The volatile bond trading prompted several unnerving days on Wall Street last week. High-flying tech stocks — previously seen as a haven for those chasing market-beating yields — were particularly upended, though broad share indexes remain near record highs.“I would suspect there’s a pretty good chance you’re going to see rates going up,” Mr. Dimon said. “And people are starting to worry about that.”Rising bond yields have also caused an uptick in mortgage rates, threatening one of the brightest spots in the coronavirus economy, the housing market. Home prices have been surging, especially in the suburbs, but a sustained rise in borrowing costs would almost certainly undermine that trend.Jerome H. Powell, the Fed chair, and other central bank officials have made clear that they are not worried about the expected bounce in inflation. “There’s a difference between a one-time surge in prices and ongoing inflation,” Mr. Powell said this month, making it clear that he expected the coming increase to be transitory.The Fed earned an inflation-fighting reputation in the 1970s and 1980s, when it eventually contained runaway prices with double-digit interest rates that caused a recession. But price gains have been slow for decades, and Mr. Powell and his colleagues have been working to ensure that consumers and businesses don’t start to expect ever-lower inflation.Healthy economies tend to have gentle price increases, which give businesses room to raise wages and leave the central bank with more room to cut interest rates during times of trouble. If inflation drops too low, it risks price declines that are especially painful for debtors, whose debts stay the same even as prices and wages fall.Fed officials revised their framework for setting monetary policy last summer, saying that instead of shooting exactly for 2 percent inflation, they would aim for 2 percent on average — welcoming inflation that runs faster some of the time.Inflation is expected to increase in the coming months as prices are measured against weak readings from last year. Analysts surveyed by Bloomberg expect the Consumer Price Index to hit an annual rate of 2.9 percent from April through June, easing to 2.5 percent in the three months after that before easing gradually to year-over-year gains of 2.2 percent in 2022, based on the median projection.But those numbers are nothing like the staggering price increases of the 1970s, and evidence of renewed inflation is paltry so far.Gasoline prices rose 6.4 percent in February, the Labor Department said on Wednesday.Credit…Benjamin Rasmussen for The New York TimesOn Wednesday, the Labor Department reported that prices rose modestly in February, nudged by an increase in gasoline prices that lifted the Consumer Price Index by 0.4 percent.Excluding the volatile food and energy categories, the index rose 0.1 percent.Gasoline prices alone were up 6.4 percent in February. But over all, the data matched projections, suggesting that inflation remains under control, despite a recent rise in prices for commodities like oil and copper. Stock markets rose on the news, with the Dow Jones industrial average reaching a new high.“Outside of another buoyant advance in energy prices in February, consumer price inflation remains very tame,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.The inflation concerns among some investors are a turnaround from the aftermath of the 2007-9 recession, which was followed by a decade of frustratingly slow growth in the United States and Europe. For much of that time, deflation, or falling prices, was a leading cause of anxiety among investors and economic experts..css-yoay6m{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}@media (min-width:740px){.css-yoay6m{font-size:1.25rem;line-height:1.4375rem;}}.css-1dg6kl4{margin-top:5px;margin-bottom:15px;}.css-k59gj9{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;width:100%;}.css-1e2usoh{font-family:inherit;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;border-top:1px solid #ccc;padding:10px 0px 10px 0px;background-color:#fff;}.css-1jz6h6z{font-family:inherit;font-weight:bold;font-size:1rem;line-height:1.5rem;text-align:left;}.css-1t412wb{box-sizing:border-box;margin:8px 15px 0px 15px;cursor:pointer;}.css-hhzar2{-webkit-transition:-webkit-transform ease 0.5s;-webkit-transition:transform ease 0.5s;transition:transform ease 0.5s;}.css-t54hv4{-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-1r2j9qz{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-e1ipqs{font-size:1rem;line-height:1.5rem;padding:0px 30px 0px 0px;}.css-e1ipqs a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;}.css-e1ipqs a:hover{-webkit-text-decoration:none;text-decoration:none;}.css-1o76pdf{visibility:show;height:100%;padding-bottom:20px;}.css-1sw9s96{visibility:hidden;height:0px;}#masthead-bar-one{display:none;}#masthead-bar-one{display:none;}.css-1cz6wm{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;font-family:’nyt-franklin’,arial,helvetica,sans-serif;text-align:left;}@media (min-width:740px){.css-1cz6wm{padding:20px;width:100%;}}.css-1cz6wm:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-1cz6wm{border:none;padding:20px 0 0;border-top:1px solid #121212;}Frequently Asked Questions About the New Stimulus PackageThe stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more. Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read moreThis credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.Now there is a belief that economic growth will ramp up at least temporarily, thanks to relief from Capitol Hill and increased vaccinations across the country.The about-face was noted Wednesday by the economist Bernard Baumohl in a letter to clients. “If you suddenly feel the ground shaking beneath you, it’s not because an earthquake struck,” he wrote. “What you’re experiencing is a wild stampede of Wall Street bulls trampling over their previous softer economic forecasts and now charging ahead with near frothy upward revisions to G.D.P. growth and inflation projections for 2021.”Mr. Powell, the Fed chair, has made it clear that officials will need to see the economy at full employment, inflation above 2 percent and evidence that it will stay higher for some time before they will raise their key interest rate from rock bottom.“Those are the conditions,” he said this month. “When they arrive, we will consider raising interest rates. We’re not intending to raise interest rates until we see those conditions fulfilled.”Fed officials have been less concrete about what might prod them into slowing their vast bond purchases, which they have been using to make many types of borrowing cheaper and bolster demand. Officials have said they would like to see “substantial” progress before tapering off their buying, and have repeatedly said they will signal any change far in advance.The Fed will meet in Washington next week and release a fresh set of policymakers’ economic projections next Wednesday. Although the Fed looks at the Consumer Price Index, it bases its policy on a different gauge of price trends, which tends to run slightly lower.“It is possible that participants will project higher 2021 inflation, especially if the Fed staff forecast incorporates policy effects on inflation or a reopening demand surge in select categories,” Goldman Sachs economists wrote last week. “Signaling awareness of these transient boosts to inflation in advance might make it easier for Fed officials to credibly downplay them later.”The Goldman analysts expect the Fed’s projections to suggest that it might make one rate increase in 2023. Previously, Fed officials had not penciled in any rate increases through the end of that year.Over the long term, inflation can be a concern because it hurts the value of many financial assets, especially stocks and bonds. It makes everything from milk and bread to gasoline more expensive for consumers, leaving them unable to keep up if salaries stall. And once inflation becomes entrenched, it can be hard to subdue.But most mainstream economists doubt that a sustained bout of troublesome inflation is on its way.“The inflation narrative has switched to concerns about rising prices,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “For the Fed, price response to the economy reopening is seen as transitory and is unlikely to cause too much angst, given inflation pressures are not expected to be sustained.”And Mr. Dimon, the JPMorgan Chase chief, signaled that inflation fears needed to be put in perspective. “I would put that on the things to worry about,” he said, but “I wouldn’t worry too much about it” — certainly not compared with taming the pandemic itself.AdvertisementContinue reading the main story More