What’s the Story

by CC September 19, 2012 9:26 am • Commentary


New housing construction rose in August, boosted by the strongest pace of single-family home starts in more than two years that shows an improving U.S. real estate market.

Beginning construction climbed 2.3 percent to a 750,000 annual rate, less than forecast and restrained by a drop in the building of apartments, from a revised 733,000 annual pace in July, Commerce Department figures showed today in Washington. The median estimate of 85 economists surveyed by Bloomberg called for 767,000. Building permits cooled.


The Bank of Japan has responded to recent easing by the US Federal Reserve and the European Central Bank with a fresh monetary stimulus package, warning of a “deceleration” in overseas economies and a “pause” in domestic growth.

The central bank will increase the size of its asset-purchasing programme – its key policy tool, since interest rates are already near zero – by about Y10tn ($126bn) to Y80tn, by buying another Y5tn of short-term government bills and another Y5tn of longer-term government bonds. The deadline for completing those purchases will also be pushed back, from June 2013 to the end of 2013.


Existing-home-sales data for August is due for release at 10 a.m. Eastern, with economists polled by MarketWatch expecting a gain to a seasonally adjusted annual rate of 4.6 million from 4.47 million in July. Pending home sales — which represent contracts but not closings — climbed 2.4% in July to the highest level since April 2010, when a home-buyer tax credit was set to expire.

Tim Duy

So I am getting a little nervous that we will not lift off from the zero bound before the next recession hits. Or maybe the attempt to lift the economy off the zero bound is the trigger of that recession.  In either case, I am thinking it would be very bad to be still at the zero bound when that recession hits.  So I am wondering what is the equilibrium path that returns the US economy to a normal interest rate environment.  Furthermore, can the Fed push the economy to such a path by itself, or is fiscal cooperation required?  I don’t have answers to these questions, but my suspicion is that the job would be easier with coordinated fiscal and monetary policies.


General Mills [GIS  39.31        ]– The food producer reported fiscal fourth-quarter profit of $0.66 per share, excluding certain items, four cents above estimates. CEO Ken Powell says the firm is experiencing growth both in volume and profit margins.

AutoZone [AZO  357.84        ] – The auto parts retailer earned $8.46 per share for its fiscal first quarter, six cents above estimates. The company said its same-store sales improvement of 2.1 percent during the quarter was below its expectations, but it sees improvement in future quarters.

Charles Schwab [SCHW  13.94        ] – Goldman Sachs has downgraded the discount broker’s stock to “neutral” from “buy,” saying the U.S. Federal Reserve’s recent easing moves will put further pressure on Schwab’s net interest margins.

Monsanto [MON  89.06        ] – Monsanto has been added to the “Conviction Buy” list at Goldman Sachs, which says the company has shown proven sustainable growth.

Goldman Sachs [GS  119.88        ] – Chief Financial Officer David Viniar announced he will be retiring at the end of January, replaced by Harvey Schwartz, the global co-head of Goldman’s securities division. (Read More: Goldman to Pay New CFO $1.85 Million in Annual Salary.)

Microsoft [MSFT  31.175        ] – The company is raising its quarterly dividend by 15 percent to $0.23 per share. The increased dividend is payable Dec. 13 to shareholders of record on Nov. 15.

Sony [SNE  13.21        ] – Sony is introducing a new smaller version of its PlayStation 3 videogame console in time for this year’s holiday season. It’s about half the size of the original 2006 model, and will go on sale in North America on Sept. 25.

Wal-Mart Stores [WMT  73.95        ], Humana [HUM  69.83  —  UNCH    ] – Members of Humana’s Healthy Rewards program will receive financial incentives for purchasing about 1,300 food items designated as “healthy.” Customers will get a 5 percent credit on eligible product purchases that can be used for future purchases at Walmart stores.

Hovnanian Enterprises [HOV  3.79        ] – Hovnanian is offering up to $797 million in new 10-year debt, with the proceeds to be used to buy back the home builder’s already existing notes.

Wynn Resorts [WYNN  112.73        ] – The hotel/casino operator is rejecting the nominations of two potential board members by Japanese billionaire Kazuo Okada’s Aruze USA. The dispute stems from the current legal battle over the forced redemption of Aruze’s 20 percent stake.

Corning [GLW  12.73        ] – Goldman Sachs has upgraded Corning shares to “buy” from “neutral,” due to the company’s increasing diversification, as well as a bottoming in the liquid crystal display market.

General Electric [GE  22.24        ] – Coverage of the Dow component’s stock has been reinstated with a “buy” rating at Bank of America/Merrill Lynch.