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Five Things You Need to Know: Trade Deficit Narrows to Astonishing From Inconceivable, Suffering FOMC Suffrage, When Doves Cry, Put This In Your Rate Cut Pipe and Smoke It, Dell Unveils New Environmentally Conscious Cynicism at Consumer Electronics Show


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Trade Deficit Narrows to Astonishing From Inconceivable

The US trade deficit narrowed by $0.6 billion to $58.2 billion in November, an unexpected surprise given expectations for a widening to $60 billion.

  • Total exports rose 0.9% month-over-month while total imports and non-petroleum imports rose 0.3%.
  • Interestingly, imports of industrial supplies fell 2.1%, and nearly all the slowing in import growth can be attributed to this category.
  • The improvement in the deficit will no doubt send economists scurrying to revise up Q4 GDP growth a bit.
  • To summarize the trade deficit in six words? Moderate export growth, softer import growth.
  • Does this mean our view that perhaps, just perhaps, the trade deficit will come in as a consequence of slowing consumption in the U.S. is no longer such an outlier view?
  • And is that the dollar we see now above 85?
  • The consensus view is that there can be no reduction in the trade deficit without a devaluation of the dollar.
  • But that causality is not so clear-cut.
  • When you get time, take a look at this very interesting article on an Austrian view of the trade deficit, posted at the Mises Institute over a year ago by Thorsten Polleit.

2. Suffering FOMC Suffrage

Mark our words, very soon you won't have Jeffrey Lacker's dissenting vote on FOMC policy to kick around anymore.

  • The Federal Open Market Committee (FOMC) consists of 12 members; the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis.
  • At the January 30-31 meeting of the FOMC, four regional bank presidents will give up their policy voting rights as part of the committee's annual voting cycle rotation.
  • Leaving will be the FOMC's own "Debbie Downer," Richmond Fed's Jeffrey Lacker, a policy dissenter in each of the past four FOMC meetings.
  • San Francisco's prolific and vocal Janet Yellen is another who will be leaving.
  • And the Cleveland Fed's Sandra Pianalto will be relinquishing her voting seat as part of the scheduled rotation too.
  • The Atlanta Fed voting seat has been vacant due to Jack Guynn's retirement; that seat has been filled by St. Louis Fed's William Poole, who will remain as part of the rotation.
  • Joining the voting are Chicago's Michael Moskow, Kansas City's Thomas Hoenig and Boston's Cathy Minehan.

3. When Doves Cry

With these changes on the FOMC, how will this affect voting? Good question, let's look at the policy stance of those who are leaving and those who are joining.

  • San Francisco's Janet Yellen has been one of the more dovish members of the FOMC.
  • In her most recent speech on the outlook for the economy from this past October she noted that, "If policy is now well positioned, it will still take time for inflation to unwind due to lags between policy actions and their impacts on economic activity and inflation."
  • How long does Yellen have in mind? "These lags can be anywhere from several months to a couple of years," she said.
  • Simply put, Yellen believes we probably have yet to see the full effects of the series of 17 funds rate increases.
  • What about Cleveland's Sandra Pianalto? On Nov. 6 she gave a speech detailing her views on Monetary Policy and the Economic Outlook.
  • Pianalto was pretty explicit in her speech: "I fully expect the economy to continue to grow at a moderate, but sustainable, pace. The inflation outlook is a slightly different story. I do not believe that inflation will accelerate further. In fact, I expect some slowing in the rate of inflation as recent energy price changes and the effects of monetary policy actions work through the economy."
  • So, close to neutral but leaning pretty strongly toward the dovish camp.
  • Of course, there has been no one more hawkish on the FOMC than Richmond's Jeffrey Lacker.
  • Lacker has dissented in favor of additional tightening in each of the past four FOMC meeting.
  • Bottom Line? FOMC loses two doves, one hawk.

4. Put This In Your Rate Cut Pipe and Smoke It

OK, so what about the incoming FOMC voters? Where will the balance stand going forward?

  • First, the St. Louis Fed's William Poole, who was voting as an alternate following the retirement of Atlanta's Jack Guynn, will remain a voting member.
  • Poole in recent months has epitomized the "neutral" view on the Fed, emphasizing that policy risks, both up and down, are "roughly symmetrical."
  • Kansas City Fed's Thomas Hoenig is widely viewed as a potentially hawkish voting member, but we're not so sure.
  • Does this sound neutral to you? "The current somewhat restrictive stance of monetary policy may be sufficient to reduce core inflation over the next few quarters. But the course of monetary policy is not entirely certain and will depend on how the economy evolves in the coming months."
  • We'll give you the "data dependent" clause at the end, but in our view any time a FOMC voting member uses the phrase "somewhat restrictive" with respect to monetary policy they are automatically disqualified from the "neutral" and "hawkish" camps.
  • Boston Fed's Cathy Minehan is among the Fed's most recent speakers.
  • This past Friday Minehan noted in a speech that it appears "price pressures may be easing," but quickly added that the Fed should "keep its focus on containing inflation."
  • Although not aggressively hawkish, that rules her out of the dove camp in our view.
  • Finally, Chicago's Michael Moskow will be speaking on the economy today at a luncheon in Iowa.
  • If anyone can replace Richmond's Jeffrey Lacker as the FOMC's leading hawk it's Moskow.
  • As recently as November, Moskow concluded: "[M]y current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low."
  • And more recently, Moskow made some interesting comments on what he called a "structural shift" in the economy, discussing a number of economic variables that he believes economists may be misinterpreting due to this shift.
  • Chief among those variables is the structural shift in the U.S. labor market, where Moskow believes demographics can allow policymakers to bring down the number of jobs that must be created per month to sustain growth.
  • Bottom Line? FOMC adds one dove, one hawk, one neutral voter, shifting ever so slightly the balance of voting power against a rate cut anytime soon.

5. Dell Unveils New, Environmentally Conscious Cynicism at Consumer Electronics Show

In a speech Tuesday at the Consumer Electronics Show, Dell CEO Michael Dell unveiled the company's new plan to become more "environmentally conscious" by doing nothing except urging its customers and competition to become more environmentally conscious, the New York Times reported.

  • According to the New York Times, Dell announced the company would begin a program called "Plant a Tree for Me," asking customers to donate $2 for every notebook computer they buy and $6 for every desktop PC.
  • Customers in the United States will be given the chance to donate when they place an order for a Dell PC, the Times reported.
  • Here's the beauty of the program: the company won't itself plant any trees, or donate any money for planting trees, or make any environmentally-friendly changes to the way it manufactures computers and electronics.
  • Instead, the company will give the money donated by its customers to the Conservation Fund and the Carbonfund, two nonprofit groups that promote ways to reduce or offset carbon emissions, who will in turn buy and plant trees.
  • Dell said the company intends to cover the "administrative costs" of the program, which we estimate could potentially cost the company maybe a hundred bucks or so, probably less.

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