“Tech certainly is a driver,” Schlossberg said of the industry feeding an insatiable global appetite for tablets and apps and everything else made of chips and code. “Just look at the rents, and the restaurants at night, it’s all being driven by tech growth and the spillover from that.”

Even though Google, Apple, Facebook and Twitter help make California’s $1.96 trillion economy bigger than India’s, the Golden State can use the tailwind.

The largest U.S. state, with 37.7 million residents, has a 9.8 percent unemployment rate that’s the third highest in the country. That level also is the average since government began calculating the level for states in 1976. The U.S. average for the same period is 6.5 percent.

Western states, where unemployment was highest after the nation’s housing bubble burst in 2006, are leading the country in hiring as industries from homebuilding to technology add staff, helping erase the pain left over in places where real estate prices plunged most: Las Vegas, southern California and Arizona.

Nevada’s unemployment dropped 2.4 percentage points in the year ended November 2012, the most of any state, to 10.8 percent, though it’s still the highest in the U.S.

Joblessness in Arizona, California, Hawaii and Idaho also dropped at least 1 percentage point. Economists surveyed by Bloomberg forecast the national unemployment rate held at a four-year low of 7.7 percent in December. The Labor Department releases the figures Friday.

Bloomberg’s Steve Matthews, Aki Ito and Amanda Crawford have the full story.

Original post is Tech Helps Give West Best U.S. Job Growth by Political Capital.

Photograph by Eddie Seal/Bloomberg

Construction continues at TPCO America Corp.'s pipe finishing mill facility in Gregory, Texas.

Newspaper editors can retire the old “Hard Times for Hard Hats” headline.

U.S. construction employment is poised to bounce back after being flat for almost three years. Builders have the most openings and are breaking ground for more homes than at any time in four years. Architects, those walking leading economic indicators, are billing the most since December 2010.

Construction workers, who now make up the smallest slice of the labor force in six decades, should be in demand next year as work starts on all those new projects. And economists say building boosts hiring in related industries like manufacturing and transportation, giving a boost to the broader economy.

Another reason for optimism arrived this morning: Homebuilder confidence jumped to a six-year high.

See the full story.

Original post is Builders Hang Help-Wanted Signs as Construction Rebounds by Political Capital.

Photograph by Patrick Fallon/Bloomberg

Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas.

Federal Reserve Bank of Dallas President Richard Fisher, hardly one to resist using a good metaphor to explain the intricacies of central banking, has upgraded his equine assessment of the economy.

He’s also added some classic rock and roll the mix.

“I really do believe my own joke that we’re the best looking horse at the glue factory,” Fisher said today in a CNBC interview, citing the productivity gains of U.S. firms compared with worldwide rivals. “We’re the thoroughbred of the global economy right now.”

As the first of 19 Fed officials to speak publicly after this week’s meeting, Fisher stepped up his game in explaining why he’s wary of the central bank’s Dec. 12 decision to boost their bond buying by adding $45 billion of monthly Treasury purchases to an existing program to buy $40 billion in mortgage debt a month. That puts the Fed’s $2.92 trillion balance sheet on pace to hit almost $4 trillion by the end of next year.

“Since we’re going to have an engorged balance sheet, we may never be able to leave this position,” said Fisher, 63.

“We were at risk of what I call a ‘Hotel California’ monetary policy, going back to the Eagles song which is, you can check out any time you want but you can never leave.”

Fisher made no attempt to tie the band’s 1979 hit, “The Long Run,” to John Maynard Keynes’s famed observation that under such an elongated time-frame “we are all dead.”

Fisher, a former Dallas money manager and U.S. Senate candidate, also noted that Eagles front-man Don Henley comes from the Lone Star State, which also happens to be putting decent growth stats on the board these days.

The reserve bank chief, a California native turned proud Texan, participates in Federal Reserve Board meetings in Washington with Chairman Ben  Bernanke and other policy makers. The district banks rotate in and out of voting positions each year. Dallas gets to vote again in 2014.

Before ending the interview, Fisher said he had to “brag on Texas,” where he expects economic growth of 3.5 percent this year. That’s faster than the 2.2 percent U.S. gross domestic product growth that economists forecast for this year, according to the median of estimates in a Bloomberg survey.

The second-largest state’s 26 million residents can boast a $1.31 trillion economy that’s bigger than Mexico’s — a nation which is about five times more populous. As Fisher might say, Texas has a full tank and its foot on the gas.

Original post is Fisher Warns Fed of Trap: `Hotel California’ by Political Capital.

Photograph by Scott Eells/Bloomberg

The New York Stock Exchange

The U.S. budget stalemate may fuel a resurgence of turbulence for equities should lawmakers fail to agree amid a slowing economy or deterioration in Europe’s debt crisis, according to Robert Engle, who won the 2003 Nobel Prize in economics for developing ways to analyze volatility.

“If we do go over the fiscal cliff you’ll see volatility go up,” Engle, 70, said in an interview today in Washington.

Deadlocked lawmakers may be “creating excessive volatility by their inability to make decisions on a timely basis and in a sensible, coordinated way.”

Stock-market turbulence that may result from triggering the fiscal contraction “would be much more severe” if the U.S. economy starts slowing, said Engle, a professor at New York University’s Stern School of Business. “We see higher volatility in slowdowns typically.”

The Chicago Board Options Exchange Volatility Index, which tracks prices for 30-day options on the Standard & Poor’s 500 Index, soared last year after S&P stripped the U.S. of its top credit rating. The rating agency cited Washington’s political divide in its downgrade, which came amid an intensification of stresses in European markets and after lawmakers struck a deal to raise the federal debt ceiling and cut the budget.

The VIX, as the volatility gauge is known, headed into today’s close at 16.56, below its average of 20.46 over its two-decade history. It posted the biggest increase in four years when markets opened the downgrade, surging 50 percent to 48 on Aug. 8, 2011. The Dow Jones Industrial Average alternated between gains and losses of more than 400 points for a record four straight days that week.

The world’s largest economy will expand by 2.2 percent this year and 2 percent next year, according to the median of 79 economist estimates in a Bloomberg survey. The Congressional Budget Office estimates that the more than $600 billion of tax increases and spending cuts scheduled to take effect in January would probably cause a recession in the first half of 2013 if Congress doesn’t act.

Volatility would be fueled by other factors in addition to the fiscal contraction, said Engle, who earned a doctorate in economics and a master’s in physics at Cornell University.

“It’s likely to be Europe failing to give the next bailout to Greece and then Greece defaults and then all of a sudden other things start to happen and that would impact the U.S.  negatively,” he said. “And if at the same time we don’t have a resolution of these long-term issues then that would be bad.”

(Read more about Engle’s Volatility Lab, see his charts and Nobel Prize remarks in Political Capital.) 

Original post is Market Gyrations: Cliff Threat by Political Capital.

Photograph by Daniel Acker/Bloomberg

Potential buyers view a new home under construction in South Barrington, Illinois.

One hand washes the other.

The Federal Reserve’s record stimulus is starting to lift the U.S. housing market out of the basement. And the boost in home prices is poised to start giving the broader economy a bigger push, rather than holding it back as it has for years.

Much of the Fed’s unprecedented policy has aimed to cut the cost of home loans, which it’s driven to record lows. The point is to boost the economy, which is what it’ll happen as the rebound in home prices gives people more to spend on other products and services, and that, eventually, will help reduce unemployment.

“Housing is so incredibly important” because it makes the economy “more and more sensitive” to low interest rates, said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “Home prices feed directly into household balance sheets and therefore to consumption, and home prices feed directly into bank balance sheets and therefore banks’ health and their willingness to lend.”

The Fed has attacked the damage from the financial crisis by carrying out quantitative easing, buying more than $2.3 trillion in bonds. Policy makers also have held the main interest rate near zero since December 2008 and pledged to keep it there through mid-2015. Now their efforts are paying off.

See the full story at Bloomberg.com.

With assistance from Shobhana Chandra in New York.

Original post is Fed Boosts Housing, Housing Boosts Fed — Repeat by Political Capital.

Photograph by Stephen Yang/Bloomberg

William "Bill" C. Dudley, president of the Federal Reserve Bank of New York.

Written with Caroline Salas Gage

A Federal Reserve policy maker added to hints that the central bank will continue Treasury purchases into 2013 when officials gather for their last meeting of this year.

Federal Reserve Bank of New York President William C. Dudley said today that “unacceptably high” joblessness is a key consideration as he considers whether to back additional asset purchases known as quantitative easing.

“The Fed will promote maximum employment and price stability to the greatest extent our tools permit, and we will stay the course,” Dudley said in a speech in New York.

Right now, Fed policy makers are buying $40 billion in mortgage debt each month to give the housing market a lift and cut the unemployment rate from its current 7.9 percent. They’re also pledging to keep the main interest rate near zero through mid-2015.

The Fed also has been swapping $45 billion of short-term Treasuries a month for longer-term debt in a program called Operation Twist, which is scheduled to expire at the end of this year. While that doesn’t add to the Fed’s balance sheet, economists expect that policy makers will replace it with a program that does.

When policy makers last met on Oct. 23-24, a “number” of officials said they may need to expand the monthly bond purchases, according to the minutes of the gathering.

Jan Hatzius, chief economist at Goldman Sachs Group Inc., said today he expects the Fed will decide to increase the pace of balance sheet expansion from $40 billion a month now to about $85 billion a month when policy makers meet next month.

The central bank will probably buy about $85 billion in bonds per month starting in early 2013, San Francisco Fed President John Williams said in a Nov. 14 speech. Williams, who votes on policy this year and was one of the first policy makers to back open-ended buying, said monthly purchases may continue well into the second half of the year.

The decision rests with the Federal Open Market Committee, a 12-member panel led by Chairman Ben Bernanke. It also includes the six other Washington-based Fed governors and five of the 12 presidents of the regional reserve banks. The FOMC next meets Dec. 11-12.

As president of the New York Fed, which conducts the open market operations that actually implement the monetary policy made by the FOMC, Dudley always has a vote. The other 11 reserve banks share the four remaining votes in a rotation.

Dudley said today he’ll “focus on the labor market outlook, not just its current state” in determining whether to add to the Fed’s stimulus. “Although the economy continues to expand, we must grow faster if we are to put all of our jobless workers and idle businesses back to work,” he said.

Original post is Fed Hints at More Bond Buying in ’13 by Political Capital.

Lawmakers risking a recession because they can’t pass a budget are “parasitic wastrels,” Fisher said in a speech at his alma mater where he earned his MBA. Politicians, he said, should “begin acting like the responsible fiduciaries of the nation’s fiscal accounts they are supposed to be.”

Even Fed policy makers can’t avert “fiscal perdition” in the world’s largest economy because “there are limits to what a monetary authority can do,” Fisher told the audience grazing on Caesar salad, roasted vegetables, steak and chocolate chip cookies.

Fisher also has been a vocal critic of Fed policies, though Dallas doesn’t get a vote on the policy-setting Federal Open Market Committee again until 2014. He has said he was opposed to the central bank’s latest round of bond purchases known as quantitative easing.

Fisher, who lost a 1994 bid as a Democrat for Sen. Kay Bailey Hutchison’s seat before being named to lead the reserve bank seven years ago, said today that “the jig is up” for a dysfunctional fiscal system that even the Fed’s record accommodation can’t fix.

“Our fiscal authorities have mortgaged the material assets of our grandchildren to the Nth degree,” Fisher said. “Our government’s fiscal misfeasance threatens the world’s respect for America as the beacon of democracy.”

The reserve bank chief, who attended the U.S. Naval Academy in Annapolis before transferring to Harvard as an undergrad, said last month in a New York speech that comparing Congress to drunken sailors “might be deemed an insult to drunken sailors.”

 Aki Ito contributed from California.

Original post is `Parasitic Wastrels’ in Congress: Don’t Mess with Texas Fed’s Fisher by Political Capital.

Washington’s precarious fiscal-cliff stalemate. Photograph by Steven Puetzer

Volatility has returned to U.S. stocks since the presidential election, and it’s partly Washington’s fault as the fiscal-cliff stalemate makes investors more and more skittish, according to JPMorgan Chase & Co.

And even bigger swings may be on the way soon, because derivatives tied to the equity market expire tomorrow.

The Standard & Poor’s 500 Index has slumped more than 5 percent since the Election Day close, ending yesterday’s session at the lowest level since July 25. Ninety percent of that retreat “can be attributed to concerns about the U.S. fiscal cliff,” Marko Kolanovic, global head of derivatives and quantitative strategy at JPMorgan, wrote in a report today.

Most of the slide happened in the first session after the election and during or just after two addresses by President Barack Obama on Nov. 9 and Nov. 14. Those spurred “market concerns about going over the cliff” and coincided with the usually low-volume times around 1 p.m. and 1:30 p.m. New York time, Kolanovic wrote.

The president used his first post-election news conference yesterday to threaten that he’ll let the Bush-era tax cuts expire if the Republican-led House shows “too much stubbornness” and won’t extend the tax cuts only for income up to $200,000 for individuals and $250,000 for couples. Stocks extended declines after he spoke, ending the day down about 0.8 percent from before the press conference.

If Congress doesn’t act by year’s end, $607 billion in automatic spending cuts and tax increases scheduled would cause a recession, according to the nonpartisan Congressional Budget Office.

Concerns about Washington gridlock overlap with tomorrow’s expiration for options contracts tied to underlying stocks, which “could cause high intra-day volatility” as investors and traders buy and sell both derivatives and shares to adjust their positions, Kolanovic said in his analysis.

The November options expiring tomorrow are linked to about $450 billion in S&P 500 stocks and futures, the New York-based strategist wrote. That’s a fraction of the index’s $12.1 trillion market value, yet still enough to make the market gyrate because one gauge of value for the expiring contracts tilts in the direction of bearish options versus bullish ones, according to Kolanovic.

Coincidentally, he estimates, the $850 billion in stock market value wiped out since Americans cast their ballots is roughly equal to what the CBO estimates that allowing the Bush tax rates to expire for top earners over the next 10 years.

As lawmakers prepared for budget talks, the S&P 500 slipped 0.2 percent to 1,352.93 at 11 a.m. after swinging between gains and losses and moving in a 0.65 percentage-point range. That’s less than half the average full-day swing over the past month.

Original post is JPMorgan: Fiscal Cliff Slow-Walking Feeds Stock Market Volatility by Political Capital.

Photograph by Scott Eells/Bloomberg

William C. Dudley

Written with Caroline Salas Gage

William C. Dudley, president of the Federal Reserve Bank of New York, said the central bank won’t cut back record monetary stimulus too quickly when the economy begins to gain strength.

“If we were to see some good news on growth I would not expect us to respond in a hasty manner,” Dudley said in the text of remarks prepared for a speech in New York today.

Policy makers last month increased accommodation to boost an economy that central bankers said still faces “significant downside risks.” Fed officials voted to embark on their third round of asset purchases, agreeing to buy $40 billion of mortgage-backed bonds a month. They also extended its horizon for record-low interest rates through at least the middle of 2015.

Dudley said the Fed may have not used enough stimulus measures to support the recovery in the aftermath of the financial crisis.

“With the benefit of hindsight, monetary policy needed to be still more aggressive,” he said. “Consequently, it was appropriate to recalibrate our policy stance, which is what happened at the last” meeting of the Federal Open Market Committee.

Original post is Fed Not Looking for `Hasty’ Exit by Political Capital.

The Standard & Poor’s 500 Index typically gains 5 percent through year end after close presidential contests. That’s more than double the 2.3 advance that it has posted since 1948 after “predictable” elections, according to Binky Chadha, the firm’s New York-based chief global strategist.

“Clearly predictable elections saw the S&P 500 essentially continue its prior trend,” Chadha wrote in a note today. “Close elections on the other hand saw the S&P 500 flat in the lead up to, but rally a strong 5 percent on average afterward, regardless of which party won. The latter behavior is consistent with a classic risk premium reflecting uncertainty about the outcome in the run up with a rally on its resolution.”

Obama is fighting for a second term amid economic growth proving too sluggish to decrease a jobless rate that hasn’t been below 8 percent since January 2009, the month he took office. The S&P 500 has rallied 11 percent this year as the Federal Reserve pledged to safeguard the U.S. economy and European leaders worked to contain the region’s debt crisis.

Republicans taking full control of Congress may be more bullish for stocks, which climbed 15.1 percent on average when that party controlled the legislative branch, according to Chadha, whose prediction that the S&P 500 would climb 26 percent in 2009 was only 3 percentage points off from the measure’s rally that year.

“Republican control of Congress has been very positive for equities historically, independent of the party of the president,” Chadha wrote, citing S&P 500 returns for all years since 1933, including non-election years.

Chadha cited better than even odds given by traders in the online prediction market Intrade that Democrats will lose control of the Senate and give Republicans control of both houses. Bets made via the Dublin-based bookmaker today showed a 53.7 percent chance that Democrats would lose control of the upper chamber, while traders priced in 57.9 odds Obama will be re-elected on Nov. 6.

The presidential race is too close to call according to the latest daily Gallup poll, in which Obama leads Romney 47 percent to 46 percent. The margin of error is three percentage points, making results within that range statistically negligible.

The postwar era’s big surprise, Chadha wrote, was the correction following Harry S. Truman’s 1948 defeat of Republican challenger Thomas Dewey, memorialized in a famed photo of the incumbent Democrat waving a copy of the Chicago Tribune with the mistaken front-page headline: “Dewey Defeats Truman.”

The news surprised stocks too. The S&P 500 plunged to 15 from 16.70 for a 10 percent drop over six trading days.

Inyoung Hwang contributed to this post.

Original post is Close Elections Boost U.S. Stocks, Deutsche Bank Says by Political Capital.