• Lousy fiscal policy — way too much borrowing by the government
• Lousy monetary policy — way too much expansion of the monetary base, and for little good reason, and funding the deficits of the government as a result…
• Negative real interest rates on Treasuries 15 years out; that is financial repression, and that can’t happen without the Treasury and Fed conspiring to do so.
• Low equity market valuations, but only because profit margins are abnormally high.  There are reasons to think that profit margins will not mean-revert this time, because the increase in the global capitalist labor pool is depressing wages.  Wages may remain low for a longer time than many expect.  Sorry to the laborers, but there are more of you than the globe can accommodate.  Thus I remain agnostic on high profit margins; let’s revisit the issue when wage rates rise.

Personally, I think that the fiscal multiplier is negative.  Spend money on government projects, many of which do not build value for the economy, and the economy grows slower or shrinks.

We would do better with austerity.  The economy would grow faster with a balanced budget, and a sense that government was not out of control.  Shrinking the bureaucracy and its rules, would allow the economy to grow faster.  Delegate more responsibilities to the states, particularly regulation of financial companies.  Relatively few insurers fail, which are state-regulated.  Many banks fail, which are federally regulated.  It is far easier to co-opt a single federal regulator than many state regulators.  Best yet, split all of the too big to fail banks into 51 entities, divided into the states and DC.  No more interstate branching — that’s the real problem, not Glass-Steagall.

Limiting banking to states keeps it small, Glass-Steagall tinkers at the edges, but if banks are kept small by limiting their size by states, like insurers, they won’t become systemic problems.  Simple, huh?

Much like the AT&T breakup, I think a breakup of interstate banking would be good for the US economy.  It would unleash competition in financial services, and would eliminate systemic risk in the financial economy.  And once banking regulation is returned to the states, like insurance, we can eliminate the Fed, which has been a poor regulator of banks, and a bad manager of monetary policy.  Go back to a gold standard, or at worst a currency board.  Get money out of the hands of the government, who diverts much of the economics back to themselves.

The Education of a Corporate Bond Manager, Part VII

On the value of credit analysts.

The Education of a Corporate Bond Manager, Part VIII

On price discovery in dealer markets, and auctions gone wrong.  I never knew that I could haggle so well.

The Education of a Corporate Bond Manager, Part IX

On the vagaries of bulge-bracket brokers, and how a good reputation helps on Wall Street.

The Education of a Corporate Bond Manager, Part X

On how we almost did a CDO, and how it fell apart.  Also, how to make money in the bond market when you reach the risk limits.

The Education of a Corporate Bond Manager, Part XI

On my biggest mistakes in managing bonds.  Also, on aggressive life insurance managements.

The Education of a Corporate Bond Manager, Part XII (The End)

On bond technical analysis, and how to deal with a rapidly growing client.   Also, the end of my time as a bond manager, and the parties that came as a result.   Oh, and putting your subordinates first.

Queasing over Quantitative Easing

Queasing over Quantitative Easing, Redux

Queasing over Quantitative Easing, Part III

Queasing over Quantitative Easing, Part IV

Queasing over Quantitative Easing, Part V

Queasing over Quantitative Easing, Part VI

The problems with the Fed’s seemingly “free lunch”strategy.  Pushes up asset prices and commodity prices, benefiting the rich versus the poor.

The Economic Geography of Publicly-Traded Companies in the United States by Sector

The Economic Geography of Publicly-Traded Companies in the United States by Sector (II)

Shows what US states have diversified vs concentrated economies by sector, and what states dominate each sector.

Portfolio Rule One

Industries are under-analyzed, relative to the market on the whole, and relative to individual companies. Spend time trying to find good companies with strong balance sheets in industries with lousy pricing power, and cheap companies in good industries, where the trends are not fully discounted.

Portfolio Rule Two

Purchase equities that are cheap relative to other names in the industry. Depending on the industry, this can mean low P/E, low P/B, low P/S, low P/CFO, low P/FCF, or low EV/EBITDA.

Portfolio Rule Three

Stick with higher quality companies for a given industry.

Portfolio Rule Four

Purchase companies appropriately sized to serve their market niches.

Portfolio Rule Five

Analyze financial statements to avoid companies that misuse generally accepted accounting principles and overstate earnings.

Portfolio Rule Six

Analyze the use of cash flow by management, to avoid companies that invest or buy back their stock when it dilutes value, and purchase those that enhance value through intelligent buybacks and investment.

Portfolio Rule Seven

Of Investment Earnings Assumptions and Century Bonds

If we could turn back the clock 65 or so years and set up a more conservative method of accounting for pension liabilities, we would be much better off today.

Who Dares Oppose a Boom?

This piece won a small prize, and in turn, I received three speaking engagements.

Fairness Versus Economics

Fairness Versus Economics (2)

People care more about fairness than improving their own economic/social position.

Earnings Estimates as a Control Mechanism, Flawed as they are

Earnings Estimates as a Control Mechanism, Flawed as they are, Redux

Earnings estimates have their problems, but they exist to give us a flawed method of estimating the future performance of companies.

-==-=-=-=-=–=-=

That’s all for now.  Never thought I would do so many long series when I started blogging.

• On Paradigm Shifts http://t.co/h68quEDX Hunter takes us through mental exercises 2 make us intelligently contrarian. “Invert, Always Invert” May 02, 2012
• Hedgers’ net short position vanishes in US oil http://t.co/X0hLOWGB Commercial interests do not fear lower prices, could be bullish 4 crude May 02, 2012
• There’s Plenty of Money for Junk http://t.co/vXML0Bao Presently the credit cycle is virtuous; vicious part is coming, but no appt set $$ May 02, 2012
• Bad Models Mistook Housing Bust for Dot-Com Bubble http://t.co/IxC8m2mk Busts of assets that are heavily levered harder than unlevered $$ May 02, 2012
• Best U.S. Real Estate With Self-Storage http://t.co/mxyHdK2U Self storage a winner in the past, may not do so well in the future; hi vals May 02, 2012
• Marginal oil production costs are heading towards $100/barrel http://t.co/G2zNB5JS Same as my reasoning on high crude prices $$ May 02, 2012
• Four-percent rule a relic, advisers say http://t.co/PrdHQy48 Better rule: 10y Tsy yield plus 0% if bearish, 1% if neutral, 2% if bullish $$ May 01, 2012
• The remarkable resurgence in synthetic credit tranches http://t.co/1iIZ8ous Increases in the notional amounts of several corp bond swaps May 01, 2012
• Contra: Black Scholes & the formula of doom http://t.co/flVNsYMx Debt levels & Asset-Liab mismatch largest causes of crisis not BS model Apr 30, 2012
• Energy’s Pain is Consumer Discretionary’s Gain http://t.co/lM7UW0T7 I have been on the wrong side of this trade. Sigh. $$ Apr 30, 2012
• Notes from the DoubleLine Lunch with Jeffrey Gundlach, Spring 2012 http://t.co/KDiqA5Sp Gives a good overview, w/a large topping of snark $$ Apr 30, 2012

China

• China’s Auditing Train Wreck http://t.co/UeIZtw06 Any Chinese firm listed in the US, the auditors should be subject to SEC scrutiny. $$ May 05, 2012
• China bear Pettis says world coming around to his view http://t.co/lo1nGc7e Pettis isn’t a bear but a realist; invt-led growth overplayd $$ May 04, 2012
• The Family and Corruption http://t.co/R4NwZ6od Family ties & group affiliation dominate economic/political power among Chinese Communists $$ May 04, 2012
• Who is Fu? Chinese exile is ‘God’s double agent’ http://t.co/plyQhwtg Story of a Chinese Pastor in US & escape of Chen Guangcheng $$ May 02, 2012
• Microblogs Survive Real-Name Rules–So Far http://t.co/5UItJjwj Even the CCP would have a hard time shutting down their Twitter-apps $$ May 02, 2012
• Beijing’s secret: It’s not really loosening http://t.co/3RPhAOwH There is not enough demand in China 2 pay all of the high prices. $$ May 02, 2012
• China’s Left Behind Children http://t.co/OL0gmSFE Economic growth that separates parents from children imposes significant costs on China $$ May 02, 2012
• China Closes Unirule Website http://t.co/ItkW0p0A Founder receives award from Cato Institute; China government shuts down his website $$ May 02, 2012
• China’s property boom has peaked, forever http://t.co/aLC2U8F8 Amount of deadweight in China property is so large that prices have peaked $$ Apr 29, 2012

Financial Services

• Caution: Contents May Be Hot http://t.co/cp9yjbH3 I worry about ETF slippage from bad creation/redemption unit design & bad trading by users May 04, 2012
• Well, That Was Awkward… http://t.co/zS5f6zAI Bank Chiefs’ Regulatory Concerns Met With Official Silence; maybe regulators getting fed up May 04, 2012
• A talent shortage looms as the industry booms http://t.co/QGLZzzg7 Financial planners getting old/retiring faster than the Baby Boomers $$ May 04, 2012
• 2nd attempt2 automate bond trading 1st failed RT @BloombergNews: Goldman preps trading system for corporate bonds | http://t.co/NceasmN7 May 04, 2012
• Mortgage Rates in US for 30-Year Loans Fall to Record Low http://t.co/LPolAP5Q Mtge rates b nimble, MR b quick, MR go under limbo stick $$ May 04, 2012
• Spending A Year On An M&A Bidding War Is Apparently Overrated http://t.co/tKguPYGy It’s well-known that scale acquirers underperform $$ May 04, 2012
• Every liability has an asset, but not every asset has a liability. Some are owned outright. http://t.co/fB3ARju7 May 03, 2012
• Canadians Dominate World’s 10 Strongest Banks http://t.co/qj6TOgA3 Ask again after their housing bubble pops, same 4 other fringe nations May 03, 2012
• Pimco’s latest ETF shields against price spikes http://t.co/TmOrCIj2 I wonder if active ETFs will have more performance slippage. $$ May 02, 2012
• Hedge Funds Hurt by Volatility http://t.co/ogoL62qT Hedge funds r vehicles that do better when credit spreads r tightening $$ May 01, 2012
• Bond Market Is Creating A New Galaxy for Trading http://t.co/YgvNwz1j Dealer inventories thin; trading costs rise; electronic mkts start May 01, 2012
• US banks still cutting commercial real estate exposure http://t.co/qsqIMRph Banks still rotating out @ an almost constant rate since 2009 $$ Apr 30, 2012
• Largest U.S. Banks Resist Federal Reserve’s Credit Limits http://t.co/JndcrvWI Big banks need 2b broken up or shrunk; they don’t accept it Apr 29, 2012

US Fiscal/Regulatory Policy

• CEOs rank Texas tops for business, California worst http://t.co/jWEIGP89 8th year in a row for this survey; high taxes/regs annoy CEOs $$ May 04, 2012
• Exposing the Medicare Double Count http://t.co/HIVIx3lJ Same $$ being spent twice, must borrow the difference. May 02, 2012
• Coburn: `We Ought to Totally Revamp Our Tax Code’ http://t.co/71WquMIf Very similar to my proposals; simplify code eliminate deductions $$ May 02, 2012
• U.S. Considers Notes That Float http://t.co/jynXGcYG Intermediate-dated Tsy floaters would trade above par, neg yields like TIPS $$ May 01, 2012
• Trying to Shed Student Debt http://t.co/0GmvckOn Lawmakers Rethink Bankruptcy-Law Ban on Walking Away From Education Loans $$ #slavery Apr 30, 2012
• Can the US Economy Recover Without a Housing Recovery? http://t.co/Tqy4l8J3 It will probably have to try w/o housing’s assistance $$ Apr 30, 2012
• Central Bank paper suggests house prices have ‘over-corrected’ http://t.co/KDrXCkzy Have Irish housing prices overshot? Tough 2 say. $$ Apr 30, 2012
• http://t.co/KbnUO93s Treasury floaters could b issued @ premium 2 par 2 inflation speculators allowing the Tsy 2 finance @ negative rates Apr 30, 2012
• U.S. Perfecting Formula for Budget Failure, Says Bowles http://t.co/vlLQzZ8q It’s nice 2b a part of a nation that is a global leader $$ Apr 30, 2012
• Will TARP Make a Profit? That’s the Wrong Question http://t.co/MZBHaO51 Conflicting govt goals make policy hard 2 implement & interpret $$ Apr 30, 2012
• You will buy more Govvies, or else http://t.co/DLrnyb9u Financial Repression, Quantitative Easing, Debt Monetization, Hyperinflation $$ Apr 30, 2012
• On Student Loans, Accounting Gimmicks, Electric Cars, FX and a note on SS http://t.co/2BCB9nAi Hodgepodge of insight from @brucekrasting $$ Apr 30, 2012
• “The Treasury should be issuing 100 year or perpetual bonds until the market can’t stand it anymore to lock in these … http://t.co/gXMUXW4C Apr 30, 2012
• The floating YTMs will probably be negative, as interest rate speculators will pay more than par for the floating rat… http://t.co/OSmE7QuJ Apr 30, 2012

Eurozone

• The euro crisis just got a whole lot worse http://t.co/XSqmQnGv Election of Hollande may lead2 Euozone policy paralysis; growth v austerity May 04, 2012
• Making eurozonians, or not http://t.co/JmuO5OXC The Eurozone was never a natural place to set up a shared currency. $$ May 04, 2012
• Madness in Spain Lingers as Ireland Chases Recovery http://t.co/BXdYSX5e Ireland may b rebounding, as Spain’s slump deepens #austerity $$ May 02, 2012
• Why the New York Times’s Paul Krugman is clueless about the European economic crisis http://t.co/xMuzZXC7 Aside frm Ireland no austerity yet May 02, 2012
• Core infection and eurozone PMIs http://t.co/xr97yPgD Core of the EZone sluggish @ a time when it can least afford it $$ #depressionary May 02, 2012
• ECB Measures Pushing Domestic Bonds Into Domestic Banks, Planting Seeds for Euro Disintegration http://t.co/HAITJJnX Yeh, this da future $$ May 02, 2012
• The rise in the Eurozone money supply has not improved credit conditions http://t.co/rYazqcuP Euro M3 diverges from bank loans $$ May 01, 2012
• The ECB lending to periphery governments via “backdoor SMP” http://t.co/uQeG2QQK How to stuff the ECB full of Eurofringe debt, c/o LTRO $$ May 01, 2012

Rest of the World

• Brazil: cutting at any cost? http://t.co/mh3vN1Te Pushes up asset & price inflation, as currency held down 2aid exporters; unsustainable $$ May 04, 2012
• Turkey Credit Rating Outlook Cut by S&P on Worsening Trade http://t.co/pFDzEhZl Wide current account def & hi external financing needs $$ May 02, 2012
• Once poster child of crisis, Iceland recovers http://t.co/Sgr2wTGl Letting banks fail & stiffing foreign creditors -> winning solution $$ May 02, 2012
• Which emerging economies are at greatest risk of overheating? http://t.co/olHdiYRE A gauge from the Economist on which Em Mkts r2 hot $$ Apr 29, 2012

Company News

• Buffett’s CTB Adds Chicken Eviscerators in Dutch Purchase http://t.co/K6Q3NGt2 Buffett’s firm is no chicken; it has a lot of guts! $$ May 04, 2012
• Sorry, really sorry… May 04, 2012
• Ackman Rejects Canadian Pacific Deal Ruling Out CEO Pick http://t.co/KYe970NJ Pick is former CEO of $CP rival $CNI – Bad blood; good CEO May 02, 2012
• Impressive work Mr. Einhorn. The analyst that wrote up the question deserves praise; if you did that… http://t.co/tSTWxqBa May 01, 2012
• Phillips 66 aims to run more shale oil http://t.co/tC7NBfLO LD: + $COP $PSX First day of trading for the new $PSX. Combo up 2%+ so far $$ May 01, 2012
• Value investing does not mean cheap. It means margin of safety. Cemex does not have that. Look at the debt. $CX $$ http://t.co/ydklVkth May 01, 2012
• Falcone Agrees To Step Aside http://t.co/bYgLxMMV “a final agreement may not be reached, and a bankruptcy filing was still possible” $$ Apr 30, 2012
• Delta to buy US refinery for $150 million http://t.co/IsK9xsDu If zero is dumb & 100 is very dumb, this one scores in the 90s. $$ Apr 30, 2012
• Discuss “At $1.7 billion, Nook is worth more than Barnes http://t.co/xOz6skwP Spin off Nook 2 create value $$ $BKS $AMZN #interneteatsbooks Apr 30, 2012
• @ampressman Would it have been value-enhancing to $BKS 2 sell the whole Nook unit 2 $MSFT, in your opinion? $$ Apr 30, 2012

Statistical Analysis

• trading-and-the-null-hypothesis http://t.co/QpYutOTb Problem:No academic journal wants2 publish studies with ‘no result’ as their conclusion May 04, 2012
• . @thenumb47 Allows for too much of a specification search; would be good to require disclosure of everything tried but not published $$ May 03, 2012
• Have to allow for accidents! RT @incakolanews: just scrub the word “validate” and I think you have a great idea May 03, 2012
• Thus my proposal for economists: come up w/research idea: goes 2a database. Randomly assigned economist will analyze & trash/validate it $$ May 03, 2012
• Unlike double-blind studies, raw statistical research allows health analysts to inject their own bias into the analysis, as economists do $$ May 03, 2012
• Analytical Trend Troubles Scientists http://t.co/bzcAIpHG Health researchers using statistics like economists find ambiguous results $$ May 03, 2012

Miscellaneous

• 14 Lessons From Benjamin Franklin About Getting What You Want In Life http://t.co/BWAjCz1l Advice from 1 of the wealthiest men of America $$ May 04, 2012
• Is Wall Street Meeting God’s Expectations? http://t.co/5H5j2QGG Many Christians misuse the Bible; almost all non-Christians misuse it $$ May 03, 2012
• What would Jesus trade? http://t.co/Dkrfwt9k Many Christians misuse the Bible; almost all non-Christians misuse it; another example $$ May 03, 2012
• And in a more honest way than Google RT @SconsetCapital: Long good, short evil. May 03, 2012
• Apparel-Swapping Millennials Eschew Stores and Malls http://t.co/B7jq2dcY “Is that a new outfit?” “Well, it’s new to me!” An odd trend $$ May 03, 2012
• @TheStalwart Kasriel was different enough that he will be missed, kind of like the sound of one hand clapping $$ #littledoghasbuddhanature May 01, 2012
• The record 4 tallest bldg s/b based on weighted average height; weighting based on cross-sectional area @ height http://t.co/03HNZ0BB $$ Apr 30, 2012
• So if you have something thin at the top, it wouldn’t count 4 much. A rectangular parallpiped would get full credit 4 height $$ #usingmath Apr 30, 2012
• That would work, simpler than mine $$ RT @Pollack7: @AlephBlog Meh.Highest continuous occupancy floor. Apr 30, 2012
• As the smartest boss I ever had said “Make bets, but never bet the franchise.” http://t.co/qWdHX3BS Apr 30, 2012

Monetary Policy

• Bernanke Charts New Mission For Fed: Financial Stability http://t.co/6RrWEQws Fed has a hard enuf time w/a double mandate, triple will b wrs May 02, 2012
• Then again, if focusing on financial stability forces the Fed to be more restrained in its monetary policy, that would be good. $$ May 02, 2012
• Bernanke: Be Humble! http://t.co/6icSHD1K The picture says it: http://t.co/OqOflqsI Humility in BB’s view: leaving monetary policy loose $$ May 01, 2012
• My Speech Delivered at the New York Federal Reserve Bank http://t.co/DbAhOdQR An Austrian let loose amid the marble palace in NYC?! Wow. $$ Apr 29, 2012

US Politics

• Renewed Hope that Jon Corzine, President Obama’s Top Tier Campaign Bundler, Will Face Criminal Charges http://t.co/wCLrXFve J. Tavakoli $$ May 01, 2012
• Occupy Wall Street Plans Global Protests in Resurgence http://t.co/0FLjKfiJ #OWS won’t b effective until they organize as a 3rd party $$ + May 01, 2012
• Or, organize to influence the Democrats the way the t-party does the Republicans. #OWS is irrelevant until then, b/c it doesn’t do anything May 01, 2012
• Is that a bailout in your pocket? http://t.co/8xwW4Cbi Boyazny, panel’s populist, replied that the credit markets had become “undemocratic” May 01, 2012

• Long Term U.S. Credit Boom Chart http://t.co/Ywub8HQH By bailing out short-term credit cycles, the Fed created a big asset bubble $$ Apr 28, 2012
• Quantitative Deleting: The Fed’s $400 Billion ‘Gift’ http://t.co/qavtYcQy Fed’s actions lower cost of funding the US Treasury’s deficit 4now Apr 26, 2012
• Bernanke Takes On Krugman’s Criticism Ignoring Own Advice http://t.co/AZ37nx1W Blind & Blinder $$ Apr 26, 2012
• I think Ben needs one too. Barkeep, make that a double for the the Fed Chairman! $$ RT @soooouuuuurrrrr: @AlephBlog I need a drink. Apr 25, 2012
• That’s all folks — the FOMC show is over!! $$ Apr 25, 2012
• Stocks loving Bernanke, who says he doesn’t act to please markets, but I think that he does, b/c he aims to reduces rates & spreads $$ Apr 25, 2012
• Good Qs on Labor force participation rate and the “bond bubble.” Bernanke obfuscates. Apr 25, 2012
• But the real canard here with the enhanced guidance is that the Fed is poor at forecasting & consistently drags toward current conditions $$ Apr 25, 2012
• When will Fed “transparency” finally be understood to not mean “increased reliability?” Apr 25, 2012
• Interesting that long Treasuries r rallying off of the FOMC second stmt after falling on the first. Not much difference between the 2. $$ Apr 25, 2012
• So, short-term inflation up, LT unch. ST Unemp down, LT unch. ST GDP up, 2013-4 down, LT unch. Tightening 6 mos closer than Jan, FF path up Apr 25, 2012
• Central tendencies and ranges of economic projections, PCE average change 2012-14 +0.22%, +.10%, +.09%, longer run 0% (natch) $$ Apr 25, 2012
• Central tendencies and ranges of economic projections, unemployment average change 2012-14 -0.40%, -.21%, -.08%, longer run -.01% $$ Apr 25, 2012
• Central tendencies and ranges of economic projections, GDP average change 2012-14 0.16%, -.08%, -.24%, longer run 0% $$ Apr 25, 2012
• The enhanced guidance of the FOMC is causing more confusion than enhancing understanding $$ Apr 25, 2012
• Overview of FOMC participants’ assessments of appropriate monetary policy; Appropriate Timing of Policy Firming 6 months sooner than Jan12 Apr 25, 2012
• Target Federal Funds Rate at Year-End average change 2012-2014, +.015%, +.044%, +.206%, long-run -.015% $$ Apr 25, 2012
• PDF isn’t as friendly as HTML… but that’s probably intentional on the part of the Fed. $$ Apr 25, 2012
• here they are, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents http://t.co/OzeYZbRa $$ Apr 25, 2012
• Clocks must be slow at the Fed’s website… Apr 25, 2012
• Bond/stock trading bots set loose within the next minute! Apr 25, 2012
• @bondscoop When the FOMC said they would do this, I said “Do they really get what they are setting themselves up for?” Tight coupling. Apr 25, 2012
• @bondscoop Thanks. I’ve got the ancillary data loaded into a spreadsheet to make a quick comparison Apr 25, 2012
• @bondscoop That’s not out yet, right? Apr 25, 2012
• Redacted Version of the April 2012 FOMC Statement http://t.co/wJbPNf5P Shaded up views on housing, inflation & global financial risk. $$ Apr 25, 2012
• Of course, that can only last so long as inflation stays low. Brian Wesbury thinks inflation might be rising http://t.co/YfLFURA3 $$ Apr 24, 2012
• Gundlach Says Fed Won’t Preemptively Raise Rates http://t.co/YTfjQ6Wj W/debt building up 1 thing saving us: interest rate collapsing $$ Apr 24, 2012
• There r historical accidents. The worst that we r dealing w/is Ben Bernanke as Fed Chairman with his mistaken views on the Great Depression! Apr 24, 2012
• Awash in money and piles of debt http://t.co/C9hbSWmf Up next: More QE, financial repression, inflation, deficit spending -> stagflation $$ Apr 23, 2012
• $$ Coming soon +1 RT @ReformedBroker: Hilsenrath: After-Hours Sell-Off in Netflix Pushes Fed Governors Toward to Further Easing… $NFLX Apr 23, 2012

China

• Are these companies feeling the Chinese slowdown? http://t.co/bIO0m2vF Machinery companies: Volvo, ABB, $CAT seeing China orders fall $$ Apr 26, 2012
• China Internet Crackdown Silences Another http://t.co/ukw0qzWg More closure of accts found 2b spreading “malicious political rumors.” $$ Apr 26, 2012
• Why Wukan Will Remain a One-off http://t.co/LO3tK7kT Optimistic piece shows when there is enough pressure in China, change can happen $$ Apr 26, 2012
• China Tire Demand Slows as Economy Decelerates, Bridgestone Says http://t.co/yUK3UEye Q is how much things slow for the Chinese economy $$ Apr 26, 2012
• China Escalates Crackdown On Internet Amid Scandal http://t.co/QblN4v3S China wants the internet 4 its economy, but not its politics $$ Apr 26, 2012
• China and Social Media Today vs. Japan bubble in 80s http://t.co/0uxQ40xV Vitaliy Katzenelson shares his reasoning on bubbles $$ Apr 26, 2012
• Why China’s Economic Policies Are a Failure: Andy Xie http://t.co/WZjILv4J Building redundant capacity, cronyism, recipe for disaster $$ Apr 25, 2012
• China Hidden Liabilities for Central Government Seen @ CNY10.94Trl http://t.co/gaqD4suu Opaque governments w/lots of debt can b trouble 2 $$ Apr 25, 2012
• Shide Group Mired in Financing Crisis, Massive Debt http://t.co/Iws3h9Ec Beware complex companies w/lots of debt. Default probs higher $$ Apr 25, 2012
• The Startling Plight of China’s Leftover Ladies http://t.co/WWK3en7R Leftover Chinese men r not good enuf 4 them, even w/sex ratio tilted $$ Apr 24, 2012
• Behind a Chinese City’s Growth, Heavy Debt http://t.co/6eKX3kJp Bo Xilai leaves behind a legacy of debt 4 taxpayers to fund $$ #surprise Apr 23, 2012
• Cities get a sinking feeling: report http://t.co/xQE2d46k If China’s cities aren’t careful about their water tables, they’re sunk $$ Apr 23, 2012
• Can China Reflate the Housing Market? http://t.co/rMtYHX0Y Maybe one more time, but eventually you can’t resuscitate a corpse $$ Apr 23, 2012
• US barnyards help China super-size food production http://t.co/38GkPJ0T China builds protein industry by purchasing live animals from US $$ Apr 23, 2012
• Beijing’s Cracked Consensus http://t.co/1Xep2j6s Don’t assume the fall of Bo Xilai 2b 2big; the CC Party still fights 4 the CC Party $$ Apr 23, 2012
• Farmers Retool to Feed China http://t.co/c0loHf82 Dairy processors make longer-lasting milk powder 2sell2 China. They like almonds 2 $$ Apr 23, 2012
• China May Finally Let Its People Move More Freely http://t.co/fiTQgY5c Of hukou: how China uses household registration 4 control purposes Apr 23, 2012
• The End of China’s One-Child Policy? http://t.co/dK7sUMTq China is getting old before it gets rich. Toxic combo. Watch wages rise. $$ Apr 23, 2012
• The China Rising Leaders Project http://t.co/QuKsr7w2 Very long piece giving very detailed info on next generation of China’s leaders $$ Apr 23, 2012
• China’s Biggest Banks Are Squeezed for Capital http://t.co/uveB69fJ Too much and overaggressive lending strains their balance sheets $$ Apr 24, 2012

Eurozone

• Spain’s current unemployment rate exceeds the US rate during the Great Depression http://t.co/bj86umZp Ugly chart: http://t.co/M6uchbAx $$ Apr 28, 2012
• Why Spain Won’t Reform http://t.co/aIuYUctZ Cultural argument that Madrid historically does not act on problems outside of Madrid $$ Apr 28, 2012
• Rising Italy-to-Spain Yields Keep Banks on Life Support http://t.co/kSdshke5 Many banks simply cannot refinance their maturing debt $$ Apr 25, 2012
• Continuing flow of capital out of Greece http://t.co/psvzWbJk E.g. Greek refineries r unable to obtain credit & rely on Iran for crude $$ Apr 25, 2012
• Spanish property crisis will require Ireland-style banking system recapitalization http://t.co/pDLNF2X7 But who has the money 2do it? $$ Apr 23, 2012
• Bundesbank’s Weidmann Says What No EU Politician Wants to Hear http://t.co/ecLHlLIJ EZone monetary policy loose; fiscal union negligible Apr 23, 2012
• Holland, Not Hollande, Is Europe’s Latest Worry http://t.co/AeQtOIVv If Dutch don’t care 4 austerity, little hope 4 rest of the EZone $$ Apr 23, 2012

Pensions

• How Retirement Benefits May Sink the States http://t.co/oIEsAWhh Companies emigrate 2 states where future tax pressures r lower $$ #bye Apr 28, 2012
• Point Man on Pensions http://t.co/DaXsdkgx PBGC director has experience in restructuring; serves him well negotiating w/dud companies Apr 23, 2012
• Tidbit in last article: FV of DB pension liabs for $SWY > market cap. Actuarial profession goofed on DB plans valuations; ests r liberal $$ Apr 23, 2012
• The Multiheaded Pension Monster http://t.co/oBDNBZYN Multiemployer DB plans- not enough coverage: moral hazard, low PBGC guarantees $$ Apr 23, 2012

Energy

• Chevron sticks with oil. And it pays off. http://t.co/uUlsjbBK FD: + $CVX | That said, buy & hold conventional NG could b good idea now $$ Apr 28, 2012
• Tough Talks Loom at Chesapeake http://t.co/OkMGyu8J Having a CEO who has differing interests from common shareholders is a risk $CHK $$ Apr 28, 2012
• Saudi oil puzzle, continued http://t.co/z76fSKTZ Prices r high, but the Saudis keep stockpiling oil. Why? $$ #idunno #gouging #painfreak Apr 25, 2012

Information Issues

• Saudi Clerics Out-Tweet Liberals Forcing King to Balance http://t.co/A1TcHeSJ Don’t underestimate the influence of Wahhabi Islam. $$ Apr 26, 2012
• Google Stores, Syncs, Edits in the Cloud http://t.co/BrRSauno Walter Mossberg likes $GOOG Drive, thinks $MSFT Skydrive worth a try $$ Apr 25, 2012
• PGP Creator Phil Zimmermann Has a New Venture Called Silent Circle http://t.co/KNJQJ4X4 There’s also a promise of no backdoors 4 anyone $$ Apr 24, 2012
• A New Email Encryption App Your Network Admin Might Not Like http://t.co/7b967z7e Enlocked can encrypt email w/a click, could go viral $$ Apr 24, 2012
• Surveillance State evils http://t.co/BKkmM78J Don’t say anything that you don’t want the government 2 know. Repeal the Patriot Act! $$ Apr 23, 2012
• Astounding. Reprogram it $$ RT @AnnieLowrey: This essay awarded a perfect score by a robo-grader is just delightful. http://t.co/Vc1ORC8T Apr 23, 2012

Company Issues

• Heat Turned Up on Falcone http://t.co/zaiW1Jzu The deal w/the devil comes due for payment; Falcone faces checkmate or LS bankruptcy $$ Apr 28, 2012
• Woes at Law Firm Deepen http://t.co/to4dZbJY Dewey & LeBoeuf’s troubles w/debt & revenue shrinkage. Law does not work well 4 big biz $$ Apr 28, 2012
• Health Insurers to Give Back $1.2 Billion, Goldman Says http://t.co/VX0V9sL9 health overhaul limits <20% premium for expenses & profit $$ Apr 26, 2012
• US Airways Said to Approach AMR Bondholders on Merger http://t.co/iArkC4nq The unsec bondholders r the economic equity of $AAMRQ now $LCC Apr 25, 2012
• Genworth Credibility Eroded as Australia Plan Shelved http://t.co/oyJJ4OCC I’ve almost always ben a sceptic on $GNW. Toxic lines of biz $$ Apr 24, 2012
• Google Unveils Drive Storage Service http://t.co/5R1CAkR0 I use Microsoft Skydrive as a real time backup of my files. $$’ Apr 24, 2012
• MGIC Posts $19.6 Million Loss as Borrowers Struggle on Loans http://t.co/fvoY6cZN Regulators should halt $MTG’s ability 2 write new biz $$ Apr 23, 2012

Rest of the World

• Bubble Down Under? http://t.co/jk4UBFzA “Name a credit bubble built on a commodity bull market built on a bigger Chinese credit bubble?” Apr 26, 2012
• North Korea Poised to Rattle Region With Nuclear Blast http://t.co/MJmALgYi Will believe when it happens; NK always seems 2 get tech wrong Apr 26, 2012
• Swiss housing market inching towards bubble http://t.co/KCbYrs6x Makes me wonder when the Swiss Central Bank will break its Euro peg $$ Apr 24, 2012

Financial Markets

• Conference Notes http://t.co/VF5FIPOg On 4/13, Chicago Booth held its 7th Annual Distressed Investing & Restructuring Conference. $$ Apr 26, 2012
• No surprise when they only put 3.5% down $$ RT @pdacosta: Falling home prices drag new buyers under water http://t.co/bayZVELO Apr 26, 2012
• TARP Profit A Myth, Claims TARP Inspector General Christy Romero http://t.co/iv77kkne Q is related to foreclosure prevention aid & GSEs $$ Apr 26, 2012
• My Sister’s Pension Assets and Agency Problems by Jeremy Grantham http://t.co/ANDMdZae On the value of a non-constrained mandate $$ Apr 25, 2012
• Force Fed by Ben Inker of GMO, last 3 pgs of http://t.co/ANDMdZae Goes through the problems of Asset Allocation with yields so low $$ Apr 25, 2012
• Wall Street Promotes Junk Bonds as Europe Erupts http://t.co/5kIRG7Oi grabbing for yield — it’s the national pastime! $$ Apr 25, 2012
• US 10 Year Bond Yielding 0.5% http://t.co/Zrnj9zdL Japan scenario for the US? The 10Y at 0.5% seems farfetched, but everyone hates bonds $$ Apr 25, 2012
• REITs Spring an Unnerving Surprise http://t.co/qgStDii0 I’ve warned b4 on Private REITs http://t.co/liQr20vq More bad surprises coming $$ Apr 25, 2012
• So, if Egan-Jones did do ABS & governments, that would have been news to me. Surprising to see the SEC going after them $$ Apr 25, 2012
• Credit Rater Egan-Jones Lied, SEC Charges http://t.co/c1ym3feC Firm was known 4 its corporate bond ratings by a contingent claims model $$ Apr 25, 2012
• Misleading ETFs http://t.co/Z8uKHfA7 Buyer beware, read your prospectuses and semi/annual reports; go to the sponsor websites 4 more data $$ Apr 24, 2012
• Who Gets the Equity Risk Premium? http://t.co/gqdPYexG LT holders, brokers, taxes, firms that issue & retire shares at inopportune times $$ Apr 24, 2012
• Commodities don’t provide “diversification” in a crisis http://t.co/7ue9vvjJ Commodities provided diversification when few did it; no more Apr 23, 2012

Catastrophe Bonds

• @merrillmatter If I ran a life insurance portfolio, a closed end fund, an open end HY fund, I would buy cat bonds, u need a balance sheet $$ Apr 24, 2012
• @merrillmatter With all the goofy ETFs issued, surely someone could create $CATB, the Cat bond ETF. Would b very tough 2 source bonds 4 $$ Apr 23, 2012
• @merrillmatter That’s why many high yield funds buy them w/both hands. Also special hedge funds that tear Cat bonds apart 2 get the best $$ Apr 23, 2012

The Perils of Sitting

• On the sitting kills you piece, would like to get a copy. Est’d increase in death rate from 0.76% to 1.06%/yr. Big %, not so big absolute $$ Apr 23, 2012
• Confirmed: He Who Sits the Most Dies the Soonest http://t.co/aif1e8xX I found this article worrisome. I sit > half of my waking hours. $$ Apr 23, 2012

US Economy

• New Mad-Cow Discovery Stirs Fears http://t.co/DPm6aLzI This story will have legs, 4 2b exact. Beef will b down until scope clears $$ Apr 25, 2012
• On the Social Security 2012 Report to Congress http://t.co/RPG3qz1p Age <53 today can expect to get 75% of the value a baby boomer got $$ Apr 24, 2012
• Rosenberg: U.S. Clients View Canada as ’51st State’ http://t.co/EqVvLFpX Careful, w/rates so low, housing is looking bubbly & banks?? $$ Apr 24, 2012
• Fees and Anger Rise in California Water War http://t.co/9GjE5jwx Bad geography to get water to, unless you want to try desalinization. $$ Apr 24, 2012
• @moorehn Heidi, I was 1 of the 8 bloggers @ the 1st blogger summit at the Treasury, & not 1 of the noisier ones. I spoke twice in the 90mins Apr 24, 2012
• @moorehn So here is my Q4 Geithner: How do we get out of the entitlements crisis? We have promises equal to 4-5x GDP!? [Amid the deficit] $$ Apr 24, 2012
• Housing market no longer yours for a steal http://t.co/xb2E2JIy Low end res RE is not accepting lowball offers to buy as it used to $$ Apr 23, 2012
• You Won’t BELIEVE How Bearish Investors Are On Treasuries http://t.co/q9t2sZdE 2% bullish, 81% bearish in Barron’s poll. FD: + $TLT $$ Apr 23, 2012

Miscellaneous

• US College Education Bubble, Planning for the Wrong Future http://t.co/BScEbQJI But many smaller job fields req college & pay well. $$ Apr 28, 2012
• Hong Kong Glued to ‘Bride Wannabes’ http://t.co/6p9RCs0X Reality TV aids lovelorn 30-something women, ending w/a mass marriage 4 some $$ Apr 26, 2012
• But really, with Agriculture doing so well in the US, isn’t it time to finally cut farm subsidies? And beef up (oops) USDA food safety? $$ Apr 25, 2012
• Government Keeps Picking Winners, Losers on the Farm http://t.co/PKiJBHIp Farmer complains healthy food gets less subsidy than unhealthy Apr 25, 2012

 Shades up their view on the housing sector.   I would be more cautious.Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable.Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.Shades up their view of inflation, finally.  TIPS are showing higher inflation expectations since the start of the year. (5y forward 5y inflation implied from TIPS.)Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.No change.  Mentions of the statutory mandate are always meant to hide the distasteful aspects of what they do.The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate.The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate.Shades up its views of future GDP growth.Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook.Strains in global financial markets continue to pose significant downside risks to the economic outlook.Shades up its view of risks from global financial markets.The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.No real change.To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy.To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy.No change.In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

 No change.The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.No change.Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen.Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen.No change.Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.No change.  Thank you, Mr. Lacker.

Comments

• No significant changes from last time.  They shaded up their views on housing, inflation, and global financial risk.  That’s all.
• In my opinion, I don’t think holding down longer-term rates on the highest-quality debt will have any impact on lower quality debts, which is where most of the economy finances itself.
• Also, the reinvestment in Agency MBS should have limited impact because so many owners are inverted, or ineligible for financing backed by the GSEs, and implicitly the government, even with the recently announced refinancing changes.
• The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.  As a result, the FOMC ain’t moving rates up, absent increases in employment, or a US Dollar crisis.  Labor employment is the key metric.
• The Fed is out of good policy tools, so it will use bad policy tools instead, and for longer than before.
• Do they want the yield on 30 year TIPS to go negative?  Looks that way.
• GDP growth is not improving much if at all, and the unemployment rate improvement comes more from discouraged workers.  Inflation has moderated, but whether it will stay that way is another question.

Questions for Dr. Bernanke:

• Is it possible that you don’t really know what would have worked to solve the Great Depression, and you are just committing an entirely new error that will result in a larger problem for us later?
• Why do think extending the period of accommodation by a little more than a year will have any significant effect on the economy, aside from stock and bond prices?
• Discouraged workers are a large factor in the falling unemployment rate. Why do you think the economy is doing well?
• Couldn’t increased unemployment be structural, after all, there is a lot more competition from labor in emerging markets?
• Why do you think that holding down longer-term rates on the highest-quality debt will have any impact on lower quality debts, which is where most of the economy finances itself?
• Why will reinvestment in Agency MBS help the economy significantly?  Doesn’t that only help solvent borrowers on the low end of housing, who don’t really need the help?
• Isn’t stagflation a possibility here?  I mean, no one expected it in the ‘70s either.
• Could we end up with another debt bubble from keeping short rates so low?
• If the Fed ever does shrink its balance sheet, what effect will it have on the banks?

=-=-=-=-=-=–=-=-==-=-=-==-=-=-=-=–==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

China

• Bloomberg: Inflated Notions http://t.co/hvMoIFH6 Patrick Chovanec questions whether Chinese economic statistics are correct. $$ Apr 22, 2012
• China’s Political Stability Questioned, while Deposit Withdrawals Accelerate http://t.co/X9kJ9oZb Deposits exit China’s banks; many worry $$ Apr 22, 2012
• Asia dominates new treasury purchases http://t.co/BXvgGQRi If you want to favor your exporters, you have to suck in the debts of the buyers Apr 22, 2012
• China’s Achilles heel http://t.co/3TPxHEvL Very difficult to change the practice of having fewer children once it is entrenched $$ Apr 22, 2012
• Son is a good man, more worthy than Dad $$ RT @mprobertson: & the first wife had a son. http://t.co/dFzgm1kp extra extra, read all about it Apr 19, 2012
• Chinese Move to Wealth Products May Undermine Bank Stability http://t.co/bYK4qImP Disintermediation happening increasing shadow bank risk $$ Apr 18, 2012
• Chinese Officialdom Indulges in the Almost-Free Lunch http://t.co/tTMkP8JK A modest subsidy/perk looks big if the 1 looking in is poor $$ Apr 18, 2012
• The Power Shift in China http://t.co/bgxN7t8h Shifts: 1.weak leaders < strong factions 2. government < interest groups 3. party < country $$ Apr 18, 2012
• More Chinese get US green card http://t.co/ZU30ahwF They know where they’ve got it good, not in the Socialist worker’s paradise! $$ Apr 18, 2012
• So many Chinese officials r arrested 4 embezzling funds through Macau that 2 scholars devoted a study to the subject http://t.co/YZbDqX57 $$ Apr 18, 2012
• That’s Governor Zhou to you http://t.co/AkXcHbPZ Check out chart of central bank balance sheet growth http://t.co/VG0bySGA China leads $$ Apr 18, 2012
• China widens the range 4 currency fluctuations. Is it really making x-rate more flexible? http://t.co/Rv79vI0q PBOC still targets x-rate $$ Apr 18, 2012
• Rotting From Within http://t.co/vAwKBTzb Investigates the massive corruption of the Chinese military; makes corruption in the US look small Apr 18, 2012
• Bo Xilai’s first wife gets her revenge at last http://t.co/UsrGejSF Some Chinese r very good @ maintaining a grudge 4a long time $$ Apr 18, 2012
• China Doubling Yuan Band Signals Drive for Convertibility http://t.co/FK9OohMh Importance overstated; will not have a big effect on x-rate Apr 18, 2012
• China Adds Treasuries for Second Month on Reserve Growth http://t.co/Ev9Fqi8s Export earnings have 2b invested somewhere $$ is best of bad Apr 18, 2012
• China New Yuan Loans Surge in March as Money Supply Quickens http://t.co/DmXg6QB5 Sounds inflationary, if not 4 goods, then 4 assets $$ Apr 18, 2012

Energy

• Peak oil goes mainstream (again) http://t.co/BijPuVFG Oil & Gas will never run out, but the price to get them could get high $$ Apr 22, 2012
• Feeling peaky http://t.co/4mefPCBR “But there is a simpler explanation: that supply is inadequate to keep up with rising demand.” $$ Apr 22, 2012
• Could US natural gas run out of storage capacity? http://t.co/8R1aYxjM Yes, it could, and we could see the price of spot gas go 2 zero $$ Apr 22, 2012
• Delta’s Oil Refinery Plan Flies Against Economic Sense http://t.co/0xAnIV2z It rarely makes sense to be vertically integrated. $$ Apr 22, 2012
• Obama’s oil market plan more politics than substance http://t.co/w2vwKhNx Crude oil market is so big; would be difficult 2 game secretly Apr 18, 2012

Eurozone

• Odds of bankruptcy http://t.co/v0xBexrW Short table of bankruptcy odds: European banks = E-Zone Fringe > US Banks > Other nations $$ Apr 22, 2012
• The bank-sovereign linkage in the Eurozone http://t.co/9q7Sx9cn Not 2 surprising; governments & banks comprise most systemic risk $$ Apr 22, 2012
• Spain’s loan delinquencies accelerate http://t.co/3Nlf2QDu Really ugly graph: http://t.co/iJVux7fj The Spain issue is not dead $$ #ezonedead Apr 22, 2012
• Paulson Said to Short Europe Bonds Amid Spain Concern http://t.co/hJQwSc9n This one isn’t as easy as shorting subprime. Be careful $$ Apr 18, 2012
• Modell Deutschland über alles http://t.co/DtrBNHDL Suggests EZone imitate German labor rules, but not austerity $$ Apr 18, 2012
• French Campaign Enters Final Week With Hollande Extending Lead http://t.co/whQhmUb1 & widening recently; could make Ezone matters messy $$ Apr 18, 2012
• Downgrades Loom 4 Banks http://t.co/EdDRDGQa Moody’s Weighing Ratings Cuts to 114 Institutions in 16 European Countries $$ #lookoutbelow Apr 18, 2012
• Spanish Minister Asks ECB to Buy Bonds as Crisis Deepens http://t.co/cUcLRHLW Things r calmer now but this is the path of least resistance Apr 18, 2012
• Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup http://t.co/QQT2BSsB NPLs /totallending jumped to 8.16% in February, <1% in 2007 Apr 18, 2012
• Weidmann says not ECB job to tackle Spain’s problems http://t.co/kRUWSfyQ Famous last words $$ ECB only entity w/flexbility 2act fast Apr 18, 2012
• Ray Dalio’s Bridgewater Says Spain Is Worse Off Than It Was Before The LTRO http://t.co/nVMDpG5c It’s a solvency, not a liquidity problem Apr 18, 2012
• GEORGE SOROS: The Euro Crisis Just Entered A ‘Less Volatile But More Lethal Phase’ http://t.co/uzIev7nm LTRO papers overinsolvency probs Apr 18, 2012

Rest of the World

• Argentina’s shadow FX rate shows total loss of confidence http://t.co/RVRicp1p Dishonesty in one area makes others distrust u elsewhere $$ Apr 22, 2012
• Cristina: she is not alone http://t.co/gBWcllwU Many nations engage in expropriation from foreigners. $$ Apr 22, 2012
• Pakistan And India To Go To War Over Water? http://t.co/2mx9a7u9 Whiskey’s for drinking, water’s for fighting over — Mark Twain $$ Apr 18, 2012
• Unlikely but never say never RT @SCMITHA: @AlephBlog Sir No chance of war bet India & Pakistan both Nuclear Army Chief Kayani wants peace Apr 18, 2012
• Mexico Manifesting its Own Destiny http://t.co/kLwx5A6l “Mexico has clearly stood out to me for its relative and absolute strength.” $$ Apr 18, 2012
• Japan’s Teachers Fund to Start Investing in REITs, Hedge Funds http://t.co/9nKnY0zM Trend following; late to the alternative assets party Apr 18, 2012

US Tax Policy & Pensions

• Congress Eyes 401(k)s Again http://t.co/nRL9IkeO Interesting article on some possible/unlikely proposals to change 401(k)s $$ Apr 22, 2012
• How to Pay No Taxes: 10 Strategies Used by the Rich http://t.co/ljjgefpc The main problem is defining income, not tax rates on the rich $$ Apr 22, 2012
• Occupy defined-benefit pension funds! http://t.co/eQooNetC Employees would be better off with DB plans, even if had to fund them themselves Apr 22, 2012
• New Suits Over Do-It-Yourself IRAs http://t.co/B6UYpG5m They aim for the wrong target; the custodian is only a conduit, not a referee $$ Apr 22, 2012
• As population ages, institutions reduce equity holdings http://t.co/rPfescwH A first: US pensions have allocated more to bonds than equities Apr 18, 2012

Miscellaneous

• The New York Times Company in 2015 http://t.co/qp451VDA An optimistic view of $NYT three years from now. I will not buy it. $$ Apr 22, 2012
• Joel Kotkin: The Great California Exodus http://t.co/WOvr2BFE Y California is in deep trouble & will shrink as better places r found $$ Apr 22, 2012
• Contra: Climate Change Has Nothing to Do With Al Gore http://t.co/GO0S60J3 Misinterprets Lk 16:2, & I am to believe he is a Christian? $$ Apr 22, 2012
• The Celestial Event That Sparked a Revolution http://t.co/Kn3E9XJb Fascinating tale on the transit of Venus across the Sun $$ #June6th Apr 22, 2012
• The Downside of Cohabiting Before Marriage http://t.co/a1fFySzW For a man & woman 2 live together long run requires decisive commitment $$ Apr 18, 2012
• Amazon’s knock-off problem (35 Shades of Grey, anyone?) http://t.co/oRJNKhVB Fascinating that some r knocking off books & selling on $AMZN Apr 18, 2012
• Median age for first marriage spikes to record, holding back family formation http://t.co/Uf2SbCTI Long-run effect on society won’t b good Apr 18, 2012
• To Pay Off Loans, Grads Put Off Marriage, Children http://t.co/G72NieZI Far better to skip college than put off marrying & children $$ Apr 18, 2012
• The 101 Finance People You Have To Follow On Twitter: http://t.co/pIaCWK1n A good list, but where’s @moorehn, @interfluidity, @edwardnh $$ Apr 18, 2012
• Dark Meat Getting a Leg Up on Boring Boneless Breast http://t.co/7BDSaTru “Every single day we have shortage of dark meat.” Who knew? $$ Apr 18, 2012
• ‘Pink Slime’ Furor Means Disaster for U.S. Meat Innovator http://t.co/uGwKSIhw The other side of the story; fighting bacteria in beef $$ Apr 18, 2012
• RAIL TRAFFIC CONTINUES TO SOFTEN http://t.co/EnhWT7Ay Economy slowing; just another straw blowing in the wind. $$ Apr 18, 2012
• Freeport Deal Talk Intensifies on Cheap Copper http://t.co/DH26Nf1s Would be a big deal & difficult to pull off; Interesting idea tho $$ Apr 18, 2012
• Taxes are filed and now I have some time to tweet, making up for lost time… Apr 18, 2012
• @danprimack Private Investment Limited Partnership. Features: asset & profit-based fees. Limited liquidity & information. Aims high gets low Apr 17, 2012 (DM: defining “hedge fund” in 140 chars)

Economics & Finance Theory

• Is modern portfolio theory bunk? http://t.co/NrplQvbp Low volatility anomaly says bunk; if you didn’t know MPT was bogus alre ady-> #hopeless Apr 22, 2012
• U.S. money supply growth offers bullish signal http://t.co/aqV6oP0c It is bullish in nominal terms for risk assets; not bullish for the rest Apr 22, 2012
• Slump Taught Profligate Americans Value of Saving http://t.co/22jWf3OL Having slack assets & not being in debt is a virtue not a vice $$ Apr 22, 2012
• The Great Depression as a Credit Boom Gone Wrong http://t.co/OBXRGeY2 Until the great depression is viewed as the bust after a credit boom + Apr 22, 2012
• …we won’t get policy right. The credit cycle is real, & the Fed ignores it, providing liquidity as if it were not a structural problem. $$ Apr 22, 2012
• El-Erian Breaches The Final Frontier: What Happens If Central Banks Fail? http://t.co/pRcdN42N Goal: print enough credit until promises -> 0 Apr 18, 2012
• Deflation Does Not Lead to a Depression, suggests Research http://t.co/2VTu2bAd Separate probs; falling inflation vs systemic impaired debts Apr 18, 2012
• Depression is a choice http://t.co/F4YdBn8x Every creditor wants 2b paid off @ par; many debtors would like compromise, enabling econ growth Apr 18, 2012
• Difficulties in forecasting the impact of shadow inventory on the housing market http://t.co/xcALioOb Mtge > value makes sales slow, $$ low Apr 18, 2012

Financial Markets

• Are fixed income ETFs the new “securitization” product? http://t.co/6qo2U7Zg Shows the many ways that sponsors make $$ off of ETFs Apr 22, 2012
• Time for the SEC to institute new disclosure rules on CEO leverage http://t.co/nMJZslXg Insider CEO deals r material & should be revealed $$ Apr 22, 2012
• Fear Barometer Bubbling http://t.co/HjXre23p Puts getting more expensive relative to calls on the S&P Apr 22, 2012
• Is This the Book that Inspired Jamie Dimon’s Warnings About Regulation? http://t.co/ikzuXwlD Regs make banks behave alike ->systemic risk $$ Apr 22, 2012
• @historysquared One question I always ask is how mgmt/directors treat outside passive minority shareholders. Do we ride the back of bus? $$ Apr 18, 2012
• @historysquared Yeh, don’t let management control audit, nominating, or compensation committees. Split Chairman & CEO, etc., etc., etc… $$ Apr 18, 2012
• Regulators should encourage more diversity in the financial system http://t.co/xhfvsTlS Consistent regs create less diversity forces conform Apr 18, 2012
• In New Funds, Old Flaws http://t.co/h931mglc Some have high fees, longer-term tracking error, hidden counterparty risk, enable stupidity Apr 18, 2012
• Why Investors Should Pay Attention to the JOBS Act of 2012 http://t.co/kk9seYVH Here’s what Hunter thinks are the positives of the JOBS Act Apr 18, 2012
• Fannie Mae Fix Said to Retain Some US Mortgage Role http://t.co/YPAFyygs Crazy people @ UST. 2much debt on housing in general->instability Apr 18, 2012
• Wells Fargo, JPMorgan Label More Junior Liens as Bad Assets http://t.co/QpwE2S43 Wow, this took a long time to finally happen $$ #reality Apr 18, 2012
• Structured-Note Fees (etc) http://t.co/rYf5WXBS IBs must disclose likely value of securities, fees incurred in creation of the notes $$ Apr 18, 2012
• Citadel, Millennium Above $115 Billion With Rule Change http://t.co/j53AMUGG Many hedge funds have borrowed lots; now we know how much $$ Apr 18, 2012
• Year’s first outflows from HY bond funds http://t.co/mUmIq0Yw May eventually lead to $$ weakness Apr 18, 2012
• Green Light for Hedge-Fund Ads Means Caution on Main Street http://t.co/4mh9LNgW Most people will not fare well w/complex investments $$ Apr 18, 2012
• Doing the Right Thing: Upside? Zero. Downside? Financial Ruin… http://t.co/eZlNDJJA We aren’t paid 2b sheriffs a la: http://t.co/egqIsb9V $$ Apr 18, 2012
• Do Jubilee shares make any sense? http://t.co/2LxtggJ1 I don’t think so. Unnecessary complexity; increased illiquidity; would not work $$ Apr 18, 2012
• 12 Intriguing Insights on Mutual Funds http://t.co/6U3JZegh Interesting mutual fund trivia from Morningstar $$ Apr 18, 2012
• Interesting post. But a successful spec on 1 risk can morph into credit risk post-crisis. … http://t.co/Vzlb5xdT Apr 17, 2012
• Falcone looks like a one-trick pony who made one lucky bet and won. Now he loses regularly. http://t.co/dsivgMCs Apr 16, 2012

I sometimes call it “the race to the bottom.”  During a time where most nations are feeling economically weak, some decide to weaken their currency, so that their exporters can do better, which supposedly preserves jobs in export industries.

Producers have concentrated interests, and lobby well.  The interests of consumers are diffuse, and don’t gain favor from governments kowtowing to producers, who also find more effective ways of rewarding political friends.

If we were intelligent, we would know this is a loser of a battle, and we would realize that this simply leads to inflation globally.  Better to sit it out, ignore the debasement, and realize it will eventually burn out.  Unlike the current Federal Reserve, don’t add to the debasement, it just adds fuel to the global inflationary fire.

This book starts with a currency war-gaming scenario.  In the game, the author pursues a course where on one of the non-US teams decides to link their currency to gold.  Initially derided, they end up as one of the victors at the end of the game, even though no one else follows them.

The book continues with an examination of three eras where currencies were at war: 1) prior to the Great Depression until we leave the internal gold standard, 2) the inflationary guns and butter late ’60s to mid ’80s, encompassing the period where the US goes off the gold standard entirely, and global currencies float.  We go through a period of high inflation after that, followed by an extreme rise in interest rates. 3) The book examines the present time, where every nation wants to devalue, so that it exporters are not harmed.

If we left the gold standard to get stability, we did not get it.  If we left the gold standard to benefit the global or US economies, the benefit has not appeared.

But, from chapters 7 through 10, the book muddles.  It talks about a wide variety of ideas loosely related to the main thesis, but proving little one way or another.  The book does not build toward its conclusion in chapter 11, where it suggests a return to a gold standard.

A gold standard exists to preserve purchasing power, and takes power out of the hands of governments that want to favor one set of parties over another, whether favoring savers or investors, producers or consumers.  It takes many questions out of the hands of the government, and reduces the need for an expensive central bank filled with PhDs in Economics who really have no idea how economies work, because they are mathematicians, and don’t get the broader societal ramifications of what their policies encourage.

I enjoyed this book, and would recommend it. The book isn’t linear to its goal, but you will learn a lot along the way, even if it is circuitous.

Quibbles

Already given.

Who would benefit from this book:   This book is for those frustrated with the way that our government are handling monetary affairs, and are looking for a better way.  If you want to, you can buy it here: Currency Wars: The Making of the Next Global Crisis (Portfolio).

Full disclosure: The publisher asked me if I would like the book.  I said yes, and they sent me a copy.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

• High Yield Closed End Funds 68% over NAV, 3% avg premium. Loan Participation CEFs 40% over NAV, -1% avg discount. Conditions r medium hot $$ Apr 07, 2012
• Why Stocks Look Too Pricey http://t.co/TWqZzGg3 Various Indicators Suggest the Market Is No Longer a Bargain, at best fairly valued $$ Apr 07, 2012
• Contra: The alarming fall in syndicated lending http://t.co/hiGK9UoK With the high yield mkt running hot why not avoid restrictive banks $$ Apr 06, 2012
• Not so new… Eddy Elfenbein said something similar 4 months ago: http://www.crossingwallstreet… http://t.co/mhIxGGwt Apr 04, 2012 (on inflation expectations driving stock prices in the short run)
• Time to take some risk off the table http://t.co/sCuYxc6u Trends breaking globally, US looks okay. Humble Student has made good calls lately Apr 04, 2012
• The Dangers of an Interventionist Fed http://t.co/thKsHa8J QE Removal: what happens to banks if Fed does & 2 inflation if Fed doesn’t $$ Apr 03, 2012
• Junk Bonds – Getting Risky for a New Reason? http://t.co/7bJ08JxT Record pace of junk issuance bodes ill 4 performance… 3 yrs from now. $$ Apr 03, 2012
• Two Pros Weigh In on U.S. Stocks: Ben Inker’s Bearish View http://t.co/iJ7742P5 Katie Nixon’s Bull View http://t.co/Zn9jj503 $$ Apr 02, 2012
• Eichengreen on Credit Bubbles http://t.co/bSs0MHPA Leading indicator of finl stress in em mkts: loan growth > 2x GDP growth 2 yrs earlier $$ Apr 01, 2012
• Taking the High Out of High Yield http://t.co/WYIvHb0n Nonprofessionals are the ones buying junk at the margin. This won’t end well. $$ Apr 01, 2012

Central Banking

• The ECB has completely lost control over the monetary policy for Greece http://t.co/MHNTXLHo Massive liquidity drain; total credit failure Apr 07, 2012
• Post-war financial repression is back http://t.co/JGLo9Aic If the post-war experience is any guide, savers face many years of suffering. Apr 06, 2012
• Bernanke – I’m Slowing Down the Ship http://t.co/TJcJl20n Stocks don’t like less inflation coming and so they fall. But bonds rally. $$ Apr 06, 2012
• Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive http://t.co/rREDdqrW LTRO can only go so far; can solve liquidity, not solvency Apr 06, 2012
• The Market’s Obsessive Fixation on The Fed & QE http://t.co/W6kg1n7k Runs through a Fed tightening scenario, thinks Fed won’t sell bonds $$ Apr 04, 2012
• Oest.. Nationalbank follows Bundesbank in refusing some periphery collateral http://t.co/96xx0xg7 Not so big in itself; Tear in EZ fabric Apr 04, 2012
• Draghi Tested as German Pay Deals Add to Euro Divergence http://t.co/glKumOZx Inflation rising @ core? May even labor productivity some $$ Apr 04, 2012
• @federalreserve Tried using your Data Download Program today http://t.co/vRroRPMt I managed 2get the data I needed, but it was tough 2use Apr 03, 2012
• Bernanke – ‘The Fed never makes mistakes’ http://t.co/JBgRHqx2 He goes, speaks to soft audiences, argues that no one could have known #dope Apr 01, 2012

China

• Coup Rumors in China Have Deeper Meaning http://t.co/QaoDxKFF Small fissures appearing in the Communist Party’s hold on power $$ Apr 07, 2012
• Australia’s Export Slump Intensifies Rate-Cut Pressure http://t.co/sIDzeteW China sneezes, Australia catches a cold, mate. $$ Apr 06, 2012
• China doomsayer sees crash coming http://t.co/2QatU1ps Hardly a crash, but GDP shrinking. Wait, that *is* a crash for China? $$ Apr 06, 2012
• The Revenge of Wen Jiabao http://t.co/nw5qvCNa Long read. Eye-opening. Formal system of Comm Party eclipsed by family coalitions that war $$ Apr 04, 2012
• The informal aspects of how China is governed relies on rival coalitions of elite families over the long run. Short-run, Comm party rules $$ Apr 04, 2012
• China Accelerates Markets Opening as QFII Quota Doubles http://t.co/yrXVDcdR May prove 2b significant due to unintended consequences $$ Apr 04, 2012
• China Manufacturing Gain Masks Exporters’ Woes http://t.co/VyeN9AWF Goods unneeded by the rest of the World build up in China $$ #glut Apr 03, 2012

United States

• When safe assets return http://t.co/QLUPuj1j Long piece on the status of money-like instruments, public and private. Many questions. $$ Apr 07, 2012
• Income Inequality Is Killing the Economy, Obama Says—Is He Wrong? http://t.co/xrA4pGu2 Going up in developed world, going down globally $$ Apr 07, 2012
• And I don’t get it as well, Josh.  I’m as Libertarian as they come, but with financial services, I know that trickery… http://t.co/lIJDCr1Y Apr 05, 2012
• More woes in Fedl subsidized solar power: http://t.co/83ch2YUM & http://t.co/6XaEjl10 ht: @zerohedge | Send bureaucrats 2study physics? $$ Apr 04, 2012
• The return of the US manufacturer http://t.co/75WCMyPi Manufactured goods represented 61 per cent of all US exports during 2010 $$ Apr 04, 2012
• +1 RT @ReformedBroker: ADP is the Diet Arizona Iced Tea of Employment gauges. Like, we’ll take it if it’s there but no one’s looking for it Apr 04, 2012
• When does the US Treasury bubble burst? http://t.co/8agHomQH “Pomboy pointed out that Treasury yields are less than current CPI rates” $$ Apr 03, 2012
• Why Are the Fed and SEC Keeping Wall Street’s Secrets? http://t.co/bZYF3LgV Fed & SEC view those they regulate as their clientele $$ Apr 02, 2012
• US consumers dipping into savings http://t.co/757XDPuW Implies that the recovery is weaker than presently posited, demand comes from savings Apr 01, 2012
• Obama Campus Fervor Losing 2 Apathy as Students Sour on 2012 http://t.co/kcyQbWKI Students thought they were getting change, got Bush-plus Apr 01, 2012
• How Stockton, California Went Broke in Plain Sight http://t.co/ggOzSOmV If you hand out benefit increases like they are candy… $$ Apr 01, 2012

Finance

• Quants: The Alchemists of Wall Street http://t.co/L0CzLQVN Recommend this video, features Paul Wilmott, Matthew Goldstein, & more $$ Apr 07, 2012
• The 401(k): Americans ‘just not prepared’ 2 manage their own retirement funds http://t.co/8Tr0wggt Conclusions similar http://t.co/etCEp8BT Apr 06, 2012
• Hedge Funds Accomplishing Very Little in the Aggregate… http://t.co/pxqjw2kk HFs tend 2b volatility-averse, weaker funding than long-only $$ Apr 04, 2012
• Ackman SPAC a nice touch, no? RT @ReformedBroker: Private Equity-held Burger King coming public again. “Hooray!” said no one to no one else Apr 04, 2012
• Performance persistence in hedge funds http://t.co/zORfjAts How do hedge funds differ v unlevered value investors? $$ gets pulled vals drop Apr 04, 2012
• ETN Double Dipping With GAZ? http://t.co/Uo9y1T5p Interesting piece. An ETN issuer can make more $$ stopping creation & lending shares Apr 04, 2012
• Loan classes “season” over 10-30% of the life of loan… defaults/prepays stabilize. Large cohorts 4 bond issuance go bad in the 3rd yr $$ Apr 03, 2012
• Merrill, Morgan Stanley seen losing grip on rich http://t.co/44mW7ki0 Top 4 brokers mkt share 56% in 2007, 45% in 2011 & still falling $$ Apr 03, 2012
• Low Vol Underperforming http://t.co/NYqjw2Fp Every valid strategy has times when it doesn’t work, to shake out the weak hands $$ Apr 03, 2012
• Corporate pension funds break away from equities http://t.co/EMPaDGea Yes, when yields r low, DB plans move 2 bonds. Brilliant. $$ Apr 03, 2012
• Does Danger Loom for Multiemployer Pension Plans? http://t.co/VpfDZ04m Plans that are <80% funded must take steps 2 nurse plans 2 health $$ Apr 01, 2012
• Credit Suisse Opened Volatility Bets to Small Investors http://t.co/ZLMGANXh Wall Street produces products 2 benefit itself, not retail $$ Apr 01, 2012
• Keynes: One Mean Money Manager http://t.co/WJ2jESFE “The board of King’s College gave him uncontested authority to invest as he wished.” Apr 01, 2012

Japan

• Just a guess, but after Japan’s Current Account goes into deficit for ~2 years, the big adjustment down in the Yen will happen. $$ #ouch Apr 06, 2012
• @valuewalk Probably because so many have lost money shorting the yen, & some have made $$ long the yen, that many just trust the momentum $$ Apr 06, 2012
• @valuewalk long-dated yen currency puts have fairly low vol Not doing that either, but… someone will. Apr 06, 2012
• Yen Forecast: Xie Sees 40% Drop, Japan Bubble Bursting http://t.co/EjI7hytt Wow. Thinks Japan near tipping point 4 internal financing fail Apr 06, 2012
• Japan’s Strongest Storm Since 1959 Slams Into Tokyo Region http://t.co/CCOVz7C6 Very unusual 4 Tokyo 2 have such strong winds w/no typhoon Apr 03, 2012
• Yen Losing Most Since ’95 Not Enough for Toyota http://t.co/IT0g84s8 Japanese Industry cheerleaders 4 “penny parity” $$ #race2thebottom Apr 02, 2012

Insurance

• Advisers, B-Ds retreat from Hartford http://t.co/garB6Bwn Not offering new annuities means can’t roll to $HIG products when surr chg ends $$ Apr 03, 2012
• Agents will try to get holders of $HIG annuities to roll elsewhere when surr charge ends (new commission $$ ), but be careful if you own an+ Apr 03, 2012
• annuity from $HIG, b/c one reason they are getting out of the biz, I think, is that some of the secondary gtees were 2 generous + Apr 03, 2012
• there is probably a business in analyzing secondary gtees, b/c some r quite valuable, &u wouldn’t want 2get tricked into rolling it by agent Apr 03, 2012
• Contra: Rising equity markets to drive US life insurers-Barclays http://t.co/S6JtPun7 Catch my comment at the end, didn’t get new DAC issue Apr 02, 2012
• Insurance Fees, Revealed http://t.co/mLzhpT6V NY State says agents must disclose how compensated & offer to provide full details #woohoo Apr 01, 2012

Personal

• Sinkhole at the bottom of my street after a water main break. The water is more than 5′ deep & and hollowing out the road beneath. Apr 07, 2012
• Street is one way, so I took my son who is a Police Explorer 2 talk to the policeman there. They knew each other. It’s a one-way street so + Apr 07, 2012
• I asked the policeman (who was short handed) if he would like us 2 block street 2 traffic. Gratefully “yes.” We set up the safety gear. Apr 07, 2012
• This is the opposite of last summer where we didn’t have power 4 6+ days, but we had water. We have power but no water. Hope it won’t b long Apr 07, 2012
• Three Year Anniversary http://t.co/0HDD3iyD Congratulations, Hunter! @DDInvesting is our internet guide to all distressed debt $$ Apr 04, 2012
• LinkedIn Events: Towson University Investment Group – Markets Summit http://t.co/kpgkDTto I’ll b participating on a panel. See you there! $$ Apr 04, 2012
• @Frank_McG @volatilitysmile As I said to my wife today, “Take care of your wife, and she will take care of you.” Worked for the last 25 yrs Apr 02, 2012

Miscellaneous

• Reprise: The Elfenbein Gold Model http://t.co/r3rHvZw3 @eddyelfenbein at his best, I fully subscribe to his model, reflecting cost of carry Apr 06, 2012
• Matzo Ball Soup, Check. iPad, Check. For Passover, Jews Try Techie Seders http://t.co/xUW3izZl I dislike technology in religion. Yuck $$ Apr 06, 2012
• Flying Auto Reviving Dreams of Chitty Chitty Bang Bang http://t.co/WixQb8AV Cheap @ $279K, this one might actually work $$ Apr 06, 2012
• This discussion has problems because there is no agreed upon definition of what “free will” means.  As with all quest… http://t.co/NoMpZf0U Apr 04, 2012
• Here Come Tablets. Here Come Problems. http://t.co/ezFK4Wfu Five common mistakes: a slow rollout is better to get the bugs out. $$ Apr 03, 2012
• Gene Maps Are No Cure-All http://t.co/JOLTtWTK Study Warns That DNA Scanning to Predict Disease Can Mislead; ‘Not a Crystal Ball’ $$ Apr 03, 2012
• Ten Claims in Support of IFRS Adoption by the SEC – & Why They are False http://t.co/nj2PZ1pd & http://t.co/4YrMSvaH & http://t.co/7lLtioGo Apr 03, 2012
• The Mighty Mathematician You’ve Never Heard Of http://t.co/9Qp1NqOB Never heard of her & her impact on physics was as great as that of math Apr 01, 2012
• Mangled Horses, Maimed Jockeys http://t.co/6Dl1gEmJ Maybe there is a public policy reason to close down racetracks, & after that boxing $$ Apr 01, 2012

Energy

• Australia LNG Boom Threatened by US Shale Exporters http://t.co/qleN6sVd Cheap US Hydrocarbons invert prior economic certainties $$ #shale Apr 04, 2012
• Shale oil: from curse to cure for East Coast refiners? http://t.co/MdlXvjIb US Shale oil is high quality; challenge is delivery2refineries Apr 04, 2012
• Repsol Worst Debt Swaps on YPF Seize Threat http://t.co/BewpJA4p Argentina not 2b trusted; would buy $REP bonds on weakness, stock a ?? $$ Apr 04, 2012
• Encana in Play as Petronas Seeks Natural Gas http://t.co/SEx832F1 Petronas looking long-term, b/c prospects for natgas pricing r poor $$ Apr 04, 2012
• Why high gas prices at the pump? The answer is BICS http://t.co/LopjaesG Brazil, India, China, & Saudi Arabia have increased gasoline demand Apr 03, 2012
• The rapidly shifting supply fundamentals in US natural gas http://t.co/myofZrQD Injection cycle starting early w/supplies high already $$ Apr 03, 2012

Rest of the World

• Contra: The Buck Stops Here: A BRIC Wall http://t.co/RYykjXXr The BRIC nations r2 statist 2 link 2 gold. Good idea, doesn’t fit the politics Apr 06, 2012
• Germany Asked to Forgo $1.3 Billion Deutsche Telekom Payout http://t.co/b8cvOOlB Interesting how Capex constrains euro-telcos, not US $$ Apr 04, 2012
• Europe’s Ratings Revenge Founders on Market Reality http://t.co/D3dNu7sF Eurocrats stumble in dark; will return 2 old system; it worked $$ Apr 04, 2012
• How A Baby Bust Will Turn Asia’s Tigers Toothless http://t.co/VE78u9tu Economic growth is partially population growth; sterile societies $$ Apr 01, 2012
• Swedish High Street Rebound Ends Bets for Riksbank Cuts http://t.co/jYioq0NN A relative bright spot in Europe; having the Knonor helps $$ Apr 01, 2012

Company News

• RE: @emergingmoney Never been crazy about firms that perpetually run w/neg working capital. Interesting idea, though. http://t.co/Xx6yFf8v Apr 04, 2012
• Optical Delusion? Fiber Booms Again, Despite Bust http://t.co/9QiAmZOH Whouda thunk it? I knew this was getting close, demand 4new fiber Apr 04, 2012
• Scarred Avon Is Takeover Target http://t.co/f2T9E7V7 Don’t think $AVP is a good takeover target: toss dist syst or incompatible syst $$ Apr 03, 2012
• Technology obsoletes too easily, particularly in hot sectors. Very difficult to get to $1T of Market Cap. Bit-by-bit… http://t.co/XjGU9ouG Apr 03, 2012
• $AAPL ‘s War on Android http://t.co/ILGQVAZD Long, fascinating article; perversely, attempts to enforce patent can invalidate patents $$ Apr 02, 2012
• Dude, is There any Value Left in $DELL ? http://t.co/iG5q5iea U know your marketing is stale when people reference advertising >10yrs ago $$ Apr 02, 2012

Housing

• The rebound is now http://t.co/l4coNvgt Worth watching, but I would wait until the foreclosures have been mostly cleared, b4 saying bottom Apr 07, 2012
• Home Prices Seen Dropping 10% in US on Foreclosures http://t.co/BBjzxKiU Once f/cs clear out, the market will normalize maybe even rise $$ Apr 03, 2012
• McClellan on Lumber’s tendency to leading housing stocks http://t.co/cevWyVTs If past is prologue, housing prices are set for another dip $$ Apr 01, 2012

Funds

• I’ve owned this in the past, but not now.  It’s been around for 19 years as a CEF — just have to watch the premium/d… http://t.co/XMVs6RBS Apr 06, 2012
• Why I Won’t Be Buying TAGS http://t.co/2S8bqcQJ Expense ratio does not include the expenses paid on underlying ETFs owned by $TAGS $$ Apr 04, 2012

Financial Distress

• Reddy Ice Considers Filing for Bankruptcy http://t.co/IgpYjHue Is it just me, or are we seeing an uptick in insolvencies? $$ Apr 04, 2012
• Hostess Serves Up New Batch of Cuts http://t.co/fHBXwHes Future failure as people don’t buy so many of the “sugar fat bombs” 4 kids $$ Apr 02, 2012
• Failures: Pinnacle Airlines http://t.co/BXkJ8v9j AFA Foods http://t.co/xs4wsFEE Airlines & Meat renderers r born 2 fail $$ Apr 02, 2012

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it’s likely many will still rush to gold. I’m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Buffett misses the point on gold, something he doesn’t often do in economic matters.  Gold is valuable because it is beautiful, and it can’t be used for much aside from beauty.  Gold can only be used for things that are not necessary (with a few small exceptions), and is thus a luxury item.  Wait, doesn’t Buffett own a scad of jewelry stores, and he doesn’t get this?  Jewelry is not a necessity, but something to please those we love with something of beauty.

Beyond that, gold is divisible, easily melted down, and doesn’t weigh a lot relative to its value.  It is an ideal store of value.

Gold does nothing, and that’s good.  We need some things in this hectic world that do nothing.  What is the value of doing nothing?

Quietness.  Pause.  Repose.  Reflection.  Measurement Standard.

Fiat currencies change every day, and the price of gold relative to chose currencies changes similarly.  Gold doesn’t change; it’s like God in that way.  We don’t measure it.  Because it doesn’t change, it measures us, because we do change.

I’m not a gold bug.  I own no gold, aside from my small wedding ring and  few other odd bits of jewelry.  But there is a lot of value to a pretty commodity that has little usefulness aside from beauty.  Think of silver for a moment.  Whether in electronics or photography it has significant industrial value.  Though both are used as currencies, and stores of value, silver responds more to the economy, and gold just sits there.

Maybe that’s what Robert Zoellick meant when he talked about gold as a reference point for the global economy.  Unlike fiat currencies, which are manipulated by finance ministries and central banks, gold can’t easily be manipulated.  Gold is the measuring rod of economics, whether we like it or not.

That brings me to Eddy Elfenbein’s Gold model, and my refinement of it.  Gold reacts to real interest rates.  As real interest rates rise, gold falls, and vice versa.  Think of it this way: when real interest rates go down, there is less loss to holding gold, because fiat currencies suffer from financial repression.

Gold can’t easily be repressed; it is far less susceptible to government manipulation because it is something real and tangible — far harder to manipulate.

Some have suggested that gold could back the currencies of major emerging markets, and I think that would be a good idea, but I think none of the large emerging markets except Russia would dare or even want to do it.  Statists like fiat currency, because it gives them one more lever of control over those that they rule.  Gold-backed currencies are for limited governments, and in general, most emerging market governments don’t think that way.

With Mr. Buffett, I will agree, I would rather have the businesses and the farmland [pile B].  They will likely be more valuable in the long run than the gold.  But I might take the $1 trillion of “walking around money,” and use it to buy 10% of the cube of gold [pile A], leaving me with a piddling $40 billion of walking-around money.  I might look at the gold, and think how beautiful it is.

Fondle it?  Nah.  Just admire how unchangeable it is.  Businesses change; technologies obsolete whole industries as they create new ones.  Companies can be mismanaged, or outcompeted.  Very few last longer than a generation; they change a lot, and require constant management.

Farmland depletes unless you take the time to maintain it, and cheap potash supplies are getting scarce.  Besides, perhaps one of my great-grandchildren will note 100 years from now how the global economy has a hard time with the population shrinking globally.  At that point, with less pressure to increase yields, farmland might not be as valuable.  I’m not predicting this; it’s only possible — I’m only saying that arable land, another really scarce resource in the world could in some scenarios become less valuable in real terms.

The real value of the gold would be as a hedge against governments and central banks that financially repress their populations by holding interest rates, making it difficult for savers to preserve value.  And that’s what gold does best, preserving value, as it sits there, beautiful, doing nothing.

So, when governments and central banks debase their currencies, as in the ’70s, the 2000s, and create conditions where real interest rates are negative, gold flies in terms of the debased currencies, and then crashes back down if you get a Paul Volcker-type, and policy normalizes after a lot of pain, which this generation seems unwilling to take.  Until it does take the pain, there will be the tendency for gold to go higher, and more so, if real interest rates remain negative.

So, sit back and and watch the gold measure the policies of governments, central banks, even us.  Gold does nothing except sit there and look beautiful, and that’s what makes it so valuable.

The first graph gives the liabilities of the Fed over the last 4+ years.  The data is taken from table 1 in the H.4.1 release.  You can see the massive expansion of the liabilities, and the way the crisis unfolded.  Currency, and “Other Liabilities & Capital” build “slowly,” i.e. 6.9%/yr and 14.1%/yr, respectively.  The US Treasury steps in with the Supplementary Financing Account at a few points where the Fed could use money deposited there for further expansion of quantitative easing, and leaves when they are no longer needed.

But the real growth comes in the “Everything else” which grew at 33%/yr, and reserve balances with Federal Reserve Banks, which you can calculate an annualized rate of growth for, but a rate doesn’t do justice to the process, because it grew due the two events — QE1 & QE2.  The Fed bought assets from various parties, who now deposit at banks inside the Federal Reserve System.

The next two graphs come from Table 2 of the H.4.1 report.  These describe the assets that have a maturity, which comprise over 80% of the Fed’s assets over the time of the graph, and over 90% at present.  First, you can see the growth of the assets bought through QE, Treasuries, Agencies, and MBS.  Second, you see the crisis responses: 1) the loan programs in the US, which explode and trail away and 2) the Central Bank Liquidity Swaps, which explode, trail away, and have come back in what is presently a muted form today.

Perhaps the bigger change is that the Fed’s balance sheet has a lot more long-maturity assets than it used to.  This stems from the quantitative easing they have done, as well as their efforts to play God flatten the Treasury yield curve.

Now, almost all of the assets underlying everything 10 years and shorter pay out their principal all at the end, with no right of prepayment.  For 10 years and longer, at present 75% are Mortgage Backed Securities [MBS].  Those have average lives (weighted average time for payment of principal) considerably shorter than a bond that pays all of its principal at the end for three reasons:

• Principal gets paid down slowly due to normal amortization.
• Prepayments get made when it is advantageous to the borrower, which not only pays off principal today, but shortens the term of the loan, which accelerates the normal repayment of principal.
• The final maturity of of the longest loan in the pool is the final maturity of the pool

So, in terms of actual interest rate sensitivity, the over 10 years bucket is probably only a little more sensitive to change in rates than the 5-10 year bucket.

In normal times, central banks buy only government debt, and keeps the assets relatively short, at longest attempting to mimic the existing supply of government debt.  Think of it this way, purchases/sales of longer debt injects/removes liquidity for longer periods of time.  Staying short maintains flexibility.

Yes, the Fed does not mark its securities or gold to market.  Under most scenarios, it is impossible for a central bank which can issue its own currency to go broke.  Rare exceptions — home soil wars that fail, orpolitical repudiation of the bank, where the government might create a new monetary standard, or closes the bank because of inflation.  (Hey, the central bank has been eliminated twice before.  It could happen again.)

The only real effect is on how much seigniorage the Fed remits to the Treasury, or, if things go bad, how much the Treasury would have to lend/send to the central bank in order to avoid the bad optics of negative capital, perhaps via the Supplemental Financing Account.  This isn’t trivial; when people hear the central bank is “broke,” they will do weird things.  To avoid that, the Fed’s gold will be revalued to market at minimum; hey maybe the Fed at that time will be the vanguard of market value accounting, and revalue everything.  Can you imagine what the replacement cost of the NY Fed building is?  The temple in DC?

Or, maybe the bank would be recapitalized by its member banks, if they are capable of doing so, with the reward being the preferred dividend they receive.

Back to the main point.  What effect will this abnormal monetary policy have in the future?

Scenarios

1) Growth strengthens and inflation remains low.  In this unusual combo, it will be easy  for the Fed to collapse its balance sheet, and raise rates.  This is the dream scenario; and I don’t think it is likely.  Look at the global economy; there is a lot of slack capacity.

2) Growth strengthens and inflation rises.  The Fed will likely raise the interest on reserves rate, but not sell bonds.  If they do sell bonds, the market will back up, and their losses will be horrible.  If don’t take the losses, seigniorage could be considerably reduced, or even vanish, as the Fed funds rate rises, but because of the long duration asset portfolio, asset income rises slowly.  This is where the asset-liability mismatch bites.

If the Fed doesn’t raise the interest on reserves rate, I suspect banks would be willing to lend more, leaving fewer excess reserves at the Fed, which could stimulate more inflation. Now, there are some aspects of inflation that remain a mystery — because sometimes inflationary conditions affect assets, rather than goods, I think depending on demographics.

3) Growth weakens and inflation remains low.  This would be the main scenario for QE3, QE4, etc.  We don’t care much about the Fed’s balance sheet until the Fed wants to raise rates, which is mainly a problem in Scenario 2.

4) Growth weakens and inflation rises, i.e. stagflation.  There’s no good set of policy options here. The Fed could engage in further financial repression, keeping short rates low, and let inflation reduce the nominal value of debts.  If it doesn’t run wild, it could play a role in reducing the indebtedness of the whole economy, though again, it will favor debtors over savers.  (As I’ve said before, in a situation like this, or like the Eurozone, all creditors want to be paid back at par on the bad loans that they have made, and it can’t be done.  The pains of bad debt has to go somewhere, where it goes is the argument.)

I’ve kept this deliberately simple, partially because with all of the flows going back and forth, and trying to think of the whole system, rather than effects on just one part, I know that I have glossed over a lot.  I accept that, and I could be dead wrong, as I sometimes am.  Comment as you like, with grace and dignity, and let us grow together in our knowledge.  I’ve been spending some time reading documents at the Fed, trying to understand their mechanisms, but I could always learn more.

Summary

During older times, the end of a Fed loosening cycle would end with the Fed funds rate rising.  In this cycle, it will end with interest of reserves rising, and/or, the sale of bonds, which I find less likely (they will probably be held to maturity, absent some crisis that we can’t imagine, or non-inflationary growth).  But when the tightening cycle comes, the Fed will find that its actions will be far harder to take than when they made the “policy accommodation.”  That has always been true, which is why the Fed during its better times limited the amount of stimulus that it would deliver, and would tighten sooner than it needed to.

But under Greenspan, and Bernanke to a lesser extent (though he persists in pushing the canard that the Fed was not too loose 2003-2004, ask John Taylor for more), there were many missed opportunities to stop the buildup of bad debts, but the promise of the “Great Moderation” beguiled so many.

Removing policy accommodation is always tougher than imagined, and carries new risks, particularly when new tools have been used.  Bernanke can go to his carefully chosen venues and speak to his carefully chosen audiences, and try to exonerate the Fed from well-deserved blame for their looseness in the late 80s, 90s, and 2000s.  Please, Mr. Bernanke, take some blame there on behalf of the Fed — the credit boom could never have happened without the Fed.  Painting the Fed as blameless is wrong; the “Greenspan put” landed us in an overleveraged bust.

I’m not primarily blaming the Fed for its current conduct; today, it is trying to deal with a lending bust — too much debt, and much of it is bad, with a government whose budget is out of balance.  (In the bust, there are no good solutions.)  I am blaming the Fed for loose policies 1984-2007, monetary policy should have been a lot tighter on average.  But now we live with the results of prior bad policy, and may the current Fed not compound it.