Macroeconomics – Page 18

Sorted Weekly Tweets

Posted on 21 December 201322 December 2013 by David Merkel

Monetary Policy

The theory of money entanglement (Part 1) http://t.co/zfCM2rPxBx The effects of monetary policy vary w/finl institutions need for credit $$ Dec 20, 2013
Repo market as a form of free banking http://t.co/4m3PSuFViG? @isakaminska describes a hybrid credit system where central banks r weak $$ Dec 20, 2013
Why Do So Many People Hate QE? http://t.co/ZpcQhSrSpH Basic reason is fairness. Y can the Fed create credit out of thin air, & we can’t? $$ Dec 19, 2013
Visualizing the Fed | The Big Picture http://t.co/J7K15MIDdZ @ritholtz shares a cool interactive graphic on the Fed’s Balance Sheet $$ $TLT Dec 19, 2013
‘Was The Fed A Good Idea?’ How Cato Cleans Keynesian Clock http://t.co/qaalFGBvML Economies grow faster when currency stores real value $$ Dec 17, 2013

?? TIPS Wipeout Signals Fed Losing Fight Against Disinflation http://t.co/3GeeSDpZAv Implied inflation rising across TIPS curve $$ $TIP $TLT Dec 17, 2013

FOMC & Data

Fed Seen Tapering QE in $10B Steps in Next Seven Meetings http://t.co/gvmopTBufm Y do economists assume that things follow a simple path? $$ Dec 20, 2013
Fascinating Bernanke can call Fiscal policy restrictive when deficit huge & shrinking a little, doesn’t apply same logic 2 LSAP shrinking $$ Dec 18, 2013
FOMC Central Tendency for Fed funds rate 2013-6 &long-run 0.25%, 0.34%, 1.06%, 2.18%, 3.88% Change 0.00%, -0.06%, -0.19%, -0.09%, -0.04% $$ Dec 18, 2013
FOMC Central Tendency for Fed Tightening — January 2016, 25 months away vs 27 last September, one month further out $$ Dec 18, 2013
FOMC Central Tendency for PCE Inflation 2013-6 & long-run 0.99%,1.52%, 1.79%, 1.87%, 2.00% Change -0.21%, -0.01%, -0.10%, 0.00%, 0.00% $$ Dec 18, 2013
FOMC Central Tendency for Unemployment 2013-6 & long-run 7.05%, 6.45%, 5.91%, 5.53%, 5.54% Change -0.11%, -0.13%, -0.12%, -0.10%, 0.04% $$ Dec 18, 2013
FOMC Central Tendency for real GDP 2013-6 & long-run 2.27%, 2.91%, 3.09%, 2.83%, 2.25% Change 0.14%, 0.00%, -0.07%, -0.05%, -0.09% $$ Dec 18, 2013
Someone ask Ben Bernanke if they would issue fed funds at longer terms/tenors Dec 18, 2013
@AlephBlog wrong again, David — decrease of $10B, $5B each of Treasuries and MBS Dec 18, 2013
@AlephBlog sorry — $5b/month change Dec 18, 2013
RT @NickTimiraos: MBS issuance has plunged since Sept, so a $5 billion taper of MBS doesn’t mean the Fed will decrease its *share* of MBS p? Dec 18, 2013
Statement Regarding Purchases of Treasury Securities &Agency Mortgage-Backed Securities http://t.co/97DNRGXJFQ Pares MBS buys by $10B/mo $$ Dec 18, 2013
An Opiate for Underachievement: Bernanke Says Fed in ?Finest Hours? Stood Up to Pressure http://t.co/soQDjBHZea Rather, they caved & hid $$ Dec 17, 2013
The One Thing Bernanke Must Not Do Tomorrow http://t.co/AvDcElOHTY Saying & not doing loses credibility 4the Fed. Don’t say wut u wont do $$ Dec 17, 2013

Companies & Industries

The Buffett difference, derivatives edition http://t.co/5VUI7WxOUB Soft collateral reqs, tolerated earnings vol, bot in size w/variety $$ Dec 20, 2013
Target Data Breach Has Become a Card Data Fire Sale http://t.co/jUxgOpv7SP B especially wary here because it can b used as a debit card $$ Dec 20, 2013
Buffett’s massive wind-power order shows wind energy becoming cheaper http://t.co/0lOSGp3NQi Wind power becomes economical, end subsidies $$ Dec 20, 2013
Facebook Is Selling Stock For Some Reason http://t.co/x9LsnLUMNb $FB makes it easier 4 index buyers to get shares as it enters the S&P500 $$ Dec 19, 2013
Facebook, Zuckerberg to Sell Stock Worth Nearly $4 Billion http://t.co/B4joZJZYR9 Note $FB compny selling shares; not usually a good sign $$ Dec 19, 2013
Regional Shippers Pose New Threat to UPS, FedEx http://t.co/RNUpcBrL3Y And USPS too. Regionals can get it there the next day $$ $FDX $UPS Dec 19, 2013
AT&T Sells Wireline Assets To Frontier Communications http://t.co/or1n1lWqbD Interesting 2c $T sell off rural wireline customers 2 $FTR $$ Dec 18, 2013
Gold Town Turns to Dust as Metal Decline Shutters Mines http://t.co/unN2Mi97A3 Life at high-cost mines is very cyclical. Boom-bust $$ $GLD Dec 18, 2013
Dodge CVT Animation http://t.co/cfEWG0Y9jQ Cool 82-second video of how a continuously variable transmission works $$ $GM $F $TM $HMC Dec 18, 2013
How Good Old Car Engines Got So Efficient http://t.co/hM5ZmjdXpK Most progress w/energy has come by using hydrocarbons more efficiently $$ Dec 18, 2013
Delta Battles Tiny Upstart Airport http://t.co/HbalfXKYc3 B careful of small airports near big cities, u don’t want 2create the next $LUV $$ Dec 18, 2013
Poor Americans Lead Movement to Abandon Landlines http://t.co/MmUfqiljPa Landlines r dying; I’m thinking of getting rid of mine $$ $SPY $VZ Dec 18, 2013
Pizzerias Try to Apply Chipotle Formula http://t.co/afyCN5xi2u Creating Fast, Custom & Inexpensive 4 pizza; many r trying, who will win? $$ Dec 18, 2013
Campbell Seen as Next Buffett Target Post-Heinz http://t.co/zryODDWpRs Likely wishful thinking; soup shrinking; PE high, no growth $$ $CPB Dec 17, 2013
Wind Power Rivals Coal With $1B Order From Buffett http://t.co/WXJfEAHmrn Wind power gets competitive on price; can we end the subsidies? $$ Dec 17, 2013
Google Just Bought a Mechinized Cheetah and Other Military Robots http://t.co/5ZO3XXzcNF 1st internet search now robotic world domination $$ Dec 17, 2013
Google, Facebook Push to Control Web’s Pipes http://t.co/nmDzeospON Content companies want more control over their delivery over the web $$ Dec 17, 2013

Market Impact

Three things long/short hedge funds cannot do (well) http://t.co/zyiE65FcAZ Manage risk, Short stocks on a systematic basis &stop trading $$ Dec 20, 2013
Investors should abandon long-term commodity bets http://t.co/5rGgYXj5fy End of supercycle, no income, correlated w/equity returns $$ $GLD Dec 20, 2013
DJIA Rises to Inflation-Adjusted Record High http://t.co/nseI2H9eF4 Closes at 16,221. Guess I have 2 eat my words: http://t.co/A6kJoniqG5 $$ Dec 20, 2013
The FOMC- SCR Factors- Bullish SP500? http://t.co/pI3A04XM71 The TINA effect: TINA stands 4 There Is No Alternative.(to Stock investing) $$ Dec 19, 2013
Investor Hunger 4US Corporate Bonds Signals Confidence http://t.co/PsCIMa25A9 Retweet after me:Credit spreads r free $$, credit spreads r… Dec 17, 2013
Want to invest like Buffett? Here?s how http://t.co/3CIqNByFVU Focus on cheap, high-quality stocks w/moats, lever using ins float $$ $BRK-B Dec 17, 2013
Corn Plummeting Spurs Talk of ?80s US Farmland Bust http://t.co/QoO5lVTXSx Will b interesting 2c how many recent buyers get inverted $$ $SPY Dec 17, 2013

Financial Sector

US Credit Markets: US Lite Covenant: Freshness without Protection ? http://t.co/F2HguklHFM Credit protections getting worse 4 bank debt $$ Dec 20, 2013
OCC believes banks might be gambling again http://t.co/lMG9YG24dj The OCC is seeing looser underwriting, reminds them of 2007 $$ #toosevere Dec 20, 2013
Man Who Said No to Soros Builds BlueCrest Into Empire http://t.co/UNksM1mSvl Borrowed $750M to hire 25 equity mgrs 4 his hedge funds $$ $SPY Dec 20, 2013
Secret Currency Traders? Club Devised Biggest Market?s Rates http://t.co/dtBfuqR48w There is no human system that cannot b gamed $$ $SPY Dec 19, 2013
New Mortgages to Get Pricier Next Year http://t.co/oNfGLJeZCC About time F&F raised fees; dodgy mtges have much higher loss rates $$ $FNMA Dec 18, 2013
Volcker Rule Shows Its Wide Reach http://t.co/MOZMjUFoj8 Securitized assets, when they default, most frequently default w/zero recovery $$ Dec 17, 2013
First Volcker Victim? Zions Dumping Its Hedge Funds http://t.co/Kj8uYfltTn $ZION cleans up the trash w/now-sufficient capital $$ Dec 17, 2013

PPACA / Obamacare

Obamacare Initiates Self-Destruction Sequence http://t.co/VkbqqPzMYb @asymmeticinfo asks what will Obama do next year on indiv mandate? $$ Dec 20, 2013
Obama Lifts Health Mandate for Those With Canceled Plans http://t.co/aCYJLzaOZz Must b nice 2b able 2alter laws by presidential fiat $$ Dec 20, 2013
More Obamacare Delays. Surprised? http://t.co/keWUsmLvay @asymmetricinfo thinks the law will survive b/c insurers benefit in long-run $$ Dec 19, 2013
A Medicaid Bet in Wisconsin http://t.co/Ejgbmbd61B Scott Walker Says He Wants to Protect the Poorest; Critics Assail 4Not Taking US Funds $$ Dec 19, 2013
National Lampoon’s ObamaCare Vacation http://t.co/Vzp636uMCW Interesting to hear how poorly Maryland is doing w/its healthcare website $$ Dec 19, 2013
Half of Uninsured Say Health Law Is Bad Idea http://t.co/BEWOeZg1gK When those that u r trying 2 benefit don’t like it, u know it is bad $$ Dec 18, 2013
Is Obamacare Really an Improvement on the Status Quo? http://t.co/Zc1umGhp1l More people lose insurance than gain it; status quo better $$ Dec 18, 2013
Insurers Fight Hospitals’ Paying Premiums for Poor http://t.co/WnuoAo481T Hospitals pay to get sick people insured, so they can make $$ $SPY Dec 17, 2013
Errors Continue 2Plague Government Health Site http://t.co/5j6OZRqkqZ Flaws Include Missing Customers & Erring Eligibility Determinations $$ Dec 14, 2013

Rest of the World

Putin Bets $15B to Capture Junk-Rated Ukraine Vassal http://t.co/vjxhVcT8gv Rebuilding the USSR is tough work for a tough man to do $$ Dec 19, 2013
South Sudan Rebels Take Key Town of Bor http://t.co/MMQumSSIHZ It’s in the center of the country, kind of a crossroads 4 commerce/travel $$ Dec 19, 2013
Vatican Hires Global Firms to Modernize Communications, Accounting http://t.co/1CRwzMDbs8 Humility arrives at the Vatican, expertise 2 $$ Dec 19, 2013
Russian Amnesty Includes Greenpeace as Well as Pussy Riot http://t.co/b8FNVgaQx6 Is Russia getting soft? 😉 Courting international favor $$ Dec 18, 2013
Mom Can?t Visit Daughter as Airlines Shun Venezuela Cash http://t.co/1uds13LW3t Such is life 4those under currency controls; freedom goes $$ Dec 18, 2013
North America to Drown in Oil as Mexico Ends Monopoly http://t.co/5bV35xIc7o Oil is no good to Mexico if can’t get it out of ground $$ #tech Dec 18, 2013
South Sudan Puts Down ‘Attempted Coup’ http://t.co/19KfhoRdVJ A young nation, very experienced in corruption; attempted coup unsurprising $$ Dec 17, 2013

China

China s Stealth Tightening? http://t.co/tuW7JvVhFI A new squeeze hits the China Interbank market & the authorities aren’t doing much $$ $FXI Dec 20, 2013
Why Are the Chinese Scared of American Corn?? http://t.co/lEGbWgh2r4 Probably some Party bigwig who sells domestic corn complaining $$ Dec 19, 2013
Can China Teach North Korea to Grow Up? http://t.co/J6Ba2jpzVz If N Koreans had as much freedom as the Chinese do, Kim would b overthrown $$ Dec 17, 2013
China’s Cities Chop Down Hills for Industrial Land http://t.co/KTpYOwgXNK Wonder what the secondary effect will b from this terraforming? $$ Dec 17, 2013

US Politics & Policy

The Trouble With Populism? It Isn?t That Popular http://t.co/RXSmHLDWTu All sorts of extreme positions, mine included, r never popular $$ Dec 19, 2013
Republicans Block Symbolic Step to Extend Tax Breaks http://t.co/mxUZ31R7GZ Rationality. Maybe temporary tax breaks will b temporary? $$ Dec 19, 2013
Obama?s own panel rips NSA spying on phone calls of Americans http://t.co/QYx1lJXLfc The consensus is that the NSA has gone too far $$ Dec 19, 2013
John Podesta eats crow: ?I apologize to Speaker Boehner? http://t.co/XyCLBNrjWs Don’t blame Podesta, he just drank his own Kool-aid $$ 😉 Dec 19, 2013
At 61 She Lives in Basement While 87-Year-Old Dad Travels http://t.co/KTF0YCOpWx Each generation does successively less well on average $$ Dec 18, 2013
That’s the nature of all of the fixed payment plans devised by the “Greatest Generation.” They borrowed from children & grandchildren $$ Dec 18, 2013
Top Democrats reject court ruling over NSA spying on Americans http://t.co/wnNGQmJwys Interesting 2c varying opinions in both parties $$ Dec 18, 2013
Unmasking the Mortgage Interest Deduction: Who Benefits and by How Much? http://t.co/4PzAbpa7rs Benefits the well-off; end & balance bdgt $$ Dec 18, 2013
Hidden Danger in Public Pension Funds http://t.co/lBgACsI12P Low Funded status, high amounts in risky assets, bonds offer little yield $$ Dec 18, 2013
Disarming Surveillance http://t.co/70nAEtNTJA The opposite danger is that by snooping on others intensively they grow to resent the US $$ Dec 17, 2013
NSA Phone Spying ‘Almost Certainly’ Unconstitutional, Judge Says http://t.co/cnqxDbGXrW Probably won’t b upheld, good 2try overturning $$ Dec 17, 2013
The truth about the NSA’s bogus malware apocalypse http://t.co/nJ3hMCrcwq Most mass attacks r hard 2pull off w/any significant force $$ $TLT Dec 17, 2013
In Bankrupt Detroit, the Bills Are Piling Up http://t.co/eJrX6tgIgO One tough part of a muni b/k – who gets paid & what r reasonable fees $$ Dec 17, 2013
Accidental Tax Break Saves Wealthiest Americans $100B http://t.co/RU6y8vCNZc ?I?ve done a lot4 Democratic contributors,? he sez w/a smile $$ Dec 17, 2013
Look How Easy It Is 2 Game Estate Taxes http://t.co/u3YGvZ491l Y the estate tax needs 2b replaced & income taxes disallow income deferral $$ Dec 17, 2013

US Economics

GDP Grows 4.1% in Third Quarter, Biggest Gain Since 2011 http://t.co/tUCz0bQViw Guess I have to eat more of my words, US looks good 4 now $$ Dec 20, 2013
Boomers as Retail Clerks Shows Y Greenspan Saw Low Growth Era http://t.co/phoiELeks2 Long good article how aging populace changes economy $$ Dec 19, 2013

Other

Finished the #GoogleCrossword http://t.co/VtaoYkaQdt Haven’t done a crossword in years $GOOG #fun Dec 21, 2013
Why Successful CEOs Get Fired http://t.co/KehYfcljKv Founding CEOs get fired when tasks get larger than them, &the board loses confidence $$ Dec 19, 2013
Doctors Eye Cancer Risk in Uterine Procedure http://t.co/CD5OKwWs2I Grinding up fibroid in the uterus may increase the risk of cancer $$ Dec 18, 2013
Top Products in Two Decades of Tech Reviews http://t.co/GQjGsMR1Xz Walter Mossberg’s last column @ WSJ; a joy 2 read, will still b on web $$ Dec 18, 2013
Youthful Migrants Lured by Perks to Shrinking US Areas http://t.co/jxFNa41ftZ Promising idea to create urban jobs in rural areas $$ #winwin Dec 18, 2013
How Dogs Might Protect Kids Against Asthma: Gut Bacteria http://t.co/HaWa0goqdn Fascinating that dogs may aid kids w/immunity to asthma $$ Dec 17, 2013
Multivitamins Found to Have Little Benefit http://t.co/5o8jUZGkYc The controversy will continue; nothing this profitable ever dies $$ $SPY Dec 17, 2013
Vonn Rivals Schuss From Slope to Boardroom for Funding http://t.co/GaJHLVAyob Olympians r little corporations seeking sponsors, donations $$ Dec 17, 2013
Stocks That Still Have Perks http://t.co/k93IaeQlgl From discounts on cars&computers 2cruise bounty, here’s where 2find shareholder perks $$ Dec 14, 2013
The Tsarnaevs and the Boston Bombing http://t.co/Pz8MxYQXEf A decade ago, WSJ reporter happened to befriend the Tsarnaevs- an inside view $$ Dec 14, 2013
Mike Tyson Explores Kierkegaard http://t.co/n2mrAx1KuW Philosophy is a dead end; no truth to their views of existence, knowledge &ethics $$ Dec 14, 2013

Wrong

Wrong: Bernanke: More Financial Reform May Be Needed http://t.co/gxitPtPQxb Dumb

comment from a guy who doesn’t understand how banks work $$ Dec 19, 2013

What Bible is Pope Francis reading? http://t.co/EvnvIDNZlo Jesus never questioned property rights in his teaching, w/charity voluntary $$ Dec 19, 2013
How Pope Francis Misunderstands the Free Market http://t.co/Ksmn5DzS0O Simpler than that; he is unstudied, engages in wishful thinking $$ Dec 18, 2013
Wrong: Technology Adoption Discrepancy Btw Individuals & Institutions http://t.co/YkLJscgP7S Tries 2 connect falling ROA & Social Media $$ Dec 14, 2013

Comments

“Artificially forcing down Treasury yields via QE has 4 major bad effects?” ? David_Merkel http://t.co/z9nLhQSknr $$ $TLT $IEF $SHY Dec 19, 2013
Commented on StockTwits: but the company is selling; it needs cash more than shares — good companies typically s… http://t.co/AkpvtYiijw Dec 19, 2013
Commented on The Economist | Daily chart: Doomsdays http://t.co/21NoGGuzuD Dec 18, 2013
“I analyzed TRUP CDOs 4a bank in 2008 and 2009 — built a special model that could dig into the?” ? David_Merkel http://t.co/tRm5NtJ0mk $$ Dec 17, 2013
Commented on StockTwits: ‘ @MMula534 A lot. Most of the best investors r lifelong learners, & they c patterns whe… http://t.co/5pQzWca6Nm Dec 17, 2013

Movie Review: Money for Nothing

Posted on 19 December 2013 by David Merkel

Movie Review: Money for Nothing

Why will you like this film?

You get to meet clever traders, investors, and business thinkers, policymakers, historians, and Fed Governors ? some who have doubts, and many that are still true believers.? The contrasts are considerable.

Here is the cast list, shamelessly copied from Wikipedia:

Federal Reserve Officials

Paul Volcker – Chairman of the Federal Reserve (1979?1987)
Janet Yellen – Vice Chair of the Federal Reserve (2010?Present), President, Federal Reserve Bank of San Francisco (2004?2010)
Alice Rivlin – Vice Chair of the Federal Reserve (1996?1999)
Alan Blinder – Vice Chairman of the Federal Reserve (1994?1996)
Peter Fisher – Undersecretary of the Treasury (2001?2003), Executive V.P. of the New York Fed (1994?2001)
Richard Fisher – President, Federal Reserve Bank of Dallas (2005?Present)
Thomas Hoenig – President, Federal Reserve Bank of Kansas City (1991?2011)
Jeffrey Lacker – President, Federal Reserve Bank of Richmond (2004?Present)
Charles Plosser – President, Federal Reserve Bank of Philadelphia (2006?Present)
William Poole – Economist, President, Federal Reserve Bank of St. Louis (1998?2008)
Laurence Meyer – Economist, Governor of the Federal Reserve Board (1996?2002)
Marvin Goodfriend – Senior V.P., Federal Reserve Bank of Richmond (1993?2005)

Economists and Financial Historians

Michael Bordo – Economist, Rutgers University Professor, Director, Center for Monetary and Financial History
David Colander – Economist, Middlebury College Professor
James Grant – Economist, Editor – Grant’s Interest Rate Observer
Martin Mayer – Scholar – The Brookings Institution, Author – The Fed
Allan Meltzer – Economist, Author of “A History of the Federal Reserve”, Carnegie-Mellon University Professor
Raghuram Rajan – Chief Economist – International Monetary Fund(2003 ? 2007), University of Chicago Professor
Richard Sylla – Economist, New York University Professor, Chairman – Museum of American Finance
Bill White – Chief Economist, Bank for International Settlements, (B.I.S.) (1995 ? 2008)

Traders and Investors

Peter Atwater – President and CEO – Financial Insyghts, LLC, Former Head of Asset Finance – J.P. Morgan
Tony Boeckh – Economist, Chairman – B.C.A. Research (1968?2002), Founder – The Boeckh Investment Letter
Jeremy Grantham – Investor, Financial Historian, Chairman – Grantham, Mayo Van Otterloo
Todd Harrison – Derivatives Trader, Hedge Fund Manager, Founder and CEO – Minyanville.com
John Mauldin – President – Millennium Wave Advisors, Author ? Endgame
Barry Ritholtz – Washington Post columnist, Author – Bailout Nation, CEO – Fusion IQ
Gary Shilling – Economist, Forbes columnist, Author, President – A. Gary Shilling & Co.
John Succo – Derivatives Expert, Hedge Fund Manager

A Rough Outline of the Film

Why is the Fed controversial?

It?s controversial because those who run it are appointed rather than elected, and so their actions are shielded from direct action by voters.? It is also a secretive institution, which does not reveal its actions/discussions rapidly.

Why was the Fed created?

The Panic of 1907 unnerved people, and led politicians to argue for a central bank.? It would have been smarter to tighten regulation of banks, but that is water under the bridge.? Most crises are due to misregulation of banks ? too much leverage, bad credit risks, and borrowing short to lend long.

What was the initial impact of the Fed?

Not much impact in WWI. When the Roaring ?20s came into existence, it was driven by loose monetary policy from the Fed, which led to?

The Great Depression

When debt grows rapidly, an eventual correction will come ? this one was sharp.? Like today, not sure the Fed could do anything to make things better, aside from not having been loose previously.

WWII to the End of the Gold Standard

The Bretton Woods conference linked the currencies of the developed world to the Dollar, which in turn was linked to gold.? Sadly, the Fed adopted a dual mandate, which said it must focus on consumer price inflation, and labor unemployment.? It didn?t work well then, and it works less well now ? the link between goods price and wage inflation is a weak one.

The link of the US Dollar to Gold worked will until the mid-?60s, when the pressures from fighting in Vietnam plus trying to create the Great Society stretched resources too thin.? William McChesney Martin caved when LBJ pushed him (perhaps beat him physically), and lowered rates in 1965, leading to inflation.

Over the ?60s and into the very early ?70s, as inflation in the US rose, foreign central banks, particularly the French, began to request gold rather than dollars.? Eventually in 1971 Nixon ended Bretton Woods, ceasing redemption of US Dollars for gold internationally.? And all of this led to?

The Great Inflation

Nixon leaned on the Fed to be loose, and Arthur Burns facilitated it.? William Miller continued it in the Carter Administration, leading to higher inflation.? Volcker was appointed by Carter, and as he pointed out in the movie, what he would do would be painful.? He resisted pressures to be easy and started inflation on a downward course by reducing growth of the money supply.? (Do you remember the news networks flashing the M-numbers on the screen each week, and the newspapers featuring them near the top of the business section?? You are old, like me.)? Volcker was not reappointed by Reagan in 1986 because he was viewed as an independent player (good), and not submissive to the administration.? Thus we got the toady Greenspan, who led to?

The Great Moderation

No one could have predicted that Greenspan would be such a political compromiser. But in 1987, after the crash, he assured liquidity to financial firms that might have been impaired from a 22% drop in the Dow.? This led to the concept of the Greenspan put.? Bad news?? Greenspan has your back, willing to inject liquidity when times are bad.

You can look at the pattern of interest rates over the period of his chairmanship.? Rates kept making lower lows, amid rapidly growing private debts.

Then we had a series of crises: Long Term Capital Management, where Lehman also almost went under.? The NASDAQ soared and fell hard 1998-2002.? Low interest/mortgage rates from 2002-2007 further encouraged a Debt/Housing Bubble.? ?The Fed was never a great regulator of the banks or mortgages.? They assumed the lesser regulators would do the job. But deregulation gutted the regulators, particularly because banks could choose their own regulators.? Hubris permeated the Fed, and Mortgage Equity Withdrawal fueled consumers, until there was nothing more to borrow against, leading to?

The Great Recession

Why did the Fed act as they did once the crisis broke?? Part of it was due to the dual mandate.? Another part was that Fed models were weak because they did not model the financial sector.? As James Grant would point out they were fixing prices via interest rates.? Once they started QE the Fed pushed the private sector to take risk because of a lack of safe assets with decent yield.? Other points:

Inflation is difficult to measure
Hubris
Insufficient skepticism, according to Hoenig

Hoenig comes off as an honest dealer versus the rest of the Fed, suggesting that many errors were made under pressure.

My Disagreements with the Movie

1) Bailouts were not needed in the way they were done

We could have rescued the operating subsidiaries that matter to average people, and let the holding companies fail.? Instead, we did the worst thing, and bought the equity of firms that were bankrupt.

2) Derivatives played no role in 1987

Unless you are willing to call futures derivatives, then derivatives played no role in the 1987 crash.

3) The net capital rule really wasn?t an issue.

4) Yes, the Fed has been monetizing the debt, and it will bite us eventually, when the demographics shift from saving to spending.? It will come in the next ten years.

Would you like the Movie?

I think most people would like the movie.? It gives the establishment sorts enough room to defend their actions, while offering wiser men the ability to say that the Fed was utterly wrong, and obviously so.

Twice before in our republic, we have eliminated a central bank.? Let us have the courage of our predecessors and eliminate the Fed.? It would be hard to do worse than the Fed did; they amplified economic shocks ? they did not mute them.

Redacted Version of the December 2013 FOMC Statement

Posted on 18 December 201319 December 2013 by David Merkel

Comments

Small $10 B/month taper.? Equities rise, and long bonds fall.? Commodities do nothing.? The FOMC says that any future change to policy is contingent on almost everything.
Shades their views of GDP up and Inflation and fiscal drag down.
They think that if they use more words, they will be clearer.? Longer statements are harder to parse and understand.
Current proposed policy is an exercise in wishful thinking.? Monetary policy does not work in reducing unemployment, and I think we should end the charade.
In the past I have said, ?When [holding down longer-term rates on the highest-quality debt] doesn?t work, what will they do?? I have to imagine that they are wondering whether QE works at all, given the recent rise in long rates.? The Fed is playing with forces bigger than themselves, and it isn?t dawning on them yet.
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.
GDP growth is not improving much if at all, and much of the unemployment rate improvement comes more from discouraged workers, and part-time workers.

Sorted Weekly Tweets

Posted on 14 December 2013 by David Merkel

Rest of the World

US Drone Strike Hits Wedding Convoy in Yemen, Killing 13 http://t.co/6h2vhYPuw6 More bad PR 4 drone strikes, wonder how this will end… $$ Dec 13, 2013
2.5-mile plunge into the world’s deepest gold mine in South Africa http://t.co/DQZA8Fkl9B &check out this graphic http://t.co/CvWrJlfbRu $$ Dec 13, 2013
A Journey Into the World’s Deepest Gold Mine http://t.co/mpb4pP658d The technology & the survivors @ the deepest gold mine in the world $$ Dec 13, 2013
How I Unintentionally Forced Pirate Bay From Its Latest Haven http://t.co/N3LReXRSJV Ascension Island boots Pirate Bay which runs to Peru $$ Dec 13, 2013
Irish Charm W/Germans Leads Nation Out of Bailout Wilderness http://t.co/4F0I3rGJz7 Fascinating piece on how Ireland survived austerity $$ Dec 13, 2013
SNB Gauges Bubble Risks as Euro Crisis Danger Recedes http://t.co/83gteiPvCZ Favoring exporters leads Sweden monetary policy to overheat $$ Dec 12, 2013
Merkel Embraces Coal as Rookie Lawmaker Makes Mark on Policy http://t.co/Qotu8cFsRm Fascinating how environmental policy isn’t considered $$ Dec 12, 2013
The Unstoppable Postal-Service Retreat Starts in Canada http://t.co/PSMW6FBLfy Is the future 4 USPS the elimination of local mailboxes? $$ Dec 12, 2013
Rat-Infested South Africa Schools Foil Mandela Education Dream http://t.co/TvJjENGqHG Graft & corruption eat up school $$ #culture $SPY $TLT Dec 12, 2013
Are we seeing the emergence of ‘dictator’ Xi? http://t.co/QsUU5184Xl His #2 is sidelined, & there is no obvious close helper. $$ Dec 12, 2013

Lobotomies

World War II Veterans’ Families Recall Lobotomy’s Scars http://t.co/SkutVXuhFH LONG article on how families coped after lobotomies $$ Dec 13, 2013
Neurologist Walter Freeman?s Lobotomy Legacy http://t.co/ilb2M1RO3c Ice-pick lobotomies r a horrifying legacy damaging minds of veterans $$ Dec 13, 2013
Lobotomy For WWII Veterans: Psychiatric Care by US Government http://t.co/rc5cLaxK80 LONG sad tale of lobotomies to cure mental illness $$ Dec 12, 2013

Volcker Rule

Banks, Lawyers Struggling to Evaluate Final Volcker Rule http://t.co/A77HZqrdc7 Complex laws & regulations almost never work $$ #fail $XLF Dec 13, 2013
Banks, Lawyers Struggling to Evaluate Final Volcker Rule http://t.co/gwWXCwgItX Complexity is friend of large banks; can hide their acts $$ Dec 12, 2013
Wall Street Exhales as Volcker Rule Seen Sparing Market-Making http://t.co/NcTrJUPymK It doesn’t do much though it separates functions $$ Dec 12, 2013
4 articles on the Volcker Rule: http://t.co/Ej2IMblb0m & http://t.co/rGYkIUBUNn & http://t.co/GU0A2jNcwp & http://t.co/VcRJdwzQxa $$ $TLT Dec 12, 2013

US Politics & Policy

Health Insurers Told to Ease Coverage Rules http://t.co/wpJOj8tWQw Exchanges r getting many more old than young http://t.co/b9YFdT5dPQ $$ Dec 13, 2013
Will Copper Pots Destroy Lake Superior? http://t.co/GqFmD4jPY6 Perhaps the tailings can be used 4 roadbed, or other types of construction $$ Dec 13, 2013
All-out war breaks out in GOP over budget pact http://t.co/vAZLPhm9D4 Will b interest 2c if House Dems pass the deal w/a subset of GOP $$ Dec 12, 2013
Obama Needs to Fire Some People http://t.co/AvOrlQgnxq Similarity of Obama & Reagan; they tend to stand behind their people, til it hurts $$ Dec 12, 2013
Republican-Tea Party Tiff Means 41% Don?t Like Candidates http://t.co/dw8UNAE9NF Divisions in the GOP weaken their political prospects $$ Dec 12, 2013
Republicans Get the Better End of the Budget Deal http://t.co/klP9uHuJGC @asymmetricinfo gives us a different take, but will GOP do it? $$ Dec 12, 2013
The Potholes Stay Where They Are http://t.co/ZZI56aYXmt VERY long article on the recovery of the US auto industry-what has changed $$ $GM $F Dec 12, 2013
Soothing Words on ‘Too Big to Fail,’ but With Little Meaning http://t.co/0h8COkjGIF! Short of breaking up big banks, no way to end TBTF $$ Dec 12, 2013
Ryan Lizza: Why Won?t Obama Rein in the N.S.A.? http://t.co/m8pc9jTgCu Long article on Obama’s hypocrisy on surveillance of US citizens $$ Dec 12, 2013
House, Senate Negotiators Announce Budget Deal http://t.co/9tQZ01iZGg The sequester would be better, at least that makes real cuts $$ $TLT Dec 12, 2013

Central Banking

The Fed Doesn’t Really Trust the Banks Either http://t.co/cNEyz5i6rw Structural rigidities in $$ mkts make Fed policy less effective $$ $TLT Dec 13, 2013
Hoenig Says Volcker May Spur Efforts to Split Biggest Banks http://t.co/f7AfDZY6yy Ending interstate branching would b more effective $$ Dec 13, 2013
A Fed Dissident on Policy and Transparency http://t.co/i3oQh6bjFS Plosser makes a courageous stand to protect the Fed from its excesses $$ Dec 12, 2013
Nicolas Copernicus Was Far More Than A Scientific Icon http://t.co/jX01ZEjEY7 Wrote “On the Minting of Money.” A hard money guy 4 his era $$ Dec 12, 2013
Stanford Economist Piazzesi Influences Fed Forecasts http://t.co/CgAAhituSv Now her theories affect policy w/every forward rate wiggle $$ Dec 12, 2013
Why do ivory tower academics get into policy positions, in this case assuming that forward rates forecast future economic activity? $$ Dec 12, 2013

Financial Sector

Six Investment Errors You Are Making Right Now http://t.co/vke2UmoRlS @ritholtz shows us errors that he has made that we r all prone 2 $$ Dec 13, 2013
Philadelphia Meets Manhattan at 10 Rittenhouse Square http://t.co/hOz6EXeiPb Worked w/Carl Dranoff once; bright guy, very creative $$ Dec 13, 2013
Five Accounting Red Flags the SEC is Watching http://t.co/wHktREd5Ci Revenue recognition & cost deferral r bigger issues; wasting time $$ Dec 13, 2013
Lawrence McCarthy, Who Saw Swaps Danger at Lehman, Dies at 49 http://t.co/PanZkbNbmH Bright guy; he will b missed $$ Dec 12, 2013
Wells Fargo Plans Ethics Review Amid Bank Scrutiny http://t.co/kgOfuKfoRn Give $WFC its due, they r trying to get ahead of their problems $$ Dec 12, 2013
Why Is Everybody Sitting on Huge Piles of Cash? http://t.co/N11xOheIHz Waiting 4 new IPOs absorb excess cash $$ HT: @ritholtz $SPY $TLT Dec 12, 2013
As stocks hit record highs, so do profit warnings http://t.co/PHLL8LiPMs Market rally is multiple expansion, pay more $$ 4 same stocks $SPY Dec 12, 2013

Companies

What Yahoo Didn?t Want Investors to Know http://t.co/Ec25tEMoor $YHOO relies on $MSFT 4 25% of its revenue in 2012 & 31% in 3Q2013 $$ $SPY Dec 12, 2013
BNSF CEO Rose shifts role, renewing Buffett succession talk http://t.co/0mHnRYYVAy Would b a good candidate2run industrial side of $BRK-B $$ Dec 12, 2013
Inside the Breakup of the Pritzker Empire http://t.co/5XcnNWHnZk How Tom Pritzker detangled the family business, giving freedom to heirs $$ Dec 12, 2013

Other

How to Hike the Entire Appalachian Trail, and What You’ll Get Out of It http://t.co/fP8yHH7rTQ Retired photojournalist makes way on trail $$ Dec 13, 2013
Secular stagnation and the bastardisation of Keynes http://t.co/r2JiJ5z885 Rising debt levels led GDP to overshoot & now revert down $$ Dec 12, 2013
How Isaac Newton Went Broke Chasing A Stock Bubble http://t.co/gIQcjyBpRv HT: @tomkeene | Ride a painted pony, let the spinnin wheel spin $$ Dec 12, 2013
Why Do Forecasters Keep Forecasting? http://t.co/2t4Az5ZiyI Predictors exist so that we have someone to blame other than ourselves. $$ $TLT Dec 12, 2013

Wrong, etc.

Overstated: The Texasization of America http://t.co/cj67aQcR1e Texas may b the fastest growing state, but not all states go4 lower taxes $$ Dec 12, 2013
Wrong:White House Works2Attract Younger Health-Plan Users http://t.co/rtrWhv4UIe Most people signing up r either poor or sick; won’t work $$ Dec 12, 2013
I.e., w/interest rates on investment grade debt so low, most of these defined benefit pension plans r still dramatically underfunded. $$ Dec 12, 2013
Wrong: Pension Funds Make the Most of Stocks’ Surge http://t.co/6FjCE7boAQ Unless u can defease your liability, u don’t have enuf assets $$ Dec 12, 2013
Wrong: Federal Reserve Eyes New Tool for Setting Interest Rates http://t.co/T2jWOrhFk8 This is wishful thinking; math is same as IOER/FF $$ Dec 12, 2013
Ridiculous: Was Mandela Right to Sell Out Black South Africans? http://t.co/qOcPQR3BkU South Africa has done better than rest of Africa $$ Dec 10, 2013

Comments

Commented on StockTwits: I was a critic of W also. Good comment. http://t.co/2HtDhk1n2n Dec 12, 2013
Commented on StockTwits: That is not a skill of mine http://t.co/sXvuMKF95h Dec 09, 2013

When to Worry — An Asset-Liability Management Perspective on Financial Macroeconomics

Posted on 13 December 2013 by David Merkel

At the end of the day, the world is net flat.? Every asset is owned 100%; every liability is someone else’s asset.

If everything is 100% owned, why are there ever crises?? Financial companies owning illiquid assets financed by short, liquid liabilities.? Liquidity crises are credit crises; a company going through a liquidity crisis did not do sufficient stress testing to realize that they were weakly financed.

Crises are never accidents, aside from things like Hurricane Katrina and Superstorm Sandy.? And guess what?? How many insurers failed from those two events?? None.

Crises happen because things are inverted.? Under ordinary circumstances, prudence dictates that long-term assets be financed by equity or long-term debt.? Before a crisis, long-term assets are owned with short-term debt, and wealthy guys like Buffett and Klarman hold cash and shun long-term assets.? That’s inverted.? Those that should not be bearing risk are bearing risk, and those the could bear risk aren’t.? Why?? Because the prices on risk assets are high, and smart investors lighten the boat as the envious buy into momentum at the end of a doomed rally.? Ben Graham’s weighing machine takes over from the voting machine.

So what are reasons to worry?? Here are a dozen, not in any order:

The combined balance sheets of investment banks grow, and the complexity of their assets rises.
The repo market grows, as less liquid assets are financed by very liquid liabilities.
Poor-to-middle class people begin taking risk by buying homes, or speculating in stocks.? These people have weak liability structures, because they live paycheck to paycheck.
Mortgage finance moves to ARMs or even more exotic loans.
Downpayments on homes get low.
Rich hold more cash while the poor and middle-class borrow.? The rich can take losses — they have long time horizons.? When they play defense, it is a time to be concerned.
In a given sector there has been a large increase in debt, and there are concerns over ability to repay.
Shadow banking has increased dramatically.
Financial commercial paper issuance has increased dramatically.
People rely on certain large financial firms to not default, even if they have taken on too much credit risk relative to their capital.? (Think of Fannie and Freddie.)
Increased financial complexity makes everything opaque.? Bad things happen in the dark.
The credit cycle gets long in the tooth, and credit spreads/yields tighten to levels that are far too low for the risk taken on.

Now, I leave aside pure macroeconomic concerns like the possibility that the Fed might face a greater problem with stagflation than it did in the ’70s.? When long illiquid assets are financed by short liabilities, all sorts of bad things can happen.? Keep your eyes open.? Hey, aren’t Buffett and Klarman letting cash levels rise?

Book Review: The Dao of Capital

Posted on 11 December 2013 by David Merkel

Have I said this before: this is a tough book to review.? Much as I am in sympathy with Austrian Economics, I am not in sympathy with Daoism.

When I came to Christ at age 16, the major rival for my heart was Daoism, not the Catholicism that I grew up with.? My main difficulty was that Catholicism did not speak with a single voice on critical matters — one priest would say this, another that.

Daoism has an advantage in some ways because it seems to describe the world; the world is cyclical, and often a condition gives way to its opposite.

But Daoism, though descriptive of what happens, is amoral, as is much of radical libertarian thought.? A system without rules is no system.? There have to be rules for a good nation to exist.? On economics, there have to be ways to prosecute fraud.? There have to be ways to protect property rights.? That can’t happen without a strong, if limited, government.

Capitalism does not derive from Daoism, but from the laws of Moses, and the words of Jesus.? “Thou shalt not steal.” has impact, because it implies property rights.? 70% of the parables of Jesus involved money, and assumed that people were free to do with their resources as they saw fit.

Daoism did not develop capitalism.? It was a creation of the Christian West.? Was everything perfect in the way it was worked out?? No.? There were many mistakes, and much dispropriation of cultures that had no concept of private property.

Other Problems

The book would have been better without the constant repetition of foreign words.? It is pretentious to make readers learn a bevy of foreign words.

Minsky is better than the author makes him out to be.? At least Minsky sees how financing gets warped through the boom-bust cycle.

I believe that most financial crises occur because of government interference, but not all of them.? Men are greedy/envious/fearful enough to create self reinforcing cycles in the absence of government interference.? Look at the Creation more generally.? There are many species that ceased to exist long before Mankind became dominant.? In the same way, there have been many crises that have occurred in the absence of government interference.? “Man is born to trouble, as the sparks fly upward.”

Practical Upshot

In the last two chapters, he comes out in favor of the Q-ratio and the price-to-book style of value investing, plus quality.?? Both good ideas, but both require patience, which is in short supply among aging baby boomers.? The question to the reader is how long you are willing to wait.? That is the big question of much investing, and how to answer the question — the book says wait.? I agree, but it is tough to hold a lot in cash in a bull market.

Who would benefit from this book: It is a good book, though I doubt that many can follow the advice.? If you want to, you can buy it here: The Dao of Capital: Austrian Investing in a Distorted World.

Full disclosure: The publisher sent me the book after asking me if I wanted it.

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.

Book Review: Bonds are not Forever

Posted on 8 December 2013 by David Merkel

This is a good book, it is not a great book like The Hedge Fund Mirage.? Why?

There are a few reasons.?? First, the book on hedge funds contradicted the conventional wisdom.? This book confirms the conventional wisdom that interest rates have to rise.

We all have to be wary of the conventional wisdom in economics.? Economics is a social science, but I mean it not in the sense that we study society, but that economists toe the line as to what is acceptable to publish.? This is guarded by peer review, which ensures that no new idea that might be correct gets published.? (This is true of most of the “sciences” because many “scientists” are not neutral observers — they have axes to grind.)

This book assumes that the US will inflate its way out of this crisis.? In the? Great Depression, it did not work that way, though many thought it would.

The book correctly calls out all of the ways that Wall Street cheats individual bondholders, particularly structured notes, and the illiquidity of muni bonds.

He does not get how muni bond ladders are durable investments, being a good compromise on how to avoid interest rate risk.? Further, he never mentions how the TRACE system of FINRA reports all trades.? The system is not that opaque.

This is a good book, but not a great book.? Yes, I think inflation is more likely than deflation, but I don’t think inflation is a slam-dunk.? We haven’t had it yet amid many predictions for it.

Quibbles

Already expressed.

Who would benefit from this book: It is a good book, though I doubt that the theory is certain.? If you want to, you can buy it here: Bonds Are Not Forever: The Crisis Facing Fixed Income Investors.

Full disclosure: The publisher sent me the book after asking me if I wanted it.

Sorted Weekly Tweets

Posted on 7 December 2013 by David Merkel

Rest of the World

Ghana Farms Miss Out on Oil-Fueled Middle Class Food Demand http://t.co/IwEsoXVy20 Middle classes introduce changes into societies $$ $SPY Dec 07, 2013
Are the Baltic Dry Index Telling Us to Expect a Stronger Economic Activity? http://t.co/aqnFaUuGkg Could be, but only in exports $$ Dec 07, 2013
Yuan Passes Euro as 2nd-Most Used Trade-Finance Currency http://t.co/yeNQzNYLWD If China’s banks were exposed 2 market, would b impressed $$ Dec 07, 2013
Big Oil to Get Brazil-Like Terms in Plan to End Mexico Monopoly http://t.co/SWqSEyVnU0 Maybe Mexico can gain the technical help it needs $$ Dec 07, 2013
Panasonic in Deal Talks With Auto Parts Makers for Expansion http://t.co/vjECK9hnD5 Desperation drives the company 2 seek more markets $$ Dec 07, 2013
Pirates Wielding Grenades Spur Japan to Ease Samurai-Era Gun Ban http://t.co/jsOtaI0J7c Force must b opposed by force; no other way $$ $SPY Dec 07, 2013
Rich Kazakhs Revive Polygamy as Women Seek Poverty Escape http://t.co/vTn2h9eSZx Young Kazakh women would rather b second wives than poor $$ Dec 07, 2013
Iran Wants US Companies to Develop Oil Fields http://t.co/E1NUUEo5t4 The Great Satan is quite useful under the right conditions $$ $SPY $TLT Dec 07, 2013
China Cinda Attracts $65B in Orders for Up to $2.5B IPO http://t.co/6i5nvsWhSD Those are bubbly conditions; 2 much $$ 2 put 2 work $SPY $TLT Dec 07, 2013
Wrong: OECD Warns Riksbank Against Obsessing Over Record Debt http://t.co/fYu3CcY31M OECD should learn excessive debt harms $$ $TLT $SPY Dec 07, 2013
Banks in Safest Euro Nation See Credit Drought as Finns Save http://t.co/HZ6IDctQzk Many want to save; few want to borrow. Rational $$ Dec 07, 2013
Spain Credit Falls to ?05 Shadow After Price Collapse http://t.co/y9VUnLcszp Even that is too much credit. Wait 4 hard money buyers $$ Dec 06, 2013
China Bans Financial Companies From Bitcoin Transactions http://t.co/i8yhbAcKAW Wealthy Chinese want to get value out of China $$ $SPY $TLT Dec 06, 2013
“Wealthy Chinese could use it to funnel flight capital out of China” ? David_Merkel http://t.co/XRD6rOfsGg How Bitcoin functions in China $$ Dec 02, 2013
China?s Largest Bitcoin Exchange Seeks Recognition for Currency http://t.co/hNtBu9e2MU Communist Party will eventually ban Bitcoin $$ $SPY Dec 02, 2013

PPACA/Obamacare

Obamacare’s New Goal: Stay Alive Until 2015 http://t.co/tJpT20oW6K The idea is 2 survive until 2015, so the law can’t b destroyed in 2017 $$ Dec 07, 2013
How Much More Will Smokers Pay for Obamacare? http://t.co/Rd3eWeVynR Answer: not much more & no, it will have little effect on quitting $$ Dec 04, 2013
Obamacare Website Repair Goals Reached, Administration Says http://t.co/PfJ5tgLrSu Big Problem: the insurers are not getting the data $$ Dec 03, 2013
Deep Inside The Hot Mess Called Obamacare: It’s Time For Honesty http://t.co/uY6P8JnakO Sophomoric, doing a dumb thing, calling it wise $$ Dec 01, 2013
Obamacare Payment System to Insurers Changed in Setback http://t.co/0d26PCyQh6 Complex law, difficult to change w/o affecting other parts $$ Nov 30, 2013
Inside the Company That Bungled Obamacare http://t.co/EbcR6VQ3rs B wary of companies that grow 2 fast w/shaky revenue recognition $$ $GIB Nov 30, 2013

Pensions

Change Illinois’ pension benefits to match the Social Security system http://t.co/LuA3nkw50C The bill passed will harm Illinois long-run $$ Dec 07, 2013
The Best and Worst Run States in America: A Survey of All 50 ? http://t.co/Kq5ElC567u You might be surprised by the rankings $$ $SPY $TLT Dec 07, 2013
Pension Threats in Illinois, Detroit Rattle Government Workers http://t.co/t2rqvoK3cl If the local government can’t pay, it won’t $$ Dec 07, 2013
Pension Threats in Illinois, Detroit Rattle Government Workers http://t.co/Hd0Wr0TL0b Blame Union strategy of extracting pension gains $$ Dec 06, 2013
Illinois Passes Pension Overhaul http://t.co/8svwzeiTuK Fake overhaul that leaves Illinois taxpayers worse off, will go to court & die $$ Dec 05, 2013
Detroit Retirees Got Extra Interest After Guaranteed 7.9% http://t.co/WmvpH4PHWI What Detroit did w/”excess” pension earnings was evil $$ Dec 03, 2013
Illinois Legislative Leaders Try to Sell Pension Agreement http://t.co/vU1O1qKSO6 Dreamland vs Hard Choices. So far Dreamland is winning $$ Nov 30, 2013

US Politics & Policy

Gun Patents Set 35-Year Record as Limits on Sales Fail http://t.co/lZKuBqkheu When GOP has Presidency sales will fall $$ Dec 07, 2013
What You Don?t Know About Mortgages http://t.co/dmKPgFMAqL! Mortgage documents don’t reflect the full cost of getting the mortgage $$ $TLT Dec 07, 2013
Obama war chiefs widen drone death zones http://t.co/E47ZKFgBex If we want to make the US odious to the rest of the world, use drones $$ Dec 07, 2013
Paul Krugman Consigns To Hell An Economic Slump Of His Own Devise http://t.co/qgrKFSBG8W We have 2 turn the lights off near Krugman $$ Dec 07, 2013
The Fed Must Inflate http://t.co/nBKutizEDw I think this is the most likely conclusion, but not certain $$ Dec 07, 2013
Is the Fed increasingly monetizing government debt? http://t.co/1I3twSCfaY Yes, Fed is monetizing government debt, get ready 4 inflation $$ Dec 07, 2013
Angry Self-Insured Voters Dim Democratic Takeover Plans http://t.co/MMjVZi16LU Many feel robbed by the loss of choice in healthcare $$ $SPY Dec 06, 2013
Henninger: Obama’s Red-Line Presidency http://t.co/tOjc5UV88s What doe the US stand for? What will we defend? Who r our allies? Confusing $$ Dec 06, 2013
“You can’t regulate what you don’t understand. The SEC looked in on it several times, with more?” ? David_Merkel http://t.co/g9jqwD0En1 $$ Dec 03, 2013
Uninsured-Driver Dilemma http://t.co/DSBWcNLyMk Have Assurant track non-payment at the insurers, & inform the MVAs of lapsation $$ $AIZ Dec 03, 2013
Magic Johnson, Tom Hanks Join Obama on Cash-Grabbing Trip http://t.co/z2AOd9C8yC Cash works in the short run, voters decide the long run $$ Dec 03, 2013

Financial Sector

Why FDIC is Running Out of Time for Resolution Planning http://t.co/5PTdNU6LPb As w/all complex laws, things move slowly, no surprise. $$ Dec 07, 2013
Why Capital Is Key Battleground in GSE Reform Debate http://t.co/21pFcfRhfU Appropriate capital 4 new system:a political &technical issue $$ Dec 07, 2013
Penny Pricing for US Stocks Said to Get Scrutinized http://t.co/grStNTieJR I don’t think this is a big problem, helps small investors $$ Dec 07, 2013
Examiners-in-Residence Should Be Pulled Out of Megabanks: OCC Report http://t.co/QGyvc9RkDz Familiarity breeds acquiescence, not contempt $$ Dec 07, 2013
Buyers Give Up Their Names to Seal Merger Deals http://t.co/zmAgQ2J5Zo Who cares what a bank is named, so long as you have control? $$ $FXF Dec 07, 2013
Volcker Rule to Force Banks to Comply With Five Regimes http://t.co/7H0s7dhCnm Recipe 4 disaster. When many r responsible, no one is $$ Dec 07, 2013
Slate Writer Is Dead Wrong to Root Against Community Banks http://t.co/TAL566KB0n Getting banks is tough 4 neophytes like Matty Yglesias $$ Dec 06, 2013
Private equity firms brace for ?mafia? style scrutiny http://t.co/dRaXIvfztv This looks a lot more difficult than the article indicates $$ Dec 03, 2013
Fed Eyes Financial System’s Weak Link http://t.co/ShsZIBcWT4 Solution is simple; bifurcate repo acctg 4 statutory cash flow testing $$ $XLF Dec 03, 2013
Creating a Black Swan http://t.co/wMnfc81Ai0 Attempts 2 explain how negative black swan events get created in financial markets $$ $SPY $TLT Nov 30, 2013
The Black Swan http://t.co/IBQL7AG4XJ A good piece that explains positive & negative “Black Swan” events, & how 2 thus position for them $$ Nov 30, 2013

Companies & Industries

Crude Oil Refiners Are In A Sweet Spot | Commodities http://t.co/HjtUJOe0gZ Because crude oil can’t b exported, refiners benefit $$ $SPY Dec 07, 2013
Retailers Are in a Deflated Holiday Mood http://t.co/Rd7JLXlRj8 One reason why I rarely invest in retailers, aside from grocery $$ $SPY $TLT Dec 07, 2013
Heavy Inventories Threaten to Squeeze Clothing Stores http://t.co/t542Zlltcf That said, clothing is dirt cheap, so why worry much? $$ $SPY Dec 07, 2013
Hidden U-Haul Billionaire Emerges With Storage Empire http://t.co/YRE2pc6Tf4 Fascinating tale of how brothers rescued the family business $$ Dec 06, 2013
UnitedHealth Projects 2014 Results Below Analysts’ Estimates http://t.co/c9fGK1QUzp Health Insurers take one for Obama’s errors $$ #FTL Dec 03, 2013
Olin Corporation Common Stock up 9% today http://t.co/HwlrL4TD9z Something is happening w/OLN today. Anyone know what? FD: + $OLN $$ $SPY Dec 02, 2013
Microsoft, Yahoo Upgrades Shows Snowden Won, Obama Failed http://t.co/sqzBmoIY8n Encryption keys double, squaring time needed to crack $$ Nov 30, 2013
Fair-Weather Friends or Raining on Your Parade http://t.co/uVksfLp84u Good snarky post. Time to lighten up on property-centric reinsurers $$ Nov 30, 2013

Market Dynamics

Gen Re?s Gilbert Says Fed Sets Up Stocks for a Decline http://t.co/o28udyUMGC The Fed will learn the limits of its power in a few years $$ Dec 07, 2013
The Blessing of a Declining Stock Price http://t.co/Ta2eE12QW7 This is how I do it; I buy companies that have moved against me $$ $SPY $TLT Dec 07, 2013
The Stock Market Is ‘Shrinking,’ Despite Record-High Indexes http://t.co/cj6YcrhBYL Interesting argument of stock scarcity pushing prices $$ Dec 07, 2013
Buffett’s Alpha http://t.co/D3UrTxePlp Finally a paper from academics that gives Buffett the credit he deserves. Efficient markets? No. $$ Dec 07, 2013
Gross to Run Pimco Unconstrained as Dialynas Takes Leave http://t.co/rgLxxVp3Xj Unconstrained is no guarantee of good performance $$ $TLT Dec 06, 2013
?Quant? hedge funds: Computer says no http://t.co/ZCXplVsnnA Runs in cycles as more or less focus on anomalies in investing $$ $SPY $TLT Dec 01, 2013
Don?t Ignore Doctor Copper http://t.co/JYw6XNcR5z Copper is indicating a punk economy $$ $SPY $TLT Dec 01, 2013
Howard Marks: Too Cute for His own Good? http://t.co/BWZ2bDD0xP Unfair. Marks says that the opportunity set is small, get it? $$ $SPY $TLT Dec 01, 2013

Other

Fixing What’s Wrong With Economics 101 http://t.co/BR8Lt8Z19H We need 2 scrap neoclassical economics, and move economics away from math $$ Dec 07, 2013
Madoff Behaved Like a Lunatic Over Fund Probe, Jury Told http://t.co/CUfV17a9tA Seems like Madoff employees kept their heads down $$ Dec 07, 2013
CS50, a computer science course, breaks stereotypes and fills halls at Harvard http://t.co/wnc2WYQbpo Making IT relevant across cultures $$ Dec 01, 2013
Caveat Emptor: Lovers of Latin Try to Sell a Dead Tongue http://t.co/d5YuHQQZtd Looks like wishful thinking 2me. Esperanto, anyone? $$ Nov 30, 2013
Why Taylor Swift Is the Reigning Queen of Pop http://t.co/sTEJPtyp66 Swift’s popularity secret? My take:she appears more humble than most $$ Nov 30, 2013
Build a Better Turkey Sandwich http://t.co/mM42sClsuL Thanksgiving keeps on giving in six inspired takes on the leftover-turkey sandwich $$ Nov 30, 2013

Book Review: Code Red

Posted on 30 November 20131 December 2013 by David Merkel

This is a tough book to review.? It is correct in analysis of what went wrong, but overpromises in what its main goal is — protecting assets before the next financial crisis.

Let me take a step back, and describe the structure of the book.? A major goal of neoclassical macroeconomics is to try to eliminate the business cycle, and end up with smooth growth that minimizes unemployment.

As a result, central bankers, since they have a freer hand than politicians, as they are appointed, not elected, act to try to stimulate demand by lower interest rates.? They did that from 1982 to 2008, until they came to the bottom rung of their ladder, and realized they could go no further.

Thus “Code Red” — a situation that is an emergency.? Many central banks felt they needed to act in an emergency to create liquidity to pump up economies with significant financial bankruptcies.

Would it work?? When the central bankers started, all they had was theory, and? Japan.? Japan had tried out their theory, and it did them no good.

The academics argued that Japan did not do it right, and sadly, one was the Chairman of the Fed.? Would that Bernanke had done his Ph.D. dissertation on another unrelated topic.? Some historical accidents are real killers, and this was one.? (As an aside: always be wary of academic researchers that have a lot invested in an idea.? They cease to be neutral, and cause contrary data to be ignored, because you can always find a method to twist the data.)

Anyway, that is the first and longer part of the book explaining how bankrupt. untested theories led us to a situation where debt levels are high with governments, and central banks are ultra-loose.? In such a situation, nations will try to weaken their currencies to gain a nominal advantage over other nations, so that they can export more.? Eventually, it could lead to a currency war of competitive devaluations, or worse, a trade war of competing tariffs.

If central banks cooperate with their governments, they can repress people financially, making the rate that they can invest in with safety to be lower than the inflation rate.? The authors believe that governments will try to do that and eventually fail, because credit creation will eventually lead to significant inflation.

One virtue of the book is that it shows that economists with influence over policy don’t know what they are doing, but make a bold show of it.? Particularly telling is Bernanke on page 135 saying the Fed can mop up excess liquidity at the right time, and he is 100% confident of that.? The Fed has never succeeded at that before, so who is he kidding?

The second half of the book deals with how to protect your assets — half is generous here, because it is 25% of the book.? It goes over the permanent portfolio idea of Harry Browne, and then a series of non-solutions in Chapter 10, essentially arguing that diversification is called for.

Chapter 11 argues for inflation protection through buying shares of companies that have moats, such as:

Valuable Intellectual Property
Benefit from strong network effects
Are low cost producers
Have lock-in, and customers can’t switch easily
Natural monopolies and monopolies of market niches

These are good ideas, in my opinion, but difficult to continually implement.? The book gives companies that presently fit the ideas of the authors, but updating it, and knowing how to trade it is tough.? We’ve been through eras like the early ’70s, where companies like this have cratered, so this strategy does not come without the possibility where it becomes too popular, and gets abandoned.

Chapter 12 goes through commodities and gold, and is bearish on them, arguing that the commodities supercycle is dead, and that gold is tied to real interest rates.

In short, the second half of the book is thin.? If you are looking for protection, maybe the book should have said, there aren’t a lot of great ways to seek protection against the monstrous economic policies of the developed world and China, but that wouldn’t have sold many books.

Quibbles

I disagree with the first chapter that we had to have bailouts.? The government could have protected regulated subsidiaries of the banks, and derivative counterparties, and let the holding companies fail.? I also disagree that we had to have abnormal monetary policy to stem the crisis — so long as there is a positive yield curve, there is stimulus, but once you get down near zero, perverse effects kick in.

The rest of my disagreements are already expressed.? To summarize: the first half of the book is good, but the second half is thin gruel if you want to protect your assets.

Who would benefit from this book: If you want to understand the causes of the crisis this is a great book to buy.? For protection of your assets, it will give you a few ideas, but no solution.? If you want to, you can buy it here: Code Red: How to Protect Your Savings From the Coming Crisis.

Full disclosure: I asked the publisher for a copy of the book, and he sent one.

Sorted Weekly Tweets

Posted on 30 November 2013 by David Merkel

Rest of the World

Morgan Stanley Leads Japan M&A for 1st Time Since 1997 http://t.co/QnzC26Wj7a Global expertise is @ a premium w/many deals across borders $$ Nov 30, 2013
Can Phone-Charging Stove Cut Wood Pollution and Save Lives? http://t.co/XY66nqo3xO Cook food w/less fuel & pollution; make electricity $$ Nov 30, 2013
Carney?s Housing Alarm Bell Nudges BOE Toward Stimulus Exit http://t.co/001OJ0Nj4o But will he really do it? Economic growth isn’t fast $$ Nov 30, 2013
In Thailand, It’s Crippling D?j? vu All Over Again http://t.co/wKMJIarSij Democracy does not fit the cultures of some nations well $$ Nov 29, 2013
OPEC Rift Emerging Over Iraq Output, Possible Return of Iran http://t.co/o329Mykhxa OPEC? Forgot about them. Iraq oil production grows $$ Nov 29, 2013
Aussie Set for Longest Drop Since 1997 After Takeover Rejected http://t.co/H2NqgiyDbP A currency is less valuable when use is restricted $$ Nov 29, 2013
Rice Bond Flop Adds to Yingluck Protest Misfortune http://t.co/3IFN70XXof Feels a little like 1997, could b messy in emerging markets $$ Nov 29, 2013
How Poland Became Europe’s Most Dynamic Economy http://t.co/mZCypvUwd8 Great, but just watch the outsized entitlement liabilities $$ $SPY Nov 29, 2013
Paul Krugman’s Blind Spot http://t.co/CsdsuCEMLb The countries that did not increase their deficits have done better than those that did $$ Nov 29, 2013
Zeppelins Seen Hauling Caterpillars to Mine Siberia http://t.co/u6gK2dcwMv Fascinating way 2 move heavy machines 2 mines in Siberia $$ Nov 27, 2013
Rich Russians Sparring With Putin Over $48B Olympics Bet http://t.co/oZYB1yjLc7 Cloudy view of who pays 4 & benefits from building Sochi $$ Nov 27, 2013
Pope Urges Countries Regulate Markets in Poverty Battle http://t.co/3IBNhhdqaV Jorge Bergoglio doesn’t understand the Bible; thus he errs $$ Nov 27, 2013
In Iran, Obama Achieves 50% of His Goals http://t.co/sOrvEn0zPK If everyone is unhappy, it might be a good deal; looks like Iran is happy $$ Nov 25, 2013
Europe’s Easy-Money Policy Snubs German Savers http://t.co/4Dx9vNk2nd Germans should take vacations in Portugal, Italy, Greece, & Spain $$ Nov 25, 2013
Islamists Settle on Turkey-Syria Border as War Blurs Lines http://t.co/cytuvPcIg8 Multiple player wars r inherently unstable & risky $$ Nov 25, 2013
Extremist Tide Poses Growing Threat to Europe, Katainen Says http://t.co/oZpeYEvTpi Euro puts nations in a straitjacket, fuels extremists $$ Nov 25, 2013
All for One: Xi Jinping and China’s New Deal http://t.co/ZReOpUO5ro Argues that the Chinese govt continues to centralize, not so sure $$ Nov 24, 2013
The Weekend Interview with Saudi Prince Alwaleed bin Talal http://t.co/pMd7xoDxjr Policies that favor Israel & Saudi Arabia r the same $$ Nov 24, 2013

Financial Sector

San Jose Pension Crush Spurs Bid to Ease California Pacts http://t.co/rLYJrZE3OT State laws will change 2allow cuts 2 nonaccrued benefits $$ Nov 30, 2013
Foreclosed Sales at US Auctions Double as Prices Gain http://t.co/AG75jENQ14 This is a good sign; B careful 2get a clean title if buying $$ Nov 27, 2013
Wall Street Props CLO Boom as Rules Lift Costs http://t.co/BZPdxJePL2 Get them out the door b4 new regulations require risk retention $$ Nov 27, 2013
Banks may pay $105B more to settle mortgage tab http://t.co/BhJdAHIwpR Did the banks even *make* $150B from 2005-8? Who gets the fine $$ ? Nov 27, 2013
Could banks charge fees for deposits? http://t.co/six4Q4UG8U Yes they could if the Fed tries to loosen policy further $$ Nov 27, 2013
How Regulators Will Toughen the Volcker Rule http://t.co/j5N620NF7P This is an impossible task & will result in lawsuits galore $$ #fail Nov 27, 2013
Speed Traders Meet Nightmare on Elm Street With Nanex http://t.co/k6ZUSSIprs Slanted article downplays Nanex’s insights on the markets $$ Nov 27, 2013
London Gold Fix Calls Draw Scrutiny Amid Heavy Trading http://t.co/cVB0xib8bZ Very difficult to eliminate all unfairness in benchmarks $$ Nov 27, 2013
Wall Street May Take Derivatives Regulator to Court http://t.co/R9KrxGlPn6 Arbitrariness in issuing regulations leads 2 pushback $$ $SPY Nov 25, 2013
Tackling The Fed: Jeb Hensarling’s Promise At Cato http://t.co/z2JqO2fAfQ After 100 yrs, it is time to review our $$ state of affairs Nov 25, 2013
Nonprofit that flipped homes to investors faces scrutiny http://t.co/tIBCJ9hfYC Not necessarily illegal, perhaps unethical, sneaky $$ Nov 25, 2013

Companies? & Industries

Repsol Deal With Argentina Was Propelled by Pemex http://t.co/trdr6hL6Oe Pemex mediates/wins, $REP loses, gets $$, $YPF free, Argent wins Nov 29, 2013
How Alyssa Milano Created a Fan-Gear Fashion Empire for Women http://t.co/XhCMON9WC8 Create clothes women like in team colors, not pink $$ Nov 29, 2013
Judge Approves ResCap Settlement W/Housing Regulator http://t.co/5sVjJyEIkw Unsec debt recovers 35%; I remember when they were hot stuff $$ Nov 29, 2013
Maker of Nutella and Tic Tacs Confident in Family Hands http://t.co/SmFZnx3YUT Profitable organic growth &staying private. Smart strategy $$ Nov 29, 2013
Clean Wind Farms Catch Up to Dirty Big Oil http://t.co/flu7fSKHXb The comments section is replete w/replies on the many ways birds die $$ Nov 27, 2013
Kobe Bryant’s $50M Shows Salary Cap Is Ruining NBA http://t.co/LPGUIX4vH2 Easiest way 2ruin a professional sports team is pay star 2much $$ Nov 27, 2013
For-Profit Colleges Face Consumer Bureau Probe on Lending Roles http://t.co/6EwvbpIYKf Student debt is a lousy deal avoid it if u can $$ Nov 25, 2013
Western Digital unwraps hybrid-data-storage system http://t.co/yiz1SR1HE1 Best of both worlds @ reasonable cost SSD&HDD $$ FD: + $WDC Nov 25, 2013
Monsanto vs. Mutant Crop Developers in Global Seed Market http://t.co/rYzs7109QS There r multiple ways of creating new strains, y fight? $$ Nov 24, 2013

Politics & Policy

Obama?s call to close Vatican embassy is ‘slap in the face’ to Roman Catholics http://t.co/BcN3f8za2s True enough, but I don’t c the need $$ Nov 29, 2013
Stay Home, America http://t.co/r11xLhn31Y Commentary on trying to turn Thanksgiving into a shopping day & what it costs us as a culture $$ Nov 29, 2013
What a Higher Minimum Wage Does for Workers and the Economy http://t.co/zawtVXr35p Democracy doomed if people vote 4 $$ from Treasury->them Nov 27, 2013
Should We Bail Out Cities? http://t.co/k64XxNAiR5 Answer: no, we shouldn’t. Most bailout r in areas we knew were high risk already $$ Nov 27, 2013
Not so sure: Democrats Give Up 2014 With the Filibuster http://t.co/AV5HU94NLH It’s a long way to the 2014 & 2016 elections $$ $SPY $TLT Nov 25, 2013
Rebirth Eludes Baltimore as Camden Reality Lags Promises http://t.co/e8NKriEsWV Professional sports arenas r economic idol 4 destruction $$ Nov 25, 2013
The Senate Goes Nuclear, Fallout to Come http://t.co/GBifaO09X8 A discourse on protecting the rights of the minority, a la the Founders $$ Nov 24, 2013

Market Impact

Warren Buffett and Time-Horizon Arbitrage http://t.co/92rVk5rbYF Buffett as a quality GARP manager; challenge is finding durable moats $$ Nov 27, 2013
Why Are Takeover Prices Plummeting? http://t.co/23tjJCDIkl Interesting 2c a lack of fervor among acquirers during high valuations $$ Nov 27, 2013
Madness & Sanity http://t.co/4HJTIUOLi8 It is flattering to be quoted at such great length; Good thing that I do not enforce copyright $$ Nov 27, 2013
Stock Market Trading: The 20 Rules Of Engagement http://t.co/Hnm2anKYVx Useful rules 4short-term traders from the estimable Todd Harrison $$ Nov 27, 2013

PPACA / Obamacare

Hit-and-Miss Obamacare Site Still Frustrating at Deadline http://t.co/Urchj3yyQc It could never have been fully fixed by 11/30 $$ $TLT $SPY Nov 29, 2013
A Fight Over Contraception Won’t Help Obamacare http://t.co/Wv0iQ10e2c Tie PPACA 2 abortion & the fight is unlikely 2 ever end $$ Nov 29, 2013
Even Subsidized Obamacare Plans Haven’t Found Takers Yet http://t.co/ERjKs9etHm Particularly among the young & healthy it doesn’t help $$ Nov 27, 2013
Is Obamacare Challenging Enough for Obama? http://t.co/8ICoSBbtT1 Astounding to hear an ideologue like Margaret Carlson criticize Obama $$ Nov 27, 2013
Manias, Panics and ObamaCare Crashes http://t.co/2xklhLaW8p PPACA was fatally flawed, the work of ideologues who don’t get healthcare $$ Nov 24, 2013

Other

Startup Scrambles to Replace the Egg http://t.co/h2RU6UXGuY Intriguing idea 2try 2replace eggs w/ingredients commonly fed 2 chickens $$ $TSN Nov 25, 2013
When Marketing Is Strategy http://t.co/aiUTS3C3O5 Adapt your products & services 2 meet needs of consumers 4 convenience & effectiveness $$ Nov 25, 2013
Magnus Carlsen’s Win in Chess Championship Shows Powerful Role of Computers http://t.co/pyG2He9iz9 Computers improve the abilities of men $$ Nov 24, 2013

October 2013	December 2013	Comments
Information received since the Federal Open Market Committee met in September generally suggests that economic activity has continued to expand at a moderate pace.	Information received since the Federal Open Market Committee met in October indicates that economic activity is expanding at a moderate pace.	Shades their view up, but I don?t see much to support it.
Indicators of labor market conditions have shown some further improvement, but the unemployment rate remains elevated.	Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated.	Weasel words because the participation rate is falling, and wages are stagnant.
Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months.	Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months.	No real change.? Language clearer.
Fiscal policy is restraining economic growth.	Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing.	Shades fiscal drag down, but the deficit is shrinking, so where do they get this?
Apart from fluctuations due to changes in energy prices, inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.	Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.	Calls energy special, but it plays into all we do.? TIPS are showing slightly higher inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.65%, up 0.08% from September.
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. Any time they mention the ?statutory mandate,? it is to excuse bad policy.
The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.	The Committee expects that, with appropriate policy accommodation, economic growth will pick up from its recent pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate.	No change. ?Monetary policy is omnipotent on the asset side, right?
The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall.	The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced.	Financial conditions are looser.? That?s largely due to the loose monetary policy globally.
The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.	The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.	Shades their view on inflation down.? CPI is at 1.2% now, yoy.
Taking into account the extent of federal fiscal retrenchment over the past year, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy.	Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee sees the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy.	No significant change, but switches the spotlight to the asset purchase program, suggesting that it has helped.
However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.		Worthless sentence eliminated.
Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.	In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $40 billion per month rather than $45 billion per month.	Reduces the purchase rate by $5 billion each on Treasuries and MBS
The Committee is maintaining its existing policy 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 is maintaining its existing policy 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.	No change
Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.	The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.	No real change.
The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.	The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability.	No change. Useless paragraph.
In judging when to moderate the pace of asset purchases, the Committee will, at its coming meetings, assess whether incoming information continues to support the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective.	If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings.	Says that purchases will likely continue to decline if the economy continues to improve.
Asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s economic outlook as well as its assessment of the likely efficacy and costs of such purchases.	However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.	No change.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.	To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.	No change.Promises that they won?t change until the economy strengthens.? Good luck with that.
In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.	The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.	Not a time limit but economic limits from inflation and employment.Just ran the calculation ? TIPS implied forward inflation one year forward for one year ? i.e., a rough forecast for 2015, is currently 1.72%, down 6 bps since the last meeting.? Here?s the graph.? The FOMC has only ~1% of margin in their calculation.
In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.	In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.	No change.
	The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.	New sentence.? Repetitive.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.	When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.	No change.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Jerome H. Powell; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.	Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Charles L. Evans; Esther L. George; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.	No change
Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.	Voting against the action was Eric S. Rosengren, who believes that, with the unemployment rate still elevated and the inflation rate well below the target, changes in the purchase program are premature until incoming data more clearly indicate that economic growth is likely to be sustained above its potential rate.	George in, Rosengren out.? Rosengren thinks any tapering is premature.