If businesses anticipate a flow of financing, they will depend on it.? Then a diminution or increase in the flow of investable funds will affect markets, even if the flow of investable funds remains positive or negative.
Most of the sayings from the “rules” posts came from things I thought of while managing investment risk 1998-2004.? I think I wrote this one late in 2002, or early 2003.? I’ll apply this three ways — what I would apply this to now, then, and in-between.
Then: the Fed funds rate was below 2%, and the yield curve was steeply sloped.? The corporate bond market had gone through an incredible bust, but almost all the companies that would fail had already failed, and a big rally was just starting.? Banks were still in good shape, with plenty of lending capacity, which was being applied to residential and commercial lending.? The securitization markets functioned and financing was easily available for residential & commercial mortgages, and many types of consumer lending.
In-between (1): Now I’m talking about 2006-7.? Fed funds rate was rising to an eventual 5.5%.? The curve is flat to inverted, and corporate spreads are very tight.? Issuance of low grade paper is rampant, and covenant protections are declining.? Risk is chasing reward, and gaining.? Everything is overlevered.? Any attempts at prudence are financially punished.? That said, the securitization market slows; deal are harder to do.
In-between (2): Now I am talking about late 2008 to early 2009.? Fed Funds had shifted to its current near zero state, but the Fed had not begun playing with the asset side of its balance sheet.? The yield curve was relatively wide but bull flattening.? Nothing was getting done in lending, and credit spreads were as wide as wide can be.? Securitization drops to near zero. Bank lending is non-existent, aside from buying Treasuries on credit provided by the Fed.
Now: The Fed funds rate is still in the gutter, and the Fed dreams that QE will do a lot for the economy.? (It works in theory! Stupid economists.)? Corporate credit spreads are wide, covenant protections are low, and yields relative to intrinsic risk are low.? Securitization markets are functioning at a reduced level, while banks aren’t lending much to the private sector.? Most housing loans are backed by the US government.
So here is the graph:
The point of this piece is to tell you not to look at the level of risky interest rates, but to look at the rate of change in risky interest rates. It tells a lot regarding future prospects of the stock and bond markets.? The rate of change matters a great deal, not the absolute level of rates.
So, the implication is watch for a sustained rise in in high-yield bond yields.? When those yields cross their 10-month moving average, it is time to be gone from risk assets.
I have not been a fan of this rally, and I have been selling into it.? I do have a rule for equity clients — cash never goes above 20%.? I have been close to that recently, and after rebalancing some companies that have hit the top of the weighting band, I have bought those companies with the lowest weights in the portfolio.? I have also added some stable companies in the recent past — Berkshire Hathaway, Ingram Micro, Validus Holdings, AFLAC, and CST Brands.
My next quarterly reshaping comes up next week, and again, I will be looking at neglected industries in the market for areas to purchase.? When the momentum runs this hard, I have to be content to trail (though I haven’t been trailing).? I have to ask where things will be three or more years from now, rather than ponder the next quarter.? The answer to that is more murky than I would want, because of abnormal economic policy.? It makes us all more skittish, and obscures price signals.
I have suggested in the past that a good solution in the face of uncertainty is to do half of what you would like to do. Doing half breaks the psychological stranglehold of fear and greed, because regardless of what happens, part of your decision was a success.
You could also start to make a “shopping list.”? Start looking for names that you would like to buy 10, 20, 30% lower, and set alerts.? Who knows how rapidly things will move when the correction or bear market comes.
You could keep a close eye on the 200-day moving average for the S&P 500, waiting for the index to cross under that as a sell signal, but if you want to be ahead of the crowd, maybe you want to use the 190-day moving average. 🙂
I tend to use industry selection and other factors, like balance sheet strength and reliability of cash flows as my main risk reduction tools rather than outright reduction of equities owned.? In general, I have been a good picker of stocks over the last 13 years, and I want to continue using that advantage.
With bonds, I am playing it safe with short and intermediate corporates, and taking reasoned chances with emerging markets debt.? Beyond that, I am thinking of buying long Treasuries as a deflation hedge.
The equity market is well above where long-term valuation measures like the Q-ratio, and CAPE10 would value it.? Most of that is due to low interest rates and high levels of QE.? How certain are you that both will persist, and for how long?? Personally, I think both will persist for some time, but not forever.? Profits attract competitors, and low rates discourage savers.
Though we don’t know when change is coming, we have to be ready for change.? Whatever you do for defense, make preparations now to be defensive; this era and valuation levels will not persist.
Aside from that, remember that when a system is so artificially supported, it relies on peace & continued support from governments.? Either could vary.? Peace is not certain, and neither is the current set of economic policies.? Be ready, because there can be all manner of surprises.
David, I am curious if you have thoughts about insurance companies (especially P&C) hedging political risk ? the answer to this question obviously will carry over to healthcare quickly.
Recently, my state (Corrupticut) was hit by hurricane Sandy. Many municipalities (but not all) still had extensive flood control, hurricane gates, levies, etc from the 1970s ? the last time we had really active hurricanes.
In an effort to bump up property tax revenue, several municipalities allowed developers to build McMansions right on top of, or in place of, sand dunes that had existed for centuries. The dunes blocked the view or some such nonsense. Quite predictably, these municipalities had much higher damage than those who maintained dunes and other protection.
Our idiot governor decided to keep his heel on the throats of insurance companies to make them pay ? and the insurance companies called his bluff. ?Fine Mr Malloy, we will stop selling home owners insurance in your state ? good luck getting a mortgage without any insurance. Gee whiz, the lack of mortgages probably will devastate home prices. You should have thought of that before you chased us out.?
All up and down the coast line, insurance companies are telling state and local governments that sand dunes, levies and sea walls must be restored and maintained ? or insurance will not cover anything.
States along the gulf of Mexico (ie hurricane Katrina et al) enacted laws prohibiting developers from taking down mangrove fields.
I heard rumors (not sure if they are true) that re-insurance companies have told underwriters that they will not accept pools that contain policies in states that allow destruction of natural flood barriers.
Perhaps most recently, New Jersey?s governor told his MTV ?J Wow? constituents that they were going to restore sand dunes regardless of whether it looked good.
I seriously doubt that corrupt populist politicians (like the governor of my state) will stop promising to seize private property to buy votes ? but it also seems they have pushed the P&C insurance industry too far. Hard to imagine that anyone will knowingly operate at a loss.
And Hugo Chavez not withstanding, most national governments won?t jeopardize their own regime to subsidize a practice that also threatens their regime.
The US government doesn?t have the trillions needed to allow FEMA to insure McMansions built where sand dunes once stood.
Whether the US ends up with ?universal healthcare? or not ? the federal government does not have the money to keep the current healthcare system growing 8-10% per year while the economy grows less than half as fast.
The end result is obvious ? stupid government policies will fail long term. Maybe common sense will prevail again. Maybe the government will bankrupt itself and become irrelevant. Hard to guess which.
But in the short term ? how can the insurance companies hedge political risk?
One of the reasons for high storm damages over the past ten years has been the pressure from developers to develop land that is beautiful, but subject to flooding risk? from storms.? In the present time, that has led insurers to raise prices on such developments, and/or refuse to insure, allowing state-sponsored captive insurers to absorb the risk on behalf of the taxpayers.
Insurers have gotten smarter, in my opinion, and most have learned to resist the actions of the states, sacrificing business volume for profitability.? They understand that there is a “Knot at the Bottom of the Rope,” below which you can’t go any lower.? So if a state is making certain classes of business unprofitable, stop underwriting those classes of business.
Contract law favors the insurers.? They can’t be compelled to take losses against their will, except by contract.
Eventually politicians have to face reality, lest they go the way of Argentina, or worse, Zimbabwe.? Insurers, though they may not be loved, reflect a fair estimation of risk.? Politicians in the short-run may try to bend the view of risk to voters, but if contract law is observed, no change will happen.
Look, we would all like Santa Claus behind us bailing out our every mistake and trouble, but in the real world, where resources are limited, claim payments flow according to contract.
Yes, the reinsurers push on the insurers, and that leads to reductions in coverage.? They have economic incentives as well, and they are all the more sharp, because they really get hit when things get bad.
Finally, you are correct that the US can’t maintain its current approach to healthcare.? If we were smart, we would eliminate the corporate tax deduction for healthcare, and return the system to the free market.? If you want health insurance, let it be done outside of the tax code.? That could help balance the budget.? As I listen to many screaming, I would add, “And let’s eliminate the interest deduction on mortgages, and the charitable donation deductions.”
We have to clean up the tax code such that most tax preferences disappear, so that the budget can balance.? Balanced budgets promote growth, because people do not fear higher future taxes.
My view is that there is no such thing as a free lunch, not even for governments or central banks.? Any action taken may have benefits, but also imposes costs, even if those costs are imposed upon others.? So it is for the Fed.? At the beginning of 2008, they had a small, clean, low duration (less than three years) balance sheet on assets.? Today the asset side of their balance sheet is much larger, long duration (over 6 years), negatively convex, and modestly dirty as a result.? Let me give you a few graphs created from the H.4.1 data, obtained via the poorly designed and touchy Data Download Program at the Fed?s H.4.1 portion of their website.
The first graph gives the liabilities of the Fed over the last 5+ 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 10.2%/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 37%/yr, and reserve balances with Federal Reserve Banks, which you can calculate an annualized rate of growth for (112%/yr), but a rate doesn?t do justice to the process, because it grew due to the three events ? QE1, QE2, and QE3.? 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 a muted form in late 2011 to early 2012.
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 70% 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 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, or political 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 QE4, QE5, 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 have 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.
Far better to be like McChesney Martin or Volcker, and be tough, letting recessions do their necessary work of eliminating bad debt.? 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; we are still in the aftermath of a lending bust ? too much bad mortgage debt, 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.
Postscript
The main difference between this time and the last time I wrote on this is QE3.? What has been the practical impact since then?? The Fed owns more MBS and long maturity Treasuries, financed by more reserve balances at the Fed.
Banks use this cheap funding to finance other assets.? But if they want to make money, the banks have to take credit risk (something the Fed is trying to stimulate), and/or interest rate rate risk (borrow short, lend long, negative convexity, etc).? The longer low rates go on through interest on reserves, the greater the tendency to build up imbalances in the banking system through credit and interest rate risks. 1992-1993 where Fed funds rates were held at 3%, was followed by the residential mortgage backed security market melting down in 1994, not to mention Mexico.? Sub-2% Fed funds rates from 2002 through mid-2004 led to massive overinvestment in residential housing, leading to the present crisis.
Fed tightening cycles often start with a small explosion where short-dated financing for thinly capitalized speculators evaporates, because of the anticipation of higher financing rates.? Fed tightening cycles often end with a large explosion, where a large levered asset class that was better financed, was not financed well-enough.? Think of commercial property in 1989, the stock market in 2000 (particularly the NASDAQ), or housing/banks in 2008.? And yet, that is part of what Fed policy is supposed to do: reveal parts of the economy that are running too hot, so that capital can flow from misallocated areas to areas that are more sound.? At present, my suspicion is that we still have more trouble to come in banking sector.? Here’s why:
We’ve just been through 4.5 years of Fed funds / Interest on reserves being below 0.5% — this is a far greater period of loose policy than that of 1992-1993 and 2002 to mid-2004 together, and there is no apparent end in sight.? This is why I believe that any removal of policy accommodation will prove very difficult.? The greater the amount of policy accommodation, the greater the difficulties of removal.? Watch the fireworks, if/when they try to remove it.? And while you have the opportunity now, take some risk off the table.
Gold, backwardation and the ?time cost of money? http://t.co/AauT82dWoE Many players want 2 make $$ off gold financing but conditions shift May 04, 2013
The sultans of swing http://t.co/rItrBNwPej Short vol pays income & loses in bad times, long vol loses income & wins in bad times $$ May 04, 2013
Public Pensions Underreporting Liabilities?? http://t.co/IdEnrkdcXc Milliman is incented 2 make things look good, or they would lose biz $$ May 03, 2013
It?s Time to Fight the Fed http://t.co/rAnFWIwctu Makes the case that stock market has decoupled from economic reality $$ cc @MicroFundy May 03, 2013
JPMorgan Caught in Swirl of Regulatory Woes http://t.co/RFuywRTw0s When finance gets complex there r many opportunities 4 mischief $$ $JPM May 03, 2013
Why is Doug Kass bearish on Buffett?s Berkshire? http://t.co/aCQVRoxEzv My challenge is2ask original questions that have never been asked $$ May 02, 2013
High-Speed Traders Exploit Loophole http://t.co/aMdRBW72x3 Y can’t the same data feed be provided to all participants? $$ May 02, 2013
Treasury Is Readying Floating-Rate Debt http://t.co/d2ybajZWWO First new Treasury debt product in years. Wonder what the index will be… $$ May 02, 2013
Don’t get me wrong, QE is bad policy. Rather than having a short sharp recession that clears the way 4 growth, Fed traps us in malaise $$ May 02, 2013
When Defensive Stocks Plays Offense http://t.co/aF6MIrTzyQ @ReformedBroker describes effect of $$ flowing in2 low vol stocks, erasing safety May 01, 2013
Gold Rush From Dubai2Turkey Saps Supply as Premiums Jump http://t.co/2I3a2B5npH True in the US too: http://t.co/AmkUqn639p $$ #takedelivery May 01, 2013
Canadian banks r largely shielded from effects of housing downturn b/c government-owned Canada Mtge & Housing insures 64% Canadian mtges $$ May 01, 2013
Meet the man who’s selling Canada short http://t.co/HqStfr9CCe Shorting bank common stocks, & the Loonie. Market prices / rent – high $$ May 01, 2013
My Edge and the Crossroads http://t.co/KfcVQUCCjc @ReformedBroker gives us a glimpse of how he synthesizes disparate market data $$ May 01, 2013
The Great Gold Debate Continues, And It’s Serious http://t.co/Xwtar2rlWE As central banks debase fiat $$ ,gold standard gets more attention Apr 29, 2013
Big Number: Revenues Missing a ‘Beat’ http://t.co/IwTCtzSUZS Only 44% of companies have beaten revenue estimates, rally could slow down $$ Apr 29, 2013
Gold Climbs as Higher Physical Demand Counters Decline From ETPs http://t.co/2c6WAxC5Yn Negative real cost of carry favors gold here $$ $GLD Apr 29, 2013
Gold Bears Defy Rally as Goldman Closes Short Wager http://t.co/WRNWV4MayC Demand 4 physical gold continues while ETPs c outflows $$ $GLD Apr 29, 2013
Market?s $20T Yielding 1% Shows Austerity Mistaken http://t.co/NnEbi5SshB Monetary policy papering over budget deficits aids stagnation $$ Apr 29, 2013
Stock Analysts Tell All! http://t.co/I4ixQlTBeU Follow the $$ | C how analyst comp affects their actions; hedge funds matter, retail doesn’t Apr 29, 2013
The Mind of Jeffrey Gundlach http://t.co/aLmhR5gEuB @eddyelfenbein takes us on a brief tour of how Gundlach came 2b a clever contrarian $$ Apr 29, 2013
Oil demand at lowest level since Oct http://t.co/X6qhQnYOS8 More signs of global sogginess $$ Apr 29, 2013
When Safe Havens Become Bubbles In Disguise http://t.co/XTPtp4jgGa Good article if you view the investing alternatives @ end skeptically $$ Apr 29, 2013
Gold Rout for Central Banks Buying Most Since 1964 http://t.co/Zzkd0slUS8 Gold overshot, but negative real cost of carry favors a rise $$ Apr 28, 2013
Bank-Loan Funds Pose New Risks http://t.co/V0F6rX4TSV This is a minor mania — expected future returns are low to negative. Avoid. Avoid $$ Apr 27, 2013
Other
Cicadas, the Wedding Crashers Who Can Jitterbug http://t.co/jcnOqeJeY0 Will b going2an outdoor wedding in late May, should be a scream $$ 😉 May 03, 2013
Note, Shodan can be used positively 2 identify security flaws in your own systems 😉 $$ http://t.co/PmMo1IWcrp May 03, 2013
SHODAN – Computer Search Engine http://t.co/5stvEHa6Js Why be the last person on your block w/o ability to unprotected computer networks? $$ May 03, 2013
NO PIZZA FOR YOU!!! http://t.co/6BxRJtamn2 Mayor Bloomberg runs into his “Personal Slice Limit,” & has to go to another pizza purveyor $$ May 03, 2013
5 Twitter tools to Unfollow Inactive Users http://t.co/o467OjGtgA Interesting utilities cc: @carney @reformedbroker $$ May 02, 2013
Billionaires Flee Havens as Trillions Pursued Offshore http://t.co/Lbmk1sofQC Politicians interested protecting tax havens 4 their owners $$ Apr 29, 2013
Run or walk: Why science hasn?t determined which exercise is best http://t.co/nFB6BgCPzf Equal expending of calories -> similar results $$ Apr 29, 2013
Texas Town?s Blast Crater Shows Risk From Patchwork Zoning Laws http://t.co/LHYMiBq3l7 Necessary dirty industry has 2 go somewhere $$ Apr 28, 2013
Can You Get a Refund From a Bad Hedge Fund? http://t.co/VO3AsaooVO If your hedge fund has lost $$, u may be able 2 rescind your purchase Apr 28, 2013
Are Bachelor’s Degrees Worth It? http://t.co/AxAWgZmWge Bachelor’s degrees may not b worth it, but community college can bring a return $$ Apr 28, 2013
Rest of the World
Too-Big-to-Fail Danish Banks Seek Bailout Text in Sifi Law http://t.co/jRJigpfsW1 Overleveraged housing sector & banks challenge Denmark $$ May 03, 2013
Chinese Way of Doing Business – In Cash We Trust http://t.co/pGEcUDgMTa More corrupt ur nation is, the more u want 2do cash transactions $$ May 02, 2013
Denmark Exhausts Stimulus Avenues as Housing Losses Persist http://t.co/MjtLztxIeg Denmark is the poster child 4 mtge excess, then Canada $$ May 02, 2013
Japan household spending surges as Abenomics gains momentum http://t.co/9wehqDMxde Inflation genie comes out of the bottle, what next? $$ May 01, 2013
Where the Chinese credit is going? http://t.co/lYHxHMCNeZ “financial distress is another reason why credit expansion has not worked well” $$ May 01, 2013
Why the China Dream Might Be a Mirage http://t.co/hO4YupHbJl Economic change w/o political change will not work much longer in China $$ Apr 30, 2013
Factories to face headwinds from enlarged TPP http://t.co/dbPXgxlqzr Chinese businesses build factories elsewhere 4 cheap labor $$ #surprise Apr 29, 2013
European Leaders? Softening on Austerity May Accelerate http://t.co/VnLL4Npykr Ending austerity is one thing; sharing losses is another $$ Apr 29, 2013
Silvercrest’s Patrick Chovanec http://t.co/H2RgxU16Kq Excellent interview w/ @prchovanec on the difficulties w/old Chinese growth model $$ Apr 29, 2013
Japan’s ‘wall of money’ proves elusive for global markets http://t.co/l9d8RVnqks So far, most of the credit inflation recycled in Japan $$ Apr 29, 2013
The hole the mutual fund industry has dug for itself http://t.co/MEYDxqJgy5 Huge mutual fund fees in Canada shortchange investors $$ #Wow Apr 29, 2013
Europe: Aging deepens debt-laden region?s economic woes http://t.co/jWqDYPaDSO Economic growth relies on a population not shrinking $$ Apr 29, 2013
Danes as Most-Indebted in World Resist Credit http://t.co/PPfvdn12tT Denmark is the poster child 4 what happens w/2 much mortgage debt $$ Apr 29, 2013
Japan’s Abenomics New Export By-Product: Deflation! http://t.co/0YMovyM2Br Growth does not come as more reserves build up in the banks $$ Apr 29, 2013
Japan’s Yen Unintended Consequences – Fukushima and the Yen – Hara-Kiri http://t.co/TRqa9gjIUs Higher fuel costs begin 2 bite in Japan $$ Apr 29, 2013
Europeans Are Thinking the Unthinkable: That Debt Defaults Might Make Sense http://t.co/BQdfWoGknw Only if u can stiff foreign creditors $$ Apr 29, 2013
Companies & Industries
Buffett Bets on Business Insurance ?Big Time? http://t.co/tlcMeszcWJ Rounding out underwriting book; more conservative version of $AIG $$ May 03, 2013
Quite a first day of trading for CST Brands, Inc. Common Stock Finance http://t.co/nFzrkovLWN Spun off from Valero | FD: + $CST & $VLO $$ May 02, 2013
?? Endurance Reports First Quarter 2013 Financial Results http://t.co/VC4x9cUQBh I have never seen an earnings beat this big b4 | FD: long $ENH May 01, 2013
How Wall Street Defanged Dodd-Frank http://t.co/FzgwKpOvBh Long, worth a read, describes financial industry’s strategy 2 kill Dodd-Frank $$ May 01, 2013
I don’t like D-F b/c it’s weak in areas that matter, & strong in areas that don’t matter. &, study committees shouldn’t have lotsa power $$ May 01, 2013
I was serious on that last comment. Actuaries serve as honest, semi-neutral advisors to the regulators, & have a significant ethics code $$ May 01, 2013
That makes insurance regulation significantly more brainy than banking regulation. Also tougher, b/c harder 2 co-opt 50 state regulators $$ May 01, 2013
New Ajit Jain Signals in the Berkshire Hathaway Tea Leaves http://t.co/k5sikoCKGM Is Ajit preparing 2b CEO or retire? FD: long $BRK/B $$ Apr 29, 2013
Apple doesn’t deserve top credit rating: Fitch http://t.co/ardXsKVuoB Problem is that the $$ is overseas & the debts r in the US $AAPL Apr 29, 2013
Tech Stocks Are Cheapest in Seven Years http://t.co/InmrCkKmVw Question should b how sustainable revenue streams r in a soggy economy $$ Apr 29, 2013
States Object to ‘Payday’ Lawsuit Lending http://t.co/ZL7vvCz3GQ This looks like a good market 2 avoid; 2 much risk from legal changes $$ Apr 29, 2013
US Economic Policy
Deflation, not inflation, could bedevil markets http://t.co/seyOKKmSZV Watch global weakness weigh on the US, also inventory drawdowns $$ May 03, 2013
US Economy : 6 Critical Indicators of Potential Recession Flashing RED http://t.co/32jNZ3SNrC A stroll through the bearish economic view $$ May 03, 2013
A possible step towards numerical guidance for QE? http://t.co/fjNXmEMPPk Volume/Clarity of Fed communications doesn’t matter $$ #deadend May 03, 2013
Fed weighs tighter cap on bank leverage http://t.co/oLiw2XZdqf Maybe adapt well-designed RBC formula life insurance industry uses $$ #noway May 01, 2013
Obama to Name Congressman Mel Watt to Housing-Finance Post http://t.co/LClhqyLnij This seems like a mistake; Zandi would have been better $$ May 01, 2013
There Will Be Haircuts http://t.co/uGuDijhW7d @pimco gives 4 ways govt will fleece us: negative real rates, inflation, default, cap ctrls $$ May 01, 2013
Roubini: Money supplies holding back economy, but run could last 2 years http://t.co/kaoOK1Nd41 Monetary policy is weak in a liquidity trap Apr 30, 2013
Powerful Union, Upstart Battle Over Shrinking Pie http://t.co/z5N7DME5sT Another sign that unions are a thing of the past. Good riddance $$ Apr 30, 2013
Ebbing Inflation Means More Easy Money http://t.co/32RIuQeX1f Fed’s new job is 2 push the marginal productivity of capital to zero $$ Apr 29, 2013
Wall Street is full of ‘crooks,’ Jeffrey Sachs told Philadelphia Fed audience http://t.co/V8LhcyX8qg Evidence would help, many assertions $$ Apr 29, 2013
US Growth comes Mostly from Inventories http://t.co/WJnRbUGfiJ The current expansion is not robust, IMO will not persist at rates >1.5% $$ Apr 29, 2013
The Federal Financial Triangle http://t.co/tc8vEvK7QP The Fed, the Treasury, & GSEs have mispriced financial risk -> deeper US deficits $$ Apr 29, 2013
Are You Ready for the New Investment Tax? http://t.co/yDSIkClF5H Make a lot of many from investments? This tax could surprise u in 2014 $$ Apr 28, 2013
Fixed Income
?
DoubleLine’s Gundlach seeks more risk in new closed-end fund http://t.co/EaBoKhCGCv I like the strategy, wonder when will get 2 crowded $$ Apr 29, 2013
Fitch US High Yield Default Insight ? March 2013 http://t.co/8KnB3v1uN7 Lots of good data on the stretched junk bond market $$ $HYG $JNK Apr 29, 2013
Junk Bond Daily Yield Snapshot: 5.289% (Yes, Another Record) http://t.co/1GiDYWac74 Further price gains should b incremental due 2 calls $$ Apr 29, 2013
At the Bloomberg Washington Summit
Bloomberg Washington Summit http://t.co/t1pgPaRBRg The videos from the event can be found here. 5.5 hours of video #BBwash $$ May 03, 2013
At the Bloomberg Washington Summit, Part 5 http://t.co/k3a3maTPST Alan Krueger (Chmn Council of Economic Advisers) & Other Stuff #BBwash $$ May 03, 2013
At the Bloomberg Washington Summit, Part 4 http://t.co/lQVo1drGbc Economics, US Postal Service, Lunch & China #BBwash $$ May 03, 2013
At the Bloomberg Washington Summit, Part 3 http://t.co/i3KmSxbKmz Infrastructure, Corp Tax Reform, Dodd-Frank, & Garry Gensler $$ #BBwash May 03, 2013
At the Bloomberg Washington Summit, Part 2 http://t.co/6m43ZgCm8X Unemployment, Healthcare Spending, & the State of the states $$ #BBwash May 03, 2013
At the Bloomberg Washington Summit, Part 1 http://t.co/Rjgb8zY60u US Budget, Sequester, dysfunctional politics & economics #BBwash $$ May 03, 2013
Back home from #BBwash, watch for a summary post later tonight at http://t.co/HQR2bRfS06 Thanks 2 @bgov, @BoozAllen, @Visa, @Bloomberg Apr 30, 2013
Final panel optimistic about tax reform over the next 2 years Prob over 50%. Can’t say I’m that optimistic #BBwash Apr 30, 2013
John Rogers of the CFA institute asks Q on differential taxation of dividends/interest, of course panel goes 4 ending dbl taxation #BBwash Apr 30, 2013
Take back my last tweet. Panel agrees on every corporate tax cut, but shies away from anything that might affect their interest #BBwash Apr 30, 2013
Final Panel at #BBWash on corporate tax reform, the significant disagreements of panelists indicate y reform will b tough Apr 30, 2013
Last tweet made 2 counter what the VA Governor said about his budget being balanced, along with the rest of the states #BBwash Apr 30, 2013
States only balance on a cash basis. Various pension, healthcare and other liabilities r not fully funded all states in the Union #BBWash Apr 30, 2013
VA Gov McDonnell speaking of the US “Don’t you know we are broke?” Then goes on 2 talk about our unfunded public benefit liabilities #BBwash Apr 30, 2013
VA Governor makes case that sequestration cuts r unfair b/c they disproportionately affect VA. But VA benefited when spending rose #BBwash Apr 30, 2013
#hello still waiting on sequestration’s effect on Virginia #BBWash Apr 30, 2013
Waiting 2 get 2 the main topic w/the VA governor on sequestration, interviewer still grilling on perceived conflict of interest #BBwash Apr 30, 2013
@cate_long Cool, if you were here, I would say “hi.” Instead, I type “hi.” Apr 30, 2013
Gov McDonnell of VA speaking @ #BBWash about sequestration, Instead, gets grilled by interviewer on perceived conflicts of interest Apr 30, 2013
@cate_long Are you here at BBWash or watching on television? Apr 30, 2013
Ravitch says the threat of BK can make all of the parties focus; biggest state risk is confiscatory tax levels, not reduced benefits #BBwash Apr 30, 2013
Rendell makes case 4 telling truth & shared sacrifice. Ravitch: Muni Bankruptcy is an admission that democracy has failed #BBWash Apr 30, 2013
RT @cate_long: Rendell “If city goes bankrupt cant borrow again” BBG’s Glasgall “Orange County went bankrupt and can still borrow” #bbwash Apr 30, 2013
Moderator makes point about the frenzy in the junk muni market, Ravitch says cities & states have no choice but 2 have access 2 mkts #BBWash Apr 30, 2013
Ed Rendell makes case 4 a single payer health system. Same point can be made for no health insurance, which would lower costs more #BBWash Apr 30, 2013
Pension & OPEB panel @ #BBwash is making the case that we are in deep trouble, w/little way out Apr 30, 2013
@cate_long Thanks, useful… Apr 30, 2013
@cate_long Thanks, just puzzled by the moderators comments on OPEB at this panel at #BBwash Apr 30, 2013
@cate_long Cate, most corporations don’t reserve OPEB, b/c they can walk away from it, Governments can’t do the same? Apr 30, 2013
@CescaAntonelli Could be, I think she is the leading candidate as well, but I don’t like her seemingly reflexive dovishness Apr 30, 2013
Never happened b4 2 VC RT @CescaAntonelli: Yellen has right of first refusal at Fed, Meyer says at @BBGlink #bbwash http://t.co/Qwn6MvlmVP Apr 30, 2013
Krueger suggests that people have to adjust their definition of fairness. Trouble is there is no fairness, it is all based on trade #BBwash Apr 30, 2013
@tomkeene brings up corporate tax code given $AAPL bond deal, Krueger says a deal can be done if the base can b broadened #BBWash #notlikely Apr 30, 2013
Krueger goes on talking about inequality, has few solutions; education is slow if it works, throwing $$ @ it hasn’t worked recently #BBWash Apr 30, 2013
Krueger spending a lot of time criticizing the sequester, suggests there is a way to do smart cuts. When have we ever done that? #BBWash Apr 30, 2013
Krueger suggests that fixing infrastructure has the highest payoff. Problem: haven’t *ever* done it, & the budget 2 deep in deficit #BBwash Apr 30, 2013
Kreuger implies Stockman’s opinions r not worthy of consideration #BBWash Apr 30, 2013
Delicious food & good conversation @ #BBwash lunch. Sat w/ @tomkeene & @steve_hanke Apr 30, 2013
@pattersonscott In my opinion, that comes down to misregulation of inv banks & AIG , they should have regulated derivs as if on B/S #bbwash Apr 30, 2013
@pattersonscott & I argued 4 ring-fencing the derivative counterparties, & let the holding companies fail, but had 2 have mtges fail 1st Apr 30, 2013
@pattersonscott derivatives did crater some companies taking one side of the mortgage trade, but mortgages had to go bad first Apr 30, 2013
@pattersonscott for every winner on a derivative, there is a loser. nets to zero — on the original loan there are real loan losses #BBwash Apr 30, 2013
Appreciate CFTC Chairman Gensler’s sense of humor, even if it burns time… #BBwash Apr 30, 2013
#BBwash Gensler says that we will move away from Libor. Me: Any benchmark not based on trades will b gamed, as well as those based on trades Apr 30, 2013
@pattersonscott Some were tied to the mortgages, but the real losses came from the mortgage underwriting, which came first #bbwash Apr 30, 2013
Utterly mistaken RT @cedwaddell: #BBwash Gary Gensler, chair of CFTC, says 8 million jobs lost since 2008 due to unregulated swaps market Apr 30, 2013
Gensler traces the crisis to the derivatives markets when it was really due to bad mortgage lending #BBwash #FTL Apr 30, 2013
@PeterCCook Ask him why derivatives are not regulated like insurance, and require insurable interest #BBwash Apr 30, 2013
@PeterCCook Ask him why derivatives are not regulated like insurance, and require insurable interest Apr 30, 2013
RT @cate_long: “I believe that the role of the Post Office is universal service and overnight delivery is part of that” Sen Cardin #bbwash Apr 30, 2013
USPS CFO thinks there is a long-term solution, needs regulatory changes, allowing delivery of alcohol, etc. wants more independence #BBwash Apr 30, 2013
CFO of $UPS talks about two scenarios for rises in interest rates: good: improvement in productivity, bad: stagflation #BBwash #duh Apr 30, 2013
If business were already agreed on tax policy, tax policy would have changed already #BBwash Apr 30, 2013
Mistaken concept that the business community has 1 clear goal in tax policy, one man’s tax expenditure is more valuable than others #BBwash Apr 30, 2013
Eclectic panel Sen. Ben Cardin (D-Maryland), Kurt Kuehn, CFO UPS & Joseph Corbett, CFO & EVP, USPS — don’t think this goes far #BBwash Apr 30, 2013
PA gov Corbett leaves benefits/fees of fracking to local governments where it is needed #BBwash Apr 30, 2013
Corbett wants to be the “Texas” of Natgas, TX ain’t what it used 2b #BBwash Apr 30, 2013
1 in 6 people in PA on Medicaid would b 1 in 4 under Obamacare, according2 Tom Corbett, PA 2nd highest in Medicaid b/c optional covs #BBWash Apr 30, 2013
@fbonacci @incakolanews @felixsalmon Easy come, easy go, little high, little low… nothing really matters, anyone can see… Apr 30, 2013
At #BBwash , Tom Corbett talks about selling the state liquor stores, when it barely moves the needle in terms of the NPV of the liabs Apr 30, 2013
John Rogers of the CFA Institute asks Engle why we should invest in a new bubble created by the Federal Reserve? Engle waffles. #BBWash Apr 30, 2013
@incakolanews Galileo, Galileo, will you let me go? Apr 30, 2013
Engle correct in noting that the tea party has made washington a 3-party game, which creates a complex blocked situation #BBWash Apr 30, 2013
Gotta give Scaramucci credit for getting on this #BBWash panel, he has said some notably odd things Apr 30, 2013
Federal Reserve less independent since Dodd-Frank, & not in a good way, it supports the US financial sector & government #BBwash Apr 30, 2013
Pitt: if I were a college professor, I would give Congress an “F” 4 Dodd-Frank #BBWash Apr 30, 2013
Humorous panel w/Harvey Pitt, Robert Engle, and Anthony Scaramucci — Engle is clueless, thinking Fed policy can b easily removed #BBwash Apr 30, 2013
Wargaming in economics is impossible; there is no way to predict next economic crisis, writ small. Overlevered systems r risky #BBwash $$ Apr 30, 2013
Too much discussion over bailing out the system. Too little discussion over how to limit overall debt and debt complexity #BBWash $$ Apr 30, 2013
Good discussion @ #BBwash where they describe how more complex laws & regulations make markets more complex rather than clear $$ #worse Apr 30, 2013
Panel on Dodd-Frank arguing about bank capital, arguing that higher capital isn’t so bad. #BBwash $$ That said, liquidity is more important Apr 30, 2013
Panel on Dodd-Frank arguing about bank capital, arguing that higher capital isn’t so bad. #BBwah $$ That said, liquidity is more important Apr 30, 2013
Really disappointed in the lack of reasoning from Larry Meyer, not disappointed in Chris van Hollen, nothing to expect there $$ #BBwash Apr 30, 2013
At the Bloomberg Washington Summit: definitely a liberal bias to first two panels, saying that the current deficits must continue #BBWash $$ Apr 30, 2013
?
Wrong
Wrong: Fed Seen Slowing Stimulus With QE Cut by End of This Year http://t.co/h2ckgPDc3e Sorry, but the Fed will increase its QE in 2013 $$ May 02, 2013
Wrong: Europe?s New Path: Austerity with a Human Face http://t.co/HXzbWFx2v9 Real austerity hasn’t been tried yet, only debt monetization $$ Apr 29, 2013
Wrong: ?Peak Fossil Fuels? Is Closer Than You Think: BNEF – Bloomberg http://t.co/XoKYF1qoEW No way; governments of world won’t cooperate $$ Apr 28, 2013
New York Times Moves Toward Netflix Model as Ads Tumble http://t.co/rHrbxxAe8e I think $NYT is eventually a zero as the internet eats it $$ Apr 28, 2013
?
Replies, Retweets & Comments
5.5% annualized growth $$ RT @EddyElfenbein: Nominal S&P 500 earnings are expected to be roughly double this year compared with 2000 May 03, 2013
@EddyElfenbein http://t.co/FvBzLDzuGI On the IBM Industrial Average, where I propose the News Corp Industrial Average May 03, 2013
@H_X_S Thanks, Janetter looks interesting. May 03, 2013
Liked the old Tweetdeck better $$ RT @danprimack: Does Twitter know that some of us probably would have paid to keep tweetdeck alive? May 03, 2013
@AndreCimini It’s all a part of the current “race to the bottom” monetary policy game. Trying to figure out how this one blows up May 03, 2013
@fsmontenegro Thanks, missed that, relied on a friend May 03, 2013
‘ @JayLeonard No doubt, & realize these are marginal rates, which few pay because of the Swiss cheese nature of the corp tax code $$ May 03, 2013
@alestuma I get that — that’s y some investors co-locate servers at the exchanges. But not getting the same feed initially is different May 02, 2013
‘ @WarrenBuffett Good 4u, Mr. Buffett. We all await your wise counsel, especially me, a student of yours & a shareholder. $$ FD: + $BRK.B May 02, 2013
@TheStalwart I don’t think much happened overnight, but I did publish a five piece set of articles on the Bloomberg Washington Summit May 02, 2013
@notgunnamatta Yes May 02, 2013
@dpinsen There r no good solutions in the bust. The only sane thing is to try to prevent booms from getting out of control, a la Martin $$ May 02, 2013
@CardiffGarcia If I had the data, would be interesting to try a parabolic fit, & look at the coefficients, looks like it would flop May 01, 2013
@rubicon59 @PlanMaestro @SajKarsan I think I was the only one that did public analyses of the 3 Maiden Lane trusts, but I was wrong there 2 May 01, 2013
@rubicon59 @PlanMaestro @SajKarsan Yes, I did; I presumed that the really junky assets that they had would default far more than they did May 01, 2013
Cool $$ RT @jasonzweigwsj: our great Fed-speak comparison machine: see how the FOMC’s statements change over time http://t.co/CubyVqQ6KL May 01, 2013
@Matthew_C_Klein Next in line r colonialists who exploited Belgium/Congo, Germany/SW Africa, Spanish in the new World, Black Slavery $$ May 01, 2013
@Matthew_C_Klein Historically, it is fascinating how many attempts at forced collectivization led to massive deaths, Ukraine, Cambodia $$ May 01, 2013
His rhetoric usually leaves me cold $$ RT @TheStalwart: Some folks asking who, exactly, Krugman has persuaded. Fair question. May 01, 2013
@Matthew_C_Klein I’ve seen higher estimates on the deaths c book “Hungry Ghosts;” the statistics r hard 2 come by; most don’t want 2 talk $$ May 01, 2013
“Any anomaly can be overfished. The low volatility anomaly was one of the more durable ones, but?” ? David_Merkel http://t.co/syjdr5nHDU May 01, 2013
@CFAevents Honored that you would mention me. Thanks. Osband’s book was one of the best I have read on the topic. May 01, 2013
@djoalpha11 @tomkeene What flash crash? Apr 30, 2013
@csissoko But most of the issuance of bad mtges were prime, not subprime — the issuance of Fannie & Freddie were more responsible 4 crisis Apr 30, 2013
@csissoko Yes, the lust for yield drove willingness to enter into CDS, taking risk, receiving premium, which led some issuance of bad mtges Apr 30, 2013
@Nonrelatedsense I read otherwise in an article yesterday… but thanks for the correction Apr 30, 2013
Apologies, you are right RT @Nonrelatedsense: @AlephBlog DSL is absolutely a Closed End Fund. Prospectus: http://t.co/vXcUpTEZi9 Apr 30, 2013
@Nonrelatedsense It’s an ETF, not a CEF Apr 30, 2013
Also leads 2 creation of more shares, grows the fund $$ RT @vzban123: Per doubline website, IPO price is almost 5% premium to NAV. Apr 29, 2013
Yeh, saw that. Just another symptom of yield lust. $$ RT @vzban123: @AlephBlog Per doubline website, IPO price is almost 5% premium to NAV Apr 29, 2013
It’s a great job if you have the skills to get it; it’s even better if you have business skills as well… http://t.co/ji5jgSLPA9 Apr 29, 2013
@aneiro Any stats on what %age of the market is trading to call, rather than maturity? Apr 29, 2013
@codywillard I suspect there r a lot of games going on w/ETPs, certainly in Europe, regulation is tighter here, collateral issues & arb Apr 29, 2013
@codywillard I was against the bailouts dear friend; what I puzzle over is how many games r *presently* being played on Wall Street Apr 29, 2013
@EddyElfenbein model 2 minimizes the sum of squared ratios between actual & modeled prices. Model 2 more reliable, IMO, though fits worse Apr 29, 2013
@EddyElfenbein model 1 minimizes the sum of squared differences between actual & modeled prices. Apr 29, 2013
@Jesse_Livermore Emerging Market Government Bonds, maybe Long Treasuries — it is a deflationary environment, kinda, maybe, sorta, meh $$ Apr 27, 2013
FWIW
My week on twitter: 47 retweets received, 48 new followers, 89 mentions. Via: http://t.co/cPSEMLXpb8 May 02, 2013
Twitter is serendipitous to me.? I don’t track it all day long, or I would never get anything done.? Usually, I keep it off, unless I am sending off tweets.? But I accidentally saw a tweet from Cardiff Garcia of FT Alphaville. regarding a presentation done by Brad DeLong.? Here it is:
I looked at it and said, “Huh, yeah, whoever did this was a total hack.? Totally arbitrary curve drawing.”? But then I thought a little more.? “If I estimated a quadratic equation (parabola) what would it look like versus the data?”
So I took the points and eyeball estimated the values, and dropped them into an Excel spreadsheet, and ran the regression.? Turns out that both DeLong and the Wall Street Journal, and those they relied on were wrong.? Remember that the horizontal axis is marginal corporate tax rate, and the vertical axis is corporate taxes received as a percentage of GDP.
At a 5% level of significance, the equation is not significant, and the coefficients are not significant, though they are close.? The signs all go the right way, and the intercept is near zero.? That said, the prob-value for the equation as a whole (F test), is 6.5%, not far from the 5% threshold, so it looks like there is some validity to the idea that as marginal corporate tax rates rise, so do corporate taxes as a percentage of GDP, until the taxes get too high.
Only one data point of the above analysis, Norway, is statistically significant, with an error 3+ standard deviations versus the model.? Norway is different, with its huge sovereign wealth fund, so what happens to the model if we exclude it, and re-run the model?
Under these conditions, at a 5% level of significance, the equation is significant, with a prob-value of 1.4%, and all but one of the coefficients are significant, and the coefficient on the squared term has a prob value of 11.6%.? The signs all go the right way, and the intercept is near zero.? It looks like there is some validity to the idea that as marginal corporate tax rates rise, so do corporate taxes as a percentage of GDP, until the taxes get too high.
I didn’t test anything else.? With both equations we learn two ideas:
The tax take tops out at a 30% marginal rate
You don’t give up much if you set the marginal rate at 20%
Now, this is a cursory analysis on a limited data set.? But the idea that corporations start to go elsewhere when tax rates get too high is a reasonable hypothesis.? The WSJ analysis was a joke, but so was DeLong’s dismissal of the data.
I’m no great fan of the idea of the Laffer Curve, never have been, but this was the first time I gained some sympathy for the idea.? So, be wary who you listen to, study statistics and their limitations, and generally, be skeptical, but not cynical.? There is truth out there, we just need to find it.
PS — If anyone wants me to publish the detailed statistics, I will, but I omitted them because they make most of my readers’ eyes glaze over.
Alan Krueger (Chairman of President Barack Obama’s Council of Economic Advisers)
Tweets:
Krueger implies Stockman’s opinions r not worthy of consideration “…not a serious scholar of the economy.”
Krueger suggests that fixing infrastructure has the highest payoff. Problem: haven’t *ever* done it, & the budget 2 deep in deficit
Krueger spending a lot of time criticizing the sequester, suggests there is a way to do smart cuts. When have we ever done that?
Krueger on Jobs data: “Numbers are very volatile. Too much attention given to monthly jobs number.”
Krueger goes on talking about inequality, has few solutions; education is slow if it works, throwing $$ @ it hasn’t worked recently
Krueger suggests that people have to adjust their definition of fairness. Trouble is there is no fairness, it is all based on trade
Disappointing answers from Krueger on the inflation topic. Seems disconnected from what Main Street is feeling.
“‘Fix it First’ infrastructure program, $40B from winding down wars, will help job growth.”
I would only add that education is no panacea.? We?ve thrown a lot of money at it for years, with little incremental results.? Structural changes are needed to remove substandard teachers, eliminate collective bargaining if needed, move back to a ?basics? curriculum similar to that used in the 50s (with updated science & history), etc.? We have to recognize that we have let fools dictate our curricula, and reverse the damage.
Other Stuff
Thanks to Peter Cook, Tom Keene, and Stephanie Call at Bloomberg for humoring me.? Thanks to Cate Long (bright lady) and other tweeters for covering the conference.
There was a lot of love for Canada, thinking it to be far better run than the US, as its financial economy teeters with too much mortgage debt.
And some more tweets:
Humorous panel w/Harvey Pitt, Robert Engle, and Anthony Scaramucci — Engle is clueless, thinking Fed policy can be easily removed
Pitt: if I were a college professor, I would give Congress an “F” for Dodd-Frank
Federal Reserve less independent since Dodd-Frank, & not in a good way, it supports the US financial sector & government
Gotta give Scaramucci credit for getting on this panel, he has said some notably odd things
Engle correct in noting that the tea party has made Washington a 3-party game, which creates a complex blocked situation
John Rogers of the CFA Institute asks Engle why we should invest in a new bubble created by the Federal Reserve? Engle waffles.
I also got the final question on that panel:
Why should investors be confident when economic policy is unpredictable, and debt levels are higher than that in the Great Depression?
They didn?t have a good answer, though Engle tried.? That said, with valuations so high, it looks like investors are confident, or they ?have learned to stop worrying, and learned to love the Bomb.?
It was a very good conference; I learned a lot.? You can view the videos off of Bloomberg.
