Public Policy – Page 21 – The Aleph Blog

Sorted Weekly Tweets

Posted on 1 February 2014 by David Merkel

The Volatility Machine, or, Developed Markets Sneeze and Emerging Markets Catch a Cold

Record Cash Leaves Emerging Market ETFs on Lira Drop http://t.co/KSVS4qlrGb Sold mine b4 the 1st Fed taper; China’s fin’l sys vulnerable $$ Feb 01, 2014
Calm Broken in Markets Amid Concern of Emerging Contagion http://t.co/VnMtRrqXgs Emerging mkts decoupling from developed mkts wrong way $$ Feb 01, 2014
Basci No Rebel as Elections to Dictate Turkish Rate Moves http://t.co/EFVGB1LbMD Raise rates to defend the lira, watch exporters sag $$ Feb 01, 2014
Rajan Warns of Policy Breakdown as Emerging Markets Fall http://t.co/zW9QR49nRu Good guy, but fighting from a weak position $$ Feb 01, 2014
Argentina 105% Stock Return Proves Illusory as Peso Sinks http://t.co/4T0LdDhPM7 Make high returns in Arg pesos, but what can they buy? $$ Feb 01, 2014
Fragile-Five Selloff Cuts Rupee Issues to ?07 Low http://t.co/7anEAHc6Qd Volatility machine feeds tightening policy to weakest emerg mkts $$ Feb 01, 2014
The Price of Argentina’s Devaluation http://t.co/WwCrpf8urI More devaluation 2 come, black market price of $$ 50% above official price $IRS Jan 30, 2014
China Bank Regulator Said to Issue Alert on Coal Loans http://t.co/9w51A1v6RS Wealth management products embed significant credit risks $$ Jan 26, 2014
Fernandez Ditches Argentina for Cuba Summit Amid Crisis http://t.co/3nH9dIC0vT May what happened to Khrushchev happen to Fernandez $$ $IRS Jan 26, 2014

Companies & Industries

Amazon?s Boundless Spending Tested as Sales Growth Slows http://t.co/HPMVaVRDpV & http://t.co/ByiTZvlPLj $AMZN needs to raise its prices $$ Feb 01, 2014
How IKEA Protects the Environment and Sofa Margins http://t.co/x1rGegBzm5 IKEA is a very clever company that sells furniture cheaply $$ $FBN Jan 30, 2014
Walmart Expands Same-Day Grocery Delivery Test to Denver http://t.co/YrsuV006Zs Will b interesting 2c if this works profitably $$ $WMY $KR Jan 29, 2014
Billionaires Fuming Over Market Selloff That Sinks Magnit http://t.co/ZD1uUx0J0M Never confuse trading value w/intrinsic value $$ $SPY $TLT Jan 29, 2014
Branson?s Butanol Heading to U.S. as Ethanol Substitute http://t.co/8JAturnMXg I’ve been waiting for this; this is big & good. $$ $SPY $XLE Jan 29, 2014
Ethanol Exporters Search for a Port http://t.co/h9oUb7aRne Key Problem: Industry’s Distribution Network, Built Around Domestic Market $$ Jan 29, 2014
Apple’s $160B Mystery http://t.co/emZzU9mJ4d It is a mystery. What could you buy for $160B that would yield something like 10%? $AAPL $$ Jan 29, 2014
With a Shortage of STEM Graduates, Accenture Hopes to Grab Them Early http://t.co/lH3cam3h9U Clever idea by $ACN getting real thinkers $$ Jan 26, 2014

Financial Sector

Mortgage Volumes Hit Five Year Low http://t.co/IdgUULArJf Once policy accommodation ebbs, the housing mkt normalizes. 2 many houses $$ Feb 01, 2014
Futures industry: A story of crisis and opportunity http://t.co/CGShQoC93M Interesting history of how the Chicago futures exchanges grew $$ Feb 01, 2014
Sudden Swings in HSBC, Diageo Spur Trading Error Concern http://t.co/1Krn50FkYx “Fat fingers” can be a problem in computerized markets $$ Jan 30, 2014
Wall Street Attracts Chop Shops 20 Years After ?Wolf? http://t.co/qkYgenUF49 This isn’t as large as it used 2b. Now more fraud online $$ Jan 30, 2014
Companies Shift Strategies as Pension Funding Improves http://t.co/MhGhBFABc6 Smart to immunize pension liabilities when fully funded $$ Jan 30, 2014
Friday Was a 90/90 Day and What It Means?http://t.co/lhm2LQeWN0 @Ritholtz tells us there has been a sea change & this is a correction $$ Jan 29, 2014
Delinquent Debt Seized by Lehman Alum Seeing Recovery http://t.co/SsbGLA5Lh2 Hedgefund doesn’t own homes, but owns debt interest on homes $$ Jan 29, 2014
The Hidden Risks of Bank Loan Funds http://t.co/AEe7kicHul A good piece by the estimable @davidschawel . U might need 2play defense $$ $BKLN Jan 29, 2014
How the Safe Havens Stack Up http://t.co/csOSokPPWR For now nothing beats long US Treasury bonds FD: Long $TLT Jan 29, 2014
SEC Accuses Legg Mason of Some Accidental Fraud http://t.co/5Gl2I0B0S9 Given the complexity of law, much fraud is boring $$ $LM $SPY $MDY Jan 29, 2014
Puzzle for CFOs: Fixed or Floating-Rate Debt? http://t.co/vWxLEq6k8d Here’s the easy answer, do half fixed & half floating. Easy. $$ $BKLN Jan 29, 2014
Mary Jo White Wants SEC to ?Rethink? Corporate Disclosures http://t.co/VFLKGGnTfM Overthinking it; many people don’t read risk factors $$ Jan 29, 2014
BlackRock?s Fink Warns of ?Too Much Optimism? in Markets http://t.co/lkZYCY32HQ Fink is on target, vs the wishful thinking of bureaucrats $$ Jan 26, 2014
Former Phone Psychic Fit Right in as a Quant Trader http://t.co/Eq8iyYE2Tv Very weird. Making money by selling illusions can b profitable $$ Jan 26, 2014
Gold Mint Runs Overtime in Race to Meet World Coin Demand http://t.co/R7tjxZfTU3 Notable demand 4 physical gold amid falling prices $$ $GLD Jan 25, 2014
Is Momentum on Your Side? http://t.co/x0Z3r64Lix This strategy works well, if u can handle the volatility. 2007-2008 flameout. $$ $SPY $MDY Jan 25, 2014
How to Fine-Tune Your 401(k) Account http://t.co/0Q6N5NG0JP Worth a read if u have a 401(k). Consolidate, review allocations & savings % $$ Jan 25, 2014
That last article is one reason interest rates should remain LOW. Retiring baby boomers turning assets into streams of income. $$ $TLT $TBT Jan 25, 2014
Two Words: Private Equity http://t.co/E485SlKnn1 Private equity is still a risk asset, and goes through booms & busts, stick w/quality $$ Jan 25, 2014

US Politics & Policy

Christie Knew About Lane Closings on Bridge, Ex-Ally Says http://t.co/2YLuAOewGb If true, Chris Christie is toast, in the US & New Jersey $$ Feb 01, 2014
Meanwhile, Back in America… http://t.co/J8LsjPtWNw It feels more like grief, Like the loss of something you never thought you’d lose $$ Feb 01, 2014
The Republican Presidential Contender Everyone?s Overlooking http://t.co/FVMViawn5b I find John Kasich 2b unlikely, but so are the others $$ Jan 30, 2014
Only the Foolish Pay the 45% Estate Tax http://t.co/bnMuQp6P55 @ritholtz tells truth on estate tax, rewards accntnts, lawyers, actuaries $$ Jan 30, 2014
Minimum Wage Laws Kill Jobs http://t.co/Rfc8Ef174z Sad but true. From first principles this should be obvious 2 all $$ Jan 30, 2014
The Unspoken Reason Obama Can’t Raise the Minimum Wage http://t.co/WlqxZtBxK3 Public opinion does not think poverty is important $$ $SPY Jan 29, 2014
No Babies, No Stimulus http://t.co/4995BoqbER @asymmetricinfo says it well; if your population gets older, policy should be more austere $$ Jan 26, 2014
How the U.S. Helped Win World War I http://t.co/X4nLdNHZcj Intensified our bad habit of meddling in conflicts that are not ours $$ Jan 25, 2014

Rest of the World

For Europe?s Youth, Minimum Wages Mean Minimal Employment http://t.co/T9ZfsM8oGu Youth unemployment is higher in nations w/minimum wages $$ Feb 01, 2014
El Nino May Return as Models Signal Warming of Pacific Ocean http://t.co/YAbrSpm3Tx El Nino – the adult version of the boogeyman $$ $SPY Jan 29, 2014
Snowden Nominated by Norway Lawmakers for Nobel Peace Prize http://t.co/PShW1dmpv9 Well deserved. He ruined his life 4 the good of all $$ Jan 29, 2014
Slop-Bucket Reality for Aboriginals Missing Canada Boom http://t.co/pNftiUwjsZ Tribal cultures tend to fail in a capitalistic world $$ $SPY Jan 29, 2014
Japan Beyond Tokyo Luring BlackRock With Overseas Money http://t.co/r2YOyDyvMw Abenomics will fail, & Japan will b the first casualty $$ Jan 29, 2014
South Sudan Military Says Rebels Breach Cease-fire http://t.co/1YYa7rLVi7 After separating from the North, tribal animosities dominate $$ Jan 25, 2014

Other

Food Festival Pageants Open Up Competitions to Attract Candidates http://t.co/8Zcv61Znor Offering larger scholarships to food ambassadors $$ Feb 01, 2014
Why National Football League players go from rich to broke http://t.co/oIsMpnxgis Injuries shorten careers & fancy living depletes the $$ Feb 01, 2014
Super Bowl Prostitution Digitally Mapped by Data Trackers http://t.co/ivD5pKBVBM Wonder how many female slaves they can help to free? $$ Feb 01, 2014
The Employee of the Month Has a Battery http://t.co/zrmb0TgqS1 Minimum wage hikes r accelerating trend toward automation & fewer workers $$ Jan 30, 2014
Bitcoin Figure Is Accused of Conspiring to Launder Money http://t.co/MuFqZLMABH Governments care if u r trading w/evil people $$ $TLT $SPY Jan 29, 2014
Infertility, Diabetes, Obesity and the Mystery of PCOS http://t.co/tylcTdjKET Messy. Overweight & Diabetes correlated with infertility $$ Jan 29, 2014
How You Might Be Tracked for Ads in a Post-Cookie World http://t.co/cYhBKa5oS7 Worth a read. After all, you want to protect your privacy $$ Jan 29, 2014
Frigid Super Bowl Recalls Ref in Wet Suit With Few Penalties http://t.co/k9EeVc1WI3 When u r struggling 2 survive, few penalties issued $$ Jan 29, 2014
Burning Question: Does Rinsing Fruit Make a Difference? http://t.co/Xr4lNk8lCq If organic, YES! If not organic, yes. $$ #microorganisms Jan 29, 2014
4 things to know about Warren Buffett adviser http://t.co/jRlt81kULk Tracy Britt Cool is slow beginning of more centralized operations $$ Jan 28, 2014
Pregnant Texas Woman, Marlise Mu?oz, Removed From Life Support http://t.co/esBxk1xLdz Many people would have adopted the child $$ Jan 27, 2014
Maryland Shopping Mall Shooting Leaves 3 Dead, Police Say http://t.co/FGcrU7q3sn Biggest Mall near me. I’ve shopped at the Sears there $$ Jan 25, 2014

Wrong

Wrong: China PMI Ascends as Global Barometer With Market Sway http://t.co/gSD8QQewZy Should examine China’s financial system soundness $$ Feb 01, 2014
Dumb: Obama Announces New Retirement Accounts http://t.co/E20AA2F3vX Providing investment options 2 those who don’t invest is a waste $$ Jan 30, 2014
Weak arg: Congress Has Never Allowed Unemployment Insurance Extensions 2Expire With Long-Term Unemployment So High http://t.co/2IVPLXTDKr $$ Jan 29, 2014
Wrong: Obama Offering Retirement-Savings Plan for Workers http://t.co/jpOEBTeT66 Getting poor people 2 invest in Treasuries is criminal $$ Jan 29, 2014
Wrong: Yellen Faces Test Bernanke Failed: Ease Bubbles http://t.co/ys4I4iOFWy That is not her inclination; she will inflate bubbles $$ $SPY Jan 29, 2014
Wrong: Senator Schumer pushes plan to undercut tea party http://t.co/cpN3PQKBid Far better to end gerrymandering http://t.co/uQx2ZdtSlF $$ Jan 27, 2014
Wrong: What?s Behind the Emerging-Market Meltdown http://t.co/FoG5yOAUpW Kooky Keynesian prescriptions: ruin long-run 2 help short-run $$ Jan 26, 2014

Comments, Replies & Retweets

Reading: Whatever happened to the feature which allowed us to customize news sources for stock portfolios? http://t.co/8sdnIF0FeS $$ $YHOO Feb 01, 2014
Whatever happened to the feature which allowed us to customize news sources for stock portfolios? http://t.co/vnmO5Hlhnt #YahooAnswers $$ Jan 31, 2014
Commented on StockTwits: Clever, thanks. http://t.co/YweRBtoTe8 Jan 29, 2014
RT @Pawelmorski: Financial media basically rubbish at covering EM. Jan 29, 2014
Commented on StockTwits: The word was “tend” not “must? http://t.co/r11cBZsTRp Jan 29, 2014
@TTownsend4969 Blessed are you, Tina Townsend. May you always be grateful for the work that Jesus has done in you. Jan 29, 2014
RT @M_C_Klein: .@mark_dow on EM: “Don?t try and fight the old school and their anachronistic biases. They are bigger than you are.” http://? Jan 28, 2014
@pdacosta @bySamRo Grateful I exited my closed-end EM funds in November prior to the first taper. Michael Pettis’ volatility machine runs $$ Jan 26, 2014
RT @StephenKing: Memo to Justin Bieber: For the young celeb, life is a banquet of free food. What they don’t tell you is that you are often? Jan 26, 2014

Equality, and its After-Effects

Posted on 30 January 2014 by David Merkel

There are many in the US troubled over a number of problems:

Why are wages not rising faster, particularly on the low end?
Why isn’t the middle class doing better?

I may get a lot of flak over this post, similar to my post Rethinking Comparable Worth, but I think it is better that people understand what is happening, even if they don’t like it.

The world as a whole is getting better, bit-by-bit.? But that includes some places that prosper dramatically, while others sag.

Free trade is a good thing, and I think that free trade agreements should be sought globally.? It helps grow the global economy.? Those benefits are not evenly distributed.? Those whose wages are low relative to others who do the same thing are going to benefit disproportionately.? Those whose wages are high relative to others who do the same thing are going to lose disproportionately.

Here’s the simple way to put it.? If you do the same thing as a guy in China, or any other place, why should you earn something different than him?? What is happening to the lower classes in the US is pressure from the global economy.? There are a lot of people who find the work previously done by those in the US desirable, and at lower prices.? The forces making the world as a whole better off are making the low-skill portions of the US labor force conform to the pay that they get in the rest of the world.

I realize that this is not pleasant, and I spend time helping friends of mine who are affected by this.? But the global move to capitalism has had positive and negative effects on the US — positive for capital, negative for labor.

Some will be offended at this, but you might ask, why should we prevent companies in the US from contracting with foreign workers to do work more cheaply than in the US?? Is there a moral basis to do this?? I don’t think so, as people should be free to have legitimate contracts with those they wish to deal with. (Excluding things in wartime, that is different.)

People outside the US need to be able to improve their well-being.? Same for those in the US.? But what that means is that those wanting to improve their well-being must put a lot of effort forth:

Be zealous to improve your skills
Market yourself to many companies
Start your own company

I know it is tough to do this.? I was unemployed for a short period in 2003, and I put 40+ hours per week into seeking employment.? Seeking a job is a job, you are a one-man firm seeking to sell one unique product one time.? It is tough to do this, but it is the only way to do it.

What you have to understand is that the world is far more competitive than is was before the Cold War ended.? Fifty years from now, the world will be far more equal, and poverty will be far lower than it is today.? (That is, assuming there are no significant wars.)

What I say to my readers is be intelligent,? and seek productive niches in the economy that have some lasting potential.? That’s not true of most of the economy.

Younger people have to get the idea that they need to focus on how their careers will support them economically.

More generally, almost everyone needs to think on a long-term basis.? If you are going to college, aim for things that have the the possibility of giving you a good life over the long haul.? Don’t seek your bliss.? It is rare that your bliss will reward you in the long run.? Don’t seek what makes you happy.? Seek what makes others happy.? That is the true understanding of the golden rule — sacrifice yourself for the good of others, and you will be happy.

That is the secret to economic success — seek what makes others happy, not just yourself.? If you follow this, you will do well enough.? Capitalism exists to make the most people happy.? Other systems exist to control for those who are privileged.

My summary is this: seek the good of others, and look at where demand may growing, and you will do well.

Hoping that you will do well,

David

Redacted Version of the January 2014 FOMC Statement

Posted on 29 January 2014 by David Merkel

Comments

Small $10 B/month taper.? Equities flat and long bonds rise.? Commodities do nothing.? The FOMC says that any future change to policy is contingent on almost everything.
Shades their views of GDP household spending and business fixed investment up, and their views on labor force participation down.
They think that if they use more words, they will be clearer.? Longer statements are harder to parse and understand.? They need to clean up the statement.? There are many sentences that could be eliminated with no loss of meaning.
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 and fall 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 25 January 2014 by David Merkel

Emerging Markets Submerge

Argentina to Ease Currency Controls After Devaluation http://t.co/pnDs7kHHDb Argentina finally does something smart that will stabilize $$ Jan 25, 2014
Contagion Spreads in Emerging Markets as Crises Grow http://t.co/8tQg0o3wEA The Volatility Machine amplifies the tightening of the Fed $$ Jan 25, 2014
Traders watching for signs to see if this sell off is the big one http://t.co/EujnhyTV3z Feels like Shanghai Feb2007, market up&then died $$ Jan 25, 2014
Stocks Slide Toward Biggest Weekly Drop Since May http://t.co/AJ8JGDmZNl Volatility Machine kicks in, as emerging markets get hammered $$ Jan 25, 2014
China Moves to Avert Shadow Lender’s Default http://t.co/X6UnupKats China wants 2 avoid defaults, but what will they do when too big? $$ Jan 25, 2014
China Trust Products Gone Awry Evoke Soros Crisis Echoes http://t.co/sMEaYwiS61 Really sounds like China has a lot of Ponzi schemes going $$ Jan 25, 2014
China-Dumps-Dollars Hoax Not So Funny http://t.co/nvNpEgGK42 Remember the mercantilists lost. The neomercantilistic Chinese will lose big $$ Jan 25, 2014
Argentine Default Chaos Relived as Blackouts Follow Looting http://t.co/EW7kZrzbOa & Argentine Peso Drops http://t.co/nD9qMSJxla A mess $$ Jan 24, 2014
Fool’s Gold: Behind Nu Skin’s Chinese Subculture http://t.co/FiwozVHn6y What does the party think about a business that sounds cult-like? $$ Jan 24, 2014
Rousseff Debuts at Davos to Assure Investors She Had Spurned http://t.co/YTr84l0eTg Shortly after Dilma elected, I sold Brazilian stocks $$ Jan 22, 2014

Energy

You can?t be sure of Shell ? or shale http://t.co/5n1PLW2msn Behemoth oil companies are like utilities &pay good dividends, meh cap gains $$ Jan 25, 2014
Steady oil market at risk from sabotage, instability http://t.co/zHMkSoGlsD This is normal 4 the oil market; no reason to worry $$ Jan 25, 2014
Dunno: Polar Pig Deserves Little Blame for Propane Shortage? http://t.co/ehK6qV9cRl I think corporations & individuals should stockpile $$ Jan 24, 2014
Quoting Bible, using Joseph stockpiling grain in Egypt, neglects an interpretation rule: u can’t get doctrine from a historical passage $$ Jan 24, 2014
Energy is gradually decoupling from economic growth http://t.co/gn09N1yIJH What is really meant is that we continue to get more efficient $$ Jan 24, 2014
Valero forecasts 4Q results above expectations http://t.co/NIOthsoMsl Well run company has a surprise beat FD: + $VLO $$ Jan 24, 2014
European businesses rushing to find Iran bonanza http://t.co/2258VWxDG9 Greed of businesses overcoming ideology of political allies $$ Jan 24, 2014
Megaprojects a megaheadache for oil bosses http://t.co/X3IXqYAVDa Big projects almost always tend to lose $$ Jan 23, 2014
How America?s Fracking Boom Helps 2Boost Treasuries Demand http://t.co/lyAXsrmTUo Funny, but when we ran deficits, foreigners bot r bonds $$ Jan 22, 2014

Market Impact

Gundlach Counting Rotting Homes Makes Subprime Bear http://t.co/SXM2uwxd0Z Gundlach moves on anticipating a bearish housing situation $$ Jan 25, 2014
One in Three Audits Fail, PCAOB Chief Auditor Says http://t.co/FCZMp7tGfF No surprise. Some accounting requires intelligence of actuaries $$ Jan 25, 2014
How to invest in the hottest stock sectors http://t.co/ZIaKwXmdma I’ve written about this b4. It works, but it flames out occasionally $$ Jan 25, 2014
6 reasons your investments stink http://t.co/4NfbdyIMsm Good asset allocation considers time horizon, & asset class relative valuations $$ Jan 25, 2014
6 flawed rules of personal finance http://t.co/nO5kOsmVsb Generally right, except you shouldn’t spend >4% of your lump sum per year $$ Jan 25, 2014
Hard-to-Sell Junk Debt Lures Oaktree to JPMorgan http://t.co/MyJdNpw4Fo I respect Marks; there r no absolute values 2b had in junk debt $$ Jan 24, 2014
The mountain without Mohamed http://t.co/joadD6Wp2D Pimco is a “quant shop” which grew too large for the markets that it exploits $$ $TLT Jan 24, 2014
Goldman Stocks Strategist Fends Off ?Barrage? After Valuation Call http://t.co/nNCz1syP8m No one ever gets popular opposing a boom. $$ $SPY Jan 24, 2014
Bubbles as a deflationary escape chute http://t.co/hiDhyar3aD There are simpler & safer ways to run economic policy. Regulate banks hard $$ Jan 23, 2014
Pressure mounts for corporates? cash piles to be put to work http://t.co/WBdUF52rz2 1 corporation’s cash is another corps short-term debt $$ Jan 23, 2014
Floating Notes Debut in US as Cash Chases Fewer Securities http://t.co/9On051rHUu This will be good 4 money market funds in the short-run $$ Jan 23, 2014
Why IBM Should Stop Buying Its Stock http://t.co/1gsVe7tLpS If you have highest price in the Dow Jones Industrial Avg u get more scrutiny $$ Jan 23, 2014
Buffett Makes Millions Selling 500:1 Monkey-Linked Derivs http://t.co/6juOLsh2m3 @matt_levine Wrote about this 2 http://t.co/D3sirU5yWN $$ Jan 22, 2014
Buffett Backs $1B NCAA Hoops Tournament Prize http://t.co/MLvgHtx7NX Almost no way that Buffett can lose here; perfect bracket impossible $$ Jan 22, 2014
US Bank Risk Guidelines Would ?Accelerate? Enforcement http://t.co/DaeYf9zoje I’m not sure this will work, but it will bulk up compliance $$ Jan 22, 2014
CFOs Use Face Time, Plant Tours to Court Shareholders http://t.co/7CHts6TqdO This isn’t new, but it is wise to build goodwill w/investors $$ Jan 22, 2014
Why earnings could grow http://t.co/Zmwatc3v87 h/t: @ritholtz rising profitability, overseas biz, wise cap allocation, reasonable val’ns $$ Jan 22, 2014
Why ‘Peak-Earnings Models’ Are Nonsense http://t.co/Sa3uAci0pj Let’s see where actual unadjusted earnings are, & see if they are growing $$ Jan 22, 2014
Pimco CEO El-Erian Resigns http://t.co/Bl05w8h5Tn U have 2 remember that Pimco is a “quant shop.” They follow their models, not people $$ Jan 22, 2014
Gold-Price Banks Meet Amid Regulatory Pressure http://t.co/2W5hTdfKpm Post-LIBOR probe it’s in their interest to solve it quietly if poss $$ Jan 22, 2014

Rest of the World

Iceland Traps Hedge Funds in Refusal to Discuss Bank Claims http://t.co/kVUcp2fXvf Iceland delays claims from the crisis, cares 4 people $$ Jan 24, 2014
Merger Bonanza Hits Finland as Economic Pain Becomes Asset http://t.co/FXCOFmQABx Finnish assets r cheap, & other firms buy them up $$ Jan 24, 2014
Sochi Security Slalom Shows Terror Risk With Putin on Guard http://t.co/ij243mnvCN Russia will try hard, but will they prevent terrorism? $$ Jan 24, 2014
Investors Seek Yields in Europe, but Analysts Warn of Risk http://t.co/a3eXCJjgqc Seek a margin of safety & don’t reach 4 yield anywhere $$ Jan 24, 2014
Europe, Facing Economic Pain, May Ease Climate Rules http://t.co/2aK9oLpKg6 What a hoot! The Eurocrats turn their back on global warming $$ Jan 24, 2014
West Explores Plan B for Forces in Afghanistan http://t.co/9cKJcmzbyt If Afghans don’t want the US, we should leave; fractious place $$ $TLT Jan 24, 2014
Can Rising Property Values Spur Wary Japanese to Spend? http://t.co/fsrr5ArGtP Dangerous game, at the end 2much debt & 2 little cash flow $$ Jan 24, 2014
Israeli Ultra-Orthodox Do the Math in Bid to Enter Workforce http://t.co/afrV0U0fd4 Think of Dark Ages where 25% were supported by others $$ Jan 23, 2014
Olympics host Sochi remains a volatile region http://t.co/B8gwlvHrOR A great test 4 Russia; how well can u protect a perfect target $$ $SPY Jan 22, 2014
Abe Eyes Land-Price Reflation to Spur Construction Boom http://t.co/1QMMntydBq But Abe thinks he will succeed in creating property bubble $$ Jan 22, 2014
Pimco Dropping Linkers Calls Time on Abenomics Inflation Target http://t.co/r37SBu12G5 Pimco doesn’t believe Abenomics will inflate much $$ Jan 22, 2014

Companies & Industries

?? Fed May Protect Warren Buffett as a National Treasure http://t.co/zTdv5t6tTz Unlike most, Buffett has more than enough cash 2 survive $$ Jan 25, 2014

T-Mobile Answers Call of Underbanked as Banks Fail to Pick Up http://t.co/sAl7vhJJlP New cheap way 2do payments w/o a bank account $$ $TMUS Jan 24, 2014
eBay CEO Says Icahn PayPal Spinoff Makes No Sense http://t.co/4bKyeBMODa Then rename the company Paypal,& spin off $EBAY . $$ Jan 24, 2014
What Bankers Need to Know About the Target Breach http://t.co/L6XXJaFmVY Detailed; explains how credit data captured, stored & sent $$ $TGT Jan 24, 2014
Pinterest CEO Ben Silbermann on Being a Dad &Running a Company http://t.co/exLTi0CLyi The “Glass Ceiiing” Means u care about your family $$ Jan 23, 2014
Madoff Haunts Yeshiva as University Slides to Junk http://t.co/ZbNeoudT1k Wise 2 avoid board conflicts where board member invests 4 board $$ Jan 23, 2014
Diamond Foods CFO on Recovering From a Crisis http://t.co/aVFn9zioB9 America offers unlimited second chances, but clean things up or else $$ Jan 23, 2014
Dan Loeb’s Third Point Discloses Stake in Dow Chemical http://t.co/2RuMuNEKjK Separate petrochemicals from specialty chemicals $$ $DOW #easy Jan 22, 2014
Buffett Leans on 29-Year-Old Cool to Oversee Problems http://t.co/NfABsLkBzD The start of a gradual centralization of $BRK-B businesses $$ Jan 21, 2014

US Politics & Policy

Thrill of Obama Home Visits Fades for Americans Cited at Events http://t.co/x0aWw6ddia Change seems like spare change or loose change now $$ Jan 25, 2014
Why Uncle Sam Can’t Guarantee College Grads a Job http://t.co/oM0htsJcLk College is debauchery, not job preparation; end the subsidies $$ Jan 25, 2014
Tor Anonymity Software vs. the National Security Agency http://t.co/mhBGgZPZyS Very cool, let TOR hide private communications from Gov’t $$ Jan 25, 2014
The Sleepiness of a Hollow Legend http://t.co/d2NRpymDBP Peggy Noonan on State of the Union Address. I never listen to them; not worth it $$ Jan 25, 2014
Davos pusillanimity watch, LGBT rights edition http://t.co/5BkuxGdANL vs Romans 1:28-32 http://t.co/jFOUPLWLgF Jan 24, 2014
Resolved: Obamacare Is Now Beyond Rescue http://t.co/SXiG685Z2r Idea is most of the improvements won’t survive the necessary cost cuts $$ Jan 24, 2014
NSA?s Spying on Phone Calls Illegal: US Privacy Board http://t.co/ZStT1WAiwT Should not be written off; this aids a healthy debate $$ $SPY Jan 24, 2014

US Healthcare

More Women Seeking Medical Help to Get Pregnant http://t.co/8ICRmFNKx3 Natural result of delaying marriage, or not marrying at all $$ Jan 24, 2014
Where Have All the Uninsured Gone? http://t.co/0jlpsHORUj They don’t want insurance. They will take their risks & pay as they need to $$ Jan 23, 2014
How Qualified Is Your Doctor? http://t.co/XkAxYmjsA6 Hard 2 tell, is certification busy work or real testing? $$ Jan 23, 2014
Circumcision Coverage Comes Into Focus http://t.co/rZ24KWxvGb One of those issues where if someone has a view, it tends 2b polarized $$ Jan 22, 2014

Other

How Real is Spike Jonze’s ‘Her’? Stephen Wolfram and Peter Norvig Weigh In http://t.co/IgJG3bdrYr AI will not get self referential ideas $$ Jan 25, 2014
New York Officials Arrest Man in Lufthansa Heist http://t.co/toMAGIz5ck It took 35 years, but finally an arrest 4 the ’78 heist & others $$ Jan 24, 2014
Card-Theft Software Grew in Internet’s Dark Alleys http://t.co/cvTgCMC0lA The losses occurred from Target missing hacks of credit cards $$ Jan 23, 2014
Give the guy a second chance. Yes he blew it once b4, but he is smart and now knows what the limitations r http://t.co/6Fbp1jc6EJ $$ Jan 23, 2014
Can a Disgraced Trader Get a Job in Academia? http://t.co/qjoP4duPQL He deserves a second chance; that is what makes America great $$ Jan 23, 2014
Vital Signs: More Households Don?t Own a Car http://t.co/HBlc8L9z1V More options available 4 getting around & owning a car is costly $$ Jan 22, 2014
Top employers for flexible and work-at-home jobs http://t.co/UGz6F2XMae Home work getting more common, challenges managing the dispersed $$ Jan 21, 2014

Wrong

Wrong: This 100-year-old idea could end San Francisco?s class war http://t.co/Wtxk7wwsvH Sorry, land tax would get passed to renters $$ Jan 24, 2014
Dunno: Don’t Care About Deficits? Vote Republican http://t.co/1BKNS2m80j The t-party cares about deficits & they r growing in the GOP $$ Jan 24, 2014
Wrong: Huge cash pile puts recovery in hands of the few http://t.co/8rRHHFpZJN Most of the cash collateralizes derivatives, etc. Not free $$ Jan 24, 2014

Comments, Replies, Retweets

Roddy Boyd finds alleged Ponzi schemer http://t.co/GRBY0dqLqv What a guy, Roddy Boyd. $$ Jan 24, 2014
@footnoted @theofrancis @BoydRoddy His skills r considerable, as r his ethics. $$ Jan 24, 2014
@pmarca I’ve said that, but less colorfully; the market reflects all information acted upon, including errors. $$ Jan 23, 2014
@maoxian Good point, will have to consider that. But board should not have members investing for them $$ Jan 23, 2014
Wrong: UBS Tells Davos Leverage Ratio Over-Reliance Threatens Stability http://t.co/DZ5gfHmXXK After a crisis from overleveraged banks? $$ Jan 22, 2014

Book Review: Financial Blogging

Posted on 24 January 201424 January 2014 by David Merkel

This is a practical book that is a very good book.? Do you want to write things that people want to read?? This book will help you do it.

Coming out of US public schools, not everyone is prepared to write for a broad audience because:

They aren’t good with spelling and grammar.
They can’t make it interesting.
They don’t know what to write about.

This book can help with many of the deficiencies, aiding writers, to write and rewrite tight prose.

This book will help you source ideas.? It will help you refine ideas, as you write and rewrite ideas.

It will help you map out ideas before you write, so that you have a visual outline of what you want to say, which will aid you in expressing your ideas.

Now if you read this book does it mean that it will guarantee that you write great stuff? No.

You have to have some edge that you want to express.? Most investment commentary is garbage.? Those the have a differential insight might be able to create value.? But that is not generally true, unless we are at Lake Wobegon, where all of the children are above average.? Lake Wobegon is fictitious, easy excess returns are hard.

The main idea is start blogging, and start improving.? Start with a good idea that would have broad interest. Then write, revise, revise, revise.? Writing gets better with effort and editing.

Beyond that, you will have to think of compliance.? Disclose all relevant interests that you the writer might have.? If you own or short a stock that you write about, disclose it.

This book will improve your blogging.? It will sharpen what you write about, the frequency at which you write, and how you write.? This is a great book for financial bloggers.

Quibbles

None

Who would benefit from this book: Almost all financial blogger could benefit from the book.? Though I am experienced, there are many places where I learned more.? If you want to, you can buy it here: Financial Blogging: How to Write Powerful Posts That Attract Clients.

Full disclosure: I asked the author for a review copy, because I respect her to a high degree.

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.

Systemic Risk Stems from Asset-Liability Mismatches

Posted on 23 January 2014 by David Merkel

What happens when a crisis hits?? There are demands for cash payment, and the payments can’t be made because the entities have short liabilities requiring immediate payment, and long illiquid assets that no longer can be sold for a price consistent with average market conditions.? When there are many firms for which this is true, and they rely on each other’s solvency, that creates a systemic crisis.

Whether through:

Owning long assets, and financing short, or
Using the repo market to hold long assets, thus disguising it for accounting purposes as short assets
Taking deposits, and investing long,

it creates an imbalance.? It is almost always more profitable in the short-run to finance short and lend long.? But when there is a demand for cash, such institutions are on the ropes and might not survive.? Less than half of the major American investment banks existing in 2007 were alive in 2009 to today.

But what if you were clever as a financial institution, and had liability structures that were long, or distributed the risk of what you were doing back to clients.? You would always have adequate liquidity, and would not be in danger of default for systemic reasons.

Thus, I think the Financial Stability Oversight Commission [FSOC] is nuts to regulate insurers such as MetLife, Prudential, AIG and Berkshire Hathaway.? They do not face the risk of a run on the bank.? Look at the history of insurers: those that failed due to a run on the bank were those that:

Issued guaranteed investment contracts that would be immediately payable on ratings downgrade.
Issued P&C reinsurance contracts that would be immediately payable on ratings downgrade.

Aside from that, there were badly run companies that failed but no systemic risk.? There was also AIG, which faced a call on cash from its derivatives counterparty, but not the insurance entity.

As for investment managers, they have no systemic risk.? It does not matter if Blackrock, Pimco, Fidelity and Vanguard would all fail.? Mutual fund holders would find their funds transferred to solvent entities, and any losses? they might receive are the ordinary losses they could receive if the management? firms were still solvent.

Someone lend the FSOC a brain.? Big size does not equal systemic risk.? Systemic risk stems from a call on liquidity at financial firms that borrow short and lend long for their own accounts.? That does not include asset managers and insurers, no matter how big they are.

What this says to me is that financial reform in DC is brain-dead.? (Surprised?? Nothing new.)? They have fixated on the idea that big is bad, when the real problem is asset-liability mismatches, amplified by size and connectedness.? Big banks are a problem.? Big insurers and asset management firms are not.

Sorted Weekly Tweets

Posted on 21 January 2014 by David Merkel

Rest of the World

Crunch Escalates as Money Funds Rival Shadow Banks http://t.co/JVU1w5ipZc Money funds in China suck liquidity away from wealth mgmt prods $$ Jan 20, 2014
Spain?s Worst Year for Work Leaves Rajoy Counting Cost http://t.co/KlaAGab4kY Private debts r not economically neutral. Large -> unstable $$ Jan 20, 2014
Richest Scandinavian Nation Extends Its Junk Boom http://t.co/ZVwwxEAdIa Norwegian financial institutions have hunger for yield in kronor $$ Jan 20, 2014
Bird Flu Kills Health Worker, Stokes Transmission Concern http://t.co/FVcxVhaH4L Would not b concerned, seems difficult to transmit virus $$ Jan 20, 2014
Rise of ‘Common Man’ in India Threatens Stability of Government Coalition http://t.co/vke6lnqM3s Things get squishy if no majority win $$ Jan 20, 2014
German Economic Growth Fails to Gain Impetus http://t.co/g9EQLN5HNg Depends on on the strength of those that import German goods $$ $SPY Jan 20, 2014
French First Lady Leaves Hospital http://t.co/hnnrYJwE2q At least *one* person cared about the behavior of Francois Hollande $$ #sad Jan 20, 2014
Solar Beats Gas Unlocking Middle East?s Heavy Oil, Report Says http://t.co/dmyDla2t7R Fascinating, using cheap solar energy 2 produce oil $$ Jan 20, 2014
Hot Demand for Emerging-Market Bonds http://t.co/LLZPDt4iyT This is puzzling , I don’t get how emerging markets r well financed $$ Jan 19, 2014
China encroaching on U.S. military dominance in Pacific, says top admiral http://t.co/h152VrhcEg So we can’t be global cop, good thing $$ Jan 19, 2014
Mobius Placing Biggest Wagers on Nigeria for Frontier Rally http://t.co/dsxt8Fft6e It is difficult to make $$ when there is a quiet war Jan 19, 2014
BENGHAZI WAS PREVENTABLE: Hillary Clinton cited for major security lapses http://t.co/5oCpBVlbdK Hillary will have a lot to answer for $$ Jan 19, 2014
Saudi King Sees Egypt Too Big to Fail Under Friendly General http://t.co/oIHo5fae5s Saudi Arabia gets pragmatic, supports Egyptian Army $$ Jan 19, 2014
The West Is Losing Ukraine http://t.co/GWCNb322Ss Ukraine is losing the West, as its leader strips freedoms, & fights protesters $$ $SPY Jan 19, 2014
Hollande?s Tryst and the End of Marriage http://t.co/EUGztMAKnq Secretly, even the French care about the stability of their leaders $$ $FXE Jan 19, 2014
Baltic Homes That Singed Scandinavia Banks Heating Up: Mortgages http://t.co/3KHcPllcKZ Beware large increases in indebtedness $$ $TLT $SPY Jan 19, 2014
China’s Indie Rockers Get Boost From Online Music Platforms http://t.co/MSbdnGFzRI Note the prominence of our friend Michael Pettis $$ $FXI Jan 19, 2014
Venezuela Post-Ch?vez: Hustlers’ Paradise http://t.co/ROstARpBkc Thugs run govt. Some people get cheap goods, while others get shortages $$ Jan 19, 2014

US Politics & Policy

Stop Obamacare?s Outrageous Bailouts http://t.co/uHYJvyRcM7 Once losses exceed 8% of premiums, taxpayers pay for 75% of excess losses $$ Jan 20, 2014
Questionable: Robert Gates?s Dishonorable Act http://t.co/bIEGf7o57k There r too many bad secrets in DC that we ought to know about $$ $SPY Jan 20, 2014
Which Fed Guidance Should We Believe? http://t.co/yqjOZX5AX6 As FOMC uses more & more words 2explain what they r doing we understand less $$ Jan 20, 2014
When Low Unemployment Is Bad News http://t.co/QLiWV8ocV5 Labor force participation rate continues 2 fall as punk economy creates few jobs $$ Jan 20, 2014
NSA Data Have No Impact on Terrorism: Report http://t.co/ug8GtnLjqz NSA is not worth the privacy risk, nor what we pay to employ them $$ Jan 20, 2014
Ari Fleischer: How to Fight Income Inequality: Get Married http://t.co/zz6lbDWiku Poverty rate falls 4 those who can make a marriage work $$ Jan 20, 2014
Obama’s Constitutional Education http://t.co/bH4jfr1rro & http://t.co/hdzNe1Blo4 Should consider unilateral actions modifying PPACA also $$ Jan 20, 2014
How the crash of safe assets fueled the financial crisis http://t.co/4Vlfxp7PUj When “safe” assets r found to have credit risk -> bust $$ Jan 20, 2014
Congress split over NSA’s domestic spying program, could just let laws expire http://t.co/mCD2pIbSl1 Divisive: left & right vs center $$ Jan 20, 2014
Young enrollees of Obamacare fall well short of goal http://t.co/VokUg0XFP6 When premiums rise as a result, people will b unhappy $$ $SPY Jan 20, 2014
Spy court judge slams proposed privacy advocate http://t.co/vkz4SyY5li We need someone arguing against spying on average people $$ $SPY $TLT Jan 19, 2014
What?s Net Neutrality? What Happened to Net Neutrality Yesterday? What Happens Next? A Q&A for the Rest of Us. http://t.co/xQACJvW8UC Read Jan 19, 2014
Volcker Rule Fix Will Aid Large and Small Banks http://t.co/nGv1TXtLT5 This is a lousy rule that allows banks to bury Trup CDO losses $$ Jan 19, 2014
Hillary Clinton’s political hit list of top betrayers includes Kerry, Kennedy http://t.co/33RFv63nKz This reminds me of the Nixon enemies $$ Jan 19, 2014
Judge Disallows Plan by Detroit to Pay Off Banks http://t.co/XQ6f1E2EZM Detroit should aim for the bast long-run outcome $$ $MUB $SPY $TLT Jan 19, 2014
Is Your Abortion My Free Speech?? http://t.co/kUA2XLRPB9 This is where constitutions fall apart, b/c they are limited documents $$ Jan 19, 2014
Reid Gives Landrieu VIP Treatment to Tip Election Odds http://t.co/UhQFIcPVt9 Democrats desperate to retain power, aid marginal members $$ Jan 19, 2014
Where Are the U.S.?s Millionaires? http://t.co/c8fXDEPD5S Alas, but Maryland sucks the blood of America, & creates millionaires $$ $SPY $TLT Jan 19, 2014
I Spent Two Hours Talking With the NSA’s Bigwigs. Here’s What Has Them Mad http://t.co/UrXexYR07k They hate Snowden’s guts $$ $thatsimple Jan 19, 2014
How the NSA Almost Killed the Internet | Threat Level http://t.co/1SLDuNq93O Sowing distrust in major internet utilities on privacy $$ $GOOG Jan 19, 2014
To enforce net neutrality, the FCC has to decide that Verizon is a common carrier http://t.co/WRb6VestAF Simple idea, simple solution $$ $VZ Jan 19, 2014
Student Loans, the Next Big Threat to the US Economy? http://t.co/5hXsK5SIFn Rule of Thumb: avoid lending in area w/greatest debt growth $$ Jan 19, 2014
ISS Open to Activists Paying Bonuses to Directors http://t.co/R1nNEkokg4 Carl Icahn wins a small victory; broader implications unclear $$ Jan 19, 2014
?Wolf of Wall Street? Offspring Never Quite Die http://t.co/oXkGDZQ1Ml It’s a revolving door & FINRA doesn’t provide real access 2 data $$ Jan 19, 2014

Market Impact

Investor Animal Spirits Spread to Companies Worldwide http://t.co/e8pKcudzhR No such thing as animal spirits, only pursuing opportunity $$ Jan 20, 2014
JPMorgan Says BVG Owes $200 Million Over ?Unfortunate? CDS http://t.co/coJQm6dpD5 What’s worse is trifling yield prompting BVG’s greed $$ Jan 20, 2014
Hedge Funds Raise Gold Wagers as Goldman Sees Drop http://t.co/7dc9dGCUCA Hedge funds 2short-term could b forced sellers on weakness $$ $GLD Jan 20, 2014
Even money market funds in a crisis would have a hard time delivering a >2% loss, which would b borne by investors, & not systemic $$ Jan 20, 2014
How You Can Survive a New Era in the Bond Market http://t.co/BvSkibWANR Too many people banging the drum 4 higher interest rates $$ $IEF Jan 20, 2014
From the prior tweet, Central Bankers have drawn wrong conclusion: You can fix a bust by issuing lots of credit. $$ Jan 20, 2014
The correct answer is that you can avoid a bust by not running loose monetary policy as in the ’20s & ’00s. We still have pain to come $$ Jan 20, 2014
Where Have All the Star Fund Managers Gone? http://t.co/qwbpDyDlkU Focus on low fees, long track record, low assets & not index-like $$ $SPY Jan 20, 2014
Reinsurers face ratings cuts, S&P warns http://t.co/70dK590OCG Too much surplus chasing reinsurance biz; I’ve been lightening the boat $$ Jan 20, 2014
Interest rates don’t matter? Federal Reserve paper says so http://t.co/guAPSQ05II Sad but true, monetary policy is weaker than most think $$ Jan 19, 2014
Professor Puts Ideas in Practice as Reverse-Mortgage CEO http://t.co/T3Kt0cNQtc As w/most complex financial agreements, this will fail $$ Jan 19, 2014
Metals, Currency Rigging Is Worse Than Libor, Bafin Says http://t.co/KjDNrRVR7m Impossible 2 create benchmarks free of human gaming $$ $SPY Jan 19, 2014
Nobody Likes Bonds!: by @ritholtz http://t.co/FuYachZ58I But *I* like bonds, particularly short corporates, loans, & $TLT FD: + $TLT $$ Jan 18, 2014

Other

Comet-Chasing Spacecraft Sends First Signal in 31 Months http://t.co/mZB62QnIYm Satellite to hitch ride on Churyumov-Gerasimenko comet $$ Jan 20, 2014
The ‘Sharing Economy’ and Its Enemies http://t.co/Qnc4YyZrOh How Airbnb steps on the toes of hoteliers, regulators & the tax man $$ $SPY Jan 20, 2014
Device Thefts Fueling Rise In Larcenies http://t.co/ohZZt8q2Qh NYC larcenies fall if you exclude theft of Apple-branded devices $$ $AAPL Jan 20, 2014
The Right Way to Go After Big Clients http://t.co/J6hoSbcHVX Can waste a lot of time & find margins squeezed in the end $$ Jan 20, 2014
What Secrets Your Phone Is Sharing About You http://t.co/u7wv29tyMG Many hack your phone datato get insights into how you shop $$ $SPY $TLT Jan 19, 2014
Moms in ?Survival Mode? as US Trails World on Benefits http://t.co/uSPuVZztqV We can argue over any benefit, but what when US is broke $$ Jan 19, 2014
Tennis Quant?s System Doubles Money Without Knowing Players http://t.co/sAS5Xug7DN Small markets r often inefficient, allow 4 small wins $$ Jan 19, 2014
Miners Chopping $10B Search Bodes Next Price Boom http://t.co/6X7H0KAivX Miners cut exploration budgets, should lead to higher prices $$ Jan 19, 2014
How the Target Hackers Did It http://t.co/Z8Jc5WuBQQ Scraped RAM in POS machines grabbing all manner of data on card users $$ $TGT $SPY $TLT Jan 19, 2014
Another Bad Year for Religious Freedom http://t.co/3C3C5lrjCo Religion by its nature tends to invite constraint as it is a threat 2 govts $$ Jan 19, 2014
If Google Is a Guy, DuckDuckGo Is a Ghost http://t.co/rk9o0I3Uwx Want privacy for your searches? Consider DuckDuckGo $$ Jan 19, 2014
http://t.co/uPsFzsm1Tn How an intelligent lady managed to wrongfoot & destroy a website engaged in “revenge porn.” $$ Jan 19, 2014

Wrong

Likely Wrong: A New Asset-Allocation Strategy for Investing in Retirement http://t.co/eDqaDxhFuH Stocks r risky over intermediate periods $$ Jan 20, 2014
Wrong: Bonds Captivate $16T of Pensions http://t.co/NEpJSjCD7p Bonds have 2 go somewhere & defined benefit pensions have long liabilities $$ Jan 20, 2014
Wrong: Bailout Risk, Far Beyond the Banks http://t.co/iv5eT6lhea! Asset mgmt companies can go bust, & they pose no systemic risk $$ Jan 20, 2014
Wrong: Stanley Fischer saved Israel from the Great Recession. Now Janet Yellen wants him to help save the US http://t.co/CPMUggr3CA $$ $TLT Jan 20, 2014
Wrong: Ten quotes on the question of financial bubbles http://t.co/MNwr543Vsf No one focuses on the effect of borrowing money in bubbles $$ Jan 19, 2014
Wrong: Wealthy CEO Is Deeply Concerned About Budget Deficits http://t.co/gTGUwSF3hS Biased article doesn’t factor in entitlements $$ $TLT Jan 19, 2014

Replies, Retweets, and Comments

@DavidBCollum Look here: http://t.co/VaqQESCdCu Value Line has a chart that goes back to the 20s though… Jan 17, 2014
RT @cate_long: Please add http://t.co/QHQiCxYopc RT @researchpuzzler: a guide to finding data on the cheap from @AlephBlog http://t.co/mb? Jan 15, 2014
RT @Pawelmorski: Great spot @toby_n : DB’s Slok quantifies how difficult the Fed finds explaining itself. http://t.co/1quahXrnJD Jan 14, 2014

Avoid Selling Stocks When You Are Old, Maybe?

Posted on 16 January 2014 by David Merkel

The Wall Street Journal recent had an article, What You Know About Retirement Investing Is Wrong, where it recommended that elderly people invest more in stocks as they get older.? I think the advice is wrong, unless you understand it this way:

Stocks are longer assets than bonds.? Use your bonds to pay for your spending in the early years of your retirement, and don’t sell your stocks.? Once you run out of bonds, start selling your stocks, if the dividend income isn’t enough to live on.

But even this idea is weak.? If a person followed this in 1997 with a 10-year horizon, their stocks would be worth less in 2008-9, even if they rocket back out to 2014.

Asset allocation is more difficult than it is in the textbooks, or in the syllabuses for the CFA Institute or for CFPs.? It is a blend of two things — when does the investor need the money, and what asset classes offer decent risk adjusted returns looking forward?

If long-dated, volatile asset classes offer great returns looking forward, but the client has a short time horizon, he can’t invest much in risk assets.

If long-dated, volatile asset classes offer great returns looking forward, but the client has a long time horizon, he can invest a lot in risk assets.

If long-dated, volatile asset classes offer poor returns looking forward, but the client has a short time horizon, he should stay in safe assets.

If long-dated, volatile asset classes offer poor returns looking forward, but the client has a long time horizon, he should stay in safe assets.

Stocks do tend to do well over the long run, but few of us live in environments where that growth is uniform.? The stock market zigs, zags, booms, and busts.? What if it busts when your are old?

Personally, I think it is wiser to maintain a more balanced investment posture in retirement, because the future is not predictable.

A Preview of the Future in Local Government Financing

Posted on 10 January 2014 by David Merkel

There are several bad examples in municipal finance — Illinois & Kentucky for example, but the worst is Puerto Rico.? What is one way that you can tell that things are bad?? People are leaving Puerto Rico, and generally they are those that are better off.

Quoting from the article:

Seven years into a grinding downturn, Puerto Rico is experiencing a historic exodus of residents fleeing the island’s battered economy and rampant crime. From 2000 to 2010, a net 288,000 people left for the U.S. mainland, according to the Puerto Rico Institute of Statistics. The pace has accelerated in the past few years as the economic situation has worsened, with a net loss of 54,000 migrants a year in 2011 and 2012 on an island of just over 3.6 million people. Preliminary data for early 2013 suggest the outflow is still strong.

The U.S. territory also is grappling with $70 billion in debt, ratings firms have downgraded its bonds to one notch above junk and investors fear it could default on its obligations.

When more than 1% of your population is leaving annually, you know something is wrong.? My main point here is not criticizing Puerto Rico, though.? It is part of a broader paradigm.? Badly managed states and municipalities will lose businesses and population, making them even less able to service debts.? It is akin to Matthew 25:29:

For to everyone who has, more will be given, and he will have abundance; but from him who does not have, even what he has will be taken away.

Jesus was not speaking about municipal financing, but the similarity is that those who do well will get more, and those that do badly will get less.

Several years ago, I was driving to visit my parents in Wisconsin.? As I headed into Illinois, I saw billboards encouraging businesses to move to Indiana or Wisconsin.? Municipal finance is unstable, because there is the incentive for people and businesses to move to municipalities where taxes are lower, and finances are better-managed.

We will see some states and municipalities fail financially over the next 25 years.? I can’t see how it could be otherwise.? And in the process, municipal bondholders, and pensioners will take losses.

So watch over your municipal bond portfolio, and avoid areas of the US where finances are badly managed.

Book Review: Banking and Financial Institutions

Posted on 4 January 2014 by David Merkel

Many readers ask me for a good book on financial institutions, and this is a good one, if limited to depositary financials, not including insurance companies and asset managers.

This is a comprehensive book for depositary financials, even covering Islamic finance, which I will admit I learned from it.? It is a good thing to understand in depth those with whom you you disagree. Islamic finance imbibes the errors of Aristotle, who deemed money to be sterile.? Why force everyone into a mold where there can’t be loans at interest?? Why restrict that freedom?

But that is a small part of the book.? Most of the book deals with how banks operate.? It is very good at describing how banks create profitable lending, and how they act within regulatory boundaries.

It’s a good book, and I recommend it to all.

Quibbles

That said, there were many small errors in the book, which if the author had been an intelligent bond trader, the errors would not have been in the book.

As an example, on page 32, he called an MBS to be a CDO.? Yes, in an attenuated way that might be so, but for professionals that know the market, we would never phrase it that way.

Who would benefit from this book: Almost anyone will benefit from this book, but those who will benefit most are those who analyze banks.? If you want to, you can buy it here: Banking and Financial Institutions: A Guide for Directors, Investors, and Borrowers (Wiley Finance).

Full disclosure: The publisher sent me the book after he offered me a review copy.

December 2013	January 2014	Comments
Information received since the Federal Open Market Committee met in October indicates that economic activity is expanding at a moderate pace.	Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters.	Shades their view up, but I don?t see much to support it.? Most of the growth is inventories.
Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated.	Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated.	Shows less confidence as labor force participation falls.
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 more quickly in recent months, while the recovery in the housing sector slowed somewhat.	Shades their views of household spending and business fixed investment up.
Fiscal policy is restraining economic growth, although the extent of restraint may be diminishing.	Fiscal policy is restraining economic growth, although the extent of restraint is diminishing.	No change.? Funny that they don?t call their tapering a ?restraint.?
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.	No change.? TIPS are showing slightly lower inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.54%, down 0.10% from December.? Treasuries have rallied versus TIPS since the emerging markets crashed partially due to the taper.
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 activity will expand at a moderate 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 risks to the outlook for the economy and the labor market as having become more nearly balanced.	The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced.	No change.
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.	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.	No change.? CPI is at 1.5% now, yoy.
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.	Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy.	No change.? They have a deficient model of what deficit spending does for the economy.
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.	In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 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
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.	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 change.? But it has little impact on interest rates on the long end, which are rallying into a weakening global economy.
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.
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.	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.
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.	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.
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.	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 1.80%, up 8 bps since the last meeting.? Here?s the graph.? The FOMC has less than 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.	The Committee continues to anticipate, 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.	No change. 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; Esther L. George; Jerome H. Powell; 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; Richard W. Fisher; Narayana Kocherlakota; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen.	The names change, but the vote is largely the same ? why no hawks urging for a faster end to QE?
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.		Rosengren is no longer a voting member.? Good.