Real Estate and Mortgages – Page 10

Cato Institute 30th Annual Monetary Conference, Part 5

Posted on 15 November 2012 by David Merkel

Moderator: Mary Anastasia O’Grady
Member, Editorial Board, Wall Street Journal

Lessons from the Euro Crisis

Opens by saying that the Euro was started with good intentions.? (DM: low praise that it was not designed to fail.)

George S. Tavlas
Director, Bank of Greece

Euro was anticipated to reduce economic problems in Greece, and it worked for a while after 2001.? Interest rates fell and became stable.? Government deficits rose.? Net public saving fell.

Crisis hit. Yields screamed up. Real GDP falls 20% 2008-present, maybe another 6% next year.

Difficult to run large external deficits under a gold standard.? Relatively easy to do so in the short run in the Eurozone.? Mundell’s optimal currency union requiring flexible wages and prices is necessary but not sufficient.

Under a gold standard, credit spreads are high and restrain government borrowing.? Eurozone membership facilitated Greek overborrowing.

Can’t hold a peg without credible fiscal policies.

J?rgen Stark
Former Chief Economist, European Central Bank

ECB will ride to the rescue of European Governments.? This is not a sustainable policy.? Adjustments need to take place.

ECB — principles & rules based. (DM: somewhat subverted at present).? Some countries were allowed to join the Euro who really were not qualified.? Rules were not upheld. Countries did not get the practical impacts of sharing a currency.

Five points to overcome the crisis:

Stabilize and reduce govt debt
Structural reforms — flexibility
Reorganize & recapitalize banking sectors
Reform monetary union
ECB provides liquidity to banking sector

Crisis policies not well thought out, ad hoc, reactive, leaves too much to the ECB to do, too little done by govts

Wolfgang M?nchau
Associate Editor, Financial Times

OMT policy not started yet — will it work?? Fundamental problem of Eurozone: No bailout, no default, no exit (inconsistent).? Believes Greece will eventually be bailed out… would go easy on austerity as a policy in Greece.

Banking union necessary to get ECB out of the OMT problem.

Argues that low level economic reform necessary in order to create a economic union.? Political union would likely be needed.

Five conditions for a currency zone:

Real conversions and similarity
(sounded similar to 1)
Political consensus on fiscal & monetary union
Banking union
A willingness to bend political/fiscal priorities in a crisis

Thinks Eurozone will not break up.

Pedro Schwartz Giron
Professor of Economics, San Pablo University, Madrid

How the Eurozone could survive.? Quasi-gold standard — ECB was supposed to be independent from all.? No exploiting money illusion. No devaluation. No excessive debt.

Debt Intolerance: Debt> 90% GDP in developed countries. 60% in emerging markets.? Spain at 90%+ in 2013.

Monetary must be rules-based because we don’t really understand what monetary policy does in the intermediate-term

Inflation will happen instead of default or dissolution

Q&A

Tavlas: Argentina 2001 vs Greece now — like gold standard in Great Depression, those that left early did best.? Leaving euro: capital flight, new currency has extreme risks, foreigners would not accept new drachma, contagion effects.? Credit Anstalt failure turned a recession into a depression (DM: something would have failed… too much debt.)

O’Grady: Argentina: convertibility, not a currency board.? Very different.? Argentina has not had good results.

Stark: Latvia, Ireland austerity may be working.? Austerity fatigue in the south.

Munchau: Can Germany leave the EU?? Not likely and only Americans ever suggest it.? Unthinkable politically.

Stark: Anyone suggesting this does not understand European history or politics.

Basel II impacts on the crisis 1.6% capital lending to Greece, 8% to a German corporation?? Stark: this is not a key problem.

Cato Institute 30th Annual Monetary Conference, Part 4

Posted on 15 November 2012 by David Merkel

John B. Taylor
Professor of Economics, Stanford University

Money, Markets & Governments: The Next 30 Years

Last 30 years — 1982-2002 good monetary policy, in his opinion. 2002-2012 bad monetary policy.

Economic performance deteriorated during the great moderation.

Inflation rate came down dramatically.

Argues that Fed funds were too low for too long 2003-2004, and that regulatory rules were not enforced. Partially blames Fannie & Freddie.

Reserve Balances at Federal Reserve Banks boomed 2008 and on.? QE1 & QE2 have had little effect on employment, contra the papers by the Fed.? Aids the government, banks & the housing sector… plays favorites.

Hard to measure output gap.? QE is predicated on a modified Taylor rule much more responsive to economic changes, not what was used in the 80s and 90s for policy.

Argues that the policy of promising to hold Fed funds low to 2015 is inconsistent with where the Taylor rule would indicate.

Also argues that a monetary policy like Milton Friedman’s would work better at the zero bound than QE.? Excess discretion has led to a nonsensical monetary policy.? Policy uncertainty is a negative for the economy.

Q&A

NGDP targeting — what would the rule be for guiding monetary policy?? Not clear.

Expanded Taylor rule including asset prices?? No, would be too volatile.

Dual mandate came in when monetary policy was way too loose, and inflation high. Leads to too much discretion in monetary policy.

Cato Institute 30th Annual Monetary Conference, Part 2

Posted on 15 November 2012 by David Merkel

Moderator: Zanny Minton Beddoes
Economics Editor, The Economist

Thomas Hoenig
Vice Chairman, Federal Deposit Insurance Corporation

Tells us to be skeptical of changes in financial regulation.? Incentives have not changed to favor increased leverage in financial institutions.? Protecting big banks has further worsened incentives.

Safety net started w/FDIC — insuring bank deposits makes payments system safe.? Investment banking, more volatile stays outside.? As commercial and investing banks were made to compete, the safety net expands, de facto.

1) Banks should spin out their investment arms into separate entities.

Lehman had a short-financed balance sheet, and relied on the government to protect them.

2) Need to rethink the capital approach.? Dump Basel.? Simplify, it is too easy to game.? Increase capital levels.? (DM: As I say, dumb regulation is good regulation.)? Need a simple tangible capital ratio.? Need to negotiate a tangible capital ratio, and a transition period.

Tangible capital during unregulated periods 13-16%.

3) Re-establish bank supervision as a tool to uncover risk.? Real supervision would find risks, and raise capital when needed.? (DM: how do we get mean regulators back.)

Jeffrey A. Miron
Senior Fellow, Cato Institute, and Director of Undergraduate Studies in Economics, Harvard University

Should we try to avoid market crises?

1) Avoiding crises is not a main goal of policy.

Policy in his view is maximizing economic growth.? Growth was not materially affected by crises 1790-1915.? (DM: his log graph hides the real panics.)

Great Depression and 2008-2012 are unique events.? Criticizes Bernanke view of the Great Depression, where bank failures happened near the bottom of the cycle.

Reinhart & Rogoff — recoveries after panics are slow.? Happens because debts have to be reconciled.? (Has a variety of less realistic reasons for the slowness.)

2) Policies to stop crises may hurt more than help.

Policy should be neutral to the sectors of the economy.? Bernanke’s policies are not neutral, aiding housing.

People want to reduce volatility, but that could hurt more than help.

He argues that we should promote freedom and growth.? Reduce government, etc.

Lawrence H. White
Professor of Economics, George Mason University

Create an anti-fragile banking system, a la Taleb.? Anti-fragile: gets stronger from small problems.

Suggests reducing deposit guarantees, and eliminating central banking, because they increase fragility.

Banking is not naturally fragile, White says. (Lots of hand waving, and looking at foreign examples where small failures did not impair the system.)

Suggests that pledging not to bail out banks will make everyone more careful.

We have a less-diversified financial ecology where many are pursuing a single strategy.? Heuristics of having a high tangible capital ratio would aid regulation.? Basel III is the wrong idea — too complicated, and Basel I & II did not help.

Robert L. Hetzel
Senior Economist, Federal Reserve Bank of Richmond

What do central banks control, and how do they control it?? Macro models turn correlation into causation, and obscures the the buildup in debt, which eventually collapses.

If you want to understand causation, you have to have models.? Uses an example from the 1812-1820 period, where small Treasury notes expand the monetary base, leading to inflation, a run for gold, and later a collapse.

Runs out of time.? Suggests we need more intelligence regarding what central banks can and can’t do.

Q&A

Hoenig: Unlimited liability would be good, but you will politically never get there.

White: Banks arbitrage risk weights.? Zero risk weight for government debts were a fail.

Poole Q: Economics not hard, but the politics are hard.? Eliminating bailout support is impossible — in a crisis, bailouts happen, unless you eliminate the authority, or narrow the banking institutions.

Did existence of the FDIC cause the crisis? Risk-based insurance premiums?? Hoenig: we do risk-weight in some ways… but could you create a bank run from that?

Hoenig: FDIC has a reinsurer, the US Treasury.? White: clearinghouse model worked pre-Fed.

Hoenig: Sweden increasing capital standards above Basel.

I asked my question on asset-liability mismatch — the answer was the usual that you can’t end maturity transformation, and that taking duration risk is a risk like any other.

Eliminating the Rating Agencies, Part 3

Posted on 9 November 2012 by David Merkel

There’s one thing that is a little odd about me: occasionally as I am waking in the morning, something that I have been thinking about comes crashing in on me, and I get a moment of clarity where everything seems obvious for a complex question.

So to begin, I would like to say that I was utterly wrong in part 1 and part 2 of this series.? It won’t work.? Here’s why:

When is it safest to buy high yield bonds — when spreads are tight, or when spreads are wide?? Of course, when spreads are wide.? When spreads are tight, it is risky to buy corporates.? But my method for allocating capital would do the reverse: it would force a lot of capital to be allocated when spreads are high, and little when spreads are low.? That’s the wrong way to do it.

Second, most bond defaults occur because the borrower chokes on an interest payment, not a principal payment.? If you can make the interest payments, under normal circumstances, you can refinance the principal.? That indicates that the risk of a bond will grow less than linearly with maturity.? It may even be flat.

The upshot of this, is that you would want to assign capital counter-cyclically if you could, but no one would go for that, it doesn’t fit human nature.? So maybe a compromise works where there is a fixed amount of capital assigned across the cycle, and not varying by maturity.? So how do you make adjustments for variable riskiness?

For corporate bonds that have a public stock trading, a contingent claims model can yield good results.? Egan-Jones does that, though many of the major raters have similar models, that they watch as a check on their fundamental reasoning.

But many bonds have no publicly traded equity to give them estimates of value and volatility.? Whether private corporates or securitized debts, there is no way to accurately estimate risks, unless you have a cash flow database of the underlying properties/assets, and aside from CMBS, that would be hard to get.

That brings us back to the rating agencies.? Much as they failed on rating novel types of debt that the regulators should not have allowed regulated entities to invest in, the rating agencies did a good job in rating seasoned corporate bonds, both private and public, incorporating private data to sharpen their estimates of creditworthiness.

I know that Dodd-Frank has required Federal Regulations to eliminate the use of credit ratings.? What have they substituted? Management judgement, simplistic statistical tests, nothing, and the ability to use quantitative rating schemes.? My view is this: there will be a series of scandals out of this, and there will be a return to the rating agencies, where human judgment takes in the factors that can’t be crunched into an equation.

Thus I return to my opinions expressed in: In Defense of the Rating Agencies ? V (summary, and hopefully final). You can’t live with them, but you can’t live without them.

Sorted Weekly Tweets

Posted on 26 October 2012 by David Merkel

Insurance

Insurers Must Boost Reserves for Residential Mortgage Bonds http://t.co/z1Plcc9z Pretty trivial; change small, not worth making $$ Oct 26, 2012
The Randian and the Bailout http://t.co/45wGJSo2 Without a tax gift from the US Tsy, $AIG couldn’t pay off the bailout http://t.co/2O4k7vpA Oct 25, 2012
For that last tweet, full disclosure, long $AIZ for clients and me Oct 24, 2012
Assurant Reports 3rd Quarter 2012 Financial Results http://t.co/pTbHUunV Over 8.75 yrs $AIZ has shrunk its share count from 142M to 78M $$ Oct 24, 2012
Weschler Rise From Grace Leads to Role Advising Buffett http://t.co/uUlYUPVK Interesting tale of a guy who can deal4 & value companies $$ Oct 22, 2012
Goldman Sachs Creates a Dividend+Buybacks Measure, & 4 Insurer Stocks Shine http://t.co/myQ8Ga1e I own 2 of them 4 clients. Which 2? $$ Oct 22, 2012

Central Banking

Here Comes the Dollar Wave Again http://t.co/5EO5Ejve Defend exports, import inflation, asset bubbles “Our currency, but your problem.” Oct 25, 2012
Approach risks ?distorting? decisions & ?it might be economically inefficient 2try2 push prices up so much,? Shiller http://t.co/Bs5GJPGX Oct 24, 2012
Redacted Version of the October 2012 FOMC Statement http://t.co/2jOMkLje Note: CPI inflation is at 2%, also inflation expectations rising $$ Oct 24, 2012
FOMC Statement: http://t.co/E2BOFdrr Oct 24, 2012
“We fail 2c the direct link, or even an indirect link, btw the size of the Fed’s balance sheet & the unemp rate” http://t.co/bM149U5Z $$ Oct 24, 2012
Buffett: ‘”I get a little worried about continuously expanding” the Fed’s balance sheet, he said on CNBC.’ http://t.co/KWIVYBIS $$ Oct 24, 2012
Traders Calling Singer?s Bluff on Intervention as Koruna Gains http://t.co/Y1ml4EZ4 Czech National Bank playing with fire, will burn $$ Oct 22, 2012
Would mean that the external effect of loose monetary policy have been played out, & the next big move is coming (but from where)? $$ Oct 22, 2012
Worst Carry Trades Show Central Banks at Stimulus Limit http://t.co/IDxi6uVq Interesting thought: if carrytraders can’t make money… $$ Oct 22, 2012

Fiscal Cliff

Firms Hit Brakes Before Fiscal Cliff http://t.co/z1Plcc9z Tap brakes is more like it. Most think we won’t go over the cliff #gridlock $$ Oct 26, 2012
Aha! Here’s The REAL Reason Corporate Executives Are Freaking Out About The Fiscal Cliff http://t.co/oS8VZpsi Favors initiatives of Dems $$ Oct 22, 2012

Other

How Supap Kirtsaeng?s Textbooks Idea Led to Supreme Court http://t.co/h1CDWk1q What rights exist to re-sell something that you bought? $$ Oct 26, 2012
The Plot to Destroy America’s Beer http://t.co/3ElPpvvx A tale of cost-cutting, quality reductions. Light beers ascendant. $$ Oct 26, 2012
Sandy Nears Jamaica, Forecasters Weigh New England Threat http://t.co/R1HNSDm8 High Incidence, Low Power 4 Tropical Storms in 2012 $$ Oct 24, 2012
Calling All Germs http://t.co/BkfuReQq Cellphones Are Great for Sharing Photos?and Bacteria; Cleaning May Harm Screens $$ Oct 23, 2012
Romney?s Air Force Comparison Misses U.S. Edge in Jets http://t.co/3lFkg4KL There r some situations where more lower tech jets would help Oct 24, 2012
Dean, Marathon Split-Offs on Tap http://t.co/m5OLbAuI Post-split $DF looks interesting, if boring. More room 2 focus $$ Oct 22, 2012

Energy

Shale Glut Becomes $2 Diesel Using Gas-to-Liquids Plants http://t.co/sjUDsrVK This is the Holy Grail, because gasoline is tough2produce $$ Oct 26, 2012
The internal combustion engine is far from dead http://t.co/Ewa60lrw Most real improvements in energy efficiency deal w/fossil fuels $$ Oct 22, 2012
Americans Buying Fewer New Cars in Lifetime http://t.co/viB6dIlU long-term probably not a good sign; autos drive a lot of the economy $$ Oct 22, 2012
The Myth of Affordable Energy – Interview with Ed Dolan http://t.co/8jWI1faC Energy efficiency is increasing. Full cost pricing desirable $$ Oct 20, 2012

Demographics

Russian Funds Band Together to Repel Government Cash Grab http://t.co/72KWo3Bg Gotta b careful on pension funds cuz govts like 2 raid them Oct 26, 2012
More Americans delaying retirement until their 80s http://t.co/dZM4Tmqm This is the way it should be. Retirement s/b 4-5 years at most Oct 25, 2012
Can Japan?s Elderly Become Its Growth Engine? http://t.co/eqhsu54i This seems like wishful thinking to me. Spending from savings <> wages $$ Oct 24, 2012

Financials

U.S. securities regulator questions need for new broker standard http://t.co/iNUVJKIp Extending fiduciary standards 2 brokers in question Oct 24, 2012
Forcing frequent failures http://t.co/OL6WSfOM @interfluidity hits a home run in dealing with bank failures, & how to regulate Oct 24, 2012
Low Rates Pummel Banks http://t.co/577Fsc1i Borrowers Benefit, but Industry Lending Profits Hit Lowest Level in Three Years $$ Oct 23, 2012
Marsico: When Going Private Goes Wrong http://t.co/Vxyc40u7 June 2007 was the wrong time 2 LBO, then performance lags $$ My sympathies2them Oct 23, 2012
3 key money topics Romney-Obama debates ignored http://t.co/7j79IQ4V Housing prices, Investor protections & Retirement Savings $$ Oct 23, 2012
The end of stock market crashes? http://t.co/VjIALNEm I’m sorry, but the conclusion is bogus. Even if its works, only some could escape $$ Oct 23, 2012
Mortgage risks underestimated, economists conclude http://t.co/TFDpqz70 FHA uses a model that leads it to underestimate delinquency risk $$ Oct 22, 2012
Annaly Says Michael Farrell Dies After Cancer Diagnosed http://t.co/n5VNgi8m He was kind2me ~2000; willing2share ideas w/little me $$ $NLY Oct 22, 2012
Mortgage REITs: Not Just Yet http://t.co/20kPVBs2 I would be careful here & reduce exposure… they are always unstable vehicles $$ Oct 21, 2012
The Winner for Investors Is… http://t.co/eBQM5Ws4 @jasonzweigwsj points out the connection between returns & politics is tenuous $$ Oct 21, 2012

Economy

Firings Highest Since 2010 as Ford to Dow Face Slump http://t.co/9q87q63I This is the US economy. We can’t support workers relative2profit Oct 26, 2012
Weak Tea at Unilever Persists Amid Innovation at Rivals http://t.co/ryqjkEof Did not even know that Lipton was a Unilever brand $$ $UL $UN Oct 24, 2012
Doom Heralded at Hayman by Widening Trade Deficit: Japan Credit http://t.co/CZS09whs Japan?s debt is the ?cleanest dirty shirt.? Not. $$ Oct 23, 2012
Hunger Stalks My Father?s India Long After Starvation End http://t.co/dkVTXxaO Long article, makes me grateful that I can feed my kids $$ Oct 23, 2012
Electrolux, Philips Warn Of US Slowdown http://t.co/6k5hxTe2 Another soggy data point; less demand 4 bigger-ticket consumer items $$ Oct 22, 2012

Retweets

Ya, true RT @glenntyrpa: @barnejek @AlephBlog @sikorskiradek Yea. When did Japan invade China? Was that 1930? 🙂 we Americans forget. Oct 26, 2012
RT @PragCapitalist: Today’s financial tip: don’t ever buy a boat. Instead, find a friend with a boat. If necessary, buy the friend. … Oct 24, 2012
Clever RT @BradErvin1: @AlephBlog @PragCapitalist This is Buffett, courtesy legacy @kevindepew articles @Minyanville http://t.co/dGTNG9kl $$ Oct 24, 2012
Stinks, just stinks RT @ritholtz: THE SELLSIDE: SAME AS IT EVER WAS Courthouse News Service http://t.co/K9LDmj5m via @CourthouseNews $$ Oct 24, 2012
RT @KathrynTully: The last of Sarah Thornton’s top reasons for quitting art market surely belongs in top 10 reasons not to be a journo. … Oct 24, 2012
RT @emckean: LOVE THIS RT @aniajakubek: There’s a Polish saying that means “Not my problem” & literally translates to “Not my circus … Oct 24, 2012
SIFMA gets an infamous big name to speak to them RT @LaurenLaCapra: #greenspan http://t.co/rjVlCfV5 Oct 23, 2012
At my house too RT @retheauditors: Halloween is dead to me. Oct 22, 2012

Replies

#FF @NickTimiraos @carney @grossdm @annsaphir @ritholtz @ToddSullivan @PlanMaestro @RolfeWinkler @LaurenLaCapra @davidgaffen @jennablan $$ Oct 27, 2012
@TraderNewsFeed No, I don’t think that. I think we should enjoy our work, and enjoy it for as long as we can, until we can no longer work $$ Oct 26, 2012
@rjwile True, but that’s the price of not saving enough. There is no right to a retirement. Someone send the EU the memo. $$ Oct 26, 2012
@OVVOFinancial I largely agree. Reducing the real value of debts would help. My only fear is that nominal incomes might not grow much $$ Oct 25, 2012
@OVVOFinancial Missed that, thanks. Still, the Chain-weighted PCE deflator is 1.5% yoy at present. Oct 25, 2012
@barnejek oops Oct 24, 2012
@PragCapitalist A boat is a hole in the water into which you pour money $$ That said, the recession created a lot of used boats 4 sale Oct 24, 2012
@tebaho I am not a Romney backer Oct 24, 2012
@EddyElfenbein lifted the stake above 50% by 1995. Oct 24, 2012
@EddyElfenbein In 1977, GEICO was ~6% of his public investments, before $BRK.B acquired 33% of the company by 1980, and buybacks + Oct 24, 2012
@EddyElfenbein In 1981, GEICO was ~30% of his public investments — no data on how big his private investments were then $BRK.B $$ Oct 24, 2012
@EddyElfenbein 1996-7 around 16% of pretax income. Prior to that, it was not wholly owned, and so Buffett acctd 4 it as an investment $$ Oct 24, 2012
@EddyElfenbein $BRK.B would not want to live without GEICO, but in my opinion, it could live without it Oct 24, 2012
@EddyElfenbein It’s about 5% of BRK’s pretax profits. The float it generates is very short and is only 5% of liabilities. Oct 24, 2012
@PragCapitalist It’s a conglomerate fueled by a set of huge insurance companies, where assets r sourced privately & publicly $$ $BRK.B Oct 24, 2012
@PlanMaestro @aarontask @TheStalwart I think it is spurious correlation b/c I c many other variable that r weak. US economy is flat. $$ Oct 24, 2012
@felixsalmon In the NT Greek, there r2 words for God’s will, &1 tells u God ordains everything, the other, he doesn’t approve everything Oct 24, 2012
@CflGator I would ask the question, how is $TGT going to deploy the capital? The answer probably lies there. Oct 24, 2012
@LDrogen America’s politicians have always made appeals based on religion, & then abandoned the religious voters that support them (not new) Oct 24, 2012
@joshuademasi I realize with Japan, it is unlikely 4 there 2b an external default, until the external debt gets big enough Oct 24, 2012
@aarontask This is a stock versus flow issue. The banks reap capital gains now, but it will reduce their future interest margins/income $$ Oct 24, 2012
@CflGator Think they are trying to free up capital for alternative uses. Oct 24, 2012
@LDrogen But all people have unprovable a priori opinions, and many will affect their views on public policy, whether “religious” or not Oct 24, 2012
@LDrogen It becomes the same paradox that philosophers go through with respect to the concept of free will vs determinism Oct 24, 2012
@LDrogen Even 2a Christian like me, God’s will is a highly nuanced, b/c there r 2 words in NT Greek 4 “will” & they mean different things Oct 24, 2012
@LDrogen One of my close friends came into existence as a result of a rape. Two good people adopted him; biological mother was courageous Oct 24, 2012
. @aarontask will look for it — if anyone has a link 2 it, pass it 2 me Oct 24, 2012
@joshuademasi Nations with their own currencies don’t have to default on debts. I think some will choose to default for political reasons $$ Oct 23, 2012
“This brings up something @ritholtz would say ~ blog traffic goes up during a crisis?” ? David_Merkel http://t.co/9U0OxjLe $$ Oct 23, 2012
@joshuademasi Not sure he will lose; he has a decent chance of being correct. Japan has preceded the global economy for past 20 years $$ Oct 23, 2012
“5. Tadas, as you have said before, investment/finance blogging is hard. And many of the best of us?” $$ David_Merkel http://t.co/EuaE0hmB Oct 23, 2012
@StephenShiflett I distrust polls generally. I am not a Romney supporter. Most statistical comments in the media r not well-founded $$ Oct 23, 2012
@StephenShiflett Stratification matters more. The size was smaller than most polls I c, & instant senses of who 1r often not correct Oct 23, 2012
@DUNNER2 @CBSNews Now there was a poll that no one asked for, the sample size was far too small, but actually had a real impact. Sad. Oct 23, 2012
@Shwaver should be more like 5% if the poll is well stratified, and most polls aren’t Oct 23, 2012
@thejudge1082 @cbsnews I would criticize that as well. Most polls are too small and not well stratified Oct 23, 2012
@nmariecrumbie @DJDougMadrid @cbsnews I am *not* a backer of Romney. I am voting for the Constitution Party. I am a statistician, are you? Oct 23, 2012
@Justsaying1104 @CBSNews size *always* matters. I am a statisticiam by training. The hyper-short news cycle forced out a poll Oct 23, 2012
@Justsaying1104 @cbsnews of course size matters — what I object to is trying to get instant answers to what people are thinking $$ Oct 23, 2012
@ituzzip On a 500 person poll the error bounds are wider +/- 5%. But Rs answer polls less often than Ds. Oct 23, 2012
@JW28 Sorry, I am not a Romney backer Oct 23, 2012
@DJDougMadrid I don’t believe in instant, & I am voting 3rd party. Oct 23, 2012
@StephenShiflett Most polls I see are double that, it was still small, given the short time after the debate. Oct 23, 2012
@CBSNews Small sample size Oct 23, 2012
@TheStalwart I think you are fair and balanced, because A third of the time I agree, a third I disagree, and a third I an in-between. $$ Oct 23, 2012
@wallstCS FD: long $SFG — You do realize that revenue is not a useful valuation metric for insurers, right? Earnings & Book r relevant $$ Oct 22, 2012
@groditi @GaelicTorus it drives a lot of technology development, materials science, design (or lack thereof), advertising, energy efficiency Oct 22, 2012
@BradErvin1 No, the point is that corrupt governments tend to spawn corruption in society Oct 20, 2012

Redacted Version of the October 2012 FOMC Statement

Posted on 24 October 2012 by David Merkel

Comments

No big changes.? The FOMC?s views on household spending and inflation have risen.? Note that the CPI is at their 2.0% line in the sand.
In my opinion, I don?t think holding down longer-term rates on the highest-quality debt will have any impact on lower quality debts, which is where most of the economy finances itself. When this policy doesn?t work, what will they do?
Also, the investment in Agency MBS should have limited impact because so many owners are inverted, or ineligible for financing backed by the GSEs, and implicitly the government, even with the recently announced refinancing changes.
The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.? As a result, the FOMC ain?t moving rates up, absent increases in employment, or a US Dollar crisis.? Labor employment is the key metric.
GDP growth is not improving much if at all, and the unemployment rate improvement comes more from discouraged workers.

A Statement to Dr. Bernanke:

More debt will not get us out of this crisis.? The Great Depression ended when enough debts were compromised, paid off, or cancelled, which from my study is 1941, before World War two started.

Your policies further aid the growth of the budget deficit, and encourage malinvestment in housing and banking, two things in a high degree of oversupply.? The investments in MBS only help solvent borrowers on the low end of housing, who don?t really need the help.? Holding down longer-term rates on the highest-quality debt does not have any impact on lower quality debts, which is where most of the economy finances itself.

The problems with unemployment are structural, not cyclical.? Labor force participation rates continue to decline.? There is greater labor competition around the world, forcing down wages on the low end.? There is nothing that monetary policy can do to change this.? You can create stagflation through your policies, but not prosperity.

When inflation does arrive, the FOMC is going to find it very hard to raise Fed Funds or shrink its balance sheet.? The banks will not react well as you try to shrink, and the long rates that you have held down will react violently.

You haven?t thought through all of the ?second order? effects of your policy.? Even the ?first order? effects, which favor the rich over the poor, seem to elude you.? Assets rise, helping the rich.? Interest rates fall, helping the rich who can borrow.? Commodity prices rise, harming the poor.

Insanity is doing the same thing over and over, and expecting a different result.? When will you realize that the policies of the Fed aren?t helping, and need to be abandoned?

Sorted Weekly Tweets

Posted on 12 October 2012 by David Merkel

Hoisington Capital Management

. @paulnovell It will be public in a few days — they e-mail it out to friends & clients b4 posting it here: http://t.co/pZ4jJrQ1 $$ Oct 12, 2012
Prior tweets courtesy of Van R. Hoisington & Lacy H. Hunt, Ph.D. Whole thing will be posted here http://t.co/pZ4jJrQ1 in a few days $$ Oct 12, 2012
@wanderinggull Which? I don’t know. What was meant to produce “ever closer union” seems to be producing the opposite. Nobel = Pollyanna Oct 12, 2012
Until the excessive debt issues r addressed, the multiyear trend in inflation, & thus the long Treasury bond yields will remain downward $$ Oct 12, 2012
“During all of the Fed actions since 2008 the velocity of money has plummeted and now stands at a five decade low” Hoisington & Hunt Oct 12, 2012
A jump in daily essentials has a more profound negative impact on living standards in economies with lower levels of real per capita income. Oct 12, 2012
How the Fed expects economic traction from higher stock prices when rising commodity prices r curtailing real income & spending is puzzling Oct 12, 2012
These three studies show that the impact of wealth on spending is miniscule?indeed, ?nearly not observable.? Hoisington Oct 12, 2012
“Fed Chair Ben Bernanke and other Fed advocates believe the ?wealth effect? of QE3 will bring life to the economy.” Hoisington Oct 12, 2012
Prior Tweet a quotes Hoisington & “unintended consequence of these Federal Reserve actions, however, is to actually slow economic activity” Oct 12, 2012
QE3 is a tacit admission by the Fed that earlier efforts failed, but this action will also fail to bring about stronger economic growth. $$ Oct 12, 2012

Please Follow

#FF @japhychron @danprimack @treehcapital @insidermonkey @vitaliyk @herbgreenberg @tracyalloway @nancefinance @marykissel @diana_olick $$ Oct 13, 2012
Please follow Cato Scholar and JHU professor that I learned a lot from: @steve_hanke Oct 10, 2012

Market Dynamics

As an aside, there’s kind of a rule of thumb for Bermuda insurers on buybacks: >1.3x tangible book: special dividends. <1.3x TB buybacks $$ Oct 12, 2012
The Buyback Epidemic http://t.co/l9SvTwZM @reformedbroker notes that buybacks make less sense, the higher valuations get. I concur $$ Oct 12, 2012
New Regime http://t.co/L2JaQC2J @reformedbroker notes a sea change in the markets. I’ve been heading that way; still thinking about it $$ Oct 12, 2012
CNBC: Jim Rogers vs. Marc Faber (FULL) 10/04/2012 http://t.co/b5sEOEZb Faber & Rogers on the same segment? What a hoot! $$ $GLD $SPY $TLT Oct 12, 2012
Bubble-Era Financing Returns as Profits Falter http://t.co/yhxBEFxq Pay-in-kind bonds return, very nice. 2 years of rally left at most $$ Oct 11, 2012
Wrong: Bullish Sign for Stocks: Leverage Is Up http://t.co/1Qvcdkh9 What matters more is whether leverage will rise in the future $$ Oct 09, 2012

Rest of the World

Zhang Weiying: China’s Anti-Keynesian Insurgent http://t.co/TGNGlo9e Fascinating tale of an Austrian economist surviving in China $$ Oct 13, 2012
Hollande Robbed of Growth Engine as Companies Cut Investment http://t.co/ZGdrllIG Logical 2 invest less when EU & France r a mess $$ Oct 12, 2012
EU Wins Nobel Peace Prize http://t.co/VoTaN3ZK Nobel committee finally “jumps the shark.” The EU is unstable; a war waiting 2 happen $$ Oct 12, 2012
Spanish Bonds Risk Forced Selling as Rating Approaches Junk http://t.co/yO8XWNl4 The Rating agencies r flawed, but on credit they r honest Oct 12, 2012
IMF?s Blanchard: Healing From Crisis Could Take Decades http://t.co/NXYmLjU3 Crisis won’t b healed until total debt levels normalize $$ Oct 11, 2012
IMF Sees ?Alarmingly High? Risk of Deeper Global Slump http://t.co/B7Dg9Ah9 A stopped clock is right twice/day, $ the IMF is right now $$ Oct 09, 2012
Iran Low on Options as Hyperinflation Concerns Spark Gold Dash http://t.co/rYqDjinO Hyperinflations spawn currency substitutions: gold, $$ Oct 09, 2012
Chavez Win Called by BofA Sparks Selloff as Barclays Flops http://t.co/DNPxpVzO Sad that Chavez won, but the bonds reflected a loss $$ Oct 09, 2012
Why a U.S. buyout firm is investing in Greece http://t.co/26oB31e9 ht: @danprimack – Companies w/global markets insensitive 2 local probs $$ Oct 08, 2012
Sicily, a Portrait of Italian Dysfunction http://t.co/w3dn2JFe Core Europe is to Italy as Italy is to Sicily. $$ gone & hard work starts Oct 08, 2012
Cheapest Chinese Stocks Since ?97 Not Enough to Signal Rally http://t.co/rTEm2MNF Noneconomic actors compete & drive down future profit $$ Oct 08, 2012
The Iran Hyperinflation Fact Sheet http://t.co/bitjVaqn From my former professor @ JHU, Steve Hanke. Financial sanctions r biting in Iran $$ Oct 07, 2012

US Real Estate

OCC Forced JPMorgan, Wells Fargo to Write Down Home-Equity Loans http://t.co/qxXjXBoS FD: + $WFC – ’bout time. Recoveries poor on HEL $$ Oct 12, 2012
California Leading U.S. Out of Housing Bust http://t.co/oEaOG4nf I would be wary of “dead cat” bounces here $$ Oct 12, 2012
Tech Firms Become Real- Estate Trusts http://t.co/GrHU2bo5 Tech firms that own a lot of real estate take advantage of becoming REITs $$ Oct 11, 2012
Not New York Towers Rise With Embrace of Yield http://t.co/3MKpRdVi When vacancy rates r this high, ordinarily rents fall. Y not now? $$ Oct 08, 2012

Agriculture

Milk-Cow Drought Culling Accelerates as Prices Jump http://t.co/WvHEturP Anything involved in animal husbandry is having tough time now $$ Oct 11, 2012
Midwest Drought Claims Poultry Producer http://t.co/9K4cL3Gx Many firms involved in the meat biz r having a rough time now. $$ Oct 11, 2012

Other

I’m not much of an #Orioles fan, but don’t you have to love a team of nobodies who can challenge the highly paid #Yankees? $$ Oct 12, 2012
The UN has declared today as the International Day of the Girl Child http://t.co/L0nS6wtd Sex selection abortion kills the most girls $$ Oct 11, 2012
If Only T. Boone Pickens Had Died http://t.co/tpXYGeCV Score: TB Pickens 0, Wealthy donors 0, Oklahoma State Univ. 0, Life Actuaries 1 $$ Oct 08, 2012
Musk?s SpaceX Launches Craft for Space Station Deliveries http://t.co/Z3MH68Ud Space age begins as governments r less of a factor $$ Oct 08, 2012
California Facing $5 Gasoline Stirs Brown to Relax Rules http://t.co/uQUPOz8f There is a pain point 4 everyone, just found 4 CA gas $5 $$ Oct 08, 2012

Comments

“Good post, Josh. You have identified many of the best. No one of us covers it all; it’s a strong list” ? David_Merkel http://t.co/3Qg6WWZk Oct 10, 2012
At this rate, growing tobacco should be prohibited. Oh, wait, we tried that with alcohol. Never mind. $$? http://t.co/hU9nI6l2 Oct 09, 2012

On Angela

@PavChyt @matinastevis Her *former* husband. She kept the name b/c it was good politics. She did not keep him. Oct 08, 2012
@PavChyt @MatinaStevis I received the name Merkel at birth. Angela got it from her 1st husband. At least people r spelling it right now $$ Oct 08, 2012

Retweets

RT @MuniCredit: Citi Muni Presentation: http://t.co/ONrQe9gA #muniland h/t: @bondgirl Oct 12, 2012
I appreciate retweets RT @LSilverspar: Not enough for the value of your posts. If you value the retweets, I will do so far more often. $$ Oct 12, 2012
My week on twitter: 22 retweets received, 22 new followers, 16 mentions. Via: http://t.co/SPrAWil0 Oct 11, 2012
RT @danprimack: Every time people get all worked up over a national presidential poll, I wonder if the electoral college was eliminated … Oct 08, 2012
True of many notable CEOs w/earnings 2 smooth RT @rcwhalen: GE’s Jack Welch Knows All About Cooking the Books http://t.co/5vJeRux6 $$ Oct 08, 2012
RT @Convertbond: “Markets are increasingly distorted by Central Banks, attempts to squeeze drops of growth from overindebted developed w … Oct 07, 2012
Shock! $$ RT @BarbarianCap: Revised Greek GDP figures show recession deeper than thought http://t.co/FCspv2gU. > data released friday night Oct 06, 2012

Too Much Investment

Posted on 24 September 2012 by David Merkel

Investment is usually a good thing, but it can be overdone.? How?? Let me list some of the examples:

China has overinvested in export industries, infrastructure, and housing, among other things at present.
The US and most of the developed world overinvested in housing, or at least, borrowed too much against it.? The same applies to the banking, investment banking and shadow banking industries.
The US invested too much in internet companies in the late 1990s.
The US invested too much in commercial real estate in the late 1980s
Japan overexpanded its heavy industries and real estate in the late 1980s.
Some invested too much in gold in the late 1970s.
Most developing nations invested too much money in national industrial champions for the purpose of import substitution in the 1960s-80s.
Banks lent too much to developing countries in the 1970s
The US put far too much money into growth stocks in the 1960s.
The Soviet Union continually overinvested from the 1960s until the 1980s.
People in the US put too much money into speculative investments in the 1920s.

If I really wanted to I could expand this list a great deal.? Almost every boom involves overinvestment, and often too much debt finance.? The above? are mostly macro examples of overinvestment, but it happens on the micro level as well.

People who are determined to get rich at all costs and lose in the process
People who are determined to get rich at all costs and win in the process, but lose many of the good basic things of life — family, friends, and deny themselves the enjoyment of their wealth.
Growth companies that invest in low ROE ventures rather than return cash to shareholders.
Growth companies misestimate more, and take chances that are not economic.
Companies that try to grow faster than their markets without a sustainable competitive advantage usually fail miserably.

It happens with governments as well, where they recharacterize spending as investment.? One particular example would be education, where little improvement comes from additional dollars spent.? Far better to move the curriculum back 60 years, and have students learn the basics.? More money is not needed; a better parenting culture is needed, plus a scope & sequence that is realistic in its pedagogy.

Fast growth is often bad growth if the return on equity for new investment is falling.??? That means that the carrying capacity of the current strategy is being exhausted.? It is even worse for central planners, who don’t have good data and keep throwing money at projects with little idea of the true effectiveness.

In vestment is a good thing when it serves an area of scarcity.? It is a bad thing when it serves an area of glut.? That’s the simple summary.? I may expand on this in a future article.

Sorted Weekly Tweets

Posted on 22 September 2012 by David Merkel

Federal Reserve Policy / Treasury Yields

Great Tips-pectations http://t.co/nHWsNAFf Future inflation expectations are rising. Twenty year TIPS are flat to expected CPI $$ Sep 22, 2012
‘Titanic battle’ over deflation about to sink long bonds: Gross http://t.co/trPfwKj3 Didn’t he say this in 2011 & lose? Try, try, again? $$ Sep 22, 2012
Lacy Hunt at Hoisington called the trajectory on Treasury yields years ahead of time. http://t.co/4e4Bu12W Sep 21, 2012
Former FDIC chairman Sheila Bair: TARP wasn?t necessary http://t.co/m4zJMkc5 Would have been better to let stockholders get wiped out $$ Sep 20, 2012
Fed?s Fisher Says U.S. Inflation Expectations Rising http://t.co/Qk4rUrNI Definitely: http://t.co/ZVA74EmF QEternal moved the TIPS $$ Sep 20, 2012
Stephen Roach: Fed?s Asset Purchases Are A ?Charade? http://t.co/nX4xh3zt QE is a theory that has no successes; Y does anyone believe it? $$ Sep 20, 2012
No Exit in Sight from Fed’s Bond Buying: Gundlach http://t.co/ULz27Bj8 It will be very difficult 4 the Fed 2 exit from their “stimulus” $$ Sep 20, 2012
The Road to Recovery http://t.co/P6Uz7CGP John B. Taylor is the man who should have been our Fed Chairman, unlike the pretender Bernanke $$ Sep 18, 2012
Fed’s ‘QE Infinity’: 4 Things That Could Go Wrong http://t.co/6CGNO5Yr Moral Hazard4Washington &Wall St, Hurting Confidence, May not work $$ Sep 16, 2012
Bernanke?s Battle for Jobs Eclipses Inflation Concerns http://t.co/bhRvXhZD How QE-inf will produce jobs is a mystery; OTOH stagflation $$ Sep 16, 2012
Mortgage-Bond Spreads Fall to Record Low as Fed Starts Buying http://t.co/LqcIYQhb Fed breaks agency RMBS mkt; some OASs drop to zero $$ Sep 16, 2012

Credit Markets

Credit rollovers & rally monkeys http://t.co/z4KH46ky Feels like 2005 in corporates, but w/easier money, & fewer securitizations $$ Sep 22, 2012
Company bond sales in US in Sept-12 total >$135.8B, fastest pace 4 any September & exceeds $124.6B sold in Sept-09 $$ http://t.co/EoKYwXrQ Sep 21, 2012
Private Debt Is Crippling the Economy http://t.co/km06r7TW Deleveraging has not taken place 2 the degree needed 2make the economy healthy $$ Sep 20, 2012
Risk Aversion Falls to Lowest Level in 2 Years http://t.co/ljJICAKM When risk measures r low, it is time to start being conservative. $$ Sep 18, 2012
Junk-Bond Yields Drop Below 7% for First Time, Index Data Shows http://t.co/VQBCbmq3 This is significant. Watch 4 leverage 2 grow $$ Sep 18, 2012
ETFs Overtaking Swaps for Junk-Bond Speculation http://t.co/DzTtYnKY If this continues, I suspect it will lead 2 ETF underperformance $$ Sep 17, 2012
Cheaper Student Loans. Who Knew? http://t.co/ZYnRjQDl About 2.6% of all borrowers?are using income-based repayment $$ 15%, 15 years Sep 17, 2012

Rest of the World

China Slowdown Seen Longer Than in Crisis by State Economist http://t.co/At79Hrfn Will take a while reconcile a decade of malinvestment $$ Sep 21, 2012
Japan launches QE8 as 20-year slump drags on http://t.co/J6hwv6rd Poster child 4 the efficacy of unlimited QE 4 economic stimulation $$ 🙁 Sep 20, 2012
In Spain, economic crisis fans Catalan separatism http://t.co/amLe8qwU Good for them & may they create their own currency & not the euro $$ Sep 20, 2012
Deposit Flight From Europe Banks Eroding Common Currency http://t.co/MwYRtlU3 Wouldn’t u withdraw deposits from Greek & Spanish banks? $$ Sep 20, 2012
Missed Chances Stoke Skepticism Over EU?s Crisis Fight http://t.co/rvBEndvm Works other way: earlier the break-up, smaller the damage $$ Sep 20, 2012
Sword-Bearing Islamist Signals Peril 4 Arab Democracies http://t.co/AXYYmzWn “Islam is a religion of peace” Overheard in a DC bar $$ Sep 20, 2012
EU Track Record Casts Doubt on Crisis Fight as Draghi Rally Ebbs http://t.co/rvBEndvm You can’t solve debt problems with more debt $$ Sep 19, 2012
Europe Takes On Gazprom at Last, Now Must Hang Tough http://t.co/tvFrJZ1k New delivery methods & supplies lessen need 4 Russian natgas $$ Sep 19, 2012
Europe Banks Fail to Cut as Draghi Loans Defer Deleverage http://t.co/fEQdByYH Same thing for the Fed. $$ policy inhibiting delevering Sep 19, 2012
Kaiser’s Postulate: Bringing Free Market Economics to South America http://t.co/61GS08I0 Brings an Austrian perspective 2 S. America $$ Sep 18, 2012
US military suspends combat patrols with Afghan forces http://t.co/BaKxm4Xn In this chess game, there are some pieces that r gray. $$ Sep 18, 2012
A little problem of maturity mismatch http://t.co/cBtSR1pC Many Chinese firms have financed long assets w/short debt. But how big is it? $$ Sep 18, 2012

Companies

The guys at LTCM weren’t that good w/math. Part of being an applied mathematician is knowing limitations of your models http://t.co/ice9Diju Sep 21, 2012
July 2012 severe enforcement actions; Capital One units pick up 3 http://t.co/ahdVPlpZ Interesting improving graph: http://t.co/jqwWxgCR $$ Sep 20, 2012
Microsoft, HP skirted taxes via offshore units: Senate panel http://t.co/tT2F453n What u get 4 creating a complex tax code. FD: + $HPQ $$ Sep 20, 2012
Bored? Consider this Total risk-taking value play http://t.co/Fioj9kEg FD: + $TOT very diversified geographically, seems cheap $$ Sep 20, 2012
Insurers are middlemen. They just pass the costs on. They have no need to do climate research. $$ http://t.co/pekiI2V8 Sep 20, 2012
Dow Corning Offers Workers Cold Showers w/Bugs to Build Sales http://t.co/u9lJIRPI Fascinating tales of voluntary adventures @ Dow Corning Sep 18, 2012

Politics

Welfare Reform as We Knew It http://t.co/E4VuZ1js Inside the Obama work waiver: It’s worse than Romney says. $$ Sep 20, 2012
Tortoises Manhandled for Solar Splits Environmentalists http://t.co/KyaQK3x0 Solar works well in sunny deserts: solar or tortoises $$ Sep 20, 2012
Why the Current Account Deficit Helps Explain the Economics of QE3 http://t.co/QlsAejh1 Explains similarities between CA deficit & QE-inf $$ Sep 19, 2012
Don?t Stick Taxpayers With Underfunded Corporate Pensions http://t.co/xj1VQMEn Against the liberalization of DB plan funding rules Sep 19, 2012
Snip, snip, snip. Cutting up AARP membership cards. The Baby boomers ask for too much through Social Security & Medicare. $$ snip, done Sep 19, 2012
Should the Eligibility Age for Medicare Be Raised? http://t.co/XlrNI3hR Yes, & by more than the suggestions in the article $$ Sep 19, 2012
Election Uncertainty Raises Odds Of Fiscal Cliff http://t.co/jFJ8jSsB Regardless of who wins, there will be gridlock. $$ Sep 18, 2012
Harry Reid Has a Glass-House Quandary on Taxes http://t.co/FbR1nlxl Let Congress begin doing detailed disclosure of their taxes $$ Sep 17, 2012

Economics

Gold shines http://t.co/Mm98E660 & http://t.co/xVg4N2MI $$ Sep 21, 2012
Big Data Upends the Way Workers Are Paid http://t.co/HzfrxhA6 Basic kindness & fairness goes a long way in retaining competent staff $$ Sep 20, 2012
Do New Job Tests Foster Bias? http://t.co/lBSpwygr Maybe, but it does prevent many good people from getting hired. Ppl >> algorithms $$ Sep 20, 2012
Harvard Losing Out to South Dakota in Graduate Pay http://t.co/UQcL5W1T Economics is relative; different things r valuable @ diff times $$ Sep 19, 2012

Finance

Farmer?s Daughter Haugerud Reaps Riches on Drought-Struck Corn http://t.co/CVFuX7kZ Know I’ve read about her b4, can’t remember where $$ Sep 20, 2012
For Superfast Stock Traders, a Way to Jump Ahead in Line http://t.co/hhJwKEdD This is important & may explain HFT & its profitability $$ Sep 19, 2012
Fidelity’s Abby Johnson faces challenges on many fronts http://t.co/5UTmmfbm Fidelity not just mutual funds but retirement plan services $$ Sep 17, 2012
When Playing It Safe Means Taking On More Risk http://t.co/6BtHsksh Safety is a function of price paid vs value & intrinsic solvency $$ Sep 16, 2012

Other

6 Reasons Why Evolution Isn’t A Sure Thing http://t.co/UQVZuzH0 7. Which evolution r u talking about? Many versions, low agreement btw them Sep 20, 2012
Heavy rain in Baltimore now; supporting efforts to ship it to the Midwest $$ Sep 18, 2012

Responses

RE: For areas where there is significant data, they do research. Lots of it.? The models are huge and complex. The e? http://t.co/M7L2ZbC6 Sep 21, 2012
.@OVVOFinancial Part of what I am saying is economists don’t understand macro well. Free lunches rarely emerge; hard2remove accommodation $$ Sep 21, 2012
@felixsalmon I give proportionate to income, so if I were in Romney’s situation, it is likely I would be giving more Sep 21, 2012
. @OVVOFinancial I’m a skeptic. Economists didn’t expect stagflation in ’70s; did not tag the great moderation properly, or call the bust $$ Sep 21, 2012
Why this doesn’t work: too many mortgages are inverted & there is too much supply that will appear as… http://t.co/iGzYEV6c Sep 21, 2012
@fundmyfund If you can infinitely defer income recognition, or reclassify income, the tax rates don’t matter much $$ Sep 21, 2012
“I want to clarify what I wrote on my your last post. It wasn’t one of my finer comments?” ? David_Merkel http://t.co/l620hATS $$ Sep 21, 2012
RE: @bloombergview This is another reason why the definition of income matters more than tax rates. Taxes deferred ar? http://t.co/Bkh3LGjT Sep 21, 2012
RE: @bloombergview How do you distinguish between Dworkin who lost to Flynt, Carol Burnett who beat the National Enqu? http://t.co/FPSNGIE5 Sep 21, 2012
@williamalden Interesting curiosity, but they don’t have much musical talent Sep 21, 2012
@ianbremmer Not too surprising, U would probably get the same result in Vallejo, Stockton, Jefferson County, AL, & other bankrupt places $$ Sep 21, 2012
“I hope they kill this one while it is little. Residential Rental Income ABS sounds like a disaster.” ? David_Merkel http://t.co/srTbHgyT $$ Sep 20, 2012
@e_d_sanders That wouldn’t surprise me, to me it is funny how we end up overriding law with administrative action Sep 20, 2012
“I’ve owned $CVX for a long time for clients. $BRKB is interesting; I really like what Buffett does?” ? David_Merkel http://t.co/l1GZGm3J $$ Sep 20, 2012
. @hassankhan Sometimes there is research, sometimes it is little better than a guess. And yes, new insurance biz has sometimes lost $$ Sep 20, 2012
. @hassankhan New coverages start with a guess. As claims emerge, pricing & terms adjust to reflect claim incidence & severity $$ Sep 20, 2012
@Fullcarry People want to lock in a smaller loss Sep 20, 2012
@dcarpenter14 Good point, thanks for making it Sep 19, 2012
@XQuickFixX investors that buy & hoard 4 DB plans, ETFs, commodity funds, etc, even the SPR, that speculation does affect prices Sep 19, 2012
@XQuickFixX Besides, prices r set at the margin — what it costs to get the next barrel. Last point, if speculators includes the commodity + Sep 19, 2012
@XQuickFixX But the evidence in the article is hearsay. The extraction cost of $11/bbl looks really low. It has 2b higher than that. Sep 19, 2012
@XQuickFixX 2 thoughts: 1) my reform for derivative markets is hedgers must initiate all trades. Speculators can’t trade with each other Sep 19, 2012
I don’t believe the oil market is manipulated. It’s too big;keep the bid price too high, they will sell you a lot of ? http://t.co/oKOTecFE Sep 19, 2012
@izakaminska Thanks, Izabella. My best to all at FT Alphaville. $$ Sep 19, 2012
@izakaminska I admire you all at ft alpha, you write about big things that many of us miss; I would work with u all if u wanted me $$ Sep 19, 2012
RE: Average people can’t invest well & can’t get longevity insurance at a fair price. DB plans r better than DC plans? http://t.co/ClMRmrUH Sep 18, 2012
RE: Sorry, public pensions are not included; their rules are weaker than this. Also, no PBGC for muni DB plans. $$ http://t.co/PHnzUlXi Sep 18, 2012
@moorehn The eyewitness accounts of the life of Jesus would have noted a wife; Peter had 1. http://t.co/TeIiDodQ Definitive scholarly book Sep 18, 2012
“I disagree, mostly. Value is often its own catalyst. People ignore many low P/E stocks just b/c?” ? David_Merkel http://t.co/spWdEhSn $$ Sep 18, 2012
@LDrogen low likelihood, high severity Sep 18, 2012
“”How long until a producer comes in yelling, ?wait?wait, he?s just a loud-mouth with a blog?” ? David_Merkel http://t.co/ww2r59BZ $$ Sep 18, 2012
@rcwhalen We had 3 & adopted 5. Used zone defense metaphor 2 explain it 2 guys. W/a zone u r rules-based; need more rules w/more kids. $$ Sep 18, 2012
@groditi The only thing that gives me pause is that my old friends from my bond manager days r still constructive on HY http://t.co/egOXLBWo Sep 18, 2012
“Exactly. I read the same piece, and for some reason I didn’t comment on their lack of understanding.” http://t.co/W2n3pwcQ $$ Sep 18, 2012
Exactly. Every asset they inflate, inflates liabilities for those who fund them.? Commodities rise due 2 financial re? http://t.co/0HL1L9cq Sep 18, 2012
@TheStalwart Pie charts provide the least information of any type of graph, I think that’s why the chart nerds like them less $$ Sep 18, 2012
@MikeLanter Yes, THE ELEPHANT! Sep 16, 2012
“Well said. My but the Fed has become an elephant in the agency RMBS market” ? David_Merkel http://t.co/FWZ5ngNu $$ Sep 16, 2012

Retweets

If we don’t get stagflation RT @OVVOFinancial @Vermeer1097 Martingale works for Fed playing w/o table limits and unlimited balance sheet. $$ Sep 21, 2012
RT @SullyCNBC: Instead of being angry at individuals for paying the least amount in taxes they legally owe..be angry at Congress for our … Sep 21, 2012
Double down, BABY!! $$ RT @Vermeer1097: @AlephBlog Bubbles Bernank simply using a very old betting system: the Martingale. Sep 21, 2012
You can either think binary or not $$ RT @daveinbawlmer: @AlephBlog @ritholtz a sort of binary way of thinking about being binary Sep 21, 2012
There r only 10 types of people in the world, those get binary & the rest RT @ritholtz: Either you believe the world is binary or you don’t Sep 21, 2012
RT @researchpuzzler: RT @DDInvesting: An Open Letter to CFOs Across America http://t.co/78ubGzqL ~ must read, for investors as well as C … Sep 19, 2012
RT @prchovanec: When will Chinese authorities figure out that developing new financing vehicles does not change underlying asset quality? $$ Sep 19, 2012
Bigtime $$ RT @historysquared: Chinese banks are ?the nexus for? all of this credit-driven investment.” ~ Jim Chanos Sep 18, 2012
What reputation? Perpetuating a bad idea $$ RT @credittrader: Tuesday Humor – *JUNCKER SAYS GREECE EURO EXIT WOULD HARM EURO REPUTATION Sep 18, 2012
+1 RT @ReformedBroker: ?When we encounter pain, we are at an important juncture in our decision-making process.? http://t.co/x8hjUYB4 $$ Sep 18, 2012
RT @groditi: @AlephBlog i’d much rather hold some decent stocks w/ good FCF/Earnings yields and an overweight cash position the the same … Sep 18, 2012
Well-stated $$ RT @felixsalmon: #Romneyshambles: the conservative take is no less damning. http://t.co/H6H3etqh Sep 18, 2012
You said it $$ RT @BoydRoddy: You get the feeling that @John_Hempton is having fun with $FMCN a la a Cat and a stalked mouse? Yeah, me too. Sep 18, 2012
You betcha. BTW, @soberlook has posted http://t.co/pfSscLH1 good stuff RT @merrillmatter: not buying any MBS here $$ Sep 16, 2012

Redacted Version of the September 2012 FOMC Statement

Posted on 13 September 2012 by David Merkel

August 2012	September 2012	Comments
Information received since the Federal Open Market Committee met in June suggests that economic activity decelerated somewhat over the first half of this year.	Information received since the Federal Open Market Committee met in August suggests that economic activity has continued to expand at a moderate pace in recent months.	Unchanged GDP view.
Growth in employment has been slow in recent months, and the unemployment rate remains elevated.	Growth in employment has been slow, and the unemployment rate remains elevated.	No real change.
Business fixed investment has continued to advance. Household spending has been rising at a somewhat slower pace than earlier in the year. Despite some further signs of improvement, the housing sector remains depressed.	Household spending has continued to advance, but growth in business fixed investment appears to have slowed.? The housing sector has shown some further signs of improvement, albeit from a depressed level. ?	Shades down business investment.? Shades up housing.
Inflation has declined since earlier this year, mainly reflecting lower prices of crude oil and gasoline, and longer-term inflation expectations have remained stable.	Inflation has been subdued, although the prices of some key commodities have increased recently. Longer-term inflation expectations have remained stable.	No change in? their view of inflation. TIPS are showing rising inflation expectations since the last meeting. (5y forward 5y inflation implied from TIPS.)
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	No change. Why bother saying this?
The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate.	The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions.	Monetary policy omnipotent.
Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.	Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.	No change.
The Committee anticipates that inflation over the medium term will run at or below the rate that it judges most consistent with its dual mandate.	The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.	Clarifies and tightens its policy objective. CPI is at 1.4% now, yoy, so that is quite a statement.
The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it 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.	To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.? The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it 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.? These actions, which together will increase the Committee?s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.	Commits to an open-ended purchase of low-coupon agency residential MBS.? Wonder how long it will take them to saturate that market? Also continues the twist program in Treasury bonds. Will reinvest maturing MBS in more MBS, and agencies in agencies. Does not mention how the twist will affect those that have to fund long-dated liabilities.
The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation	The Committee will closely monitor incoming information on economic and financial developments in coming months.	Moved up from below, no real change
as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.	If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability.	Conditions additional policy changes on the labor market.
	In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.	The FOMC promises what it cannot know or deliver.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy.	To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.	Promises that they won?t change until the economy strengthens.? Good luck with that.
In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.	In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.	Extends low Fed funds out by around five months versus the last FOMC statement.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen.	Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen.	No change
Voting against the action was Jeffrey M. Lacker, who preferred to omit the description of the time period over which economic conditions are likely to warrant an exceptionally low level of the federal funds rate.	Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.	No change. Only semi-sane person in the room.

Comments

The FOMC pulls out all of the stops.? When this policy doesn?t work, what will they do?
The FOMC commits to conditional but potentially unlimited agency residential mortgage-backed securities [MBS] purchases, continues and extends the twist program, and lengthens the period of FOMC Fed funds policy accommodation.
In my opinion, I don?t think holding down longer-term rates on the highest-quality debt will have any impact on lower quality debts, which is where most of the economy finances itself.
Also, the investment in Agency MBS should have limited impact because so many owners are inverted, or ineligible for financing backed by the GSEs, and implicitly the government, even with the recently announced refinancing changes.
The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.? As a result, the FOMC ain?t moving rates up, absent increases in employment, or a US Dollar crisis.? Labor employment is the key metric.
GDP growth is not improving much if at all, and the unemployment rate improvement comes more from discouraged workers.? Inflation has moderated, but whether it will stay that way is another question.

A Statement to Dr. Bernanke:

More debt will not get us out of this crisis.? The Great Depression ended when enough debts were compromised, paid off, or cancelled, which from my study is 1941, before WW two started.

Insanity is doing the same thing over and over, and expecting a different result.? When will you realize that the policies of the Fed aren?t helping, and need to be abandoned?