The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

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Source:
A Bad Economy Could Spell Good News on Wall Street for Years to Come
Peter Gorenstein
Tech Ticker, Nov 24, 2009

http://finance.yahoo.com/tech-ticker/article/378777/A-Bad-Economy-Could-Spell-Good-News-on-Wall-Street-for-Years-to-Come?

Here’s a candidate for the understatement of the year: The Federal Reserve is concerned that their free-wheeling, money-printing, dollar-destroying, quantitative-easing, zero-percent interest rate policy might be “fueling undue financial-market speculation.”

Do ya think?

The Fed is a serial bubble blower worse yet, they have refused to hold the most aggressive and damaging speculators accountable for their own losses. Instead, they have participated in a massive socialization of risk, where profits remain private but losses are the taxpayers’ burden.

Is this anyway to run a Central Bank? (and I am not calling for the Fed to be dismanttled or hobbled like others are).

There has been little or no clawback of the ill gotten gains from the people who caused the problem, but escaped with 100s of millions of dollars; there has been endless subsidies for the banks, but little hard-to-swallow medicine for the banking system.

My pet theory is that all of the anger about Health Care Reform is misdirected rage at the corrupt Bailouts. I don’t want to get too Continental on you, but the conversation in Europe I encountered repeatedly was the sheer perplexity at why people are protesting health care coverage for all. One fund manager said to me in Berlin, “You give trillions to rogue bankers, yet you have 40 million uninsured American. Why is that?”

My answer: I haven’t the foggiest idea why.

Meanwhile, the banks are (rationally) hording capital, thus they have not increased lending, all the while they garner huge state subsidized profits.

We have not yet sufficiently called out Hank Paulson for his role in this mess. Tim Geithner is starting to capture flack for his participation in the massive wealth transfer/taxpayer giveaway, but he was junior to what we now think of as the Hank & Ben show.

Let me be brutally frank: With George W. Bush AWOL during the crisis in 2008, it was Bernanke and Paulson who stepped into the void. But make no mistake about it — the chief architect of the massive bailouts was none other than former Goldman Sachs CEO and then Treasury Secretary Hank Paulson.

Perhaps when his book comes out, it will grant people another opportunity to look more closely at his role in the crisis. He didn’t create it, but he sure as Hell made things a whole lot worse.

Meanwhile, here’s Bloomberg:

“Federal Reserve policy makers said for the first time that their decision to cut interest rates to zero may be fueling undue financial-market speculation even as they called the dollar’s decline “orderly.”

The Federal Open Market Committee said its policy of keeping rates low might cause “excessive risk-taking” or an “unanchoring of inflation expectations,” according to minutes of its Nov. 3-4 meeting released yesterday. Central bankers also said further dollar depreciation that might “put significant upward pressure on inflation would bear close watching.”

The dollar weakened as investors wagered the central bank will tolerate further declines in a currency that has slid more than 6 percent against the yen in three months. Policy makers are wary of fueling a third asset-price bubble in about a decade as they hold the benchmark interest rate near a record low to revive growth, economists said.

“Financial markets have been doing much better than people might have expected,” said Marvin Goodfriend, a former policy adviser at the Richmond Fed who is now a professor at Carnegie Mellon University in Pittsburgh. “The Fed is saying to markets, ‘Don’t overdo it.’”

Thanks for nuttin, Danny . . .

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Previously:
Tactical Error: Health Care vs Finance Regulatory Reform (September 9th, 2009)

http://www.ritholtz.com/blog/2009/09/finance-reform-vs-health-care-reform/

Source:
Fed Officials Watch Asset Prices for Signs of ‘Excessive Risk’
Craig Torres
Bloomberg, Nov. 25 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=atWoGngEpam4&pos=3

See Also:
Fed Cautious About Strength of Recovery (NYT)

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This is actually terrific news:

“The Obama administration’s push to solve the nation’s energy problems, a massive federal program that rivals the Manhattan Project, is spurring a once-in-a-generation shift in U.S. science.

The government’s multibillion-dollar push into energy research is reinvigorating 17 giant U.S.-funded research facilities, from the Oak Ridge National Laboratory here to the Lawrence Berkeley National Laboratory in California. After many years of flat budgets, these labs are ramping up to develop new electricity sources, trying to build more-efficient cars and addressing climate change.

In fiscal 2009, the Obama administration increased the funding by 18%, to $4.76 billion, to the Department of Energy’s Office of Science, which oversees 10 national labs and funds research at another seven. The office will receive $1.6 billion in government stimulus spending, as well, much of which it will also channel to these laboratories.”

We have had a series of incremental gains in various alt.energy technology. What we need is a major breakthrough in Physics — on a fundamental level — in solar energy efficiency, battery storage, transfer technology, wind resources, wave/tide conversion, etc.

Source:
Energy Push Spurs Shift in U.S. Science
GAUTAM NAIK
WSJ, NOVEMBER 25, 2009

http://online.wsj.com/article/SB125910876247663245.html

Fascinating stuff on the intertubes today:

• Fischer Speaking Means Bernanke Listening When Rates Fluctuate (Bloomberg)

• Are the Dollar Bears Too Bullish? (Barron’s)

• Commercial RE Values Off 43% From 2007 Peak (Globe ST)

• Amazon vs Wal-Mart Price War (NYT) see also Round-Up of Holiday Spending Surveys, Reports (Panzner)

• Fed Said to Ask Banks to Submit Plans to Repay TARP (Bloomberg)

• Spitzer: The new AIG report reveals how the Treasury secretary—and U.S. taxpayers—were fleeced by Wall Street banks (Slate) see also AIG’s Rescue Bedevils U.S. (WSJ)

• How to shrink the banks (Prospect)

• Geithner Is Stalking Horse for Rage at Wall Street (Bloomberg) See also Could Wall Street Actually Lose in Congress? (New Republic)

• Paul Farrell: 15 signs Wall Street pathology is spreading (Marketwatch)

• Fixed-Schedule Productivity: How I Accomplish a Large Amount of Work in a Small Number of Work Hours (Study Hacks)

• Fine-Tuned With Age, Bryant’s Game Keeps Evolving (NYT) Can Kobe become the next Jordan?

• Narrative charts of Lord of the Rings, Star Wars Trilogy (Pasa la vida)

What are you reading?

Today’s rally in MBS has taken the 30 yr FNMA coupon to below 4% at 3.98%, for the first time since May 20th. Combining the treasury rally with continued purchases by the Federal Reserve (where Bullard wants to extend past the expected expiration in March) and likely end of yr buying by banks has helped to achieve for now a key Fed goal and that is to keep mortgage rates low in order to spur demand. The move lower in rates interestingly comes on the day that the consumer confidence data reveals that those that plan to buy a home within 6 mo’s is at the lowest level since ’82 and last week’s purchase component of the weekly MBA data is at a 12 year low. Square this with the recent tax credit induced home sales boost and the overall picture becomes cloudy I agree but it seems that its price much more than the cost of money that is and will drive purchase demand thru this cycle (unlike the previous one), in addition of course to the jobs picture.

The record 5 yr $42b auction was excellent as the yield was 3-4 bps below the when issued and the bid to cover at 2.81 was the best since Sept ’07 and well above the average seen this year of 2.28. Indirect bidders totaled a solid 60.9%, above the average of 51.1% over the past 5. Whether its due to year end buying and prettying up of balance sheets, or still economic concerns, or still apparent risk aversion, or bank buying taking advantage of free money from the Fed, or foreign central bank FX intervention of buying US$s to halt the rise in their respective currency or lack of belief in inflation or confidence that the Fed will remain easy for much longer, the US Treasury has been able to finance every growing deficits with continued relative ease. Tim Geithner can continue to say “Wait’ll Otis (China and others) Sees Us, He loves Us” before every auction, until he can’t.

Nice interactive graphic from Russell Investments looking at the state of the economy.  Russell uses 4 market and 4 economic data points:

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click for interactive chart

While many people seem to be agitating for Turbo Timmy’s dismissal, an underground drumbeat has begun calling for Summer’s head:

How can you not find some appreciation for a blog that is devoted to helping a man spend more time with his loved ones?

Economists for Firing Larry Summers:

This blog is devoted to seeing to it that Larry Summers gets to spend more time with his family.

-Thorstein Veblen

Brilliant!

Here’s a quick excerpt:

This from Vanity Fair:

Summers has plenty of other things figured out as well, including the origins of the current financial crisis, for which he has crafted a cogent explanation worthy of his reputation as a policy wonk and his days as a college debating champion at M.I.T. “I think crises like this get made by multiple cascading misjudgments,” he explains, and then catalogues them: too much government spending, not enough private-sector saving, too much dependence on foreign debt, too much demand for “riskless” financial instruments that weren’t, in fact, riskless …

The first three of these were, at best, only tangentially related. As much as I think the Bush tax cuts were a mistake, Republican inability to balance the budget really did not have anything to do with the crisis. Ditto for Private-sector saving (even though i think saving is good, generally…) Dependence on foreign debt had nothing to do with the crisis.

David Rosenberg, chief economist and strategist at Gluskin Sheff, and the CNBC news team look ahead to today’s GDP data and share their economic outlooks.

Airtime: Tues. Nov. 24 2009 | 7:30 AM ET

Visualizing empires decline from Pedro M Cruz on Vimeo.

Where is the spinoff of the US from Britain?

Hat tip Paul