Posts filed under “Think Tank”

The Coming Week: Fed, Employment Report, Asia

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).

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Saturday, October 31, 2009

This is going to be a big week. And it comes on the heels of another weekend bank-failure announcement, and as we absorb the Geithner testimony and the discussion draft hearing in front of Barney Franks’ House Financial Services Committee.

Ours views of this Geithner-designed proposal are harsh and already known to readers. It has the makings of another PPIP-type fiasco; but in this case the damage could be lasting, since it involves a government super-regulator structure and not just a single program. This is a mix of politics and money and power at its worst.

It seems as if criticism is mounting from all sides, labor and business, left and right, Democrat and Republican. Geithner really hurt himself when he danced around the direct questions pertaining to “secret lists.” Mr. Secretary: when you were asked if there were going to be secret lists, why didn’t you just say yes? By not answering the questions directly you opened yourself up to an entire scrutiny of the flaws in the bill and lost your already damaged credibility. As for secret lists, it is time for the federal government to stop. Make rating scores public. Stop mouthing the word transparency while practicing opacity. That may restore the term moral hazard back into usage, in place of what we have witnessed. Kevin Ferry aptly described the current condition as “moral swamp.”

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Category: Think Tank

Systemic Risk Bill: Amendment suggestion

I have another suggestion for the Systemic Bill. Someone should demand language, or file an amendment, that states: ‘Directors, Officers, senior management and consultants of any institution that draws on the industry funds created under this title or receives any relief or is subject to any other actions provided for under this Title shall, for…Read More

Category: Think Tank

Rosner Says Stability Act Would Hurt Small, Medium Banks

http://www.youtube.com/watch?v=pIuwVJ-WqnY We need to really push back against the TBTF industry’s lobbying pitch that forcing them to shrink or break them up will cause them to be “uncompetitive”. This is a false notion and the only link they have for arguing against a requirement they reduce their size and scope, by imposing uneconomically high capital…Read More

Category: Think Tank

Catching Argentinian Disease

November 30, 2009
By John Mauldin

Catching Argentinian Disease?

The Ascent of Money

The Independence of the Fed Threatened

A Few Quick Thoughts on the Dollar, GDP, and the Recession

Uruguay, Philadelphia, Orlando, and then…

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I have been in South America this week, speaking nine times in five days, interspersed with lots of meetings. The conversation kept coming back to the prospects for the dollar, but I was just as interested in talking with money managers and business people who had experienced the hyperinflation of Argentina and Brazil. How could such a thing happen? As it turned out, I was reading a rather remarkable book that addressed that question. There are those who believe that the United States is headed for hyperinflation because of our large and growing government fiscal deficit and massive future liabilities (as much as $56 trillion) for Medicare and Social Security.

This week, we will look at the Argentinian experience and ask ourselves whether “it” – hyperinflation – can happen here.

The Ascent of Money

I will be quoting from Niall Ferguson’s recent book, The Ascent of Money. I cannot recommend this book too highly. In fact, I rank it up with my all-time favorite book on economic history, Against the Gods, by the late (and sorely missed) Peter Bernstein. There are very few books I read twice. There are too many books and not enough time. This book I will have to read at least three times, and soon, and I have a lot of underlines and mark-ups in it already.

If there were one book I could require every member of the Congress to read, it would be this one. As I read it, I am struck again and again by how fragile and yet resilient our economic systems are. Fragile in the sense that governmental policy mistakes, no matter how well-intentioned, can destroy the wealth of a nation, and resilient in that it doesn’t happen more often.

In his introduction Ferguson writes, “The first step towards understanding the complexities of the financial institutions and terminology is to find out where they came from. Only understand the origins of an institution or instrument and you will find its present day roles much easier to grasp.”

As is often said, those who do not understand history are doomed to repeat it. If you want to understand what is happening in the economy, what the consequences of our choices could be, then I strongly suggest you get The Ascent of Money. It is easy to read, engaging, full of moments where you are led to pull together different ideas into an “Aha!” Ferguson is a brilliant writer and historian, and we are lucky to have this book at a time when it is sorely needed. (order it at Amazon.com)

As I have been writing, the United States in particular, and the developed world in general, are faced with a series of very unpleasant, if not downright bad choices. The time for good choices was ten years ago. Now we face the prospect of painful decisions, no matter what we do. It is not a matter of pain or no pain, of somehow avoiding the consequences of our bad decisions, it is simply deciding how much pain we will take and when, or allowing the pain to build up to a climactic event. Today we look at what I think would be the worst choice of all.

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Category: Think Tank

Shallow 5% Pullback Led to Short Covering

Yesterday’s bounce occurred after a relatively shallow 5.00 % pullback in the S&P 500 from its recent peak.  So far this move appears to be more short covering driven than a new wave of institutional buying. Several things we noticed of late and also in yesterday’s activity were as follows”  The recent corrective wave saw…Read More

Category: Think Tank

Data of the day

The final Oct UoM confidence # was 70.6 down from 73.5 in Sept but above the preliminary reading out a few weeks ago of 69.4 and also above estimates of 70. The drop from Sept was led by a fall in the Outlook component which fell almost 5 pts. Current Conditions rose a touch. The…Read More

Category: MacroNotes

Fed Independence: R.I.P.?

David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from…Read More

Category: Think Tank

Stocks and risky assets stumble

Stocks and risky assets stumble

I concluded a post on stock markets over the weekend saying: “After equities’ seven-month climb, stock markets certainly look vulnerable for a decline. Two downside reversal days – on Wednesday and Friday – would seem to indicate that stocks could commence a pullback to work off the overbought condition, allowing fundamentals to reassert themselves.”

Global stock markets, as well as other risky assets, closed sharply lower over the past few days as concerns mounted over the sustainability of the global economic recovery and the outlook for central bank policy.

The performance of the major asset classes is summarized by the charts below, with the top one showing the period from the March 9 stock market lows until October 19 peak and the second one the subsequent period. The numbers indicate an all-change pattern in the performances as risk aversion re-entered financial markets and government bonds and the US dollar regained some favor.

grafiek1

Source: StockCharts.com

grafiek2

Source: StockCharts.com

A summary of the movements of major global stock markets since the March 19 peak, as well as various other measurement periods, is given in the table below.

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Category: Think Tank

Governor Daniel K. Tarullo on Regulatory Reform

Governor Daniel K. Tarullo

Regulatory reform

Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C., October 29, 2009

Chairman Frank, Ranking Member Bachus, and other members of the Committee, thank you for the invitation to testify this morning on systemic regulation, prudential matters, resolution authority, and securitization. The financial crisis was the product of many factors, including the tight integration of lending activities with the issuance, trading, and financing of securities; gaps in the financial regulatory structure; widespread failures of risk management across a range of financial institutions; and, to be sure, significant shortcomings in financial supervision. More fundamentally, though, it demonstrated that the regulatory framework had not kept pace with far-reaching changes in the financial sector, and the concomitant growth of new sources of risk to both individual institutions and the financial system as a whole.

Because the roots of the crisis reached so deeply into the very nature of the financial system, a broad program of reform is required. Much can be, and needs to be, done by supervisors–under their existing statutory authorities–to contain systemic risk generally and the too-big-to-fail problem in particular. As the discussion draft released by Chairman Frank recognizes, there is also a clear need for the Congress to provide significant additional authority and direction to the regulatory agencies.

Essential elements of this legislative agenda include: ensuring that all financial institutions that may pose significant risk to the financial system are subject to robust consolidated supervision; establishing a systemic risk oversight council to identify, and coordinate responses to, emerging risks to financial stability; directing all financial supervisors to take account of risks to the broader financial system as part of their normal oversight responsibilities; establishing a new special resolution process that allows the government to wind down in an orderly way a failing financial institution that threatens the entire financial system while also creating a credible process for imposing losses on the firm’s shareholders and creditors and assuring that the financial industry, not taxpayers, ultimately bears any additional costs associated with the resolution process; providing for consistent and robust prudential supervision of key payment, clearing, and settlement arrangements; and addressing weaknesses in the securitization process that came to light during the crisis.

Chairman Frank’s discussion draft addresses each of these areas and, in the Board’s view, provides a strong framework for achieving a safer, more stable financial system. In addition to addressing these areas for legislative change, I will discuss some of the actions the Federal Reserve and our supervisory colleagues are taking under existing authorities to strengthen the supervision and regulation of financial institutions–particularly large, complex institutions–and to prevent regulatory arbitrage.

Consolidated Supervision of Systemically Important Financial Institutions
The current financial crisis has clearly demonstrated that risks to the financial system can arise not only in the banking sector, but also from the activities of other large, interconnected financial firms–such as investment banks and insurance companies–that traditionally have not been subject to the type of mandatory prudential regulation and consolidated supervision applicable to bank holding companies. Chairman Frank’s discussion draft would close this important gap in our regulatory structure by providing for all financial institutions that may pose significant risks to the financial system to be subject to the framework for consolidated prudential supervision that currently applies to bank holding companies. As I will discuss shortly, it also provides for these firms to be subject to enhanced standards, reflective of the risk they pose to the financial system. These provisions should prevent financial firms that do not own a bank–but that nonetheless pose risks to the overall financial system because of the size, risks, or interconnectedness of their financial activities–from avoiding comprehensive supervisory oversight.

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Category: Federal Reserve, Think Tank

The evils of inflation

The better than expected Q3 Real GDP report has raised the debate over whether the American Recovery and Reinvestment Act of 2009, aka the stimulus package, was a positive catalyst in helping. I will not get into the political discussion and will only specifically discuss the tax cut that was given to individuals that qualified…Read More

Category: MacroNotes