Posts filed under “Think Tank”
The August Philly Fed survey came in at +4.2, above the consensus of -2.0, up from -7.5 in July and follows the unexpected gain in the Empire survey seen on Monday. It’s the first positive reading since September ’08 and is at the highest level since November ’07. The data measures the direction of improvement, not the degree so don’t extrapolate that we are at November ’07 output levels. New Orders rose 6 points to +4.2. Backlogs rose 5 points but remain negative at -9.3. Employment rose by 12.4 points to -12.9. In a clear message that the inventory drawdown has run its course, inventories rose from -15.4 to +.3, the first positive number since September ’07, yes 22 straight months of declines. With the rebound in the data comes a bounce in both Prices Paid and Prices Received, both at the highest level since October. The 6 month outlook rose 5 points but is 3.3 points below the level seen in June. Net-net, the data confirms for now the 2nd half inventory/manufacturing recovery hopes. The stock market however has discounted this and will need confidence that the rebound is something that can be sustained into 2010 in order to see another leg higher.
Initial Jobless Claims totaled 576k, 26k more than expected and up 15k from the prior week which was revised up by 3k. This brings the 4 week average up to 570k from 566k. Continuing Claims were 26k more than estimated and up 2k from last week. The insured unemployment rate was 4.7%, unchanged with the…Read More
Good Evening: Just when it looked as if the U.S. stock market would resume the Friday/Monday slide today, share prices pulled out of a morning nosedive to finish higher for a second straight session. Rising energy prices and a falling dollar both aided this light volume turnaround, with the latter receiving quite a bit of…Read More
Below is the latest comment from the Institutional Risk Analyst. My former Fed colleague Dick Alford came up with the idea, then Dennis and I revised and extended. Enjoy and have a great August. — Chris
Systemic Risk: Is it Black Swans or Market Innovations?
The Institutional Risk Analyst
August 18, 2009
“Whatever you think you know about the distribution changes the distribution.”
American Enterprise Institute
In this week’s issue of The IRA, our friend and colleague Richard Alford, a former Fed of New York economist, and IRA founders Dennis Santiago and Chris Whalen, ask us whether we really see Black Swans in market crisis or our own expectations. Of note, we will release our preliminary Q2 Banking Stress Index ratings on Monday, August 24, 2009. As with Q1, these figures represent about 90% of all FDIC insured depositories, but exclude the largest money center banks (aka the “Stress Test Nineteen”), thus providing a look at the state of the regional and community banks as of the quarter ended June 30, 2009. Click here to register for The Institutional Risk Analyst or request a trial for our products.
Many popular explanations of recent financial crises cite “Black Swan” events; extreme, unexpected, “surprise” price movements, as the causes of the calamity. However, in looking at our crisis wracked markets, we might consider that the Black Swan hypothesis doesn’t fit the facts as well an alternative explanation: namely that the speculative outburst of financial innovation and the artificially low, short-run interest rate environment pursued by the Federal Open Market Committee, combined to change the underlying distribution of potential price changes. This shift in the composition of the distribution made likely outcomes that previously seemed impossible or remote. This shift in possible outcomes, in turn, generated surprise in the markets and arguably led to the emergence of “systemic risk” as a metaphor to explain these apparent “anomalies.”
But were the failures of Bear Stearns, Lehman Brothers, Washington Mutual or the other “rare” events really anomalous? Or are we just making excuses for our collective failure to identify and manage risk?
The choice of which hypothesis to ultimately accept in developing the narrative description of the causation of the financial crisis has strategic implications for understanding as well as reducing the likelihood of future crisis, including the effect on the safety and soundness of financial institutions. To us, the hard work is not trying to specifically limit the range of possibilities with artificial assumptions, but to model risk when you must assume as a hard rule, like the rules which govern the physical sciences, that the event distribution is in constant flux.
Since September ’08 when the Lehman bankruptcy put global deleveraging into overdrive, all major asset classes had a certain correlation, sell stocks, corporate bonds, commodities, and foreign currencies and buy US Treasuries and the US$. Looking at the S&P/US$ relationship since September, thus going back 50 weeks, only 11 weeks (22%) saw a positive correlation…Read More
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
David A. Rosenberg is Chief Economist & Strategist at Gluskin Sheff, with a focus on providing a top-down perspective to the Firm’s investment process. Mr. Rosenberg has earned both Bachelor of Arts and Master of Arts degrees in Economics from the University of Toronto. Prior to joining Gluskin Sheff, David was Chief North American Economist…Read More
Category: Think Tank
Due to continued concerns that the pace of economic stimulus cannot be sustained, the Shanghai index fell another 4.3% and is now down 19.8% from its level of just two weeks ago. As China is predominantly responsible for lifting the global economy off its arse in March, the pullback is having its now obvious impact…Read More
Good Evening: U.S. stocks today recovered almost half the losses they suffered yesterday. Credit for today’s light volume comeback goes to the combined effects of a recovery in Asian equities (China’s CSI 300 was up 1%), some analyst upgrades in the tech sector, and earnings beats by some retailers. What the future holds for U.S….Read More
Goldman’s new ‘American Socialism Manifesto’
Paul B. Farrell
Marketwatch, August 9th, 2009 4:57 PM
reprinted with permission, Copyright Marketwatch, all right reserved
Warning: Behavioral economics means one thing to Wall Street and Washington and something quite different to Main Street. It depends on whether you’re the nudger or nudgee, the manipulator or the manipulated, the guys making lots of money or the folks being scammed.
Average folks erroneously believe behavioral economics helps them. But behavioral nudgers just want to help themselves.
And both political parties are guilty. Behavioral economics is all the rage since the new president hired some academic behaviorists. That also helped the GOP, made average folks forget the former president had his nudgers, too, like former Treasury Secretary Henry Paulson. Moreover, his party recently hired 350 lobbyists, many former Senators and Congressmen, to kill the new guy’s health-care reform.
The truth is, folks, behavioral economics, nudging, manipulation and lobbying, whatever you call it, has been a part of American politics for a long time under many names, though neither party publicly admits their nudging strategies.
Puzzled? Ask yourself: Why is the GOP so aggressively demonizing Obama’s health-care reform as “socialism?” Why? Yes, something smells fishy, especially since the GOP created the biggest “socialized medicine” program ever with Medicare drugs.
Then suddenly the “why” hit me. Here’s why … All the fear-mongering about health-care “socialism” is actually a strategic smoke screen, a brilliant counterattack, a sneaky political cover-up of the GOP’s recent historic takeover of America using taxpayer-funded bailout money against us. Get it? The Right’s making Left turns into “socialism.”
You heard me. In “Bailout Nation,” money manager Barry Ritholtz summarizes this clandestine takeover of the great American democracy, led by Paulson and the Goldman Conspiracy juggernaut. In less than a year America has become “Socialism for the Rich! Capitalism for the Rest,” says Ritholtz.
It all began last October, just before the elections. Paulson, Goldman’s Trojan Horse inside a GOP-controlled White House, moved with the lightning speed of a special-ops team attacking behind enemy lines. Paulson took command of the meltdown, before our clueless Congress knew what happened.