Posts filed under “Think Tank”

If you sell it, will they come?

If you sell it, will they come? So far, yes with respect to the ability of the US Treasury to sell debt to fund the ever growing deficits of the US government. With continued falls in the US$, coincident rise in gold and growing inflation expectations, today’s 10 year auction and Thursday’s 30 year will be a great test of the appetite for this longer term paper which provides no protection against future inflation. The Oct NFIB small business optimism index rose a touch to 89.1 from 88.8 with the components very mixed. Those that plan to hire rose 3 pts but remains slightly negative but plans for increased cap spending fell. Those that expect higher sales and plan to increase inventory both were up but are still negative and those that say it’s a good time to expand fell. Nov German ZEW 6 month confidence outlook fell 5 pts and was 4 pts below forecasts and Sept French IP unexpectedly fell and the euro is down in response.

Category: MacroNotes

Financial Regulation: Past and Future

Federal Reserve Board of Governors

Governor Daniel K. Tarullo

At the Money Marketeers of New York University, New York, New York
November 9, 2009

Financial Regulation: Past and Future

Systemic crises typically reveal failures across the financial system. The crisis that unfolded over the past two years is no exception, with fundamental problems apparent in both the private and public sectors. There were massive failures of risk management in many financial firms and serious deficiencies in government regulation of financial institutions and markets. But the breadth and depth of the financial breakdown suggest that it has much deeper roots. In many respects, this crisis was the culmination of changes in both the organization and regulation of financial markets that began in the 1970s. An appropriately directed response must build on an understanding of this history.

In my remarks this evening I will begin by reviewing the origins of the crisis, as a prelude to discussion of the elements of a reform agenda that I believe to be reasonably clearly established. I will close with some thoughts on the very important question of whether additional regulatory methods will be necessary to provide the foundation for a stable and efficient financial system.1

The Origins of the Crisis
Shortly after President Franklin Roosevelt’s inauguration in 1933, Congress enacted sweeping new measures that would define financial regulation for decades. The creation of the Federal Deposit Insurance Corporation (FDIC) countered the problem of bank runs and panics by insuring the bank accounts of the vast majority of Americans. Along with preexisting restrictions in the National Banking Act and state laws, the Glass-Steagall Act established a regulatory system that largely confined commercial banks to traditional lending activities within a circumscribed geographic area. At the same time, the Securities Act of 1933 and the Securities Exchange Act of 1934 brought increased transparency and accountability to the trading and other capital market activities that were now essentially separated from commercial banking.

This regulatory approach fostered a commercial banking system that was, for the better part of 40 years, quite stable and reasonably profitable, though not particularly innovative in meeting the needs of depositors and borrowers. The new FDIC insurance, the 1933 statutory prohibition of interest payments on demand deposits, and the Fed’s Regulation Q upper limit on interest rates paid on savings deposits had together suppressed competition for deposits among banks and made retail deposits a highly stable source of relatively attractive financing.

The turbulent macroeconomic developments of the 1970s, along with technological and business innovations, helped produce an increasingly tight squeeze on the traditional commercial banking business model. The squeeze came from both the liability side, in the form of more attractive savings vehicles such as money market funds, and from the asset side, with the growth of public capital markets and international competition. The large commercial banking industry that saw its lending to large and medium-sized corporations threatened by their increasing access to public capital markets sought removal or relaxation of the regulations that confined bank activities, affiliations, and geographic reach. While supervisors differed with banks on some important particulars, they were sympathetic to this industry request, in part because of the potential threat to the viability of the traditional commercial banking system.

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Category: Federal Reserve, Think Tank

Rate hike odds continue to fall

With the FOMC last Wednesday reiterating the continuation of their extraordinary accommodation, followed by the G20 over the weekend saying fiscal policy will also stay the same having lit fire again to the anti US$/reflation trade today, the fed funds futures can help us quantify the markets belief of what is “exceptionally low” and how…Read More

Category: MacroNotes

Inflation expectations continue to rise

On the heels of the status quo G20 meeting over the weekend that has hit the US$ today and buoyed commodities, the implied inflation rate in the 5 year TIPS is rising 8 bps from Friday to 1.86% (vs 1.72% one week ago), matching the highest level since Sept 1st ’08 and expectations 10 years…Read More

Category: MacroNotes

Measurement Issues Arising from the Growth of Globalization

These are the papers presented at the conference discussed earlier: Session 1: Services Offshoring Chair: Kenneth Ryder (NAPA) “Measuring the Impact of Trade in Services: Prospects and Challenges,” J. Bradford Jensen (Georgetown University and Peterson Institute for International Economics) “Measuring Success in the Global Economy: International Trade, Industrial Upgrading, and Business Function Outsourcing in Global…Read More

Category: Data Analysis, Think Tank

1983 Redux? Only if They Make Trading Places 2

Dan Greenhaus is at the Equity Strategy Group at Miller Tabak + Co. where he covers markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi). ~~~ We have been asserting for some time now that the issue for the market…Read More

Category: Think Tank

Green light continues with G20 stimulus

“We agreed to maintain support for the recovery until it is assured…We are not out of the woods yet,” said the UK Chancellor of the Exchequer Darling at the weekend’s G20 meeting. This continued green light on massive monetary and fiscal stimulus and no commentary about the US$ has the dollar index falling to within…Read More

Category: MacroNotes

Words from the (Investment) Wise 11.08.09

Words from the (investment) wise for the week that was (November 2 – 8, 2009)

“Words from the Wise” this week comes to you in a shortened format as I am about to leave Cape Town for a visit to the colder environs of Switzerland and Slovenia. Although reduced commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included. Blog posting will be slow (and totally absent on some days) while I am on the road. The normal blogging service will be resumed on my return to Cape Town on November 16.

The Federal Open Market Committee (FOMC) maintained its extraordinarily accommodative monetary policy following its meeting on Wednesday. The communiqué had no surprises and said that the committee expected to keep the fed funds rate target in the 0-0.25% range “for an extended period”. As expected, the European Central Bank (ECB) and the Bank of England (BoE) also kept interest rates unchanged at 1% and 0.5% respectively.

“A hesitant economic recovery, tame inflation and severe credit headwinds suggest that monetary policy will need to stay very easy for at least another year. Liquidity trends will not be a constraint on higher prices for risk assets for a while,” said BCA Research.

The jump in the unemployment rate to a 26-year high of 10.2% in October – an increase of 0.4 of a percentage point – reminded pundits of the challenges in the labor market and broader economy. While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …


Source: Stuart Carlson,

The past week’s performance of the major asset classes is summarized by the chart below. Gold bullion was the star of the week, especially subsequent to the purchase by India’s central bank of 200 metric tons of gold from the International Monetary Fund. The price jumped by 4.7%, recording an all-time high of just over $1,100, with platinum (+1.7%) and silver (+6.6%) also handsomely higher. (See my recent post “Gold bullion surging in all currencies“.)



A summary of the movements of major global stock markets for the past week, as well as various other measurement periods, is given in the table below.

The MSCI World Index (+2.4%) and the MSCI Emerging Markets Index (+2.4%) both made headway last week to take the year-to-date gains to 23.0% and an impressive 65.1% respectively. Interestingly, Chile is now only 3.9% down from its July 2007 high and could be one of the first markets to wipe out all the financial crisis/recession losses.

The US indices reversed a two-week down-patch and all the major indices and economic sectors closed higher for the week. The S&P 500 scored a full house of gains and the Dow Jones Industrial Index reclaimed the 10,000 level, putting these indices within 2.7% and 0.7% respectively of their 2009 highs.

The year-to-date gains in the US remain firmly in positive territory and are as follows: Dow Jones Industrial Index 14.2%, S&P 500 Index 18.4%, Nasdaq Composite Index 34.0% and Russell 2000 Index 16.2%.

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Category: Think Tank

The Glide Path Option

The Glide Path Option

November 6, 2009
By John Mauldin
The Present Contains All Possible Futures
The Ugly Unemployment Numbers
Argentinian Disease
The Austrian Solution
The Eastern European Solution
Japanese Disease
The Glide Path Option
Philadelphia, Orlando, and Phoenix
The present contains all possible futures. But not all futures are good ones. Some can be quite cruel. The one we actually get is dictated by the choices we make. For the last few months I have been addressing the choices in front of us, economically speaking. Today I am going to summarize them, and maybe we can look for some signposts that will tell us which path we’re headed down. For those who are new readers and who would like a more in-depth analysis, you can go to the archives at and search for terms I am writing about. And I will start out by briefly touching on today’s ugly unemployment numbers, with data you did not get in the mainstream media.

But first, let me welcome the readers of EQUITIES Magazine to this letter. The publisher is sending the letter to you directly. This letter is free, and all you have to do to continue receiving it is type in your email address at Likewise, I have arranged for my regular readers to get a free subscription to EQUITIES Magazine, if you would like. You can go to For those who don’t know, I write a brief monthly column for them.

The Ugly Unemployment Numbers

The headlines said unemployment, as measured by the “establishment survey,” was down by 190,000; and even though that was slightly worse than forecast, market bulls were cheered by the fact that the number was not as bad as last month’s. It is an improvement that we are not falling as fast.

Well, maybe. What I did not see in many of the stories I read was that the number of unemployed actually soared by 558,000, to 15.7 million, as measured by the household survey. The establishment survey polls larger businesses; the household survey actually calls individual households.

Let’s look at the real number in the establishment survey. If you don’t seasonally adjust the number, the actual change in unemployment for October was 641,000, or about 450,000 more than the seasonally adjusted number. And the Bureau of Labor Statistics added 86,000 jobs that they simply guess were created through the so-called birth-death ratio. Interestingly, the birth-death ratio number is not seasonally adjusted, so it is just added to the unemployment number.

The total (U-6) employment rate is at a record high of 17.5% (this includes those who are part-time for economic reasons). There are now over 10.5 million people who have lost their jobs since the beginning of the downturn.

My favorite slicer and dicer of data, Greg Weldon (, offers up an even more horrific number. As I have noted before, if you have not looked for work in the last four weeks, the BLS does not count you as unemployed. Quoting Greg:

“Moreover, when we combine the monthly change in the number of Unemployed, with the number Not in the Labor Force, we might consider the result to be a proxy for the actual ‘change’ in the underlying labor market situation … in which case, October’s figure of 817,000 represents the fourth LARGEST yet, behind last month’s (September’s) second largest figure of 1,021,000 … for a two-month combined figure of 1.838 million, in newly Unemployed, or no longer ‘in’ the Labor Force …

“… the second LARGEST two-month total EVER posted, barely trailing the December-08/January-09 total 1.955 million.

“Bottom line … basis this measure AND the ‘Total Unemployment Rate,’ we could conclude that not only is there NO ‘improvement’ in the labor market, but moreover, that it continues to DETERIORATE, intently.”

There are plenty more implications in the data, but let’s turn to the topic of the day.

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Category: Think Tank

Consumer Credit continues downward trend

Consumer Credit outstanding fell $14.8b in Sept seasonally adjusted, almost $5b more than expected and marks the 11th month in the past 12 of declines. At $2.456T outstanding, it is 4.9% below the record high in July ’08. After a flat reading in Aug, (didn’t fall b/c of the CARS program), non revolving debt outstanding…Read More

Category: MacroNotes