Posts filed under “Think Tank”

The Home Buying Tax Credit costs what?

The Home Buying Tax Credit costs what? On the day President Obama signed the extension of the home buying tax credit, Rasmussen Reports released the results of a poll today saying that 57% favor the $8,000 tax credit for 1st time home buyers but when they hear that it will cost an additional $10b+, support falls to 42%. The provision that expands it to existing homeowners and for those with higher incomes than the original threshold is supported by just 29% of those polled with 57% against it. With the homebuilders ETF down 11.5% since the mid Sept high, the law of diminishing returns may becoming evident as those who wanted to take advantage of the credit mostly did so already. The benefits of the tax credit will filter into the spring (must sign contract by April 30th) which is the busiest part of the home buying selling season following the slowest being the winter. According to the bill, “the credit applies to the purchase of a principal residence before July 1, 2010 by any taxpayer who enters into a written binding contract before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010.” Make no mistake that heading into the 2010 elections, both sides of the aisle will come up with plenty of “jumpstart the economy” programs that will have a variety of price tags.

Category: MacroNotes

Payrolls, sluggishness continues

Oct Payrolls fell by 190k, 15k more than expected BUT net revisions were up by 91k over the two prior months. The unemployment rate rose to 10.2%, .3% more than expected and up from 9.8% in Sept as household employment fell by 589k and the labor force shrunk by 31k. The all in rate rose…Read More

Category: MacroNotes

As of today, our automated tool to gather FDIC bank call reports and generate Stress Index ratings has gathered data on some 5,063 institutions. Users of the professional version of the IRA Bank Monitor can see the ratings on a list we have built on the Bank Monitor home page that is sorted by assets….Read More

Category: Markets, Think Tank

Rate hike odds and inflation expectations update

With respect to future fed policy, here is an update in the fed funds futures for what is priced in for rate hikes in 2010. Odds of a 25 bps hike by the April meeting is now down to 28% vs 54% priced in just prior to yesterday’s FOMC statement release. Last Monday, the market…Read More

Category: MacroNotes

King Report: Treasury Minutes



While most of the known world was transfixed on the FOMC soiree and its communiqué, an equally if not more important Treasury soiree and communiqué went largely unnoticed.

November 4, 2009
Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the Securities Industry and Financial Markets Association The Committee convened in closed session at the Hay-Adams Hotel at 10:32 a.m.

The Committee then turned to a presentation by one of its members on the likely form of the Federal Reserve’s exit strategy and the implications for the Treasury’s borrowing program resulting from that strategy.

The presenting member began by noting the importance of the exit strategy for financial markets and fiscal authorities. It was noted that the near-zero interest rates driven by current Federal Reserve policy was pushing many financial entities such as pension funds, insurance companies, and endowments further out on the yield curve into longer-dated, riskier asset classes to earn incremental yield…A critical issue will be the impact on the riskier asset classes as market interest rates move away from zero.

The presenting member then looked at the likely sequence of the Federal Reserve’s exit strategy. The member acknowledged that the central bank must address the uncertainty and fragility of the economic recovery and the dependence of the housing market on low rates. It was suggested that the most likely sequence would be the [1] draining of excess reserves from the banking system, [2] the cessation of the mortgage-backed securities purchase program, and [3] only then raising the Fed funds target rate.

Several members at this point asked why draining reserves before ending the MBS program made sense. The presenting member noted that the program was already set to expire, and other measures, such as a revival of the Supplementary Financing Program, could be utilized by the Federal Reserve at the same time.

The Fed’s $1.25 trillion Agency MBS buyback program is set to expire at the end of March, 2010, according to the last FOMC Announcement from September 23, 2009…The presenting member points out that the Fed can avoid adding reserves after they are first drained through a revival of Treasury’s Supplementary Financing Program (SFP)…

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Category: Think Tank

Gold bullion surging in all currencies

Gold bullion surging in all currencies I argued the bull case for gold in my posts over the past few months (see “Gold bullion – regaining its shine?“, “Gold bullion glitters bright” and “Gold bullion – challenging $1,000“. With the gold price scaling fresh peaks and closing in on $1,100, it would certainly seem as…Read More

Category: Think Tank

Morning stuff and the aftermath of the FOMC statement

Following the very dovish FOMC statement, the odds of a 25 bps rate hike by April have fallen to 36% from 54% yesterday and the odds of a hike by June have fallen below 100% for the first time. In response, inflation expectations 10 yrs out have risen to 2.12%, up from 2% just one…Read More

Category: MacroNotes

The Fed and the Unemployment Rate cont’d

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).


November 4, 2009

In response to the recent piece we wrote about the Fed and the unemployment rate, Bloomberg anchor Kathleen Hays emailed the following: [Richmond Fed president] “Jeff Lacker told me he could see the Fed tightening before unemployment comes down when I interviewed him last month on The Hays Advantage.”

Kathleen also sent a recent NY Fed staff report (number 397) entitled “Monetary Tightening Cycles and the Predictability of Economic Activity.” We thank her for this response and we have posted the NY Fed staff study on our website, Also there is our original October 31 commentary.

We have several items to raise for discussion.

First point.

The NY Fed study seems to examine a separate issue than the study we cited. The authors looked at the unemployment rate AFTER the Fed had stopped tightening. In our view that may be helpful from a policy-issue perspective but it does not help us to determine whether the Fed will start to raise rates BEFORE the unemployment rate peaks.

As portfolio managers we are concerned with the latter. Academics can use the former to debate the efficacy of Fed policy making. We do not have that luxury. We must spend our days managing clients’ money in real time, not debating policy outcomes after the fact. We have to deal with what the policy is doing or will do to the financial markets. When government gets it wrong, which they often do, it is our clients who will pay the price for their errors.

Second point.

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Category: Federal Reserve, Think Tank

Ben the Bartender

Ben the Bartender is working the after hours party as the Fed will keep rates at “exceptionally low levels…for an extended period.” Also with respect to inflation, the commentary is identical to the Sept 23rd meeting which is highly dovish, this even as gold is at a record high, the CRB index is up 8%…Read More

Category: MacroNotes

Bianco on Fed Action

Today’s FOMC Meeting – Fed Likely to Signal Economy Improving, Keep Interest Rates Low Federal Reserve officials may today indicate their $1 trillion injection into the economy is helping to revive growth without requiring an increase in interest rates from near zero, economists said. Policy makers will probably maintain their commitment to keeping rates…Read More

Category: Federal Reserve, Think Tank