Posts filed under “Think Tank”

Trade of the Century?

Paul Brodsky & Lee Quaintance run QB Partners, a private macro-oriented investment fund based in New York.


We advanced our macroeconomic analysis last month to a level we feel confirms the future course of US monetary policy and the consequent likelihood of a highly inflationary outcome.

First, we tweaked the calculation of our Shadow Gold Price (SGP) from Federal Reserve Bank Liabilities divided by official gold holdings to Monetary Base (MB) divided by official gold holdings. (FRB Liabilities are bank assets while Monetary Base, plotted in the graph below, is a truer accounting of money – currency in circulation plus bank reserves held at the Fed.) The switch recognizes that borrowed reserves from the Fed included in FRB Liabilities are self-extinguishing, unlike additions to high-powered MB, which tend to remain permanent throughout all economic environments (and which may be further levered by the banking and shadow banking systems).


The change in our calculation produced a change in value of our Shadow Gold Price, yet we believe this new calculation is more robust and intellectually honest. As you can see from the graph below, the time series for the SGP mirrors the time series of the Monetary Base in the previous graph because the other variable in the equation (official gold holdings) has remained constant.


As the SGP implies, an ounce of gold would fetch almost $6,000 if we lived in a world characterized by disciplined money issuance. In effect, people and governments around the world would have been exchanging their Federal Reserve Notes for gold to the point that it would take 6000 bills to buy an ounce. The Shadow Gold Price solves for the price of an ounce of gold if the US dollar were still pegged to gold and its rise reflects the inflation of the Monetary Base. (Gold used to actually be the US Monetary Base prior to 1971, when the US and other governments abandoned the Bretton Woods Agreement that imposed monetary discipline on their money printing.)

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Category: Think Tank

What do PG and AXP Tell Us About the Economy?

Good Evening: And so it continues. The pattern of an early drop in stock prices, followed by a late day rally held true to form again today. This trend has become so entrenched in recent weeks that, according to CF Global’s Philip Grant (who writes a fine market recap of his own), “the S&P 500…Read More

Category: Markets, Think Tank

Trading Observations

A friend (A) at a major trading house is a young but astute market oberver. He notes some details of today’s action: 1. Volume is tracking for 11.7 billion shares, which if accomplished would be the largest volume day since June 26th. On that particular day, personal income and spending data for May revealed a…Read More

Category: Markets, Think Tank

rate hike odds/$, bonds, stocks

Coincident with the US$ weakness, rise in bond yields, increase in inflation expectations in the TIPS and relentless rally in stocks, the fed funds futures are moving closer to pricing in a 100% chance of a Fed rate hike of 25 bps by January. Looking at the Feb fed funds futures contract, odds right now…Read More

Category: MacroNotes

Cost of Living in America

investing in real estate, budgeting

Category: Digital Media, Think Tank

ISM services index

The ISM services index (services make up about 80% of the labor market) was 46.4, 1.6 points less than estimates and down from 47 in June. Business Activity fell 2.7 points to 46.1 after almost reaching 50 in June. New Orders fell .5 point to 48.1 but off the highest reading since Sept ’08. Backlogs…Read More

Category: MacroNotes

All About Picking Losers as Winners: Interview With Bob Feinberg

Today we ran an interview with Robert Feinberg, who is one of Washington’s veteran observers of the financial industry.  We also commented on the latest outburst by Treasury Secretary Tim Geithner.   Enjoy.  Chris

The Institutional Risk Analyst

August  5, 2009

On Friday we described to subscribers of The IRA Advisory Service why we downgraded our outlook on US Bancorp (NYSE:USB) from “positive” to “neutral,” and reaffirmed our “positive” outlook on Cullen/Frost Bankers (NYSE:CFR).  For more information about this report or our coverage universe, please contact us:

Today we are in Samoset, Maine, at the meeting of the National Business Economic Issues Council (NBEIC). Despite the interesting presentations and views expressed at NBEIC, we could not help but take a moment to comment on the regulaltory reform process since it seems that the Secretary of the Treasury forgot to take his Xanax last week.

The WSJ reports that “Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration’s faltering plan to overhaul U.S. financial regulation.” Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair.  Friday’s roughly hour long meeting was described as unusual, not only because of Mr. Geithner’s repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies that are, by law, considered independent of the White House.

Secretary Geithner reportedly reminded attendees that the Obama Administration and Congress set policy, not the regulatory agencies. Presumably the target of Geithner’s ire was FDIC Chairman Bair and SEC Chairman Schapiro, who expressed a collective unwillingness to yield power over to Fed Chairman Ben Bernanke.  Chairman Bernanke, of note, seems to be running for reappointment based on the FOMC’s incredible, single-digit unemployment projections for 2010.

Secretary Geithner is correct that the Congress makes policy.  The executive branch only proposes and implements, right?  Until the Congress actually votes and the President signs the legislation, though, there is no new policy.   Given the complete lack of leadership from the White House on regulatory reform, the agency heads can probably be forgiven for focusing their attention on the Congress and not the wants and needs of Secretary Geithner, who we still believe is not long for this political world. When the next round of good news comes out of American International Group (NYSE:AIG), we expect that Secretary Geithner’s inability to sell his home in New York may cease to be a problem.

The fact is, there is no great push from either the public nor the Congress for regulatory reform, no more than there is a great groundswell of public demand for health care reform.  In both cases, the Obama Administration is playing political poker with a very weak hand.  It looks to us like both regulatory reform and health care, if they get them done at all, will look nothing like the proposals emanating from the White House.

For example, we hear that the Obama Administration’s new proposal for regulating OTC derivatives (it will cover ALL OTC derivatives, not just credit default swaps or “CDS”, including interest rate swaps).  Our sources expect the headline language will represent very real regulation of OTC and may negatively effect the larger dealer banks.  We hear that the proposal will ensure that the system evens the playing filed between the dealers and end-users in terms of economics, access and information.

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Category: Markets, Think Tank

ADP jobs report

ADP said there were 371k private sector jobs shed in July, 21k more than expected but it’s the slowest pace of decline since Oct ’08. As has been seen, small and medium sized businesses led the way. The goods producing sector shed 169k jobs, 99k of which was manufacturing. The service providing sector lost 202k…Read More

Category: MacroNotes

Sentiment getting very bullish

Unlike the world of consumer products where lower prices bring out the buyers (free money from CF clunker’s as an example), investors get more bullish the more expensive stocks get. The weekly II data said the number of bullish newsletter writers rose to 47.2, up 5 points for the week while bears fell to 25.8…Read More

Category: MacroNotes

Toothless SEC Leaves SOX Full of Holes

Good Evening: After a morning decline, the major U.S. stock market averages rallied back to close higher today (this is a recording). Worries about a drop in personal incomes was overcome by a rise in pending home sales, though, as we’ll see, the former should matter more than the latter. The reflation trade (stocks &…Read More

Category: Markets, Think Tank