Posts filed under “Think Tank”
The markets are now screaming at the Fed to do something to arrest inflation concern. Fed governors must now internally debate hiking the fed funds rate…And if the economy and stock market have bottomed, a 50bp fed funds rate should be insignificant. But many people don’t really believe; they’re just “talking their book.”
Two weeks ago we noted that commodity markets were in position to soar. Some have broken out; others are in the process of breaking out. We also have been warning that bonds have broken down.
On Monday we noted that commodities had rallied a multiple more than stocks. This is definitely inflation investing, despite the braying by the usual suspects that surging oil and other commodities is a sign of growth. That’s not accurate.
If fact, in the early stages of recovery inflation is tame. In the 80s oil and commodities declined while the economy grew robustly. In the ‘90s inflation remained tame during growth. But in this decade, substandard economic growth was accompanied by soaring oil and other commodities.
Commodities surge at the end of cycles, particularly when the Fed artificially extends the cycle with funny money. And now we have record funny money.
And to say bonds are retreating due to economic growth is also wrong, with the 80s again as an example.
The financial crisis to date is due to credit and solvency concerns. When people fear that an entity cannot meet interest payments or repay all or part of the principal, that piece of paper tanks. But debt without credit concerns remains buoyant; some debt increases in price on safe haven buying.
But if bonds prices tumble, all debt gets marked down; and then there could be more derivative problems. If all debt instruments decline financial firms’ balance sheets will deteriorate severely.
One reason for the severity of the credit crisis is that too many Street denizens, including model makers, had not experienced a credit cycle turn. The last occurred in 1990.
This bond bull market commenced in 1982. Few money managers have experienced the savagery that a bond bear market brings.
Estimates have CDS at $40 to $50 trillion notion value. Estimates put interest rate related derivates over 50% of the $1.4 quadrillion derivative market. We don’t have to elaborate about what might be triggered.
If stocks tumbled on Thursday on concern about inflation and the bond market breakdown, the Fed is in deep stuff. Its intent has been to reflate financial asset prices. But declining bonds could trump the Fed.
Ben is now chagrined because his effort to prop up bonds, possibly to appease China (after Hillary’s trek there) by announcing a $300B monetization, has produced the opposite of the desired effect. Ben’s scheme has inflamed inflation concern, as it should have and will continue to do so.
In recent weeks we have also noted that the dollar is close to breaking down. This is the flipside of the inflation coin. And of course, this forces one to consider what China is thinking and what they might do.
The comprehensive unemployment rate which is referred to as U6 and includes part time workers that want full time jobs and discouraged workers that have stopped looking but will take a job if offered, rose to 15.8% from 15.6% and 9.2% in April 2008.
April Payrolls fell 539k, 61k better than expected BUT the 2 prior mo’s were revised down by 66k, so taken together, it was about in line with estimates. Giving the # a boost was the 72k person increase in Govt hiring, led by 66k within the Federal Govt. Construction fell by 110k, mfr’g by 149k,…Read More
Clarity is what every investor craves especially in a world of alot of dark alley ways that multiply in a recession. At this moment in time, the ‘stress test’ has given the markets clarity as to the current exposure of 19 banks to a specific set of scenarios and kudos to those that are able…Read More
http://www.federalreserve.gov/newsevents/press/bcreg/20090507a.htm For release at 5:00 p.m. EDT The results of a comprehensive, forward-looking assessment of the financial conditions of the nation’s 19 largest bank holding companies (BHCs) by the federal bank supervisory agencies were released on Thursday. The exercise–conducted by the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit…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
Chairman Ben S. Bernanke
At the Federal Reserve Bank of Chicago Conference on Bank Structure and Competition, Chicago, Illinois (via satellite)
May 7, 2009
Lessons of the Financial Crisis for Banking Supervision
After more than a year and a half of financial crisis, both bankers and policymakers must contend with two questions: What have we learned from this extraordinary episode? And how can we apply those lessons to strengthen our banking system and to avoid or mitigate future crises? Getting the answers to these questions right is critical for our future financial and economic health.1
The Federal Reserve has been intensively evaluating the lessons of the crisis, both with respect to the companies we supervise and to our own policies and procedures, and we are actively incorporating what we have learned into daily supervisory practice. Increasing the effectiveness of supervision must be a top priority for our institution. In my remarks today I will outline some steps that the Federal Reserve has already taken in the wake of the crisis to strengthen capital, liquidity, and risk management in the banking sector, as well as to improve the supervisory process itself. I will also touch on what we have learned about the importance of effective consolidated supervision and the potential benefits of a more macroprudential orientation to financial oversight.
Jane Hamsher is the founder of Firedoglake. Her work has appeared on the Huffington Post, Alternet and The American Prospect. She has appeared on CNN, MSNBC and PBS and is the author of the best selling book Killer Instinct. She has produced such films Natural Born Killers and Permanent Midnight and currently lives in Washington,…Read More
> The ADP Employment Change at -491k was significantly better than the expected -645k. This pushed stocks higher. However, as we keep noting, ADP has not tracked the NFP number due to BLS’s whacky seasonal adjustments and its dubious Net Business Birth/Death Model. The Street ‘officially’ expects the Employment Report on Friday to show NFP…Read More
Initial Jobless Claims totaled 601k, 34k less than expected and down from a revised 635k last week (up by 4k) and down for a 2nd week to the lowest since Jan 23rd. Continuing Claims though continues its move higher by 56k, 1k more than expected and the differential between the two figures is evident that…Read More