Posts filed under “Think Tank”

Moody’s says we Aaa-ok

Moody’s said that the US govt’s Aaa rating is stable “even with a
significant deterioration in the US govt’s debt position.” They said due
to a diverse and resilient economy, strong gov’t institutions, high per
capita income, and a central position in the global economy, “Moody’s
expects that US economic strength will emerge after the crisis without
major impairment” and “the global role of the US currency also
contributes to the ability of the economy and govt finances to rebound.”
A nice way of saying the govt can print its way to paying off its debts
since the $ is the reserve currency. They said the level of debt is less
important than the US govt’s balance sheet flexibility, which is still
high. Going forward, “how the economy and fiscal policy fare after the
recession will be key and the…contingent liabilities of Social
Security and Medicare could also pressure the rating.”

Category: MacroNotes


Coincident with the CRB index at its highest level since late Nov, the Baltic Dry Index rising for an 18th straight day to the highest level since early Oct and all in the context of the Fed’s policy of quantitative easing, the implied inflation rate in the 10 yr TIPS this morning is up for…Read More

Category: MacroNotes

Dollar’s slide hurting foreign investors

Dollar’s slide hurting foreign investors With the US dollar trading at a five-month low, spare a thought for non-US investors invested in US stocks and bonds. The graph below compares the performance of the US 10-year Treasury Note in US dollar terms (green line) with the same bonds from the viewpoint of a European investor…Read More

Category: Think Tank

Yesterday’s stock market celebration of the possible return of the US consumer to the world stage again after the better than expected consumer confidence data continued overnight in Asia as any maker of goods headed for US shores rose sharply. The Conference Board # was a written questionnaire that was filled out weeks ago. The…Read More

Category: MacroNotes

Confidence Rises Among Consumers of Equities

Good Evening: After a brief bout of depression last week, the bi-polar patient otherwise known as Mr. Market went a bit manic today. Helping the old gentleman during Tuesday’s session wasn’t a dosage change to his medication, but rather some uplifting news about consumer confidence. A rush into beta-heavy stocks ensued, and even some of…Read More

Category: Markets, Think Tank


An example that the more the US govt gets involved in cleaning up the economic mess, the longer it will last, aka Japan, Fitch is forecasting that between 65-75% of mortgage loans that are modified will redefault after 12 mo’s. An example of the damage that can be done to a family by artificially modifying…Read More

Category: MacroNotes

Only a madman can get the $ to rally?

Who would have thought that the best friend of a US$ bull would be Kim Jong Il but it was North Korea’s missile and nuclear test that bounced the $ after 5 days of selling last week. Commodities are lower as a result and helping to pressure crude is the realization (as expected) that nothing…Read More

Category: MacroNotes

Words from the (investment wise) May 24, 2009

Stock markets kicked off the last week on a high note, but then the US parted ways with other markets as the remaining four days went downhill for American stocks. In contrast, global markets in general had only one down day on Thursday.

In addition to non-US equities, risky assets such as commodities, oil, gold, silver and platinum, and high-yielding currencies performed strongly amid fresh signs of “less bad” economic and financial conditions. However, safe-haven trades such as the US dollar and government bonds got whacked, especially following Standard & Poor’s decision on Thursday to mark down its medium-term outlook for the UK’s AAA credit rating from “stable” to “negative”. This raised concerns that the US may face a similar fate.


Source: New York Post, May 23, 2009.

As the implications of surging government debt levels move to center stage, the US Debt Clock makes for sobering reading. Click here or on the image below for the live version.


Source: US Debt Clock, May 23, 2009.

David Rosenberg, Merrill Lynch’s former chief North American economist, who has just commenced duty with buy-side firm Gluskin Sheff & Associates, commented as follows: “While the UK government debt-to-GDP ratio is around 40%, the rating agencies are looking at 100% in coming years. The US government debt/GDP ratio right now is near 65%, but clearly heading higher. It seems as though 100%+ is the trigger point for downgrades …

“So the view out there that the US is about to receive a credit downgrade despite the dramatic expansion of the government balance sheet is a little premature. For now, it makes for nice cocktail conversation but as super-sized as the deficit is (13% of GDP), there is enough room in the debt ratio that the US would likely have to run three more years of this sort of fiscal policy to be seen as a candidate for a downgrade.”

The performance of the major asset classes is summarized by the chart below.



Following the previous week’s bruising, the MSCI World Index last week gained 2.2% (YTD +2.3%) and the MSCI Emerging Markets Index 5.4% (YTD +31.6%).

Similarly, the major US indices reversed course, but in a much more subdued fashion, as seen from the fairly flat movements of the major indices: S&P 500 Index (+0.5%, YTD -1.8%), Dow Jones Industrial Index (+0.1%, YTD -5.7%), Nasdaq Composite Index (+0.7%, YTD +7.3%) and Russell 2000 Index (+0.4%, YTD -4.4%).

The Nasdaq remains the only major US index still in the black for the year to date, finding itself in the company of the majority of emerging and mature markets.

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Category: Think Tank

Securitization: Advanta and the Fiction of True-Sale

Below is a comment by LSU Professor Joseph Mason and Eric Higgins  on the evolving situation in the securitization market. While the folks at the Fed and Treasury pretend that they can breathe life back into the private label securitization market, the legal underpinnings of this OTC market are disintegrating under the weight of mounting losses and falling cash flow. –  Chris

Advanta and the Fiction of True-Sale

Joseph R. Mason and Eric J. Higgins†

On Monday, May 11, 2009, Advanta Corp. announced that their credit-card securitization trust would go into early amortization and that they will shut down all of the accounts in the trust. What the casual observer (and most regulators) missed is that this announcement is also endemic of the problems at the heart of securitization: the “true-sale” classification from which securitizations obtain their off-balance sheet treatment.

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Category: Think Tank

The Paradox of Deficits

The Paradox of Deficits May 23, 2009
By John Mauldin

Things That Go Bump in the Night

A Trillion Dollars as Far as the Eye Can See

The Global Recession Gets Worse

Where Will the Money Come From?

The Paradox of Deficits

Naples, London, and Eastern Europe


From ghoulies and ghosties
And long-leggedy beasties
And things that go bump in the night,
Good Lord, deliver us!
–Old Scottish Prayer

There is something that is bumping around in my worry closet. The bond market is not behaving as if there is deflation in our future, and the dollar is getting weaker. Unemployment keeps rising, but most of all, the US government deficit looks to be spinning out of control. This week we look at all of this and take a tour around the world to see what is happening. There is a lot of interesting
material to cover.

But first, I am proud to announce that thanks to your donations the net proceeds from the Richard Russell Tribute Dinner totaled $17,000! A donation was made in that amount to the Autism Society of America, San Diego County Chapter, in Richard Russell’s name.

The evening was captured in both video and photographs, and we would like to share those with you. We have put together a DVD that captures all the wonderful moments, including tributes from Richard’s longtime friends and family, an entertaining skit by Richard’s daughter Daria, and another touching tribute by Richard’s daughter Betsy. Perhaps the best speech, however, came
from Richard himself — which is of course included on the video. For those who could not attend in person, we have already made copies of the video and will mail it to you as soon as you order it. The cost is $29.95, and that includes shipping. You may order as many copies as you like.

To order the video, please visit:

The photographs were placed on Shutterfly, an online gallery where you may view them and choose the ones you would like to order. We have created a web page specifically for these photos. To access that page, please use this link: or you can link from the page above. Now, let’s jump right into the letter.

A Trillion Dollars as Far as the Eye Can See

As of this week, total US debt is $11.3 trillion and rising rapidly. The Obama
Administration projects that to rise another $1.85 trillion in 2009 (13% of
GDP) and yet another $1.4 trillion in 2010. The Congressional Budget Office
projects almost $10 trillion in additional debt from 2010 through 2019. Just
last January the 2009 deficit was estimated at “only” $1.2 trillion. Things
have gone downhill fast.

But there is reason to be concerned about those estimates, too. The CBO assumes a
rather robust recovery in 2010, with growth springing back to 3.8% and then up
to 4.5% in 2011. Interestingly, they project unemployment of 8.8% for this year
(we are already at 8.9% and rising every month) and that it will rise to 9%
next year. It will be a strange recovery indeed where the economy is roaring along
at 4% and unemployment isn’t falling. (You can see their spreadsheets and all
the details if you take your blood pressure medicine first, at

Just a few quick thoughts. This year the proposed administration plan is to borrow 50% of every dollar spent. The CBO projects than nominal GDP will grow by about 50% over the next 10 years (which is historically reasonable), but also that revenues will double, which suggests massive tax increases in relation to GDP. Interestingly, the International Monetary Fund says growth next year will be tepid at best (more below). The deficit in 2010 is almost 10% of GDP. The average proposed deficit is almost a $1 trillion average for the next ten years. Ten years from now, the deficit is projected to be $1.2 trillion. And that is if government costs do not go up and inflation only averages 1.1% for the next six years.

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Category: Think Tank