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HomeSheila “Bair”s Her Mind
Posted by Larry Doyle on June 14th, 2009 12:43 PM |
Sheila Bair, Head of FDIC
I have always held Sheila Bair in high regard. Why? I believe she has no agenda other than what is best for our country. I find her to be tough, but fair. I think she prioritizes integrity, transparency, and reputation–all of which we badly need, but are in short supply.
Ms. Bair is currently engaged in an active debate about potential management changes at Citigroup. She is no shrinking violet in taking on any and all Wall Street heavyweights. I commend her for that. Additionally, she is giving “no quarter” in defending her positions on financial regulatory reform.
Ms. Bair recently spoke with Forbes, Bair Cautions Banking Crisis Is Not Over. Ms. Bair does not pull any punches or play the pandering games regularly seen in Washington and on Wall Street. As such, I think it is prudent for all of us to listen closely to what she has to say. Forbes reports:
Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said Friday that while the crisis that swept through the financial world last year has subsided somewhat, it was far from over and there would be “many more bank failures” ahead.
“I think there’s still some challenges, I think we need to be realistic. There are still some troubled assets on the books and we still have an economy that’s under significant stress.”
How many other government officials are equally as blunt? How many regulators will openly address the fact that the toxic assets are still very much an issue and that the economy is under ‘significant stress’? Our country is screaming for some good old-fashioned truth combined with straight talk. Ms. Bair provides it. Let’s go back for some more. What does Sheila Bair think about the economy? Green shoots? Turning the corner? Bair provides sobering commentary: (more…)
NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on June 13th, 2009 6:56 PM |
UPDATE: The show has concluded, but you can listen to a recording in its entirety by clicking the Play button on the audio player below. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
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Please join me this Sunday evening June 14th from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. The markets gyrated this week but ultimately ended up close to unchanged across the board. That said, our economic landscape continues to provide numerous twists and turns. Let’s navigate.
The wizards in Washington are working feverishly on an overhaul of the regulatory framework of the financial industry. Or are they? Will real changes be implemented or is it mere pandering? Sense on Cents is thrilled to host the preeminent veteran Wall Street regulatory lawyer and market reform advocate Bill Singer this Sunday evening.
Bill’s career is nothing short of extraordinary. He is engaged far and wide for his legal expertise and advocacy on a wide array of regulatory issues. At this point in our financial and economic turmoil, nobody is better positioned to address the intersection of Wall Street and Washington than Bill Singer.
More specifically, Bill operates within the following realms:
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shareholder in the Securities Practice Group of the law firm Stark & Stark
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Publisher of http://brokeandbroker.com
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Publisher of http://RRBDLaw.com
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Columnist and Member of Forbes.com’s Intelligent Investing Panel
Bill and I will engage in a no-holds-barred conversation about the recent meltdown of our financial system:
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What role did inept regulation and incompetent regulators play in allowing the tragedy to unfold and proceed?
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Should the present regulatory system be salvaged, or demolished and replaced with a new scheme?
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A major part of the regulation of Wall Street is done by a so-called self-regulator whose rules and Board members are voted on only by its member firms — is this still a good idea?
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Why don’t powerful industry interests want the job of stockbroker to be “professionalized” along the lines of medical doctors, lawyers, and CPAs?
These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere!
With Bill Singer on this Sunday evening, you can rest assured we will leave no stone unturned in navigating all the angles on this part of our economic landscape.
Please spread the word amongst friends and colleagues not to miss the show this Sunday evening on NQR’s Sense on Cents with Larry Doyle.
LD
Greater Fool Theory: STRONGLY RECOMMENDED READING
Posted by Larry Doyle on June 13th, 2009 8:14 AM |
Investing is often much more an art than a science. What moves markets both up and down often will defy any logical line of reasoning. That fact can and will frustrate many money managers.
While I traded on Wall Street, I was fortunate to experience many different types of markets and the driving forces behind them. Ultimately I learned that over the very long haul, fundamental analysis will carry the day. That said, for protracted periods the mere flow of funds and market psychology embedded in technical analysis can be powerful if not overwhelming.
I addressed this line of reasoning the other day in writing What’s Driving the Market. I find it particularly uncanny that the lead article in today’s Wall Street Journal, Stocks in the Black on Gusher of Cash, navigates this same line of reasoning.
I wholeheartedly agree with the analysis put forth by the WSJ. I want to juxtapose my writing with that of the WSJ to highlight a theory which readers will likely never see or hear from individuals involved in the financial industry. Coming from a family of lawyers, allow me to “make my case.”
In my piece on Thursday, I wrote:
From my perspective, the Fed and Treasury have created nothing short of a flood of liquidity throughout our financial system and economy. While the economic activity is anything but robust, this money is in the system. Banks are not aggressively looking to lend and will not cut interest rates or credit standards. The shadow banking system (securitization process) remains stagnant.
Thus, where does the money/liquidity go? Much like pools of water after a torrential rainstorm, the pools of liquidity in our system are looking to penetrate any available crack and crevice.
The WSJ writes this morning:
governments around the world are pumping money into the economy at a frenetic pace. Because businesses can’t put trillions of new dollars to work in such a short time, the money is finding its way into financial markets. Some investors have begun speaking of a “bailout bubble” being created in certain markets, and about a “melt-up” in demand fueled by the growing supply of money.
“All that money that was printed had to go somewhere,” says Joachim Fels, co-head of global economics at Morgan Stanley.
As anybody involved in finance can appreciate, “follow the money” holds not only for criminal investigations but also for investment purposes. Let’s continue “down the river.” (more…)
Another “BRIC” in the Wall
Posted by Larry Doyle on June 11th, 2009 11:20 AM |
We have heard loud and clear from Chinese governmental officials about their concern over our growing fiscal deficit. Yesterday, Russia spoke out and announced their intention to diminish their holdings of U.S. Treasurys. Today, we see another BRIC (Brazil, Russia, India, China) nation announce intentions to increase holdings of IMF-issued debt at the expense of U.S. Treasurys. Bloomberg reports, BRICs Buy IMF Debt to Join Big Leagues:
Russia and Brazil announced plans yesterday to buy $20 billion of bonds from the IMF and diversify foreign-currency reserves. China will purchase $50 billion and India may announce similar funding, Brazil’s Finance Minister Guido Mantega said. The countries are seeking a stronger voice in international financial institutions such as the IMF, according to He Yafei, a vice foreign minister at China’s Ministry of Foreign Affairs.
Treasuries declined yesterday, pushing benchmark 10-year yields to the highest since October, after the government sold $19 billion of the securities and Russia said it may move out of U.S. debt to buy the IMF bonds. The so-called BRICs, an acronym coined by Goldman Chief Economist Jim O’Neill in 2001 for the biggest emerging markets, have combined reserves of $2.8 trillion and are among the largest holders of Treasuries.
While those in the administration and select economists will discount these maneuvers by these nations, I beg to differ. The U.S. is very dependent on foreign investors continuing to purchase our debt. If these lead nations move away even marginally, I believe that provides incentive for other smaller nations to do the same. Why?
Nations around the globe are in dire need of financing. A surefire way for smaller antions to curry favor with these BRIC nations is to follow their lead in purchasing IMF-debt versus U.S. Treasurys.
The mere perception that these BRIC nations are purchasing fewer U.S. Treasurys is powerful. Perception very often becomes a widespread reality.
LD
“Say on Pay” or “Talk is Cheap”
Posted by Larry Doyle on June 11th, 2009 8:04 AM |
There is little doubt that misaligned compensation practices played a very large role in the financial fiasco we have experienced. While the Obama administration is working on a proposal known as “say on pay” legislation crafted through the SEC, a Bloomberg report highlights that it may be more appropriate to define the legislation as “talk is cheap.” Why? Let’s review, Obama Pay Plan Lacks ‘Meat on the Bones’ To Trim CEO Paychecks:
The plan announced yesterday by Treasury Secretary Timothy Geithner would require companies to give shareholders a non- binding vote on pay, without setting limits. Directors who determine the pay and consultants that advise companies would have to be more independent from management, Geithner said.
The administration proposal is aimed at reducing incentives that lead executives to take excessive risks and quell a political uproar over bonuses paid managers at companies including American International Group Inc. that received U.S. aid. Geithner blamed pay standards tied to short-term profits for contributing to the worst financial crisis since the 1930s.
“We’re not telling clients to be prepared for less pay,” said David Schmidt, a senior consultant for New York-based compensation firm James F. Reda & Associates. Forms of payment may be adjusted as firms give executives additional cash and put some part of their bonuses in escrow for three to five years, making pay dependent on long-term performance, he said.
I have always maintained that well enforced market based principles are the best means for executive compensation to be controlled. The fact that this legislation provides shareholders a voice is a step in the right direction but it falls woefully short. Why? A non-binding vote that is not allowed to set limits is the ultimate definition of “talk is cheap.”
Swing and a miss!!
Any Green Shoots in the Beige Book?
Posted by Larry Doyle on June 10th, 2009 4:15 PM |
The Federal reserve released its Beige Book a short while ago. Let’s see if we encounter any “green shoots.”
From the Federal Reserve’s report:
Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May. However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year.
Manufacturing activity declined or remained at a low level across most Districts. However, several Districts also reported that the outlook by manufacturers has improved somewhat. Demand for nonfinancial services contracted across Districts reporting on this segment. Retail spending remained soft as consumers focused on purchasing less expensive necessities and shied away from buying luxury goods. New car purchases remained depressed, with several Districts indicating that tight credit conditions were hampering auto sales. Travel and tourism activity also declined. A number of Districts reported an uptick in home sales, and many said that new home construction appeared to have stabilized at very low levels. Vacancy rates for commercial properties were rising in many parts of the country, while developers are finding financing for new commercial projects increasingly difficult to obtain. Most Districts reported that overall lending activity was stable or weak, but with mixed results across loan categories. Credit conditions remained stringent or tightened further. Energy activity continued to weaken across most Districts, and demand for natural resources remained depressed. Planting and growing conditions varied across Districts as did agricultural input costs.
Labor market conditions continued to be weak across the country, with wages generally remaining flat or falling. Two Districts also mentioned employers’ plans to scale back employee benefit programs. The Atlanta, Chicago, and St. Louis Districts reported that some state and local governments faced hiring freezes or outright job cuts. While manufacturing employment levels remained low, some Districts saw signs that job losses may be moderating. With few exceptions, Districts reported that prices at all stages of production were generally flat or falling. The notable exception to the downward pressure on prices was the widely-reported increase in oil prices.
For those interested, the report provides more extensive color on developments within specific industry segments. Additionally, the report is broken down by the specific Federal Reserve districts: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco.
For those who find meaningful “green shoots” in the summary report or within the specifics, I will admit your eyesight or binoculars are far stronger than mine.
LD
10yr Treasury Auction and Wall Street Compensation!
Posted by Larry Doyle on June 10th, 2009 12:56 PM |
In 10 minutes time, Wall Street will underwrite $19 billion 10yr notes. In the face of this supply, a major topic on the agenda today is Wall Street compensation.
Secretary Geithner announced earlier today that the SEC would be involved in crafting “say on pay” legislation. This legislation will focus on trying to align risk and compensation, providing greater disclosure on compensation, and creating proper incentives within the financial industry. The devil will be in the details.
Make no mistake, though, the focus on this issue will serve to lessen overall compensation.
Will Wall Street send a message to Washington that they are not happy with this proposal? How might they do that?
Fade their bids on the 10yr auction. That is, lower the price on the auction thus charging Uncle Sam a higher rate of interest.
Check back shortly and I will report on auction results.
As of 12:55pm, the 10yr Treasury note is trading at a 3.95% rate, which is higher by approximately 5 basis points relative to last evening’s closing level.
LD
***UPDATE AS OF 1:05PM
AUCTION RESULTS and MARKET REACTION:
The 10yr auction did “tail” and was underwritten at a 3.99%. The “bid to cover” ratio was a very respectable 2.62 times. That said, the bidders priced in a healthy discount to buy these notes.
The higher Treasury rate will clearly have a knock on effect across all sectors of the bond market but especially the mortgage market. As rates move higher, the affordability of mortgages and housing overall lessens. To this end, mortgage applications fell last month.
Nobody on the street would ever open Pandora’s Box and openly confess to fading a bid on Uncle Sam. That said, I view today’s price action as providing a hint that the Wall Street crowd is not happy with Washington.
Wall Street will have another opportunity to express their displeasure tomorrow as Uncle Sam will be selling $11billion 30yr bonds.
How is the equity market responding to these higher rates? Earlier today the major market equity averages were higher by 1%. We have seen a complete reversal of that upward move and they are now down by 1% on the day.
Lots of hills, valleys, and undulations as we navigate the economic landscape!!
LD
For more on why interest rates continue their move higher, please also read:
The All Powerful Federal Reserve
Posted by Larry Doyle on June 12th, 2009 8:10 AM |
What would our founding fathers think about the omnipotence of the Federal Reserve?
Is there any doubt that the true greatness of our Constitution is found in the balance of power amongst the executive, legislative, and judicial branches. Where in that mix is the power centered in the financial branch? Who controls the financial branch? Welcome to the kingdom of the Federal Reserve.
To whom does the Fed answer? How transparent is the Fed? Can the Fed be too powerful? Is the Fed “too big to fail?” How skilled is the Fed? Is it infallible? Does the Fed get involved in our political process? So many questions. Such limited clarity.
As our Brave New World of the Uncle Sam Economy evolves, the Fed has never been more influential in our economic and political process. Is the Fed too powerful? Let’s navigate the landscape of the Fed and see what we learn.
Rather than my regurgitating answers to frequently asked questions of the Fed, please allow me to link to the Fed’s own site for these “frequently asked questions.”
Let’s dig deeper. I want to specifically address, two specific aspects which fall under, What are the Federal Reserve’s responsibilities?
-supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
-maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
Looking back over the course of the last ten years, how could any self-respecting central banker, politician, financial executive, market analyst, or financial blogger give the Fed anything other than a failing grade in these realms. Does that failing grade deserve to be assigned more to former Fed chair Alan Greenspan than Ben Bernanke? Perhaps, but the Fed as a whole failed miserably on these critically important initiatives.
As we move forward on our economic landscape, how will our “political leaders” within the executive and legislative branches address the allocation of responsibilities within the financial system? (more…)
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Posted in Federal Reserve, General | 8 Comments »