Posted by Larry Doyle on August 25th, 2009 8:22 AM |
Say what you want about Goldman Sachs in its entirety, but I tip my cap to Goldman economist Jan Hatzius for an extremely forthright and aggressive interview I just watched on Bloomberg Surveillance.
In so many words, Hatzius seems very concerned about a double dip recession here in the United States in 2010. That is my assessment. Hatzius himself did not use that phrase.
Highlights of his commentary include:
>> call for a 3% GDP in both the 3rd and 4th quarters of 2009 driven by fiscal stimulus programs and inventory buildup.
>> without the benefits of the stimulus and further inventory rebound, the U.S. economy will suffer from a ‘substantial hangover’ in 2010.
>> Hatzius does not see China or other surplus nations suffering from this hangover. He is quite bullish on prospects for the Chinese economy.
What are the effects of our hangover and implications for government policy?
>> likely double digit unemployment with no quick improvement
>> Federal Reserve will likely keep the Fed Funds rate at 0-.25% for all of 2010
>> no inflationary pressures for a few years
>> given lack of growth in the private sector, very real chance that the Federal Reserve will extend its quantitative easing program in which it purchases liquid assets (U.S. Treasury debt, agency debt, and mortgage-backed securities). Hatzius threw out that there is a very real possibility the size of the Fed’s balance sheet could double to $4 TRILLION. Be mindful that the Fed’s balance sheet has already doubled over the course of this crisis!!
>> substantial decline in commercial real estate has yet to occur.
>> Cash for Clunkers will likely add .3 to .4 to current quarter GDP, but some of that is certainly pulling demand forward and will be ‘paid back’ with slower growth in 2010.
>> when the economy does gain traction, he believes Bernanke (whom Obama will reappoint to another term) will raise rates aggressively.
Hatzius’ assessment is consistent with the Main Street economy which remains disconnected with Wall Street price action. While Main Street has a headache and hangover, Wall Street rocks on with easy money from Washington.
When will Main Street get in on the action?
Posted by Larry Doyle on April 21st, 2009 1:14 PM |
How does our economy and country move forward after having experienced rampant abuses throughout our financial industry? It is disheartening that we have not already seen an aggressive pursuit and prosecution of many involved in these financial improprieties. Bloomberg releases a story today indicating House Speaker Pelosi Wall Street Probe Modeled on Pecora After Wall Street Crash.
While a thorough investigation is critically important to improve the health and well being of our markets and economy, I would propose we employ an independent investigation. Why?
Our financial industry is intertwined with the regulatory and political oversight which is supposed to monitor it. If we employ a currently sitting legislative body to investigate Wall Street, can or will we receive a truly unbiased analysis? Do we recall Franklin Raines of Fannie Mae being questioned by members of Congress who had received significant campaign contributions from Fannie? The “investigation” of Freddie and Fannie was certainly more theatre than true investigation. Will we get the same with Ms. Pelosi’s probe? Bloomberg offers:
House Speaker Nancy Pelosi plans to push for a comprehensive inquiry, saying that three-quarters of Americans want to know what led to the bankruptcy of Lehman Brothers Holdings Inc. and the collapse of Bear Stearns Cos. and Merrill Lynch & Co. She favors one patterned after Senate Banking Committee hearings led by Ferdinand Pecora starting in 1933, according to her spokesman, Nadeam Elshami.
The Pecora review “was probably the single most important congressional investigation in the history of our country, except perhaps the Watergate hearings,” Donald Ritchie, associate historian for the U.S. Senate, said in an interview. (more…)
Posted by Larry Doyle on April 7th, 2009 2:40 PM |
In thinking about the economy, markets, and our banking system, my memory brings me back to my early days in New York. While working my way along 8th Avenue back to my apartment in Hell’s Kitchen, I would happen upon numerous versions of the classic NYC “hustle.” The shell game (also 3 card monte) was rampant in NYC in the ’80s. Mayor Giuliani cleared out this game, along with a host of other street scenes. For those not familiar with this game, there was a constant need for new players with new money to keep the game alive.
Why do these games remind me of our current banking system? The similarities are scary. Let’s access the most recent piece from John Mauldin’s site to “view the games.”
Mauldin’s guest, John Hussman, comments on these various “games” (TALF, PPIP, TARP, FDIC, FASB), in which taxpayers bear the brunt of the risk in the government’s engagement with financial institutions. Hussman writes of the PPIP:
this is a recipe for the insolvency of the FDIC and an attempt to bail out bank bondholders using funds that have not even been allocated by Congress. The whole plan is a bureaucratic abuse of the FDIC’s balance sheet, which exists to protect ordinary depositors, not bank bondholders.
Posted by Larry Doyle on April 2nd, 2009 1:14 PM |
British Prime Minister Gordon Brown just delivered a statement highlighting the results of the G-20 conference in London. There must have been a lot of work done behind the scenes over the last few months because it’s hard to imagine there was a lot of debate over issues within a 36 hour time frame at this conference. I will grant the world’s political leaders their due as it is most important at times like these to convey a strong, uniform front.
Let’s review the objectives and commitments, each followed by questions and/or comments that I have:
1. Address countries providing tax havens.
My question: who will police?
2. Develop a Financial Accounting Stability Board to regulate currently unregulated financial entities, primarily hedge funds.
My questions: how will it be staffed, operated, and judgments adjudicated? (I don’t like FASB as the acronym to be confused with Federal Accounting Standards Board)
3. Develop global policies and outline to address compensation
My questions: who and how will this be implemented? how will it be regulated? will there be punishments for those not participating?
4. Develop a global systemic risk oversight body.
My Question: who and how? (more…)
Posted by Larry Doyle on March 25th, 2009 4:55 PM |
The U.S. government was heavily involved in the bond market today. How did they do? They bought high and sold low. What happened?
The Fed announced last week that they would engage in buying hundreds of billions of government and mortgage securities in an attempt to move interest rates lower and spark consumer and corporate borrowing. Today, the Fed made their initial purchase under this program at mid-morning. Thanks to MB, I learned that Wall Street offered the Fed three times more bonds than it actually purchased. I gather that the Fed wanted to be extremely patient and diligent in their purchases. In any event, at mid-morning the Fed would have bought bonds near the market highs of the day.
Later in the day, Treasury issued multiple billions in 5yr notes. How did they do with this sale? Not very well. Wall Street backed up their bids an almost unheard of 5 basis points (.05%) to fully underwrite these bonds. What happened? (more…)
Posted by Larry Doyle on March 24th, 2009 8:47 AM |
I have written at length about the problems within the banking, insurance, hedge fund, and consumer finance industries over the last 6 months. While the bulk of the media focus has been on the banking industry – and primarily the large money center banks – the erosion in asset values at these other financial companies has been accelerating.
This past Sunday evening on my weekly radio show, NQR’s Sense on Cents with Larry Doyle, I spoke extensively about the massive financial shortfall within the insurance industry. In addition, relatively early on I warned that the hedge fund industry had likely been severely mismarking many investments. From a piece I wrote on November 12, 2008:
Give it time, because hedge funds do not have to report to anybody as to what their positions are and where they have them marked. There is no doubt they have positions that are grossly mismarked and have many positions that are totally illiquid. For many investors in these funds, these are truly “roach motels.” Hedge funds will sell what is most liquid when they can to meet redemption requests. We should expect a significant number of hedge fund liquidations, consolidations, and out and out disasters.
The same can be said for a number of private equity shops. Consumer finance companies with large holdings of a variety of consumer assets are fighting for their lives as delinquencies and defaults on these assets ratchet higher. (more…)