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HomeIn Speaking with the New York State Society of CPAs
Posted by Larry Doyle on May 19th, 2009 12:22 PM |
I spoke to the CFO’s Committee of the New York State Society of CPAs this morning. I thoroughly enjoyed the engagement with a very responsive and inquisitive audience.
My presentation was well received. I addressed a number of issues, including the current state of the economy, debt levels, banks, the Uncle Sam economy, regulation, and my outlook.
A number of individuals offered how they were not fully aware of the potential losses within the Federal Home Loan Banks along with ongoing losses at Freddie and Fannie (LD: death by a thousand cuts at all of these institutions). Another individual questioned how the Federal Reserve can continue to buy up MBS at these rate levels without assuming real long term risks in the process (LD: they can’t). Other questions addressed issues within the commercial real estate space (LD: a buyer’s market which will get cheaper) and the potential success of the TALF and PPIP (LD: moderate success at best, with some managers making huge returns on certain deals). It was an engaging dialogue and I thoroughly enjoyed it.
My greatest takeaway revolved around the disappointment within the audience on the regulatory front. A number of individuals anticipated an increase in demand for accounting services consistent with real regulatory changes. As with any industry connected to finance, accounting has lost a number of jobs. The expectation of increased opportunities given new and stronger regulations were highly anticipated. Regrettably the message from Washington as asserted by a society spokesman is that in regard to regulatory changes “the pedal is off the metal.”
Given the very nature of their job, other CFOs in the audience also voiced their disappointment with that development. One CFO went so far as to inquire where the “profiles in courage” are today in our government and regulatory bodies.
It would appear that both Wall Street and Washington seem more focused on cosmetic changes without tackling the hard issues. Our markets will ultimately price the subsequent risks accordingly.
LD
The Most Critical Economic Statistic
Posted by Larry Doyle on May 19th, 2009 6:37 AM |
Which economic statistic is the most important? Unemployment? Housing starts? Trade deficit? Inflation? Retail sales?
Well, they are all important . . . but as I review the many statistics, the economic data that I believe most significant are loan delinquencies. Now, mind you a delinquency does not mean that the loan has defaulted and been foreclosed upon. A delinquency is merely a late payment. Typically loans are classified as 30 day, 60 day, or 90 day delinquent. There is a very high correlation between delinquent loans and those that default.
Loans become delinquent for a whole host of fairly typical reasons. That said, in this economy the nature and array of reasons are growing. As a result, the ability of lenders to forecast and manage delinquencies is increasingly more challenging. Lenders will typically increase reserves as loans become more delinquent in anticipation of a natural rate of default.
Loan delinquencies will often occur even before unemployment hits or sales falter. As individuals or companies feel increasingly squeezed, the monthly loan payment becomes more difficult to make and delinquency results. (more…)
Future Financial Regulation: Not a Question of Sufficiency, But of Transparency and Integrity
Posted by Larry Doyle on May 18th, 2009 12:38 PM |
Will our future regulatory structure of the financial industry allow capitalism to thrive? Will the political wizards in Washington prioritize personal agendas and expediency over unquestioned transparency and integrity? I believe we are at a critical regulatory crossroads not seen since financial regulations implemented in the Securities Act of 1933.
Do the powers that be both in Washington and Wall Street understand the magnitude of responsibilities and obligations involved in this process? Initial returns are decidedly mixed. The debate by those intimately involved in the regulatory oversight is typically framed as a question of sufficiency. That is, does the industry have enough regulation or not?
The media often frame the debate in political terms between laissez-faire proponents and those favoring increased government intervention. Both camps are missing the bigger picture, because both camps are feeding from the same trough. Allow me to expound.
The critical regulatory question facing our markets is not of sufficiency but is one of transparency. Regrettably, both ends of the regulatory spectrum do not want to address this glaring shortcoming because it exposes the very nature of the incestuous relationship between Wall Street and Washington.
The mainstream media, to a large extent, is dependent on both Wall Street and Washington for their financial well being so they do not press or pursue the need for total regulatory transparency. Fortunately, Sense on Cents and other leading financial websites are not under this restriction.
Let’s dig deeper and review where regulatory developments stand currently. As the Financial Times reports, U.S. Poised For Finance Regulation Shake-Up:
Congress will next month start the biggest regulatory overhaul of the US financial system in decades, bringing into the open a frantic lobbying effort between banks, regulators and policymakers on what it contains and who pays for it.
The House financial services committee, chaired by Democrat Barney Frank, will hold hearings early in June into reforms outlined by Timothy Geithner, Treasury secretary, say people familiar with the timetable.
Regrettably, before the debate even begins the premise of sufficiency versus transparency is accepted without question. Well, Sense on Cents is questioning the lack of transparency and resulting integrity of the process, which by its very nature strongly influences the outcome. Allow me to be more specific. Much as the Parliament in the U.K. is being rocked by a current scandal over expenses submitted by legislators, I strongly exhort those who truly care about capitalism, free market principles, and our democracy to address the very nature of the relationship betwen the banks, regulators, and policymakers. (more…)
Wall Street Pit Welcomes Sense on Cents
Posted by Larry Doyle on May 18th, 2009 8:12 AM |
I am humbled by the request of the editors of Wall Street Pit to be a contributing author. Wall Street Pit is a leading financial website covering the economy, markets, and global finance. There are currently 51 contributing authors, including leading economists, research analysts, professors, central bankers, and corporate titans from around the world affiliated with:
Education: Harvard University, University of California-Berkeley, Dartmouth College, UC-San Diego, London School of Economics, Koc University, Chuo University, Trinity College Dublin, University of Michigan, University of Oregon, University of Wisconsin, Peking University’s Guanghua School of Management, Stanford University, University of Leuven (Belgium), MIT, Graduate Institute/Geneva, Northwestern University, Sloan School, Goethe University of Frankfurt.
Central Banks: International Monetary Fund, Federal Reserve Bank of Cleveland, U.K. Cabinet Office, Central Bank of Turkey.
Corporate: Carl Icahn, McKinsey, Bloomberg Personal Finance, DailyFX.com, Mark Cuban, Ockham Research, Q1 Publishing, IA Capital.
A number of these individuals are also connected with voxEU.org, a leading European based financial website. In fact,
VoxEU.org is partnering with the UK government to collect the views of economists from around the world on what the G20 should do to fix the global economy.
I am thrilled to be a contributing author. I am also thrilled to bring the wisdom of such an esteemed coterie of individuals to Sense on Cents. I look forward to my affiliation with Wall Street Pit and the impact it will have on all who visit Sense on Cents. Please visit Wall Street Pit as we collectively navigate the economic landscape.
LD
Europe Sneezes, Asia Gets A Cold
Posted by Larry Doyle on May 18th, 2009 5:00 AM |
The European Union reported a 2.5% decline in 1st quarter GDP the end of last week. Market pundits claim that this report and quarter will represent the trough for the recession in Europe. I personally do not see any meaningful evidence to support that assertion. Europe has been slow to address the massive capital shortfalls in its banking system. The EU has reluctantly adopted measures of quantitative easing and has been slow to drop its overnight lending rate.
What have been the ramifications of the EU’s tardiness on the monetary and fiscal stimulus fronts? RTT News reports, Euro Moves Lower Versus Rivals After GDP Report. 1st quarter output in Europe plummeted and economic growth revisions across individual countries showed greater declines.
I have always viewed eastern Europe as being The Weakest Link in our global economy. The EU’s enormous exposure to eastern Europe is a MAJOR drag on its financial institutions and, in turn, its economy. The 1st quarter GDP report is a clear indication of the impact that the Weakest Link Is Weakening, much as I had written a few months ago.
Can this European weakness be contained? Can stronger economies pull Europe out of the economic ditch? Weren’t these the same questions we posed in regard to the rising delinquencies and resultant foreclosures in sub-prime mortgages?
The immediate reaction to the European weakness in Asian markets is a swift selloff. Japanese equities are down almost 3% overnight (10pm EST) due primarily to the weakness in Europe. As Bloomberg highlights, Japanese Stocks Slump on Panasonic Loss Forecast, Europe GDP. Bloomberg asserts:
“Europe’s spending less on stimulus, so their ability to recover from the recession is weaker than the rest of the world.”
Additionally, Bloomberg provides further European color:
Gross domestic product in the 16-member euro region fell 2.5 percent from the fourth quarter, the biggest decline since the data were first compiled in 1995, the European Union’s statistics office in Luxembourg said on May 15. That exceeded the 2 percent contraction economists expected in a Bloomberg survey and followed a 1.6 percent drop in the prior three months.
“Concerns are building about the health of Europe,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “That’s having an effect on the currency market and creating a headwind for export companies.”
Why isn’t Europe more swift and aggressive in providing fiscal and monetary stimulus? Germany’s hyperinflation during the post World War I era has left an indelible scar upon that country. I found the insights into Germany’s period of hyperinflation provided in an excerpt of Paper Money by ‘Adam Smith’ (George J.W. Goodman) to be highly informative.
In pausing to review the depth and magnitude of these economic issues, it is readily apparent that our global economy is connected not only across borders but also across historical eras.
LD
A New Bull or a Bear Market Rally?
Posted by Larry Doyle on May 17th, 2009 9:02 AM |
Are we entering the initial stages of a bull market or experiencing a bear market rally? Does our economy have the requisite liquidity to finance the deficit or is the liquidity trapped by embedded losses in the banking sector? Will tax revenues be sufficient to address municipal obligations? Ultimately, what does it all mean for our economy and the global economy.
Our Economic All-Star John Mauldin and his colleague Niels Jensen of Absolute Return address these critical questions in an easy to understand fashion in The $33,000,000,000,000 Question.
As we enter the ‘Brave New World’ economy, I believe it is critically important we revise our mental approach to the economy and markets. I share the concerns voiced in this piece. If nothing else, Jensen’s detailed analysis provides insights into the hurdles we face as we try to move forward. I hope it helps you navigate your personal economic landscape.
LD
Speaking to New York State Society of CPAs
Posted by Larry Doyle on May 16th, 2009 6:06 PM |
I will be addressing the New York State Society of CPAs Chief Financial Officers Committee this Tuesday. I will be giving my views on the economy, the markets, global finance, and asset allocation.
I welcome the opportunity to share my views at this conference. Additionally, I am happy to engage others who may want me to speak in small or large settings, either in person or via conference call.
LD
Tune In Sunday Night for NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on May 16th, 2009 11:35 AM |
UPDATE: The show has concluded, but you can listen to a recording of it 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 Sunday evening from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and what does that mean for the weeks and months ahead? We will address a wide range of issues, including economic statistics released this week, the automotive situation, market performance, and the road ahead. Additionally, I am always happy to address anything on your mind as you navigate your own economic landscape.
I will be joined by a special guest this week, as well. Mike Offit is uniquely positioned to offer piercing insights on the current state of Wall Street, the markets, and the economy. Mike held senior positions at First Boston and Goldman Sachs prior to launching the commercial mortgage and asset-backed securities business unit at Deutsche Bank. He currently consults and writes extensively on a wide range of issues for a number of periodicals including a lifestyles column for Departures, the AMEX Platinum/Black card magazine. Mike has unabashedly always “tilted against windmills.” I look forward to my conversation with him this Sunday evening.
These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins.
Many thanks to Larry Johnson and the rest of the team at NoQuarterUSA blog for providing such a vibrant vehicle as NoQuarter Radio. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!
LD
Arne Duncan Visits Detroit; He Should Visit Domus
Posted by Larry Doyle on May 16th, 2009 9:04 AM |
Our nation faces many huge problems but none greater than the issues in urban education. President Obama has experience in this area during his time in Chicago. Not surprisingly, he went to his roots and brought Arne Duncan from Chicago to Washington to head the Department of Education. Let’s check in with Mr. Duncan.
Duncan recently paid a visit to Detroit, home to the worst public schools in the country (based upon graduation rate). The Washington Post offers insights on his visit, Duncan Delves Behind Grim Statistics.
While this article asserts the graduation rate for 9th graders in Detroit is 38%, it fails to address that there are plenty of students who drop out prior to 9th grade. The actual graduation rate in Detroit is an abysmal 25%!! The overall graduation rate in urban schools is a paltry 50%.
Duncan has been given a massive checkbook to address education issues in our country. Rest assured, money is part of the problem. However, in my opinion, money is not the critical issue. As the Washington Post’s article highlights, many students in urban settings are involved in gang activities. Regrettably, gangs have replaced traditional families. Why? Well, I am not a sociologist nor a psychologist but I have to believe when so many newborns enter this world into single parent families (70% of newborn African Americans enter this world into a single parent family, 50% for Hispanics, 30% for Caucasians), they have one strike if not two against them before the game has even begun. These kids will look for structure somewhere. Regrettably, the gang becomes the structure.
I addressed this sensitive, but critically important, topic last Fall. Please allow me to go to the archives and revisit, “Give a Man a Fish, Feed Him For a Day…”
My point in writing that article was to highlight the cold but sobering reality of graduation rates in urban settings and the correlation with incomes. I also wanted to address the hurdles presented by the bureaucracy embedded in teacher unions.
My article back then elicited much feedback from readers, business associates, friends, and family. Often, the question was raised as to what could be done to address the core problem – the lack of family structure in urban settings.
As fate would have it, I had the good fortune of meeting an individual this week who for the last 26 years has been doing miraculous work in this area. Mike Duggan, who graduated a year ahead of me at Holy Cross, started his career in the Bedford-Stuyvesant section of Brooklyn, New York. In the early 1990s, Mike was recruited to Stamford, CT to overtake a program called Domus, which “helps over 600 children and their families experience academic and life success through educational, residential, and community programs.” At the time Mike joined Domus, it was $300k in debt and hanging on by a thread.
Domus is now a thriving organization with an $11 million annual operating budget. Duggan has worked magic in the face of extreme challenges. The Domus program is all encompassing. Ultimately, the foundation is based on “tough love” with the emphasis much more on the love than the tough. In my meeting with Mike, he offered that he does not allow his students to view themselves as victims. The mayor of Stamford has publicly praised Mike and Domus for the profound impact they are having on the Stamford community.
I asked Mike if there are other programs similar to Domus in the country. He offered that there are two. As I recall, one is in Texas and one in California.
Plenty of naysayers may believe our urban education problem can’t be solved. Plenty of educational bureaucrats may say urban schools simply need more money. I say there is a third path. Our country needs to promote Mike Duggan and his work at Domus on a grand scale.
Mr. Duncan, please visit Stamford, CT and replicate the Domus model nationwide.
LD
Real ‘Green Shoots’ or Merely Mini-Golf?
Posted by Larry Doyle on May 18th, 2009 4:42 PM |
Every respected economist and market analyst is trying to determine if each piece of economic data is a hint of a “green shoot.” If we see green shoots, can a return to days of wine and roses be all that far behind? To steal a golf analogy, if we see green shoots, can we take out the big stick and go for it? Well, I am both an optimist and a pragmatist. If, in fact, we are seeing green shoots on our economic landscape, in my opinion, the best we may do with them is play an upscale version of mini-golf. Why is that?
Our supply of water, fertilizer, and manpower to properly develop our course is currently in very short supply. We will get to enjoy some fresh air and the company of quality friends, but for now any real fun will be limited to getting the ball into the clown’s mouth.
Bloomberg offers more on our economic future in an article, ‘Green Shoots’ Like ‘Decoupling,’ Bank of America Analysts Say:
Tags: Ben Bernanke comment on green shoots, do green shoots mean economy will improve, economy and green shoots, green shoots, what do green shoots mean?
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