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HomeFederal Reserve Statement: Is No News Supposed to be Good News?
Posted by Larry Doyle on November 24th, 2009 3:50 PM |
In the Uncle Sam Economy circa 2009, seemingly every meaningful economic development runs through Washington. From housing to health care and finance to “you name it, ” the grand old man and his henchmen have their hands on almost every aspect of our lives. Getting smothered yet?
Against that backdrop, the Washington establishment dominates the news and has numbed the American public in the process. I witness this novocaine effect once again today with the release of the Federal Reserve’s Statement from its meeting on November 3-4.
While analysts pick over each and every word in this statement, do we truly learn anything new today? Assuredly not.
The Fed states:
Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.
Having read and reread this statement to pick up minor nuances or subtleties in the Fed-speak, I detect little to no real news here. The fact is the economy remains horrific and the Fed will continue to flood the system with a fire hose of liquidity.
Given that there is no real news in this Fed statement, could we be so bold and say, “no news is good news”?
Now that would be a stretch, but it is one many in Washington and Wall Street don’t mind making everyday.
LD
Chinese Presence Growing in Mexico
Posted by Larry Doyle on November 24th, 2009 12:57 PM |
It’s a big world out there.
While American investors can become consumed by the developments here at home, we need to be mindful that there is a LOT going on beyond our shores. To that end, I was thrilled to host Keith Fitz-Gerald on No Quarter Radio’s Sense on Cents with Larry Doyle on November 8th. Keith addressed a number of developments in Asia during the course of our interview.
Keith and I reviewed his book Fiscal Hangover: How to Profit from the New Global Economy, which was released the week after our interview. How is Fiscal Hangover doing? It is currently Amazon’s top-selling book for investing. Not bad.
What is Keith thinking currently? In a recent commentary, Is Mexico the “New” China?, Keith highlights:
When it comes to global manufacturing, Mexico is quickly emerging as the “new” China. (more…)
Washington Examiner: “A Fox Is Guarding the Henhouse at the SEC”
Posted by Larry Doyle on November 24th, 2009 9:26 AM |
Add the Washington Examiner to the increasing number of media outlets picking up on the stench emanating from the incestuous Wall Street-Washington relationship encompassing our nation’s financial regulatory oversight. How so? The Examiner‘s Marta Mossburg writes today, A Fox Is Guarding the Henhouse at the SEC. Who is this fox? None other than Mary Schapiro, current head of the SEC and former head of the Wall Street self-regulatory organization FINRA. Mossburg highlights:
Not everyone opposes giving government sweeping new powers like those being considered over health care and the finance industry. But everyone should care that those in power are competent, apply the law fairly and hold themselves to the highest ethical standards.
As regular readers of Sense on Cents are aware, I picked up the scent on this trail last January and have doggedly tracked it for the last ten months. I am heartened that other interested ‘hunters’ are also now putting out their ‘dogs’ in pursuit of exposing truth within our financial regulatory system so that our nation can embrace the badly needed virtues of transparency and integrity in the process.
Aside from Sense on Cents and now the Washington Examiner, who else is on this trail and tracking the scent? Barrons, Bloomberg, and The New York Times. (more…)
John McCain Gets America’s Rage
Posted by Larry Doyle on November 23rd, 2009 3:45 PM |
Who does not respect John McCain? Despite what one may think of McCain’s political views, his personal character and courage are unquestioned. His “straight talk express” did not carry him to the White House, but it gained him the respect of many people from both sides of the aisle.
Today, Senator McCain shares a recent experience which highlights the rage boiling in America at this very moment. The Wall Street Journal provides a forum for McCain in a CEO Council Report entitled, “How to Rebuild Global Prosperity.” I thought so highly of this entire report that highlighted it in the Newsworthy section of Sense on Cents.
I thank The WSJ for producing such a comprehensive report, and I welcome sharing Senator McCain’s thoughts and opinions which were included in the Economy and Finance section of the report:
JOHN McCAIN: I’d like to tell you what I think is happening in Arizona and across America.
I have never seen anything like I am seeing in America today. My home state of Arizona is the second hardest-hit state. We have real unemployment around 17%. The level of anger and frustration and the anger is directed at what we do in Washington and what you do on Wall Street. (more…)
A Question of Competence
Posted by Larry Doyle on November 23rd, 2009 12:27 PM |
Band-aids, quick fixes, partisan posturing, and the like will do little to address the structural and cultural deficiencies which played into our current economic crisis.
High five to SH for sharing a report (a link to the full report is provided at the end of this post) by Harvard Business School’s William A. Sahlman entitled “Management and the Financial Crisis (We have met the enemy and he is us…).” Sahlman does an outstanding job of pinpointing five critical components of firms and institutions that failed during this crisis. At the end of this post I have provided a link to Mr. Sahlman’s 35-page report, but allow me to provide some highlights. Sahlman writes:
I assert that most of the problems evidenced so prominently during this financial crisis can be traced to failures in five related managerial systems inside each major private and public actor in the financial markets:
Incentives – how risk and reward are shared; how people behave if they act in their own perceived best interests given the structure of pecuniary and non‐pecuniary payoffs
Control & Information Technology – how limits are placed on behavior; how information is captured and shared; how risk and reward are measured and how those assessments affect tactics and strategy
Accounting – how managers choose accounting policies; how managers measure economic profits & losses, as distinct from GAAP profits and losses
Human Capital – the process by which people with certain characteristics (skill, experience, networks, character, and attitude) are attracted and managed or encouraged to leave any organization
Culture – the values that guide individual and group decisions
While Sahlman thoroughly reviews these five factors and how they misfired in a number of failed institutions, he goes one step further in addressing why they misfired. I commend him for it. He writes: (more…)
Why is Bill Gross Buying Utilities?
Posted by Larry Doyle on November 23rd, 2009 9:35 AM |
Pimco's Bill Gross
There is no doubt that the Fed and Treasury are compelling investors to allocate capital and savings into the market. With savings rates effectively at or near 0%, holding cash is expensive both in terms of no return and opportunity cost. That said, what is one to do when large parts of the market appear to be “bubbling” over due to Uncle Sam’s excessive liquidity and the economy remains strapped?
Let’s check in with one of our Sense on Cents Economic All-Stars, Pimco’s Bill Gross. In his December 2009 Investment Outlook, Gross makes the case for investing in utilities. Why utilities? As with any investment, we should focus on risk-adjusted returns. Gross provides a reasoned assessment of the current environment and a rationale case for investing in utilities. He writes:
The Fed is trying to reflate the U.S. economy. The process of reflation involves lowering short-term rates to such a painful level that investors are forced or enticed to term out their short-term cash into higher-risk bonds or stocks. Once your cash has recapitalized and revitalized corporate America and homeowners, well, then the Fed will start to be concerned about inflation – not until. To date that transition is incomplete, mainly because mortgage refinancing and the purchase of new homes is being thwarted by significant changes in down payment requirements. The Treasury as well, has a significant average life extension of its own debt to foist on investors before the Fed can raise short-term Fed Funds. (more…)
No Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Bill Venezia, Sunday Night at 8pm
Posted by Larry Doyle on November 21st, 2009 3:35 PM |
UPDATE: This episode of NQR’s Sense on Cents with Larry Doyle has concluded. You can listen to a recording of the episode in its entirety by clicking the play button on the audio player provided below. Once the audio begins, you can advance or rewind to any portion of the episode by clicking at any point along the play bar.
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There is no doubt we are navigating a challenging, if not treacherous, economic landscape. As with any challenging trip, prudence dictates we utilize all resources at our disposal. That said, there is no resource more valuable than that of experience. Whether involved in the markets or other business pursuits, the ability to gain the wisdom of those who have gone before us is priceless.
In this spirit, I am a huge proponent of the merits and benefits of mentoring. What greater gift can one give than the sage advice garnered from one’s experience. There is no greater gift for a businessperson than to point the way forward for future generations.
As we continue to navigate our current economic landscape and the peaks and valleys along the way, I am honored to have Bill Venezia join me this Sunday evening (8-9pm ET) on No Quarter Radio’s Sense on Cents with Larry Doyle.
Who is Bill Venezia? One of Wall Street’s giants, Bill was without a doubt the top bond salesman on the street. As good a salesman as Bill was, and he was the best, he is a better human being. Let’s learn more about Mr. Venezia:
(more…)
The Message of the 2yr Treasury, Deflation, and Japan
Posted by Larry Doyle on November 20th, 2009 2:20 PM |
Most eyes are fixated on the rise in equities and commodities and, in turn, point to those markets as indicators of an incipient economic recovery. In doing so, we neglect the movements within the bond market, specifically the U.S. Treasury market, at our peril. What is the Treasury market saying? A lot. Let’s look and listen.
The 2yr Treasury note specifically yields a paltry-like .71%. Why so little? I thought investors were more inclined to invest in risk-based assets? Why are they buying a 2yr Treasury note at such a miniscule return?
In my opinion, the front end of the Treasury curve, typically referenced by the yield on the 2yr note, is telling us the Fed will be on hold for a protracted period. This point we already knew. Tell me something I don’t know, LD. The 2yr Treasury note is indicating that inflation expectations are currently constrained. You probably knew that, also. Two strikes LD, you get one more pitch. The 2yr Treasury specifically and bonds in general are telling me that deflationary pressures in our economy are growing. What do you think? While most economists and analysts talk about inflation and inflation expectations, we have not heard much about deflation lately. Welcome to Sense on Cents. (more…)
What’s Fueling America’s Rage?
Posted by Larry Doyle on November 20th, 2009 10:56 AM |
What is fueling America’s populist rage?
Is it the unemployment situation? Is it the volatility in the markets? The weakening greenback? Perhaps the generally perceived level of incompetence amongst our political and corporate leaders? Is it a media that does not hold our public officials and corporate leaders accountable?
While I could write extensively – and I have – on each of these questions, I am firmly convinced the ever increasing levels of populist rage go much deeper than any of these questions. How deep? To the very core of this great nation. What is at the core of any individual, institution, or nation?
Honesty and integrity.
Americans are a strong people. America is a proud land. That said, I believe we have allowed a semblance of moral decay to increasingly infiltrate our very core and we are now paying the price for it. How is this growing moral decay exemplified?
I am not suggesting that those who might hold differing opinions than mine on specific questions addressing ethical and moral topics as being the root of our current problems. I would like to think I am not so narrow-minded or judgmental. I do believe, however, that the rage sweeping our country on both sides of the political aisle stems from the reality that Americans are increasingly convinced that our political representatives, government officials, financial leaders, and their selected constituents have not been honest with America. (more…)
November 21, 2009: Month to Date Review of the Market
Posted by Larry Doyle on November 21st, 2009 6:19 AM |
Lack of trust and credibility is ultimately nothing more than a measure of increased risk. Let’s factor that in while we navigate the economic landscape and review the month to date performance of the markets.
Are we witnessing signs of a double dip in the economy? As government stimulus wears off and the reality of the underlying economy is reflected, I do not believe we will experience a double dip simply because I do not believe the real economy has ever truly bounced. Let’s navigate.
ECONOMIC DATA
1. Retail Sales: reported as a 1.4% increase versus a .9% expectation, but analysts failed to share that September’s report was revised from an initial reading of -1.5% to -2.3%. The overall trend lines over the last three months indicate no bounce. Expect serious price discounting for the upcoming holiday season.
2. Producer Price Index: increased .3% versus an expectation of .5%. The real news, however, is in the core rate (that is, excluding volatile components of food and energy) which registered a very surprising -.6% reading versus expectations of a .1% increase. Can you say deflation?
3. Industrial Production: increased by .1% versus an expected increase of .4%. This number indicates 4th quarter growth is slowing relative to the 3rd quarter when government stimulus provided its maximum benefit.
4. Housing Starts: declined by 10.6%!! This report took all the wind out of the sails of those who were calling for a V-shaped recovery. Mortgage delinquencies, defaults, and foreclosures continue to increase. There is no way housing can stabilize and recover until those figures stabilize.
Let’s move along to market performance. The figures I provide are the weekly close and the month-to-date returns on a percentage basis: (more…)
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