AMAZING WAY TO RUN AN ECONOMY….
by ilene - October 12th, 2010 5:20 pm
AMAZING WAY TO RUN AN ECONOMY….
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Courtesy of The Pragmatic Capitalist
No wonder America is losing more and more of the wealth pie to Asia. This quote from David Rosenberg pretty much speaks for itself:
“Brian Sack at the New York Fed stressed the need for the Fed’s actions to bolster asset inflation as to boost the wealth effect on spending (QE “adds to household wealth by keeping asset prices higher than they otherwise would be…”). We just can’t seem to wean ourselves off this asset-dependent economy — and how directed by a Fed official that the attempt here is to bring asset values above their intrinsic value. Amazing way to run an economy. Whatever happened to skills, productivity, education, job creation, innovation? Or thrift — when did that virtue become a dirty six-letter word?”
I’m thoroughly disgusted with the response of government over the last 24 months….
Source: Gluskin Sheff
Pic credit: Jesse’s Café Américain
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DAVID ROSENBERG ATTACKS THE FED’S INTENTIONAL PONZI APPROACH
by ilene - October 5th, 2010 11:06 pm
DAVID ROSENBERG ATTACKS THE FED’S INTENTIONAL PONZI APPROACH
Courtesy of The Pragmatic Capitalist
This weekend’s shocking admittal that the Fed is hoping QE will keep
Brian Sack, a senior official at the New York Fed, had this to say about the powers of quantitative easing in a speech he just delivered:
“Some observers have argued that balance sheet changes, even if they influence longer-term interest rates, will not affect the economy because the transmission mechanism is broken. This point is overstated in my view. It is true that certain aspects of the transmission mechanism are clogged because of the credit constraints facing some households and businesses, and it is true that monetary policy cannot directly target those parties that are the most constrained. Nevertheless, balance sheet policy can still lower longer-term borrowing costs for many households and businesses, and it adds to household wealth by keeping asset prices higher than they otherwise would be. It seems highly unlikely that the economy is completely insensitive to borrowing costs and wealth, or to other changes in broad financial conditions. ”
I just love that one comment to the effect that QE “adds to household wealth by keeping asset prices higher than they otherwise would be.” When will these guys ever learn that maybe, just maybe, these Fed policies aimed at targeting asset prices at levels above their intrinsic values is probably not in the best interests of the nation? As our friend Marc Faber likes to say, the “Bernanke put” is cut from the same cloth as the fabled “Greenspan put” — only the strike price is different.
Imagine running a policy aimed at getting people to spend money based on an artificial level of asset values — what an admission. Then again, this is what the Fed has been all about since the LTCM bailout of 1998. We’re still not convinced after reading this sermon that this next “pull-another-rabbit-out-of-the-hat” experiment is going to end with very much success. There is something to be said about paying for our mistakes and to have the Fed try to rekindle an asset-based economy that has only ended up in generating a series of burst bubbles over the last 12 years, not to mention encourage a lifestyle of living beyond our means,
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The NY Fed's Trading Desk Head Laments The End Of Stupid Leverage And Wants His Derivatives Back (Or Why We Are Stuck With ZIRP For A Long, Long Time)
by ilene - March 27th, 2010 11:12 pm
The NY Fed’s Trading Desk Head Laments The End Of Stupid Leverage And Wants His Derivatives Back (Or Why We Are Stuck With ZIRP For A Long, Long Time)
Courtesy of Tyler Durden
In a video conference before the ACI 2010 World Congress in Sydney, Australia, the head of the FRBNY’s trading desk, aka, the busiest daytrader over the past year, Brian Sack, demonstrated once again that Fed members are either completely clueless about ongoing market dynamics or are so good at octuple re-reverse psychology, that they make the squid pale in shame and squirt ink in envy.
Before we get into the meat of Sacks’ lament, it bears refreshing on Paul McCulley’s letter from yesterday. While Paul may have been merely pushing his book in an attempt to convince readers that rates will (or should) stay mega low for years and years (and Greenspan will be more than happy to admit that low rates have nothing, nothing, to do with asset bubbles), he did have one great observation, namely that the explosion in various forms of shadow credit: derivatives, securitizations, etc., were all dictated by the need to leverage a relatively flat yield curve.
When the 2s10s is in the 40-50bps range, financial institutions needed to find a way to leverage the long-dated end of the curve: if the Fed would not cooperate in bringing the near-end lower, well, demand for, and application of financial innovation, resulted in the multi-trillion shadow banking system. This extremely simple observartion is of remarkable consequence: securitization was not predicated on extra supply of cheap credit but arose out of bank demand for synthetic steepness: instead of capitalizing on the unlevered curve steepness, banks decided to go the volume route, making credit a way of life for everyone, thus allowing them to go all in on a massively-leveraged curve trade. The key implication is that in the current Fed-dominated environment, where the 2s10s is at record levels of almost 300 bps, banks have no need for shadow banking! Another way of saying this is that what financial institutions needed a multi trillion shadow system for, when the curve was flat, they can achieve now with the curve being as steep as it is and without shadow banking. The big banks simply do not have a need for shadow banking: ergo the demand pull side. And no…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site