Posts Tagged ‘portfolio balance channel’

Notes From Underground: #Irony … Carmen Reinhart Says “Do Not Take Size As An Indicator of Importance”; Harry Rheems Dies

March 21, 2013

Okay, you must have some fun amongst the idiocy of the Eurocrats. It seems that the best intentions of last Friday night’s decision to sacrifice the pawns in the game have done exactly what I thought the ill-conceived plans would accomplish. For 10 billion euros of bailout capital the fallout has been large drops in equity values. The capital losses are small compared to embarrassment facing the European policy makers. In a Bloomberg article by James Neuger, “Europe Plays I-Didn’t-Do-It Blame Game on Cypriot Deposit Levy,” it seems that German FM Schaeuble, France’s FM Moscovici, Spain’s FM Guidnos and even Finland’s FM Urpilainen all claim that they were opposed to taxing the guaranteed deposits of under a 100,000 euros. They all seem to point to the ECB and IMF as wanting the “bail-in.” This is a classic example of what my friend Andy Schreiber used to say: “Success Has Many Fathers, Failure Is But An Orphan.” The Cypriot situation is a situation that punches way above its weight. Carmen Reinhart, an economist I cite regularly on financial repression, silenced the talking heads on CNBC  when she claimed that, “Do not take size as an indicator of importance.”


Notes From Underground: The FOMC Minutes … Worried About Premature Extraculation

February 20, 2013

In reading through the FOMC minutes I ponder the headlines that screamed about the hawkish tone in the minds of the FOMC members. You have to be looking for “negative waves” to find an overly cautious FED. The most striking effort of ending the LSAP (large-scale asset purchase) program is the work of Governor Jeremy Stein who delivered a powerful speech last week about the mal-effects that the FED‘s QE program was having on other financial markets (especially the corporate debt markets where the search for yield was causing the possible removal of risk pricing into the high yield corporate bonds.) The minutes noted: “Several participants discussed the possible complications that additional purchases could cause for the eventual withdrawal of policy accommodation, a few mentioned the prospect of inflationary risks, and some noted that further asset purchases could foster market behavior that could undermine financial stability.” Again, no surprise here as it was detailed out in Jeremy Stein’s speech.


Notes From Underground: The Biggest Loser If The Fiscal Cliff is Activated? Ben Bernanke’s Fed.

December 3, 2012

It seems that if the Washington politicos fail to reach a resolution on preventing a fiscal crisis, the biggest loser will be the FED. The U.S. central bank is on record as pushing for continued monetary ease as long as unemployment remains unexpectedly high. The recent definition as forwarded by some Fed Governors and Presidents is around the 6.25% rate of unemployment. If the fiscal cliff is realized, projections are for the jobless rate to rise to between 9.5 and 10.0%. The question for the global financial markets will be: What is the FED‘s response going to be in an effort to counteract the renewed contraction in the U.S. economy?


Notes From Underground: I’m Singing and Dancing In the Rain—the SONG OF MARIO AND BEN

August 16, 2012

It seems that the ECB president has for the moment prevailed in a similar way as his MIT cohort Ben Bernanke has been “successful” with his famed Portfolio Balance Channel. Remember, it was Jackson Hole speech of August 2010 in which Chairman Bernanke laid out his view about the importance of the PBC, which was previously referred to by Alan Greenspan as the “wealth effect.” President Draghi has steepened the Spanish and Italian curves by threatening to purchase short-term debt and thus driving the Spanish and Italian 2-YEAR NOTE YIELDS more than 300 basis points lower.


Notes From Underground: Caught Between a Portfolio Balance Channel and a Fiscal Cliff

May 23, 2012

What has Ben Bernanke wrought? Since the FED CHAIRMAN uttered that Phrase “FISCAL CLIFF” at the now infamous April 25 press conference, the S&P has dropped more than 6% (take out month-end window dressing). Investors were unnerved by the Bernanke acknowledgement of a huge drop in GDP if the Washington politicos did not start to deal with the problem of fiscal retrenchment that awaits. It has been estimated that the hit from spending cuts and tax increases will result in at least a 3.5% hit to U.S. growth. It was Bernanke that lit the fuse and today the CBO weighed in with its great concern over the “fiscal cliff.”


Notes From Underground: AUGUST 30 ,2002 … A Revisit To The SOAPBOX

May 14, 2012

LETTERS TO THE EDITOR – Profit centres too big to fail.
30 August 2002
Financial Times
(c) 2002 The Financial Times Limited. All rights reserved

Sir, John Plender (“How banks got in a mix”, August 21) correctly identifies the systemic dangers that accompanied the passage of the Graham-Leach-Bliley act. The repeal of Glass-Steagall has pushed the US banking system to the brink of “moral hazard”. The conglomeration of all financial services under one roof has entangled banks in numerous ethical conflicts. Additionally, Graham-Leach-Bliley has made several institutions so large that the Fed cannot allow them to fail.

A single institution’s deep involvement in every facet of financial dealings does not create greater synergy but greater risk. These large, private profit centres know they are too big to collapse. This realisation adds great uncertainty to the entire financial landscape. Rewarding private profits while socialising the risk is a pathway to disaster. Glass-Steagall should never have been repealed without a bank forfeiting its right to Federal Deposit Insurance Corp insurance.


Notes From Underground: Mario Draghi and the ECB … Lions, Tigers and Bears

May 2, 2012

Thursday in Europe the ECB meets to announce its decision on interest rates. The unanimous consensus is for the ECB to hold rates at 1%. This is probably correct for Draghi will not want to be seen as possibly aiding Sarkozy. The reports out of France tonight are that Mr. Hollande more than held his own against President Sarkozy in the only televised debate of the campaign. Thus, with four days to the election the ECB will lay low. If Draghi, though, is familiar with the Wizard of Oz, he would do well to ask for the necessary elements of decisive action.


Notes From Underground: Paging Dr.Bernanke … The Stress Tests Results Have Arrived

March 12, 2012

Tuesday brings the release of the FED’S FOMC STATEMENT. Will it see its shadow or will the light be blocked by an extended period of darkness? Since the January 25 statement that announced the FED‘s intentions of holding rates at ZERO until mid-2014, the employment situation in the U.S. has improved, Europe has been “RESOLVED” and China has lowered reserve requirements. In the same time frame the S&Ps HAVE GAINED ALMOST 4%, while 10-year notes are virtually unchanged in price. Let us all bask in the success of Chairman Bernanke’s PORTFOLIO BALANCE CHANNEL. What now?


Notes From Underground: Unemployment Gains Manufacturing a Recovery

February 5, 2012

The Obama administration had much to cheer as the NONFARM PAYROLL number exceeded almost all the pundits and FED‘s projections. Just before the release, CNBC analysts were in herd formation all gathered around the “BULL” of safety and predicted around a 100,000 job gain. Job gains came in at roughly 250,000 even as state and local governments continued to shed employees. Earlier, the Canadian data was tepid, but again, the Ontario manufacturing sector added jobs and is mirroring the increase in manufacturing seen in the U.S. Whether the predictors of the release are right or wrong makes no difference to traders or investors for the most important pundit is the market’s reaction.


Notes From Underground: Mario Draghi Pays Homage to Bernanke and the Portfolio Balance Channel

December 22, 2011

A process of financial repression: forcing investors to take on risk that they would otherwise spurn. In August 2010 in his Jackson Hole speech, Chairman Bernanke stressed the importance of the PORTFOLIO BALANCE CHANNEL as an effective way to enliven the “animal spirits” of investors. By forcing the QE program onto the BOND market, the FED CHAIRMAN hoped that terrified investors would rush into stocks. QUANTITATIVE EASING would turn CASH INTO TRASH and thus force pension funds and others into equities and thus begin to allow a new bout of capital beginning to circulate. The market did not even wait for the FED to officially breathe life into the QE monster but understood Bernanke’s intentions and began bidding up stocks immediately after the JACKSON HOLE SPEECH.