Posts Tagged ‘Alan Greenspan’




Gingrich Tries To Grab Some Votes

It has turned out that Ron Paul's critique of the Federal Reserve has caught on. Polls have revealed that voters (especially Republican voters) are actually partial to the idea of going back to a gold standard. This was revealed in a Rasmussen poll in early January, which characterized the gold standard debate as a 'sleeper issue' that 'could tip the scales of the race'.


„Phone interviews with 501 likely caucus-goers were conducted in Iowa in mid-November. The potential respondent was screened to ensure a. registration to vote in Iowa b. registration as a Republican and c. self-described as “definitely” or “probably” going to participate in the caucuses to select the Republican nominee for president. The survey has an overall margin of error of 4.4 points at the 95 percent confidence interval.

“A majority (57 percent) of those surveyed are favorable to the United States returning to a gold standard and over one-quarter is ‘very’ favorable to the idea,” reports pollster Erin Norman. “Only 17 percent are unfavorable to this idea, which equates to a better than three-to-one favorability ratio among likely Iowa Republican Caucus goers. These are remarkably high numbers given that the question contained no information about the gold standard specifically.”

Translated out of pollsterese? The gold standard drives votes both in the caucuses and primaries and in the general election.“


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Location, Location, Location

This post is not about location in the traditional sense but rather as an illustration on how misguided public policies on housing have been to date.

Location has always been a key factor in real estate. It is far more crucial now, rendering all the nationwide statistics such as new home and existing home sales relatively useless. Since there is no national land use policy, the default housing strategy has been urban sprawl. This is unlikely to change.

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The Fed and Unemployment

Fed chief Ben Bernanke decided to mingle with the people in keeping with the Fed's new, more open communications strategy. This was done by holding a 'town hall' style meeting at Fort Bliss, an army base in Texas. A transcript of the speech can be seen here.

As we have noted previously upon the introduction of ECB style press conferences after Fed meetings, this is a policy that harbors the danger of backfiring during a secular contraction.

While asset prices are rising and it's party time, there is no need for the central bank to explain itself – it is enough if it drops the occasional hint that it is to be held responsible for the good times (such as Bernanke's back-patting 'Great Moderation' speech back in 2004). When prices go up, 'people will believe the most preposterous stories' to paraphrase Bob Hoye. They will even read and write books hailing the central bank chief as 'The Maestro', which happened to Alan Greenspan shortly before he was pushed off his pedestal.

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The Growth of Real Wealth versus Capital Consumption

It is well known that the economy and the stock market go through both short and long term cycles of growth and regression. Many observers have proposed that these cycles are natural cycles inherent in capitalist economies. These propositions – for example the famous 'Kondratyev Long Wave' theory – all assume that there exists a certain degree of determinism. In short, they hold that these cycles will play out no matter what we do.

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The Helicopter Pilot Speaks Up

In his first public speech since the September FOMC meeting and the introduction of 'Operation Twist', Fed chairman Ben Bernanke reminded everyone again why he was chosen as Alan Greenspan's successor so shortly before the biggest credit bubble in all of history threatened to implode: he's prepared to use the printing press (a.k.a. 'the tool box') to prevent it from happening.

We have long thought that there is actually nothing much for him to prevent. The over-leveraged household sector and the moribund banking system are acting in concert to thwart the Fed's plans. The former is trying to reduce its debts, and the latter is, well, constantly teetering on the brink of insolvency. The banks are essentially 'zombified' and have been temporarily rescued in the main by accounting practices that are certainly not exactly what one would describe as 'conservative'. 'Beyond good and evil' probably describes them more accurately (see in this context also the recently reported inability of value investors to find anything worthwhile to invest in in the banking sector). Read the rest of this entry »




Real Estate in the USA – from Darkness to the Abyss

Did you hear that B&G Mortgage (Bernanke and Geithner Mortgage) is offering a new option ARM loan program? The interest rate is zero and repayment is optional. Other terms will be decided later.

Government intervention has been off the charts since the bursting of the real estate bubble and they are still not done. This week, Obama is expected to announce his new and improved grand plans. Pertaining to real estate, the trial balloons of the past few weeks have been confirmed in detail in a speech by Federal Reserve governor Elizabeth Duke – Rebalancing the Housing Market.

If you are unfamiliar with these proposals, you may need to glance through the speech to know what I am talking about below.

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Strands of Information

As we recently mentioned, we are spending a lot of time every day absorbing large amounts of information. There is a certain danger of 'information overload' when doing this, but the idea is that by immersing oneself in lots of  information from numerous sources, one can often pick out developing trends in investor mood. Sometimes certain pieces of information stick out, and one realizes that they are perhaps of greater importance than is generally realized.

In the current time period, there are two conflicting strands of information that  seems likely to play a role for the financial markets in the immediate future (weeks to months).

One is the growing expectation of more central bank intervention. This idea has recently become a center of attention, as Ben Bernanke once again mentioned the imminent deployment of the Fed's 'tools'. Brazil's central bank meanwhile implemented a surprise rate cut and markets in the euro area have begun to price in an ECB rate cut.

This is probably the one factor that lends the greatest support to stocks and other 'risk assets' at the moment. Additional 'positives' exist of course: a general conviction that stocks are cheap (regardless of whether this is or isn't correct, it is a widespread conviction), strong growth of the money supply, the market's recently oversold state, a spate of insider buying near the recent lows and generally more subdued expectations.

The other important strand of information concerns of course the causal factors  driving the expectation of imminent new monetary pumping measures. This strand we would at the moment regard as quite negative, with economic data generally weakening and the euro area's debt problems continuing to make waves.

The question therefore becomes, which strand of information will exert more influence on investment decisions, and when. A number of sequences are possible – for instance, risk assets may find themselves supported into the next FOMC meeting and weaken thereafter (a 'buy the rumor, sell the news' type situation); they may be weak in the run-up to the meeting, as economic data continue to deteriorate and rally thereafter once the concrete measures have been revealed.

Alas, there is at present also a considerable additional risk posed by the growing realization of the troubles the euro area's banking system potentially faces. This could eventually lead to a 'discontinuous event' – a situation where panicked liquidation of risk assets and a rush into cash and 'safe haven' instruments trumps all other considerations in the short term.

We don't want to dismiss this possibility, as there is a steady flow of increasingly worrisome information with regards to the euro-area's difficulties and therefore a 'tipping point' could be reached sooner than most people seem to expect.

The daily chart of the S&P 500 does very little to dispel the idea that all kinds of outcomes must continue to remain under consideration, even those that normally have low probability.

The same holds true for other charts that describe the current situation in euro-land. We see zero evidence that stresses in the financial system have decreased.


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Life Is Full Of Surprises…And Good News Get Sold

When we came across an article entitled 'Which stocks to buy for if the market rallies by 400 points next week' late last week, we sensed deep down that the bulls were probably in for a spot of trouble. By the way, we do not want to pick on the author of said article (he wisely said 'if the market rallies', so you should of course not have bought these stocks if it didn't) – we only use it to illustrate which expectation was most widespread among market participants regarding the debt ceiling debate and its effect on the market. Evidently a great many people blithely assumed that the stock market was declining because of the debt ceiling debate and that it logically followed that it would rally once the debate was resolved. We also thought it likely that at least a short term bounce would probably occur, but we would not have trusted such a bounce to go very far or be very durable.

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The website provides a number of historical charts of mortgage rates. Here is the one that I would like to discuss. It is a chart of mortgage rates over the last 50 years.



Via – 50 years of mortgage rates in the US – click for higher resolution.


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A Boring Job Becomes 'Interesting'

Bank of England governor Mervyn King's job has turned out to be far more exciting than he presumably ever expected. The excitement has been provided by our 'interesting times', which in turn are a direct result of central bank policies of the past. It is important to keep this in mind: it's all their fault.


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Should We Get Up And Dance?

Wednesday's FOMC announcement and Ben Bernanke's subsequent press conference (a first) were awaited by market participants with bated breath. As everyone knows, 'QE2' is scheduled to end in June. What wasn't known was whether the more hawkish tones emanating from the likes of Charles Plosser and Richard Fisher (both of whom have a vote at the FOMC this year) actually meant that there was a shift toward a more hawkish stance underway at the Fed. James Bullard – who doesn't have a vote this year, but is considered influential – even mentioned that he thought it may be time to consider cutting the current 'QE2' program short. Subsequent speeches by Janet Yellen and William Dudley from the Board of Governors should have laid such worries to rest, but they lingered nonetheless.


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