FROM the Mean Street blog by Evan Newmark, Wall Street Journal Online:
"Thank goodness for the utter mess our politicians are making down in Washington.
It’s not only good summer entertainment. It’s also giving the American public the one thing it needs most: an education on just how screwed up we’ve become, both in our nation’s finances and in our collective mindset....
The debt-ceiling “crisis” is exactly what America needs as our $14 trillion debt careens towards the point of no return.
The dueling Obama and Boehner press conferences, the red-faced screaming on talk radio and cable TV, S&P’s threat to cut America’s AAA rating, the stock-market jitters, the family fights over whether Grandpa really needs the Medicare-funded knee-replacement surgery – bring it on!
The bigger and more intense the debate, the better. How else will America ever come face-to-face with the hard choices it has to make?
After all, millions of Americans are still living under the illusion that there is some magical Social Security lock-box to fund their retirement or that they’re only taking out of Medicare what they paid in or that some new taxes on the wealthy will solve all our fiscal woes....
As we head into this weekend, ask yourself the following: Would I rather have my politicians fighting each other in Washington over the debt-ceiling today, or my neighbors fighting each other in the streets when the nation goes bankrupt five years from now?
That’s why this debt-ceiling mess is a very good thing, indeed."
----------
Link:
http://blogs.wsj.com/deals/2011/07/28/mean-street-why-the-debt-ceiling-debacle-is-a-good-thing/
Thursday, July 28, 2011
Plan? Sure, we've got a plan
"White House press secretary Jay Carney said Thursday that President Obama’s debt ceiling plan is the best-known option at this point. There’s just one problem with that: No publicly available, detailed Obama plan exists....
What Carney was referring to is the negotiations Obama and House Speaker John Boehner were conducting behind closed doors. No written plan ever came out of those meetings, and the two political leaders never reached an agreement. Boehner went on to develop his own plan....
More confusion about what specifically White House officials are referring to when talking about Obama’s plan ensued later on Thursday. In a White House Twitter chat Thursday afternoon, Obama administration officials tweeted out a link to what they call the president’s debt ceiling plan. Instead of linking to the “Obama-Boehner” plan Carney referred to mere hours before, the link directs to an April 13 White House “Fiscal Responsibility” fact sheet. The fact sheet does not use the term “debt ceiling."
---------------
Link:
http://dailycaller.com/2011/07/28/where-is-the-plan-carney-says-obamas-is-the-best-known-debt-plan/
What Carney was referring to is the negotiations Obama and House Speaker John Boehner were conducting behind closed doors. No written plan ever came out of those meetings, and the two political leaders never reached an agreement. Boehner went on to develop his own plan....
More confusion about what specifically White House officials are referring to when talking about Obama’s plan ensued later on Thursday. In a White House Twitter chat Thursday afternoon, Obama administration officials tweeted out a link to what they call the president’s debt ceiling plan. Instead of linking to the “Obama-Boehner” plan Carney referred to mere hours before, the link directs to an April 13 White House “Fiscal Responsibility” fact sheet. The fact sheet does not use the term “debt ceiling."
---------------
Link:
http://dailycaller.com/2011/07/28/where-is-the-plan-carney-says-obamas-is-the-best-known-debt-plan/
Keith Hennessy: "Why I support the Boehner bill"
"It cuts spending and it doesn’t raise taxes. That is an improvement over current law.
There is nothing in the bill that I dislike. That’s a rarity.
It is better than the Reid bill, which is the next most likely alternative to become law if the Boehner bill fails.
It tees up this battle again in 4-6 months, providing another opportunity and keeping the pressure on to cut spending.
It creates a process that keeps our underlying fiscal policy problems front-and-center for the foreseeable future rather than punting them into 2013.
I can see no viable alternative strategy to enact a stronger bill."
-------
Full link: http://keithhennessey.com/2011/07/27/why-i-support-the-boehner-bill/
There is nothing in the bill that I dislike. That’s a rarity.
It is better than the Reid bill, which is the next most likely alternative to become law if the Boehner bill fails.
It tees up this battle again in 4-6 months, providing another opportunity and keeping the pressure on to cut spending.
It creates a process that keeps our underlying fiscal policy problems front-and-center for the foreseeable future rather than punting them into 2013.
I can see no viable alternative strategy to enact a stronger bill."
-------
Full link: http://keithhennessey.com/2011/07/27/why-i-support-the-boehner-bill/
Wednesday, July 20, 2011
The Debt Ceiling by Presidency
From the Washington Post:
Full link: http://www.washingtonpost.com/business/economy/who-raised-the-debt-ceiling/2011/07/14/gIQA7TIvEI_graphic.html
Full link: http://www.washingtonpost.com/business/economy/who-raised-the-debt-ceiling/2011/07/14/gIQA7TIvEI_graphic.html
Sunday, July 17, 2011
"Caution: Storm Approaching" Caroline Glick
Economic turmoil in the Middle East as Egypt is going broke and capital is fleeing:
"...Most of the news coming out about Egypt today emanates from Cairo's Tahrir Square. There the protesters continue to demand ousted president Hosni Mubarak's head on a platter alongside the skulls of his sons, business associates, advisors and everyone else who prospered under his rule....
But while easily accessible, the action at Tahrir Square is not Egypt's most important story. The most important, strategically consequential story is that Egypt is rapidly going broke. By the end of the year, the military dictatorship will likely not only default on Egypt's loans (but) will almost certainly be unable to feed the Egyptian people....
Egypt's foreign currency reserves are being washed away... the problem is capital flight... Egypt's wealthy and foreign investors are taking their money out of the country....
What this means is that in a few short months, Egypt will be unable to pay for its imports. And consequently, it will be unable to feed its people.
EGYPT IS far from alone. Take Syria. There too, capital is fleeing the country as the government rushes to quell the mass anti-regime protests...."
--------------------------
Full story: http://www.realclearpolitics.com/articles/2011/07/16/caution_storm_approaching_110607.html
"...Most of the news coming out about Egypt today emanates from Cairo's Tahrir Square. There the protesters continue to demand ousted president Hosni Mubarak's head on a platter alongside the skulls of his sons, business associates, advisors and everyone else who prospered under his rule....
But while easily accessible, the action at Tahrir Square is not Egypt's most important story. The most important, strategically consequential story is that Egypt is rapidly going broke. By the end of the year, the military dictatorship will likely not only default on Egypt's loans (but) will almost certainly be unable to feed the Egyptian people....
Egypt's foreign currency reserves are being washed away... the problem is capital flight... Egypt's wealthy and foreign investors are taking their money out of the country....
What this means is that in a few short months, Egypt will be unable to pay for its imports. And consequently, it will be unable to feed its people.
EGYPT IS far from alone. Take Syria. There too, capital is fleeing the country as the government rushes to quell the mass anti-regime protests...."
- What leadership do we have to respond to this approaching storm?
- Should we start apologizing and claim it is our fault?
- Will we push another "reset" button?
- Send more billions of dollars?
- How about offer our health care system to care for their poor?
--------------------------
Full story: http://www.realclearpolitics.com/articles/2011/07/16/caution_storm_approaching_110607.html
Saturday, July 16, 2011
Mean Street: Cantor and the Republicans Outbluff Obama
"... And from what I can see, the Republicans are schooling the Democrats in what brinksmanship is all about.
That’s not the conventional wisdom. Inside-the-beltway pundits will tell you that it’s exactly the other way around. The Republicans aren’t united, they say, they’re in disarray.
Please. That President Obama even has to sit in a room and get smarmy lectures from a lowly House Majority leader is a victory for the Republicans. So is the fact that Moody’s and S&P have put America’s AAA debt rating under review.
That’s why the president is so unhappy and why he stormed out of the room the other day.
Losing your cool is poor brinksmanship – and so is warning the other side, “Don’t call my bluff.” It shows everyone that you’ve lost control of the situation.
The trouble for the president is that he just has too much to lose by really going to the brink. Consider a scenario if August 2 arrives and he has to sit at his Oval Office desk and grimly explain the coming financial Armageddon to the nation.
For Obama, it would be like reading a confession of his own incompetence..."
-----------------
Full story: http://blogs.wsj.com/deals/2011/07/15/mean-street-cantor-and-the-republicans-outbluff-obama/
That’s not the conventional wisdom. Inside-the-beltway pundits will tell you that it’s exactly the other way around. The Republicans aren’t united, they say, they’re in disarray.
Please. That President Obama even has to sit in a room and get smarmy lectures from a lowly House Majority leader is a victory for the Republicans. So is the fact that Moody’s and S&P have put America’s AAA debt rating under review.
That’s why the president is so unhappy and why he stormed out of the room the other day.
Losing your cool is poor brinksmanship – and so is warning the other side, “Don’t call my bluff.” It shows everyone that you’ve lost control of the situation.
The trouble for the president is that he just has too much to lose by really going to the brink. Consider a scenario if August 2 arrives and he has to sit at his Oval Office desk and grimly explain the coming financial Armageddon to the nation.
For Obama, it would be like reading a confession of his own incompetence..."
-----------------
Full story: http://blogs.wsj.com/deals/2011/07/15/mean-street-cantor-and-the-republicans-outbluff-obama/
Gloomy consumers cast dark cloud over economy: Reuters
"U.S. consumer confidence hit a near 2-1/2 year low in early July and manufacturing output stalled in June, further frustrating expectations of a quick economic growth rebound in the second half of the year...
The reports were the latest in a series, including weak retail sales and employment, to suggest the anticipated step-up in growth in the second half of the year might not be as strong has initially thought...."
-------------
Full story: http://www.reuters.com/article/2011/07/15/us-usa-economy-prices-idUSTRE76E2LW20110715
The reports were the latest in a series, including weak retail sales and employment, to suggest the anticipated step-up in growth in the second half of the year might not be as strong has initially thought...."
-------------
Full story: http://www.reuters.com/article/2011/07/15/us-usa-economy-prices-idUSTRE76E2LW20110715
Friday, June 24, 2011
Wall Street Journal: Why Americans are so unhappy with this economic recovery.
This makes perfect sense. Excerpts here and full link following:
"...Mr. Bernanke was attempting to promote what economists call "wealth effects," or an increase in spending that accompanies an increase in perceived wealth. Watching their assets rise in value, the argument goes, Americans will consume and invest more.
At least until the recent market correction, this part of Mr. Bernanke's strategy seemed to be going well. If you owned stocks, you had reason to feel better about the economy and your own financial circumstances.
The problem is that monetary policy is not a laser-guided missile...
One result has been a sharp increase in food and energy prices that took gasoline up to $4 a gallon. These have produced what economists call "income effects," or a change in consumption resulting from a change in real income. People who pay $4 for gasoline, or $30 more for groceries, have less money to spend on other goods. They also tend to feel poorer, which can influence their overall confidence in the economy.
One big difference is who feels these effects. The wealth effects have helped everyone but especially the affluent. The income effects have been felt most acutely by the poor and middle classes for whom food and energy are a much higher proportion of income.
QE2 and near-zero interest rates have been a boon for bankers and hedge funds. They haven't been so great for suburban families who commute to work and haul their kids to football and music practice. The monetary policy so favored by liberal economists and the White House has actively favored the wealthy over the middle class.
Could these income effects have also hurt economic growth by offsetting the wealth effects that Mr. Bernanke likes to take credit for?
...The larger economic lesson here concerns the sources of long-term growth and the limits of monetary policy. Easy money can help in a crisis, and it can raise asset prices for a while. But it cannot create a durable recovery, and to the extent it leads to bubbles and higher prices it undermines future growth and erodes middle-class incomes.
The real wellsprings of prosperity are private investment and innovation, which Washington has done so much to retard with regulation, the political allocation of capital, and promises of higher taxes. Reversing those policies would unleash a genuine wealth effect."
-----------------------
Full Link: http://online.wsj.com/article/SB10001424052702303339904576403971545248668.html?mod=WSJ_Opinion_LEADTop
"...Mr. Bernanke was attempting to promote what economists call "wealth effects," or an increase in spending that accompanies an increase in perceived wealth. Watching their assets rise in value, the argument goes, Americans will consume and invest more.
At least until the recent market correction, this part of Mr. Bernanke's strategy seemed to be going well. If you owned stocks, you had reason to feel better about the economy and your own financial circumstances.
The problem is that monetary policy is not a laser-guided missile...
One result has been a sharp increase in food and energy prices that took gasoline up to $4 a gallon. These have produced what economists call "income effects," or a change in consumption resulting from a change in real income. People who pay $4 for gasoline, or $30 more for groceries, have less money to spend on other goods. They also tend to feel poorer, which can influence their overall confidence in the economy.
One big difference is who feels these effects. The wealth effects have helped everyone but especially the affluent. The income effects have been felt most acutely by the poor and middle classes for whom food and energy are a much higher proportion of income.
QE2 and near-zero interest rates have been a boon for bankers and hedge funds. They haven't been so great for suburban families who commute to work and haul their kids to football and music practice. The monetary policy so favored by liberal economists and the White House has actively favored the wealthy over the middle class.
Could these income effects have also hurt economic growth by offsetting the wealth effects that Mr. Bernanke likes to take credit for?
...The larger economic lesson here concerns the sources of long-term growth and the limits of monetary policy. Easy money can help in a crisis, and it can raise asset prices for a while. But it cannot create a durable recovery, and to the extent it leads to bubbles and higher prices it undermines future growth and erodes middle-class incomes.
The real wellsprings of prosperity are private investment and innovation, which Washington has done so much to retard with regulation, the political allocation of capital, and promises of higher taxes. Reversing those policies would unleash a genuine wealth effect."
-----------------------
Full Link: http://online.wsj.com/article/SB10001424052702303339904576403971545248668.html?mod=WSJ_Opinion_LEADTop
Saturday, June 18, 2011
Contrary Opinion! "You don’t need Pimco’s Bill Gross or his bond fund"
From Chuck Jaffe at Market Watch:
"...Last week, PIMCO’s Bill Gross — the world’s most famous and influential bond-fund manager — suggested that investors looking for good yields give up on Treasurys, consider foreign bonds and, notably, high-quality, dividend-paying stocks...
The message wasn’t exactly new, but the takeaway was different.
If the recommendation was to buy stocks — something Gross’s flagship fund, PIMCO Total Return can’t do — and to make money by being a more nimble purchaser of bonds, then Gross was effectively suggesting that investors buy something besides his fund.
And he’s right, because looking at PIMCO Total Return, there’s a strong case to be made that it’s the Stupid Investment of the Week.
Stupid Investment of the Week highlights conditions and characteristics that make a security less-than-ideal for the average investor. While it is hard to imagine that the world’s preeminent bond manager is suddenly going to turn stupid relative to his peers — and this column is not intended as a sell signal — there’s a strong case to be made that investors would be better off going elsewhere, even in the bond-fund world...
At this point, the problem with PIMCO Total Return is that it’s too big. With Gross having shown his disdain for Treasurys — though he is heavily invested in mortgage-backed securities, which functionally is a distinction without much difference — and trying to seek yield elsewhere, size is, well, a giant problem.
Where Gross might once have added value by finding the best bond deals and executing them better than the competition, today even the best deals are too small to have much impact on the fund...."
Read the full story at this link: http://www.marketwatch.com/story/you-dont-need-pimcos-bill-gross-or-his-bond-fund-2011-06-17?reflink=MW_GoogleNews
-----------------------------
Being too big has hurt other funds. Fidelity Magellan? American Funds' Growth Fund of America? We have a link to Bill Gross' monthly commentary on the left column of this blog. Keep following Bill Gross.
"...Last week, PIMCO’s Bill Gross — the world’s most famous and influential bond-fund manager — suggested that investors looking for good yields give up on Treasurys, consider foreign bonds and, notably, high-quality, dividend-paying stocks...
The message wasn’t exactly new, but the takeaway was different.
If the recommendation was to buy stocks — something Gross’s flagship fund, PIMCO Total Return can’t do — and to make money by being a more nimble purchaser of bonds, then Gross was effectively suggesting that investors buy something besides his fund.
And he’s right, because looking at PIMCO Total Return, there’s a strong case to be made that it’s the Stupid Investment of the Week.
Stupid Investment of the Week highlights conditions and characteristics that make a security less-than-ideal for the average investor. While it is hard to imagine that the world’s preeminent bond manager is suddenly going to turn stupid relative to his peers — and this column is not intended as a sell signal — there’s a strong case to be made that investors would be better off going elsewhere, even in the bond-fund world...
At this point, the problem with PIMCO Total Return is that it’s too big. With Gross having shown his disdain for Treasurys — though he is heavily invested in mortgage-backed securities, which functionally is a distinction without much difference — and trying to seek yield elsewhere, size is, well, a giant problem.
Where Gross might once have added value by finding the best bond deals and executing them better than the competition, today even the best deals are too small to have much impact on the fund...."
Read the full story at this link: http://www.marketwatch.com/story/you-dont-need-pimcos-bill-gross-or-his-bond-fund-2011-06-17?reflink=MW_GoogleNews
-----------------------------
Being too big has hurt other funds. Fidelity Magellan? American Funds' Growth Fund of America? We have a link to Bill Gross' monthly commentary on the left column of this blog. Keep following Bill Gross.
Sunday, June 12, 2011
If Morgan Stanley can cut costs, why not you?
From the WSJ.com earlier this week:
At Morgan Stanley, Focus Put on Costs
"Morgan Stanley offered a glimpse into Wall Street's future, and the outlook has changed so much from the heady days of the past that the firm is planning to keep a close watch on BlackBerry usage...
Morgan Stanley's penny-pinching obsession is a sign of the struggle inside many banks and securities firms to overcome sluggish revenue growth and the looming costs of new regulatory and capital requirements...
One of the biggest cost-savings opportunities at any investment bank didn't come up Tuesday... not a word about cutting salaries or bonuses."
Link:
http://online.wsj.com/article/SB10001424052702304906004576371890825149096.html?mod=WSJ_hp_MIDDLETopStories
-------------------------------
Good Start! Why not cut your costs by avoiding Morgan Stanley and every other high cost adviser?
There is no reason not to cut your costs by up 95%, pocket the difference, and see how you can add up to extra hundreds of thousands of dollars to your wealth.
We teach investors how to invest with the lowest cost ETFs.
At Morgan Stanley, Focus Put on Costs
"Morgan Stanley offered a glimpse into Wall Street's future, and the outlook has changed so much from the heady days of the past that the firm is planning to keep a close watch on BlackBerry usage...
Morgan Stanley's penny-pinching obsession is a sign of the struggle inside many banks and securities firms to overcome sluggish revenue growth and the looming costs of new regulatory and capital requirements...
One of the biggest cost-savings opportunities at any investment bank didn't come up Tuesday... not a word about cutting salaries or bonuses."
Link:
http://online.wsj.com/article/SB10001424052702304906004576371890825149096.html?mod=WSJ_hp_MIDDLETopStories
-------------------------------
Good Start! Why not cut your costs by avoiding Morgan Stanley and every other high cost adviser?
There is no reason not to cut your costs by up 95%, pocket the difference, and see how you can add up to extra hundreds of thousands of dollars to your wealth.
We teach investors how to invest with the lowest cost ETFs.
Tuesday, June 7, 2011
Beware inflation. Beware how the bond market responds.
From Bloomberg:
Food Prices Stay Near Record as Meat Costs Rise
World food prices lingered near record levels in May as meat and dairy costs rose, contributing to inflationary pressures that may drive millions into hunger, even as grain prices fell...
The European Central Bank raised interest rates on April 7, joining nations from China to Sweden that increased borrowing costs this year in a bid to control inflation partly blamed on food costs. Egypt, where rising food prices helped spark protests that led to February’s ouster of President Hosni Mubarak, yesterday forecast “elevated” inflation.
Link: http://www.bloomberg.com/news/2011-06-07/world-food-prices-stay-near-record-as-meat-costs-increase-grains-decline.html
-------------------------------------------
Low Yields on U.S. Treasuries No Guarantee Against Fiscal Crisis
Treasury Secretary Timothy F. Geithner takes comfort from the government’s ability to borrow at low interest rates as the budget deficit hits a record high. “There’s a lot of confidence” in America’s capacity to meet its commitments, he told Bloomberg Television.
History suggests that such faith may prove to be misplaced in the long run. A study of 116 financial crises in 25 countries found that rates had a poor track record in foreshadowing financial difficulties, said Carmen Reinhart, a co-author of the analysis and the female economist whose work is most frequently cited by other researchers...
Reinhart is the No. 1 ranked female economist worldwide as of May, based on criteria used to judge the popularity of her work, according to RePEc: Research Papers in Economics, an online database of economic material operated by volunteers in 74 countries.
The research she did ... looked at crises from 1970 to 1995, focusing on everything from bank-deposit rates to yield spreads. “None of them worked well” in presaging financing problems, she said. The results were contained in “Assessing Financial Vulnerability: An Early Warning System for Emerging Markets,” a book published by the institute in 2000....
Link: http://www.bloomberg.com/news/2011-06-06/low-yields-on-treasury-debt-no-guarantee-financial-crisis-won-t-hit-u-s-.html
--------------------
Are you in danger of being surprised? Beware inflation.
Inflation destroys the value/purchasing power of your money. Bonds lose value when inflation rears its ugly head. Now is the time to pay close attention and time to start taking action.
Things are not clear.
The yield curve argues against a recession. Read Carolyn Baum on Bloomberg.
But also read PIMCO's Bill Gross.
Start taking independent action to make sure you have enough liquidity in your portfolios. That means raising cash.
Food Prices Stay Near Record as Meat Costs Rise
World food prices lingered near record levels in May as meat and dairy costs rose, contributing to inflationary pressures that may drive millions into hunger, even as grain prices fell...
The European Central Bank raised interest rates on April 7, joining nations from China to Sweden that increased borrowing costs this year in a bid to control inflation partly blamed on food costs. Egypt, where rising food prices helped spark protests that led to February’s ouster of President Hosni Mubarak, yesterday forecast “elevated” inflation.
Link: http://www.bloomberg.com/news/2011-06-07/world-food-prices-stay-near-record-as-meat-costs-increase-grains-decline.html
-------------------------------------------
Low Yields on U.S. Treasuries No Guarantee Against Fiscal Crisis
Treasury Secretary Timothy F. Geithner takes comfort from the government’s ability to borrow at low interest rates as the budget deficit hits a record high. “There’s a lot of confidence” in America’s capacity to meet its commitments, he told Bloomberg Television.
History suggests that such faith may prove to be misplaced in the long run. A study of 116 financial crises in 25 countries found that rates had a poor track record in foreshadowing financial difficulties, said Carmen Reinhart, a co-author of the analysis and the female economist whose work is most frequently cited by other researchers...
Reinhart is the No. 1 ranked female economist worldwide as of May, based on criteria used to judge the popularity of her work, according to RePEc: Research Papers in Economics, an online database of economic material operated by volunteers in 74 countries.
The research she did ... looked at crises from 1970 to 1995, focusing on everything from bank-deposit rates to yield spreads. “None of them worked well” in presaging financing problems, she said. The results were contained in “Assessing Financial Vulnerability: An Early Warning System for Emerging Markets,” a book published by the institute in 2000....
Link: http://www.bloomberg.com/news/2011-06-06/low-yields-on-treasury-debt-no-guarantee-financial-crisis-won-t-hit-u-s-.html
--------------------
Are you in danger of being surprised? Beware inflation.
Inflation destroys the value/purchasing power of your money. Bonds lose value when inflation rears its ugly head. Now is the time to pay close attention and time to start taking action.
Things are not clear.
The yield curve argues against a recession. Read Carolyn Baum on Bloomberg.
But also read PIMCO's Bill Gross.
Start taking independent action to make sure you have enough liquidity in your portfolios. That means raising cash.
Saturday, June 4, 2011
"Money" quote for the next 2 years
From Daniel Henninger of the Wall Street Journal:
"Strong-performing economies need clarity. Barack Obama has given ours indecision stretching to the horizon."
Link to article: http://online.wsj.com/article/SB10001424052702303745304576359570364488858.html
"Strong-performing economies need clarity. Barack Obama has given ours indecision stretching to the horizon."
Link to article: http://online.wsj.com/article/SB10001424052702303745304576359570364488858.html
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