Seeking Alpha
View as an RSS Feed

Martin Lowy  

View Martin Lowy's Comments BY TICKER:
Latest  |  Highest rated
  • China's Cunning Plan To Revive Growth [View article]
    Thanks for a great piece!
    May 28, 2015. 08:47 AM | Likes Like |Link to Comment
  • Redefining Retail Banking [View article]
    Retail banking is indeed being redefined. But, for the most part, not by banks but by technology companies, large and small. Take a look, please at what my friends at Simple have done, for example. Their software transforms the retail banking experience. (Simple now is owned by a large Spanish bank, but it began as an idea pursued by a guy from Australia and a guy from india working in Oregon.) Apple Pay promises to change the payments system. So do virtual currencies.

    There are numerous other examples. The hardest nut to crack is how to lend profitably to lower-income consumers and business startups. Maybe my friends at Vouch are on the right track. Time will tell. But they are doing what banks are not doing: They are using social media-type methodologies to shore up naturally weak credit.

    Unfortunately, lending to small businesses is hazardous. They have little or no collateral (other than real estate, which proves to have less value than thought just when it is needed) and their cashflow often is erratic. To lend against inventory or receivables is time-consuming and expensive; therefore rates are high. For these reasons, crowd-funding, which tends to be less leveraged, may be a better financing vehicle than banks.

    (Yes, I was a consumer banker for a while a long time ago. And I try to keep up with developments.)
    May 21, 2015. 09:10 AM | Likes Like |Link to Comment
  • Yes, The Fed Does Directly Influence The Broad Money Supply Through QE [View article]
    Unfortunately, comparisons with the effects of monetary policy as recently as the late 1970s probably have little predictive utility in today's market conditions. One of the major differences is the current relative liquidity equivalence between a T-bill and a dollar bill. Repos were in their infancy in 1979. (Anyone remember the failure of Drysdale Securities in 1982? The FRBNY held seminars on how repos should work after that. Few in the financial community understood the concept well before that even though the Fed had been using it for some time in the conduct of monetary policy.) The concept of the money supply thus has become very elastic. IMO that factor makes Roche's point about exchanging assets more credible. To the extent that there is a change in the tenor of the government paper being exchanged (dollars for longer dated T-Bonds denominated in dollars), something besides an asset swap is going on. But as long as the bonds are U.S. government bonds, relatively little is changing even then. Bigger changes would occur if the Fed bought privately issued bonds. They have credit risk characteristics that are different from government bonds, plus the swap increases the outstanding sum of U.S. government debt (which includes both cash and interest-bearing securities).

    One also has to factor in the change in the proportion of U.S. credit held by banks--now something like 20%. At such a low percentage, the possibility that banks will not feed changes in reserves into the marketplace becomes real--as appears to have been the case in recent years.

    Thus IMO the ability of monetary policy to control the economy is significantly diminished.
    May 12, 2015. 08:33 AM | 1 Like Like |Link to Comment
  • Schäuble Warns Of 'Sudden' Greek Default [View article]
    Reminds me of "The Sun Also Rises" where this exchange takes place early in the book: Q. "How did you become bankrupt?" A. "Two ways, gradually, then suddenly."
    May 11, 2015. 09:10 AM | 3 Likes Like |Link to Comment
  • Yes, The Fed Does Directly Influence The Broad Money Supply Through QE [View article]
    Please add the practical equivalence of cash and a T-Bond in the modern economy. Not quite true at longer maturities, but nevertheless may explain the limited impact of such enormous volumes.
    May 7, 2015. 10:09 AM | Likes Like |Link to Comment
  • The Debt Supercycle Versus Secular Stagnation [View article]
    I question the last paragraph. Two grounds: (1) You say the building boom post-WWII was made necessary by the baby boom--largely true, though the expansion of the CA population also was a factor. But the building boom of 2002-2006 had no such impetus. Indeed, investor speculation was a precipitating cause. (Yes, the building boom started building in 1997 or so, but 2002-2006 were the years that created the problem.) (2) The building boom post-WWII was largely financed by financial repression in the form of Reg Q. If you look at the history, Reg Q limit on interest rates paid on savings deposits was imposed at the political behest of the large homebuilders and the CA S&Ls that financed them. Result was that S&Ls lost deposits when MMFs were authorized by the SEC in 1972. (it can be argued that the SEC caused the S&L debacle.)

    If you are interested in the the S&L history, please take a look at my book High Rollers. Even though it came out in 1991, it is largely correct even in hindsight.
    May 4, 2015. 10:47 AM | Likes Like |Link to Comment
  • The Looming Liquidity Crisis [View article]
    I am intrigued, Naybob, please carry on.
    Apr 27, 2015. 09:50 AM | Likes Like |Link to Comment
  • The Looming Liquidity Crisis [View article]
    What does one mean when one writes about "investors" in the context of illiquidity? As an individual who is a non-leveraged long-term investor, liquidity of my portfolio in a crisis is relatively unimportant. I (and many other individuals) put aside in cash or cash-like instruments enough money to live on for a substantial period of time. If a liquidity crisis comes, I do not have to sell my long-term holdings at fire sale prices.

    Pension funds, insurance companies and endowments should be similar kinds of investors. If they nevertheless engage in leverage that forces them to sell in panic conditions, that is their problem. I think the pension funds, insurance companies, endowments, most sovereign wealth funds and most private equity funds and investors like me are "investors".

    Many of these kinds of investors indeed have reached for yield. And some will suffer losses due to interest rate movements or insolvencies. But that is what investing is about. When one takes risk, one sometimes suffers losses.

    But what about our leveraged brethren who may hold the same assets but borrow to do so? Are they "investors" in the same sense? I include here many hedge funds, many SIV and other SPV-type structures, as well as many kinds of dealers and traders. It is they who will be panicked and have to sell at fire sale prices in a market break. It is they who will have "collateral problems". Do we care? Are they really systemic? Maybe some are. But I highly suspect that most are not.

    What we should care about is the possible illiquidity of open-end mutual fund portfolios. The theory of open-end investment companies requires that the securities they hold be liquid, meaning also that they are broadly sold every day. this is true of large cap equities. Often it is not true of bonds, especially lower-rated bonds. The foreseeable illiquidity of many open-end bond funds is a problem that should be dealt with (by regulators) because most investors in such funds are not aware of the inherent contradiction between the promise to redeem and the nature of the portfolio. These holders are "investors" in my sense of the term who do not know that they have been turned into something else by the nature of the portfolio.

    In short, who is affected by the "insufficient collateral" problem? And should we worry about their losses?
    Apr 25, 2015. 05:06 PM | 1 Like Like |Link to Comment
  • Asset Managers Pose Systemic Risk - It's Time To Recognize It [View article]
    This looks like a Chicken Little article. Yes, there are potentially serious issues embedded in individual open-end bond mutual funds that likely will lack liquidity in the event of a serious market event. That problem has a parallel in Reserve Primary Fund breaking the buck in 2008, which had serious consequences. And that illiquidity problem should be dealt with by redefining how to compute the level of illiquid securities that an open-end fund can hold. But I have read several of the papers that suggest a broader issue in the investment management industry's growth, and I find them not convincing.
    Apr 25, 2015. 04:22 PM | Likes Like |Link to Comment
  • American (Financial) Exceptionalism [View article]
    Excellent perspective. Thanks.
    Apr 5, 2015. 11:17 AM | Likes Like |Link to Comment
  • Doctrines Overturned [View article]
    Great post! A lot of common sense as well as math and modeling.
    Mar 1, 2015. 09:34 AM | Likes Like |Link to Comment
  • Yes, The Business Cycle Is Real [View article]
    Consumer spending is about 70% of GDP. When consumers are expected to buy, businesses expand. That process ads to GDP. When consumers are not expected to buy, businesses do not expand.
    Consumer loans spur consumer buying. When consumers get overstretched, they reduce their buying. That reduces economic activity, thus slowing GDP growth.
    The current expansion was held back by negative EE, e.g., see Calculated Risk equity extraction graph.
    Dec 26, 2014. 08:24 AM | Likes Like |Link to Comment
  • Yes, The Business Cycle Is Real [View article]
    David, most businesses do not start by borrowing; they start from equity (though the equity may be borrowed from a family member or such). I was not referring therefore to startups. I was looking largely at bank credit, mortgages and other consumer borrowings, such as credit cards. For example, most mortgage loans made in 2002 performed well; those made in 2006 did not. I think we would find similar contrasts for the other categories. And I think we will see that consumer loans made in 2010 will perform better than consumer loans made in 2015, which probably will be closer to the end of the current cycle--perhaps even closer to the end in part because credit has been loosened.

    I also meant to invite discussion of how capital markets may loosen credit even when banks are not doing so. E.g., high yield debt.

    It also is possible that the credit advanced near the bottom of the cycle performs better because it is more constrained.
    Dec 25, 2014. 08:02 AM | Likes Like |Link to Comment
  • Yes, The Business Cycle Is Real [View article]
    Experience shows that credit advanced at the bottom of the cycle performs well, while credit advanced at the top performs badly or at least less well. Yet credit conditions almost always contract when times are bad and loosen when times are good (as is happening recently), thus reenforcing or maybe even causing the credit cycle and the over investment that leads to eventual contraction.
    One can see why this would be a natural psychological reaction on the part of lenders. But professionals ought to know better. Or is it not the professionals that do it? Puzzling.
    Dec 24, 2014. 09:07 AM | 2 Likes Like |Link to Comment
  • Not Every Bad Thing Is A Bubble: A View On 2015 And Thereafter [View article]
    Nice piece, Jim, thanks.
    I am worrying about the impact of low oil prices on international trade. Oil exporters are importers of other stuff. If they have less money, and if their bonds look dicey so they cannot get more credit (and this could happen to many oil producers) the exporting nations may have a hard time. That will affect the U.S. less than others, but I think it could lead to lower equity prices even for U.S. companies that are, after all, usually global in terms of sales.
    I do not yet have the data to know whether my worries are well grounded, and there is less writing on these possibilities than I would expect. (Gillian Tett had a good article in the FT earlier this week, as far as it went.)
    Dec 24, 2014. 08:46 AM | Likes Like |Link to Comment