Seeking Alpha

Tertiary Finance's  Instablog

Tertiary Finance
Send Message
Work as a pm/fund manager fundamental long short.
  • What M2 is telling us about the 2 Americas
     Alan Greenspan remarked about two Americas while making the rounds of talk shows last Sunday. Greenspan reportedly stressed that while certain segments of the economy, and our workforce, are prospering; others are mired in decline. For example large money center banks that received government backing  are once again enjoying signficant profitability (at this point I have to admit that despite working in banking and investment management for two decades I am at a loss to judge what truly is bank profitability - so arcane and long tailed are the judgement of bank assets), while smaller banks are not doing as well. Similarly, large companies are enjoying some degree of profitability  while smaller businesses are not. S&P 500 Consensus annual earnings estimates have risen to $84 from a figure approximating $80 in the middle of July. Greenspan also opined that our modest recovery was undergoing a "pause" that could feel like a "quasi recession."

    The idea that we are not really growing is borne out in M2 money supply statistics. Present day Deflationistaswould probably point to M3, but since the FED doesn't officially publish those data any more; we can capture much of the money base save repos and large time deposits. Perhaps not as comprehensive, or frightening, as the charts that the Deflationista crowd proclaims but it tells much the story. Lack of money growth implies credit contraction which is detrimental to smaller businesses. Larger firms, on the other hand, still enjoy access to the capital markets. IBM's stunning sale of 5 year paper yielding 30 over the Treasury and bearing a coupon of 1% is indicative of this. 

    M2% changes

    Former Chairman Greenspan, a man I once worked for, sounds eerily like former Vice Presidential Candidate John Edwards at the 2004 Democratic National Convention. Edwards, then at the pinnacle of his political career, referred to two Americas based on class divisions.

    For once I agree with Mr. Greenspan. This is an uneven recovery that will likely be drawn out and painful for a number people. My only question is: why did not he realize any of these schisms or bifurcations when his easy monetary policy did so much, though not all, to catalyze the problems we are now suffering.

    Aug 05 2:41 PM | Link | Comment!
  • That Ten Year Bounce

    The Garden State is known for many less than desirable things: it's horrendous traffic, post industrial decay, unique diction of some of its residents, and a plethora of fashions that - to put it kindly – are infrequently adopted by the rest of the nation. Additionally, New Jersey has 566 municipalities, some below 10,000 residents. This creates substantial inefficiencies, and costs, and is one of many contributing factors in the state's present budget crisis. New Jersey is facing a $10.7 Billion budget deficit, a pension deficit that approximates $48 Billion, and projected falling state tax revenues that are estimated to be $28B for FY2011. New Jersey has the highest property taxes in the nation yet its shortfall is in large part due to generous benefits promised to unionized workers that the state simply can no longer afford to pay. This is a problem that is now facing many states and municipalities. 

    But despite the fact that New Jersey is perennially uncool, every ten years it does something really cool that captures the attention of the nation. In the 1970's Bruce Springsteen emerged from the Garden State, John Bon Jovi in the 80's, the Sopranos in the 90's and now newly elected Governor Chris Christie. Governor Christie is making a big push to reign in public spending. As Governor Christie has so aptly said: "I just think it's time for us to say there can't be two classes of people in New Jersey, public employees who receive rich benefits and members of the public who pay for them." This talk has said by many politicians before, particularly those on the right. The difference is that Christie won a mandate to fix a failing budget system due to a substantial turnout of independent voters and that his approval ratings, though early, are still quite high. 

    Christie has caught the zeitgeist of the times; perceptions of public sector union workers are changing. Many private-company workers have seen their retirement accounts contract, while public-sector benefits have been relatively stable despite turbulence in the economy. Defined Contribution plans has $3.33 trillion in assets at the end of 2009, down 4% from 2006 according to the Federal Reserve . There is less sympathy for public sector workers or their benefits when private sector workers have found themselves in such dire circumstances.  And this does count the loss of 20 million jobs, mostly in the private sector, over the past two years or the loss of state and municipal tax revenues in the latest downturn. The recent election in which 58% of the school budgets were rejected, matching Christie’s philosophy, only indicate that the governor has indeed found the mood of his electorate

    Governor Christie bears watching, New Jersey is leading a trend once again.  

    Disclosure: "no positions"
    Apr 23 10:13 AM | Link | Comment!
Full index of posts »
Latest Followers


  • Is the Fed targeting the middle of the curve (surprisingly to some) in an effort to move business spending - as opposed to housing?
    Nov 3, 2010
More »
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.