What Does Annual Real GDP Growth Teach Us? [View article]
Agreed with the previous commentators. In the real world, employment and inflation are more significant than GDP, and more keenly felt by the people who collectively comprise "the economy."
The type of individual who would be attracted to a senior management role at a major financial institution, in this era, is not going to be the person who is motivated primarily by salary. Having worked with CEOs and entrepreneurs, albeit at a smaller enterprise level, my observation is that the better ones are more motivated by the challenge, and the sense of accomplishment or adulation, than by pure avarice.
They see themselves in some sense as heroic figures, and that may not be such a bad thing given the present circumstance. Imagine the public acclaim that would go to the CEO who "turned around Citi" or "saved B of A." My sense of the zeitgeist here is that this is what people seek.
Turning Japanese: The Audacity of Reality (Part 3 of 3) [View article]
Very good analysis, for the most part, though some points are debatable, particularly the anti-SEC bits. Yes, they failed to do their job, but that doesn't preclude them from shaping up and getting on with it.
In terms of stimulus, we could look at the country as if it were a business firm. Parts of its capital stock are depleted and could benefit from being refurbished. This means that investment in growth producing capital goods is the order of the day. Spending for its own sake, as you point out, is part of the problem rather than the solution.
The important distinction that one hopes (I have little confidence) the authorities will keep in mind, is the difference between spending and investment. The "projects" detailed in the essay are too much of the former and too little of the latter.
Great Depression Not Imminent, But Inevitable [View article]
Inevitability of a great depression is a non sequitur, given the analysis in the article. The evidence is troubling, indeed, but inevitability is a extraordinary claim which should not be made lightly.
It is clear, in looking inside the numbers, that this deflation is energy driven. Strip out energy and you have flat prices. When energy costs were trending strongly upward in the first half of the year, we heard frequent reminders that energy costs drive inflation through many of the other economic sectors. The process works in reverse as well and one might suspect, after adjusting for energy driven "cost push deflation," and of course for asset depreciation, that there may be little general price deflation going on.
Blogs, Profanity and Editorial Integrity [View article]
In response to remarks about my earlier comments: it seems a number of the respondents may have missed my point. I am not offended by profanity, I simply find it to be bad form. The profanity will not cause me to flee to more pristine sites, it will simply reduce my enjoyment of this one. It would be a shame to impose censorship on the likes of Mr. Salmon, whose work I truly enjoy, but there are better ways to make a point emphatically - in my opinion. Profanity isn't a terribly clever literary device.
Blogs, Profanity and Editorial Integrity [View article]
As a non native English speaker who is captivated by the elegance of the language, I find that profanity detracts from its power, regardless of intent, and favor a more conservative editorial approach to written submissions. In reporting events, such as the conference call example, leaving it in in place is really the only option, but it is more palatable without the full spelling, which is not necessary to communicate the word used in the original.
Will the White House Bail Out Detroit? [View article]
The economic implications of the auto bailout aside, it is simply stunning that the executive branch is contemplating funding the initiative, in essence by decree, after the legislative branch has declined to do so. This pattern of cavalier disregard, even contempt, for democratic process is no small concern. When will we have crossed the Rubicon?
MSFT is certainly no longer a growth company, but it remains a formidable competitor with solid if uninspired products, and likely will remain so for years. Of course, poor business strategy could cripple it in the long run, but that could happen to any company. 20% income (not revenue) growth in the server and business application divisions is no small feat for a company that large.
Last Thursday Was the Bottom - It's Time to Get Back in [View article]
Apropos of the author's pseudonym and the present state of affairs, but unrelated to the topic at hand, a favourite quote from the fabled Roman historian:
"In seasons of tumult and discord bad men have the most power; mental and moral excellence require peace and quietness."
Letting the Reinflation Genie Out of the Bottle [View article]
Mr. Corcoran asks "Will policy makers exhibit the necessary good judgment to know when it is time to put the brakes on for this massive injection of liquidity?"
We should hope so. Watch the velocity of money. It has been dormant. When it starts to move up, in conjunction with the massive liquidity, then the genie could escape the bottle, and the inflation trade will be on. Long GLD / short TLT, for example, may produce spectacular winners, but the economic consequences would be ugly. Perhaps better to preserve capital or make small gains in a stable economy, than to make occasional windfalls in an unstable one.
GM: Bankruptcy Is No Longer an Option [View article]
The auto industry problem has many facets but aside from the specific business problems of the individual firms, there is a basic economic problem of excess capacity.
The quick & dirty analysis in this articles correctly surmises that there is no saving the Detroit Three as they stand. Why not use the $25B loan guarantees to help capitalize private ventures, that purchases their viable assets? As noted, GM and Ford have some marketable newer vehicles like Fusion and Malibu and CTS, iconic cars like Corvette and Mustang, and heavy diesel pickups that will always have some demand.
After the asset sale, the bad managements and bloated structures and legacy costs and UAW are gone, as is much of the excess capacity. Equity holders are almost wiped out already, bond holders and pensioners will take a haircut, and suppliers will be left holding the bag. Bad outcomes but not catastrophic, and certainly better than keeping the old dogs on what would almost certainly be permanent life support. The industry goes forward with new ownership and a smaller footprint, but most importantly a chance to compete and survive.
Nixing 'Mark to Market' Won't Solve the Problem [View article]
On a trading securities basis, mark to market may correctly value these assets under normal market conditions. There is a good argument that the present market conditions are quite extraordinary, and the assets are not being correctly valued by the most recent market transactions.
On a hold to maturity basis (see John Mauldin's analysis, for example), then there is a compelling case to be made that the assets are materially undervalued. Rescinding FAS 157 might make some institutions no longer technically insolvent, and this by itself could do a great deal to resolve some of the counterparty risk in short term lending that has devastated the credit markets.
Perhaps more importantly, rescinding FAS 157 would cost the US taxpayer quite a bit less than $700B.
Side note: one of the benefits of the spread for US banks is that, in the real world, many smaller firms lend their excess reserves to the banks at the Treasury rate and borrow at some rate based on LIBOR +, which in effect means that banks can make money on the spread, so long as they are actually borrowing and lending.
What Does Annual Real GDP Growth Teach Us? [View article]
Why Capping Pay Is Likely to Work [View article]
They see themselves in some sense as heroic figures, and that may not be such a bad thing given the present circumstance. Imagine the public acclaim that would go to the CEO who "turned around Citi" or "saved B of A." My sense of the zeitgeist here is that this is what people seek.
Turning Japanese: The Audacity of Reality (Part 3 of 3) [View article]
In terms of stimulus, we could look at the country as if it were a business firm. Parts of its capital stock are depleted and could benefit from being refurbished. This means that investment in growth producing capital goods is the order of the day. Spending for its own sake, as you point out, is part of the problem rather than the solution.
The important distinction that one hopes (I have little confidence) the authorities will keep in mind, is the difference between spending and investment. The "projects" detailed in the essay are too much of the former and too little of the latter.
Market Watch: Beware the Ides of February [View article]
Great Depression Not Imminent, But Inevitable [View article]
Deflation: The Beast Is Here [View article]
Blogs, Profanity and Editorial Integrity [View article]
Blogs, Profanity and Editorial Integrity [View article]
Will the White House Bail Out Detroit? [View article]
Is the Microsoft Empire Cracking? [View article]
Last Thursday Was the Bottom - It's Time to Get Back in [View article]
"In seasons of tumult and discord bad men have the most power; mental and moral excellence require peace and quietness."
Letting the Reinflation Genie Out of the Bottle [View article]
We should hope so. Watch the velocity of money. It has been dormant. When it starts to move up, in conjunction with the massive liquidity, then the genie could escape the bottle, and the inflation trade will be on. Long GLD / short TLT, for example, may produce spectacular winners, but the economic consequences would be ugly. Perhaps better to preserve capital or make small gains in a stable economy, than to make occasional windfalls in an unstable one.
GM: Bankruptcy Is No Longer an Option [View article]
The quick & dirty analysis in this articles correctly surmises that there is no saving the Detroit Three as they stand. Why not use the $25B loan guarantees to help capitalize private ventures, that purchases their viable assets? As noted, GM and Ford have some marketable newer vehicles like Fusion and Malibu and CTS, iconic cars like Corvette and Mustang, and heavy diesel pickups that will always have some demand.
After the asset sale, the bad managements and bloated structures and legacy costs and UAW are gone, as is much of the excess capacity. Equity holders are almost wiped out already, bond holders and pensioners will take a haircut, and suppliers will be left holding the bag. Bad outcomes but not catastrophic, and certainly better than keeping the old dogs on what would almost certainly be permanent life support. The industry goes forward with new ownership and a smaller footprint, but most importantly a chance to compete and survive.
Nixing 'Mark to Market' Won't Solve the Problem [View article]
On a hold to maturity basis (see John Mauldin's analysis, for example), then there is a compelling case to be made that the assets are materially undervalued. Rescinding FAS 157 might make some institutions no longer technically insolvent, and this by itself could do a great deal to resolve some of the counterparty risk in short term lending that has devastated the credit markets.
Perhaps more importantly, rescinding FAS 157 would cost the US taxpayer quite a bit less than $700B.
Does the TED Spread Really Matter? [View article]