Insiderman

We Can't Talk Our Way Out of This Market Mess

Here's a thought: Perhaps the government wasn't just talking up the economy but allowing big TARP borrowers to use unneeded funds to make principal trades. Hmmm. Evidence of that in spikes for Golden and Morgan Stanley?

Will Deficit Stimulus Spending Help or Hurt Economic Recovery?

Can use a computer graphics package vs. should use a computer graphics package.

1) You inflation adjust one series but not the other?

2) The increase in GDP appears to lead the budget deficits, especially evident at the left side (1941) and right side of the graphic where this is most evident. Perhaps tax cuts or other fiscal leading caused GDP increases, quickly followed by greedy Congressmen spending even MORE (evidence the Reagan years).

Expand your thinking to the broadest possible application of your analysis: We borrow our GDP rather than produce it. We live in a pristine, carbon-emissions free country where we simply borrow from the Chinese to buy everything produced there. Hmmm. How long will that work?

Mind the GAAP

SEC is looking at ways to require option disclosure (in order for you analysts to earn your pay) and the accounting "industry" has proposals on the table to bring these back into earnings.

Average exercise takes about 13.5 months and some options have 10-year terms, so it should be an interesting exercise to standardize accounting for these.

Hull and White from Rotman GS at U of Toronto like expensing on the grant date and mark-to-market in subsequent periods.

www.rotman.utoronto.ca/~hull/DownloadablePub...

This would be conservative accounting, I suppose. Valuation of an option that reloads for the executive presents some valuation challenges, eh?

Why High Inflation Will Not Take Hold

Maybe I missed this in the comments but if V becomes affected by sentiment (and it has), then a rapid increase in V will have to be accompanied by a rapid decrease in M. Unfortunately, rapidly decreasing M requires that the Fed rapidly sell Treasury securities. increasing the reserve requirement (an elephant gun), etc.

How will the Fed sell Treasuries into this market without a HUGE decrease in Treasury prices and consequent increase in interest rates... usually at a lag. So we'll likely have a brief period of inflatiion accompanied by--yet again--a recession.

As a technical addition to the author's formula, if you use T as transactions, then you cannot use Pi as price level. MV = Sum (Pi x Ti) where Pi is the price of the ith transaction Ti. The MV = PQ formulation, where Q is the real value of final expenditures. I prefer the MV = PY formulation because Y can be used to indicate real income or yeal expenditures in the basic GDP model.

So, if V increases dramatically, M must fall dramatically. Typically P and Q will also shift about in the short-term. Unfortunately, government operational, administrative, and recognition lags will tend to cause the adjustment of M to be inaccruate with respect to the impact of V. P and Q fluctuate cyclically in the process.

The Rally, When It Comes, Will Be a Doozy

Athena ... I'm trying to figure out why FAS 157-b will solve the problem? It came out for comment over a year ago and my read on it was to delay implementation for infrequently valued NONfinancial assets/liabilities:

"FASB Statement No. 157, Fair Value Measurements, for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually)."

How will this solve the problem with credit default swaps and CDOs?

The Stimulus Bill: Did the Government Break Our Leg and Offer Us a Crutch?

George Bush a free market person? He allowed more government intervention in more ways than I ever thought possible. Compound that with unsustainably large budget deficits and you call George "free market?"

The credit crisis was caused by unintenteded consequences of government programs to help minority and low income borrowers, Wall Street greed that allowed synthetic securities and swaps to counter the risk in an unregulated market, contributions from the regulated to members of Congress that head committees that regulate them, and Fed-determined low interest rates after 9/11 that made ARMs irresistable.

Why Wall Street Razzed Obama

I took this to be a tongue in cheek editorial.

I think the real reason Wall St. cratered on inauguration eve was because no one wants money on the table when a million people in a 3-mile mall area could kill the guy.