Seeking Alpha


Send Message
View as an RSS Feed
View procyon's Comments BY TICKER:
Latest  |  Highest rated
  • The Federal Reserve And ECB's Balance Sheets [View article]
    You are right, but the liabilities include currencies and excess reserves of commercial banks; while currencies does help in many ways, the excess reserves do not and the interest is paid by Fed from the tax payers' funds. So yes, we need not look at the net position, but we should be caring about the composition of the liabilities and not merely the asset side of the balance sheet.
    Jun 20 05:39 AM | Likes Like |Link to Comment
  • The Federal Reserve And ECB's Balance Sheets [View article]
    The size of the Fed Balance Sheet should not be looked at merely from the asset size as the liabilities have grown exponentially as well, the net position should be compared with the ECB; now that the excess commercial bank reserves would be attracting a negative interest in the case of ECB, the chances of ECB net position is likely to improve, while there is no change in the case of Fed.
    Jun 16 08:52 AM | Likes Like |Link to Comment
  • Stocks close at records after ECB's interest rate moves [View news story]
    Interest on excess reserves turning negative allows the central bank to make adjustments on the liability side of the balance sheet, it would have some additional balance sheet effects to (may be) purchase assets now. The question is which assets to target and what impact would it have.
    Below zero, as the rate suggests, is perhaps the last arsenal for the ECB, but as the inter-bank lending has plateaued in recent times, it is not a trigger that would immediately change things. Ample liquidity is an oxymoron, as we have been riding on it for several years now and inflation is still at the dumps at the Euro-zone.
    Jun 6 12:51 AM | Likes Like |Link to Comment
  • Why Piketty Is Wrong: Part 1 - The Math [View article]
    Comments on Piketty’s Capital from the Right is filled with a cynical view as expected, while from the Left is steeped in bias; chronicles against inequality however is embedded not in anthropological constructs but in the narratives of our make-believe world orchestrated by self-delusion. The penchant for self-seeking scientific inquiry, that which made all the progress happen, is now a far-cry, steeped in the neo-idealism that the modern world view has created and politics has nurtured that bars the questioning mind to go beyond what is thrust on us by the choices provided in this age of information explosion; Picketty is a noteworthy exclusion in his inquiry that dealt with growth of capital vis-à-vis growth in income and proved how the former moved into the stratosphere while the latter plateaued in most nations.

    But I would like to point out two areas, where we have further inquiry to be diverted, one is on circulating capital, which has grown out of proportion augured by the protracted period of near zero interest rates and nurtured by Central banks in particular and secondly how it had helped fuel over production and supply even with a non-existent demand. This contempt of fairness if I can call it is one of the reasons why on earth the stock of wealth could grow where access to such circulating capital was available; minus the circulating capital, the unfortunate have a hapless existence.
    May 5 08:17 AM | Likes Like |Link to Comment
  • The Fallacy Of High P/E Ratios [View article]
    Brad DeLong in his seminal essay on Campbell Shiller Regressions had established, "This is a major, major, empirical win for Campbell and Shiller. This is why only fools say today that movements in market-wide price-earnings ratios are best interpreted as shifts in rational expectations of future earnings and dividend growth. Instead, they are best interpreted as do to fads and fashions in how much people are willing to nerve themselves to pay for a dollar of earnings today--or, if you prefer and are willing to ignore all the survey and psychological evidence, massive shifts in the curvature of the representative investor's von Neumann-Morgenstern utility function."

    Brad DeLong posed an unequivocal endorsement to the original series by Cambell-Shiller which essentially proved that stock market indices are not random walk or a product of efficient market hypothesis, but there are reasons to have doubts at least that there exists a strong negative correlation between the ratio of the real Standard and Poor Index ten years later to the real index today (on the y axis) versus a certain price–earnings ratio: the ratio of the real Standard and Poor Composite Index for the first year of the ten year interval, divided by a lagged thirty year moving average of real earnings corresponding to the Standard and Poor Index. Which essentially brings us to the understanding that the decline in the future stock market indices could be a result of much higher expected utility from the current dollar invested in the stock market and therefore the current expectation is mired in an altogether immensely reducing expectation function for the future, which is otherwise posed by DeLong as “massive shifts in the curvature of the representative investor's von Neumann-Morgenstern utility function.”
    Aug 18 10:35 AM | Likes Like |Link to Comment
  • Why QE Was A Successful Failure [View article]
    Quantitative Easing came as a solution that was searching for a problem, the real expansion in M2 is slightly more than 6% for a GDP growth of less than 2%, while the bloating reserves sitting on the liability side of the Fed Balance sheet is now in excess of $2 Trillion; the commercial banks would be enjoying a free ride of $5 Billion as interest on these reserves. Winding down the asset side of the balance sheet is a long drawn affair but its near term impact on the interest rate must be seen conjointly when large chunks of Government debt is getting ready to be rolled over in the next two years.
    Aug 14 08:26 AM | Likes Like |Link to Comment
  • Why Stocks Continue To Levitate In The Face Of Eroding Economic Metrics: Ask Elizabeth Warren [View article]
    This is a seminal article by Joseph Stuber, where a number of new points have been made, the apparent lack of liquidity (real cash) while so much is being said about monetary release is a very fundamental point; until the market sells certain positions, the market cannot buy, is the current syndrome that it is locked itself in (as the volumes have shrunk) and the modulated gyrations are a way to make this be orchestrated to the benefit of some at the cost of the other.

    But I would like to point to the mis-pricing of risk, which has returned as a central point once again, as we find the same tendency that created the crisis, which is so succinctly written by Haldane in his seminal paper, ‘Risk Reallocation’, “As important as these potential pricing errors were the incentives they generated for originators and end-investors. Given the apparent levels of excess return, it is easy to see why less sophisticated investors would have had a voracious appetite for tail risk instruments during the boom years. Meanwhile, on the supply side, the originators of these products (the banks) will have had equally strong incentives to manufacture them for onward sale. Yet lurking beneath those market developments was a market failure. Mispricing resulted in incentives to redistribute risk to those least able to price, manage and, hence, potentially bear it.
    In other words, non-bank investors were attracted by the high returns and seemingly low risk, particularly of the
    super-senior tranches, but did not have the capability to measure and model the true risk of these products, nor in some cases the balance sheets to weather the subsequent mark-to-market volatility.”

    Do we not see the same symptoms once again all abound in the financial markets?
    Jul 23 09:09 AM | 3 Likes Like |Link to Comment
  • Alcoa - The Latest Member Of The Junk Bond Club [View article]
    How can the rating make a U-turn to investment grade: Moody sets the cash flow target(Cash flow less dividends)/debt ratio of at least 20%), which seems almost impossible given that the total debt is close to $10 Billion.
    May 30 12:24 AM | Likes Like |Link to Comment
  • 4 Scary Charts Warning Of The Next Financial Crisis [View article]
    One more striking similarity, the stock market is booming in both the countries regardless of what is depicted in the article at least for Japan.
    May 13 08:20 AM | 2 Likes Like |Link to Comment
  • The "reach for yield," the threat of a run in money-market funds, and the possibility short-term wholesale markets could dry up are among the issues the Fed is keeping an eye on, says Ben Bernanke in a speech centered on vulnerabilities in the financial system. The legacy of the financial crisis remains - not just in lost jobs, but the legal and reputational consequences as well. [View news story]
    Bernanke’s speech has a cautionary note on many accounts that ranges from vulnerability (include high levels of leverage, maturity transformation, interconnectedness, and complexity), margin rules (likelihood of financial contagion through various firms and markets), shadow banking (credit intermediation, maturity transformation, liquidity provision, and risk sharing), identifying unusual patterns in valuations (unusually low or high price to earnings ratio in equity markets. Of these the most potent is the “reaching for the yield” syndrome, which is most prevalent in the debt markets especially when the interest rates are at historical lows that has triggered a more short term strategy than a longer term play. The broader question is how does the Federal Reserve ‘keep away’ or ‘get into’ mode to either dis-incentivize certain aspects of risk taking that impacts the financial system in the ways that his speech has been replete with examples on or to incentivize a monetary transmission that could achieve more important things than just ‘reaching for the yield’. Mere highlighting of the risks that the system carries is not good enough and here we have a case that unconventional experiments could carry the risk of ‘tampering’ with the system while conventional ones have been proved to be perverse to the cause of financial stability.
    May 11 01:56 AM | Likes Like |Link to Comment
  • Book Review: 'Profiting From Monetary Policy' [View article]
    The disequilibirum that is referred in this article has assumed a far more disrupting influence as the gap between return on capital that investors seek and the cost of capital is currently based on investments not in physical and human capital but in financial assets that are reeling under the pressure of marginal efficiency, which is constantly falling.
    Apr 20 09:10 AM | Likes Like |Link to Comment
  • Chinese CPI slows to +2.1% Y/Y in March from +3.2% in February, when holiday demand affected prices, and comes in below consensus of +2.4%. A softening of food price rises to 2.7% from 6% helps offset an increase in fuel costs to bring overall inflation lower and give China's central bank more flexibility over monetary policy. PPI -1.9% vs -1.6% in February and consensus of -2%. [View news story]
    The unusual nature of the pass through mechanism where wage increase does not pass through to prices is a central feature in China, as is evident in the recent BIS paper 409, Wage & Price dynamics in a large economy, that talks about an apparent disconnect in the pass-through mechanism of wage to prices in an economy like China.

    With rise of collective bargaining which took off in a big way in the 1990s is now well entrenched in the Chinese system and the wage increases are fairly regular and steep. The pass through of wage does not flow to the final price, as it would have reflected adversely in the CPI and we have seen not such a pronounced effect in the CPI given the high growth rates in China.

    The only way this could happen is through a squeeze in margins and in turn the profitability of the companies. This has been highlighted as the most potent reason which has dampened the pass-through model to work. Perhaps this is one example of the residual social equity in a predominantly capitalist China.

    Procyon Mukherjee
    Apr 9 08:16 AM | 1 Like Like |Link to Comment
  • What If The Fed Has It All Wrong? [View article]
    A brilliant piece and if we include the evidence from some of the earlier asset buying programs like the mortage backed securities that Fed bought, it hardly made any impact if one reads :
    Estimated Impact of the Fed's Mortgage-Backed Securities
    Purchase Program by Taylor and Stroebel( which states in its conclusion:
    "On balance this paper suggests that the impact of the Fed's MBS purchase program on mortgage spreads has been small and uncertain, once the effects of default risk and prepayment risk have been taken into account. While this paper is unlikely to be the final word on the program's effectiveness, our empirical results thus raise questions about the ability of central banks to conduct price-keeping operations reliably by increasing and decreasing asset purchases in particular markets. They also raise doubts about the benefits in terms of lower mortgage interest rates of further increases in the size of the Fed's MBS portfolio or about the costs in terms of higher interest rates of gradually reducing the size of that portfolio."

    Procyon Mukherjee
    Sep 25 02:42 AM | Likes Like |Link to Comment
  • Why The Fed Will Ease In September [View article]
    Michael Woodward's paper at the Jackson Hole brought in a new flavor to the QE3 debate. The paper by Michael Woodward, “Methods of Policy Accommodation at the Interest-Rate Lower Bound”, which was just presented at the Jacksonhole Conference, has brought out very significant insights into some of the policy accommodations by the Fed, which is still in the quagmire that it is a ‘momentary anomaly’, which it is trying to make good, but a full- fledged assault in the making that would be successful in wriggling out the economy from a deflationary spiral. First of all Woodward points out to the fundamental flaw, which is the missing link of the GDP targeting or unemployment targeting, which is replaced by an overnight interest rate targeting, which is already at its historic low. The second is the missing commitment that the Fed stands by the long term view of unstinted support to keep the rates low, not merely by progressive announcements (and doing too little thereafter), but by actually demonstrating through a forward looking program and the second is the actual balance sheet adjustments that the Fed is currently doing through the target asset purchases and what are their intended and unintended consequences.

    One thing is sure that Woodward’s paper is one of the best accounts of the Fed’s policy interventions, that at best has worked to tame inflation because the economy itself has showed no signs of taking any upward price revisions in sustainable manner as the conditions in the employment front hardly changed. The other observation by Woodward that the Fed’s program needs to look at all sections of the economy, “purporting to alter general financial conditions in a way that should affect all parts of the economy relatively uniformly, so that the central bank can avoid involving itself in decisions about the allocation of credit”, is a very important pointer.

    Procyon Mukherjee
    Sep 3 04:40 AM | Likes Like |Link to Comment
  • Facebook Analyst Downgrades: Do We Care? Are Any Analysts Now Credible? [View article]
    I remember the good old days of the technical bubble, where our Economics Professor at the Institute of Management Calcutta, asked us to study the curious case of those stocks which had no revenue potential in the near term but traded at multiples that defied conventional wisdom. Later we found the DCF model is used to justify a given position, not as an inquisitorial to understand the intrinsic potential. Facebook is no different from one stock I remember (Astral Systems) in early 2000, which was trading at many times that of large companies like Bridgestone, with brick and mortar assets, while Astral was just a figment of imagination as far as its revenues were concerned. But who cared, the market was happy on its own bullishness, as it was in its bearishness just a couple of years later. The ability to increase revenues cannot be simply extrapolated to make DCF models work wonders.

    But one thing is sure, the wisdom of the crowds in Facebook's case is pretty noteworthy; times are changing and there is hope that analysts are not the only wise people around.

    Sep 3 04:40 AM | Likes Like |Link to Comment