Hard Slogging

By |2014-09-04T20:48:47+00:00May 14th, 2009|Global Market Update|

I thought the recession was over. With all the euphoric news and the stock market 40% above its lows, you might think that. After all, company profits are higher than expected, and real estate shows signs of bottoming. But we're not out of the woods yet. The latest retail sales data show that rising unemployment is weighing on consumer purchases. And mortgage data now show that one mortgage loan in four is 30 days late or more. As people lose their jobs, they curb [...]

Geithner’s Mea Culpa

By |2014-09-04T21:05:57+00:00May 13th, 2009|Global Market Update|

Learning from your mistakes is a hallmark of Western scholarship. It also characterizes Chinese thought. The Confucian thinker Mencius once praised a fellow scholar: "When someone points out a mistake [he] has made, he is happy." So Tim Geithner, student of the East, should be really happy now. Last week Secretary Geithner admitted that as Vice-Chair of the Fed he presided over policy that was too loose for too long. This helped fuel "reaching for yield" that pumped excess liquidity into risky assets and [...]

Up or Down

By |2014-09-04T21:05:04+00:00May 12th, 2009|Global Market Update|

So will it be inflation? Or Deflation? As the economy comes out of its funk, two opposing camps are preparing for battle. The inflation hawks point to the massive expansion of the Fed's balance sheet and monetization of the deficit as a likely precursors to accelerating inflation. Nature abhors a vacuum, and those dollars will find a home somewhere. The deflation bears point to the increasing "output gap" and the downward pressure on wages that 15.8% total unemployment necessitates as causing deflation, or at [...]

Muscle Cars

By |2014-09-04T20:56:30+00:00May 11th, 2009|Global Market Update|

Why is the government so concerned about the Chrysler deal? Admittedly, autos matter to our economy. But there's only, say, 60 thousand jobs at stake. While that's a lot in itself, it's just about a tenth of the US auto workforce, and it represents only 2.5% of the jobs lost so far this year. So why should the Obama administration risk political intervention in the judicial process? I think it's because Chrysler is a dress-rehearsal for a potential GM bankruptcy. GM reported a $6 [...]

The Devil and Daniel Webster

By |2014-09-04T20:55:04+00:00May 8th, 2009|Global Market Update|

Has Daniel Webster College made a bargain with the Devil? Back in April, the Nashua, NH college announced that it would sell itself to ITT Educational Services, a for-profit company that manages over 100 technology-oriented schools in 37 states. Legally, a judge has to approve moving the school out of a charitable trust before it can be sold. But considering that the school owes $23 million and has lost money nine of the past ten years, is there really any doubt? The alternative is [...]

It’s Not Easy Being Green

By |2014-09-04T20:45:45+00:00May 6th, 2009|Global Market Update|

It's been said-though I've never tried it-that if you put a frog in a pan and heat the water gradually, he won't jump out. Is that what's happening with the "Stress Test" results? We've been hearing leaks and counter-leaks for days. First four banks need help. Then about ten. Bank of America needs $5 billion. Make that ten. What's going on? My guess is that the government is feeding out trial balloons, in order to test what kind of response they'll get. Hey, it's [...]

Never Mind

By |2014-09-04T20:53:36+00:00May 6th, 2009|Global Market Update|

So I guess it's all right. The Stress Testers say Bank of America has to raise $34 billion. But since they already have $45 billion of TARP money, it's okay, they can just convert the Feds' preferred shares to common. Presto, now their captial ratio is okay. Crisis over. But nothing's changed. They don't have any more cash. They just reclassified the government's investment on their balance sheet. But there's a problem: how do they pay it back? Treasury will have all these common [...]

The Breakfast Club

By |2014-09-04T20:44:52+00:00May 5th, 2009|Global Market Update|

Supply matters. That's what I thought when I read about the Chrysler deal. President Obama has criticized a minority of secured lenders who object to the government's deal with the banks, Fiat, and the UAW. These investors think that a bankruptcy judge will give them a better deal, since their claims are senior to the UAW's. Never mind that political meddling in judicial proceedings is never a good idea. Never mind that using government-controlled lenders to reward political supporters is something we usually hear [...]

Crossover Appeal

By |2014-09-04T20:43:15+00:00May 4th, 2009|Global Market Update|

Question: what's contagious, mutates, and can harm its host? The Swine Flu? Or toxic financial assets? The answer is, both. Both depend upon networks, are highly adaptive, and respond to engineering solutions. We've learned a lot since the outbreak of the Spanish Flu some 90 years ago. And we've learned a lot about financial contagion. Some of the solutions are quite similar. Take, communication: by letting people know early about the new flu virus, we've greatly improved people's preparedness. And since the banks' health [...]

The Specter of Change

By |2014-09-04T20:42:31+00:00May 1st, 2009|Global Market Update|

Will Senator Specter's change change all that much? On the face of it, anyone who changes parties was probably not voting with his party that much in the first place. That was certainly the case in 2001 with Jim Jeffords, and also with Democrats who switched to the Republican party in '94. But if he's caucusing among friends now, he's likely to be swayed by their positions. And almost all the Democrats are more liberal than Arlen Specter, so he's likely to move leftward. [...]