The first big test of the Fed’s latest phase of monetary stimulus (a.k.a. QE2) begins, well, now.
Author Archives: James Picerno
INVESTING OBSESSIONS
The repetition compulsion, according to Freud, is psychological behavior in which a person is driven to repeat certain destructive acts over and over. Casual observation suggests that the repetition compulsion is a recurring affliction in the money game.
THE GOLD STANDARD IS NO SILVER BULLET
Calls for a return to gold standard are in vogue these days. Tying the value of the dollar and other currencies to the precious metal is considered a monetary salve that will soothe the economic ills that harass us. It’s an idea whose time has come…again, we’re told. The World Bank’s president last week suggested that the world should embrace, in part, a gold-based monetary system. And in yesterday’s New York Times, financial writer James Grant eloquently pined for the gold standard of yore. “The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now,” he writes.
BOOK BITS FOR SATURDAY: 11.13.2010
● All the Devils Are Here: The Hidden History of the Financial Crisis
By Bethany McLean and Joe Nocera
Review via Canadian Press
At its core, the story was about an intoxicating and uniquely American dream of home ownership, according to McLean and Nocera. The narrative let Federal Reserve Chairman Alan Greenspan recommend with a straight face against regulating mortgage securities and other derivatives because that would limit home ownership…Government-sponsored businesses such as Fannie Mae, Ginnie Mae and Freddie Mac could expand beyond any previous understanding of what was sustainable as long as they talked about middle-class borrowers — even if the only people who ultimately benefited were wealthy and institutional investors.
A NEW BULL MARKET IN POLITICAL RISK
The reflation trade that’s been bubbling since late-August has had a good run, and it’s helped tip the outlook from negative to slightly positive. But the trend faces new challenges. The revival in expectations about the economy in recent months is still poised to prevail, and that’s no small plus to help mend the macro ills. But there’s a new batch of turbulence in town, and much of it is blowing from political debates. Even if everything was peachy keen with the pols (and it most certainly is not), the improved outlook for the U.S. economy in recent months remains a precarious renewal. Add in the new turmoil in Washington into the mix and the waning days of 2010 are likely to bring a fresh round of volatility to the capital and commodity markets.
READING ROOM FOR THURSDAY: 11.11.2010
►Jump in China inflation paves way for more tightening
Aileen Wang and Simon Rabinovitch/Reuters/Nov 11
Chinese inflation sped to a 25-month high in October and bank lending blew past expectations, highlighting the challenge faced by Beijing as it battles to keep a lid on price pressures.
The data left little doubt about why the central bank raised reserve requirements this week and pointed to further tightening steps, from rate rises to yuan appreciation, in coming months.
►Mervyn King: high inflation will not force rate rise
Larry Elliott and Nicholas Watt/Guardian/Nov 10
The Bank of England predicted today that inflation in Britain would remain above its target for the whole of next year as the rise in VAT in January and dearer imports affect the cost of living.
Mervyn King, the Bank’s governor, admitted that inflation continued to exceed Threadneedle Street’s expectations, but gave no hint that the nine-strong monetary policy committee was about to raise borrowing costs in response.
WHO’S SORRY NOW?
There are lots of reasons for using high-quality index funds, including low fees, high transparency and a clear mandate on the strategic goal. There’s also the remorse factor to consider.
WAITING FOR THE NEXT INFLATION REPORT
It’s all about inflation—or the lack thereof. Next week (Nov. 17) the Labor Department releases its October estimate for consumer price inflation. Economists are forecasting that core inflation rose 0.1% last month, slightly higher than September’s flat performance, according to Briefing.com.
CURRENCIES & THE BUSINESS CYCLE
Jim Rogers, one of the most respected investors of recent decades—and rightly so—thinks Fed Chairman Ben Bernanke is clueless on matters of macroeconomics. But enlightened macroeconomic analysis and succcessful investment evaluation don’t always reside at the same address. “Dr. Bernanke unfortunately does not understand economics, he does not understand currencies, he does not understand finance,” he charged last week in a speech, according to Bloomberg. That’s a powerful criticism and, if true, would be deeply disturbing. Is Rogers right? No, or at least the criticism doesn’t hold up given the framework Rogers set up to deliver his attack.
BOOK BITS FOR SATURDAY: 11.06.2010
● Crash of the Titans: Greed, Hubris, the Fall of Merrill Lynch, and the Near-Collapse of Bank of America
By Greg Farrell
Review via My Bank Tracker
Money, power and corruption — a killer combination. The new book CRASH OF THE TITANS: Greed, Hubris, the Fall of Merrill Lynch and the Near-Collapse of Bank of America, by Greg Farrell, includes all three…Farrell disproves the popular theory that the industry giant fell due to the unexpected downturn of the mortgage market. He reveals insider information on the names at the top of the headlines, including Stanley O’Neal, Osman Semerci, John Thain and Bank of America CEO Ken Lewis. Crash of the Titans gives a minute-by-minute recap of one of the most intense 48 hours in Wall Street history.
