Monday, August 31, 2015

The media / press is lazy. In today's world of the 24 hour news cycle there is more filler and idiotic opinion than any semblance of diligent fact based reporting. The current topic in the financial sector is when / whether the Federal Reserve will or won't raise interest rates. What is missing in all this chatter is the fact that anything the Fed does in the next four months is meaningless. If the Fed decides to raise rates...So What? It will have no effect on the economic activity of this country or any other. There will be some speculation in the currency markets but it will be over quickly. Nothing the Fed is contemplating will have any effect in the real world. At best whatever the Fed does is window dressing but if you listen to the talking heads on TV you would think that the fate of the world was being decided on September 17, 2015

The main reason the Fed would raise interest rates is to choke off the economy and kill inflation. Commodity prices are falling because China has finally owned up to being just one big Government spending binge. The world is running out of storage for all the oil sloshing around the globe. Combined with the  stock market performance last week, which was a huge deflationary event, there is no economic reason for the Fed to do anything. With the rest of the world slowing down economically the US economy looks OK. If there were any real journalists in the financial news business they would be out talking to business owners, contractors, bank lending officers, local merchants etc. and actually try to ascertain what the US economy is doing. Don't hold your breath

Monday, April 20, 2015

One hundred years ago in the run up to World War 1 the European powers had been dealing with continual diplomatic crises which were resolved with short regional wars or diplomatic solutions. As each event unfolded each country became a little more reluctant to compromise and the national governments started playing to the fears and prejudices of their respective populations. Eventually the world "sleepwalked" into an enormous war. As I look around the financial world and its recurring crises I can see similarities with 100 years ago. Every event creates a little hardening of the national positions (i.e. French comments in re Greece), countries try to use the crisis to enlarge their sphere of influence (i.e. Russia in Ukraine etc.), every country playing the martyr (i.e. Greek premier posturing for the local voters)  and the rest of the world thinking no matter what the crisis will be avoided at the last minute. In 1914 when the world went over the edge most leaders of Europe were on vacation. Catastrophes can happen by accident and the European and Greek positions seems to be moving in the wrong direction.

On Bloomberg radio this morning there was a news item about China cutting the bank reserve requirement. The radio host said the GDP growth in China is around 7%. These two items taken together make no sense to me. Cutting reserve requirements for banks is a massive stimulus move and a clear indication that the central banking authority is worried about growth. If China's growth was an honest 7% I doubt there would be need for an extreme measure such as this. Beware of any economic statistics coming out of China.

Wednesday, March 18, 2015

Just in case anyone thinks there is not enough media coverage of the financial world, take a moment to consider all the air time and discussion currently about whether or not the Federal Reserve will or will not include the word "Patience" in their press release today.  The fate of the Republic cannot possibly hang in the balance but you would be hard pressed to guess that from all the huffing and puffing on the business channels. Stop! The reality is that the US economy is doing better than it should since the meltdown of 2008. Clearly the recovery is uneven and it has a ways to go. Commodity prices are falling and that will keep inflation in check. Interest rates are low and will be at historic lows for the foreseeable future. In the age of instant communication the world expects instant results from everything.

One thing that would help the economy is a reasonable fiscal policy from Congress. The constant make believe crises about the debt limit combined with the reluctance to fund necessary agencies and trying to address social issues in defense bills etc. wears thin after a while. The best thing for business is a constant somewhat predictable approach to government regulation and spending. This enables businesses big and small to plan for the future. Most business people I have met do not care which political party is in control, all we want is a consistent approach to fiscal policy based on facts not ideology.  

Friday, January 16, 2015

The reality of American elections is that when power changes in Congress the supporters of the newly elected congressmen or Senators expect their voices will be heard concerning legislation. The greater the support (read money) the faster the new Congress will move legislation near and dear to their supporters hearts. Currently the new Congress is looking to reform / modify / gut the Dodd-Frank act concerning the regulation of Wall Street.This comes at a particularly bad time because bank earnings are under pressure from decreased trading revenues. 

In 2008 the the world banking system almost collapsed. The banks having been trying to sell the narrative than somehow it was lower income people buying a house they couldn't afford that was the problem. The truth was that banks and brokerage houses were trading products they either didn't understand or knew were bad and just didn't care because they made so much money from them. Since 2008 the banks have demonstrated no particular ability manage risk i.e. JP Morgan and the 6 billion dollar loss with the "London Whale".  Wall Street is pushing Congress to change the Dodd Frank Legislation to enable the banks to continue to trade derivatives. Derivatives were the basis of the toxic assets that the banks foisted on investors and necessitated the bail out. 

This confluence of events of banks looking for earnings, a Congress sympathetic to Wall Street, a very compliant Federal Reserve monetary policy and a short memory about just how bad 2008 was seems to me to be a recipe for disaster. 

Wednesday, January 14, 2015

Yesterday the governor of NJ Chris Christie gave his state of the state address. The mystery for the citizens of New Jersey of every political persuasion is why the nation media thinks our plus sized governor is presidential timber. His record in NJ is abysmal and if the national news media was not inherently lazy and irrelevant they might spend an hour and examine his record. During his tenure he has promised to rectify the public pension mess and then promptly ignored the whole thing. (He is not our first Governor to do this, it is actually something of a proud tradition). He pretended to balance the budget by plugging in a growth rate of 5 to 7%, a rate that is patently false. His vision of the future is demonstrated by the two projects he supports. (I could have gone for the cheap joke here and say the two projects he threw his weight behind but I won't). The first is a bankrupt mall called Xanadu in North Jersey and the second is Atlantic City and casino gambling. I hate to break it to the Governor but malls are dying as consumers change their behavior and on line shopping get smarter and easier. The only thing dying faster than malls is Atlantic City. Casinos are closing, revenue is down and the city is a mess. Maybe if the Governor spent some time in NJ he would know these things.

Christie seems to have made his reputation by yelling at constituents whenever they disagree with him. If the news media would do some work they would find NJ lags the national economic recovery, the governor has no economic program and his vision for the future is mired in the past. He is in the words of the bard "Full of sound and fury,signifying nothing"