Pimco's McCulley Discusses 10-Years, The Yield Curve, The Shadow Economy, Minsky Journeys And The Deflation BeastSubmitted by Tyler Durden on 03/26/2010 - 11:32
"I cringe when I hear men like Kansas City Fed President Tom Hoenig muse that the Fed will ultimately need to get the Fed funds rate back up to a 3.5-4.5% zone. I deeply respect Mr. Hoenig, both as an economist and as a man, but I just don't see why the Taylor Rule of the Forward Minsky Journey should apply to the Reverse Minsky Journey. Simply put, the 2% real Fed funds rate constant in the Taylor Rule should, in my view, be considered toast. In a world of deleveraging and hoarding cash it makes absolutely no sense to reward holders of cash with an after-tax real rate of return." - Paul McCulley, Pimco.
Ron Paul: "What The Federal Reserve Still Fails To Realize Is That Intervention In The Economy Is Always Harmful"Submitted by Tyler Durden on 03/26/2010 - 10:50
As part of yesterday's hearing with Ben Bernanke before the House Financial Services Committee, Ron Paul provided the following statement in which he blasts the Fed's ever-increasing cluelessness over monetary policy and its disastrous Catch 22 implications: "the Fed only sees what is seen, the superficial results of its policies, and not what is unseen, the effects of its monetary intervention throughout the economy. Monetary inflation leads to malinvestment and causes the boom phase of the business cycle. Once the malinvestment is realized the bust phase occurs, and these malinvested resources need to be liquidated in order for the economy to recover. But the Fed actively works to prevent this liquidation and does everything in its power to continue inflating in order to prolong the boom. The first act of intervention begets the second and subsequent interventions, each bigger than the first, as each economic bust gets larger and more severe." As the only thing that currently matters for the economy, for LBO rumors, and for stock picking in general is the overabundance of liquidity, one wonders to what rabbit holes the Fed's push for central planning of the US economy will eventually lead us: "The Soviet Union's economy failed because of its central planning, and the United States economy will suffer the same fate if we continue down the path toward more centralized control."
In April of 2000, we first stepped to the plate and bought Berkshire Hathaway (BRK) and made it one of our larger holdings, where it has remained until last month, when we sold half our position. After a few romantic days alone with the 2009 Berkshire Hathaway Annual Report, and several emails to people we know in the insurance world to confirm for the 32nd time in 20 years what we know and don’t know about insurance accounting, we admit to mixed feelings about both the half we sold and the half we retained. As anyone with even modest investing experience can honestly attest, sometimes it just ain’t easy. What follows is our thought process. - RCB Investment Management
Bernstein cuts FY 2010 outlooks for GS from $225 to $210 after trimming its 2010E EPS from $20.28 to $17.18. Morgan Stanley also cut from $3.14 to $2.97. Oppenheimer cuts Q1 2010 estimates for BofA, GS, Jefferies, JP Morgan, Morgan Stanley Lazard, and Wells.
"The third estimate of the fourth-quarter increase in real GDP is 0.3 percentage point, or $11.6 billion, lower than the second estimate issued last month, primarily reflecting downward revisions to nonresidential fixed investment, to private inventory investment, and to PCE." In the meantime, total current dollar GDP is $14,453.8 billion. As the total debt is $12.606 trillion, the debt to GDP is 87.2%. Adding $6.264 trillion in GSE debt which is explicitly backed and should be on the Treasury's book, the total debt is $18.87 trillion and the Total Adjusted Debt to GDP is 130.6%.
- Market forecast project Issue #8 - 2010 (Value Expectations)
- China announces it may pursue a "managed float" (China Daily)
- Europe agrees IMF-EU rescue for Greece (Telegraph) - the IMF's quota of $15 billion will only cover cash needs through end of May
- The VAT cometh (NRO)
- Budget 2010: interest bill on UK government debt set to soar (Telegraph)
- White house to announce more housing aid, principal reduction for everyone (Reuters)
- The bad news for RBS don't stop: RBS Tier 1 notes fall most in five months after swap, S&P cut (Bloomberg)
- Mortgage delinquencies rise to record 14% (Reuters)
Shortly we are going to see what will be almost certainly a downward revision to the revised 5.9% Q4 GDP number. How big will it be? According to Goldman's Jan Hatzius the real number, which will be based on an "income side" calculation of GDP as opposed to an expenditure, will be about 2.2%, a more than 50% drop from the expected revision of 5.8%. Will the government allow such a GDP indication? Of course not as that would completely kill the stock market rally which is the only thing the administration has going for it. Yet the numbers don't like. As Rosenberg demonstrated Q3's GDP was about -7% absent the government's stimulus. Even with it, it appears at the economy, when all is said and done, will have managed to eek out just a barely positive number. Take that out and you are again left with a mid single digit negative number. And this is the basis for a sustainable rebound? What it certainly will be the basis for, is another percent or two on the S&P as the last remaining short capitlate as State Street recalls whatever shares are outstanding to allow Citi smooth sailing after the government sells several tens of billions of worthless Citi stock.
- China may resume 'managed' Yuan float, avoid sharp gain, PBOC's Fan says.
- Euro rebounds from 10-month low, Asian stocks gain on aid plan for Greece.
- European leaders steer Greece to IMF, pledge loans in last-resort aid plan.
- Japan's consumer price index fell again in February, shows deflation continues.
- Taiwan Central Bank to accelerate liquidity withdrawal to prevent asset bubbles forming.
- AAR CORP to acquire Aviation Worldwide Services for $200M.
- Accenture lowers FY10 EPS view by $0.06, sees EPS of $2.61-2.69 vs. $2.70 cons.
RANsquawk 26th March Morning Briefing - Stocks, Bonds, FX etc.
Earlier today the CFTC held a sham hearing in which, among other things, the organization discussed position limits in PM speculation, because, you know, it's the mom and pop speculators that destroy the precious metal market (not JP Morgan or the New York Fed mind you). The hearing could not have come at a more opportune time. GATA has just broken a major story, in which a London metals trader-slash-whistleblower exposes JP Morgan's silver price suppression/manipulation scheme. At this point none of this should be at all shocking, and the only thing that matters is when CFTC's ex-Goldmanite Gary Gensler will be fired for allowing hundreds of billions of dollars to be sucked out of the PM market on behalf of such major market manipulating entities as JP Morgan and the New York Federal Reserve, for whom it transacts. Don't worry - the answer to that rhetorical question is "never", as it is the administration's goal to make all the millionaires among the bulge bracket firms billionaires, via legalized theft from honest investors. Furthermore, if indeed the CFTC is complicit in these manipulative events, as GATA suggest, we hope our objective mainstream media readers enjoin GATA in seeking justice for this criminal breach of proper regulatory enforcement.
As indicated this morning, the market is getting pretty close to some key support levels in Fixed Income. We first highlight the 30Y future support we tested today at 114-26. If we bypass this level we have potential to sell off down to 111-24 which is the next key support, and would trigger a massive bond bear market if actually triggered. But we should expect a bounce here.
Well, we certainly lost a big one. Despite hopes I share that this November’s polls will help mitigate the damage, this giant leap towards socialized medicine is a big loss for the Republican Party, and for the American people. And I say “leap towards” socialized medicine as this bill is not nearly the Left’s end game. It’s not meant to work, it’s meant to destroy the private health insurance industry, an industry that realized this only too late.1 It’s meant to help bring on, through socialized medicine, further breaking of the budget, and further conditioning of the American people to dependency and an expectation that government will provide for all their needs, the full European style welfare state. While it is obvious we must fight this, it’s not as obvious how. This note offers a few thoughts on the matter. - former Goldmnaite Cliff Asness of AQR (Quant Hedge Fund)
ECU Group's Philip Manduca "We Are At A Tipping Point" And The Only Thing That May Save The Euro Is A Collapse Of The USSubmitted by Tyler Durden on 03/25/2010 - 16:31
For once, some actually good insight from a CNBC guest. Philip Manduca, Head of Investment of the ECU Group, discusses Greece and the very severe implications of what the final outcome will look like. "Trichet said the Greeks are crooks, and they've been lying about the numbers. There is a deeply embedded corruption within the Eurozone. Combined with the endemic European socialism and there is just no way you are going to get spending cuts and tax raises and maintain a GDP that makes any sense of the percentage aspect of debt to GDP. So the whole show is wrong. This is an intractable situation, this is going to continue on and on. The onle hope for the Eurozone, and the Euro as a currency, is that sameone takes the spotlight soon, and that may be the United States." Watch the rest as Philip's perspective is spot on... Not to mention that he sees gold as the only alternative to the fiat bonfire soon to engulf the western world.
As part of a package involving substantial International Monetary Fund financing and a majority of European financing, euro area member states are ready to contribute to coordinated bilateral loans.
This mechanism, complementing International Monetary Fund financing, has to be considered ultima ratio, meaning in particular that market financing is insufficient. Any disbursement on the bilateral loans would be decided by the euro area member states by unanimity subject to strong conditionality and based on an assessment by the European Commission and the European Central Bank. We expect euro member states to participate on the basis of their respective ECB capital key.