rcwhalen's blog

Could more conspiratorial environmentalistas’ interpretations of our times be correct, that is, someone has been putting something in the water and we are all being lobotomized, even without major brain surgery?  You could make the case this week. Much of the world’s leadership, even though presumably suckling their bottled water, exhibits all the manifestations of imbibing something adversely affecting the normal cognitive processes

Now in the election silly season, Obama Administration foreign policy proceeds on autopilot.

These back-of-the-envelope calculations suggests that the current attempts to deal with the nation’s fiscal problems are at best a sham and assume that the general public will be fooled into believing that the Congress has righted its ways and is attempting to put the nation on a sound financial footing.

"We look at conservatively estimated earnings yields and compute an equity risk premium of 600 to 700 basis points.  That is an extraordinarily high reward for anyone willing to invest in stocks.  History shows it is a bargain.  We will seize it.  Our longer-term target for the S&P is above 2000 by the end of this decade, if not before." -- David Kotok

It’s U.S. politicking season, a European financial crisis blossoms, Chinese domestic turmoil escalates, Japan is lapsing into catatonia, India is returning to torpidity – not an easy time to call on common sense. But nothing is more necessary when examining the roller coaster markets and, even more, the pronunciamiento of talking heads who have burned out their synapses.

Policy Madness (inconsistency) in Muniland.  Some bullets.

Frictions in the mortgage market have restricted the ability of tens of millions of borrowers from refinancing their mortgages, hampering monetary policy, slowing the economic recovery, and leading to excessive numbers of foreclosures. We propose a streamlined refinancing program that may benefit up to 30 million borrowers...

But largely ignored -- what with the dramatic Euro crisis and a threat of double-dip American recession –   is the more important emerging economy, India, now slipping back into its traditional morass.

William James saw an increasing tendency to extend the then budding scientific method of controlled experiments in the physical sciences into intractable social and political problems. He warned it would not work, perhaps as much based on his psychological understanding as his philosophical logic, that is, as the old saying goes, people will be people.

One hundred senators, 435 congressmen, one President, and nine Supreme Court justices equates to 545 human beings out of the 300 million are directly, legally, morally, and individually responsible for the domestic problems that plague this country.

German taxpayers all along were wary of becoming the only teat on the EC’s udder for what Winston Churchill once called Europe’s soft underbelly. There is nostalgia, too, for the once high-flying DMark which few wanted exchanged in 2002 for Euros. Now those feelings are exploding with Germany’s vaunted economy going south – but not just for bailouts for Greece, Portugal, Ireland, and possibly Spain, and even Italy.

In order for the  FOMC to keep the funds rate within the desired range, it will have to purchase whatever government debt exists or is issued into the market.  This amounts to establishing a de facto QE3 policy without announcing ex ante the amount of securities it intends to purchase.  Instead, the amounts purchased will be “whatever it takes.”

The dust has far from settled on the Washington stalemate over setting a new debt limit. As Thomas Sowell pointed out, so logically, were an increase in the debt ceiling only  “routine”, held up by pesky Congressional Tea Partiers, as the spenders charged, then what would be the purpose of having a ceiling at all? But while an indecorous debate encapsulated the larger ideological divide, America rapidly moves on, remorselessly, to threatening politico-economic issues cascading in from Europe and Asia as well as at home.

Over the past several months, I have been debating with my good friend and mentor David Kotok of Cumberland Advisers over the impact of the new FDIC insurance assessments on the money markets. David as well as another friend, Jim Bianco, insist that the imposition of the new deposit insurance assessment on all bank liabilities net of capital is blocking Fed monetary policy. I totally disagree.

What is the difference between -13 and +7?  The answer is 20.  Twenty is the market-based pricing of the cost of the FDIC asset-based fee assessment.  For the first time, we were able to see its impact.  It is important to understand this calculation in order to fully appreciate what is happening in the financial markets.