So the FED produces the expected ½ point cut and the market rallies. Hummm I am not sure if this is a case of “ if it cant get any better than this it can only get worse “ ? or and example of the old saw “don’t fight the FED” . X all the big banks and financials, builders, realestate and a few others current technical seem to be shaping up. I have noticed that last years losers seem to be this years post emergency FED shooting stars. Unlike, many I would be looking to new market leaders instead of a resurrection of the justifiable beaten down sectors. My problem is that on one hand I have learned never to fight the FED, but I am not seeing solutions to any of the current banking problems and perhaps to some extent these problems have gotten even worse as the regulators swarm. I am also not sure that this post Volker- Greenspan FED has managed to build the confidence that the two previous FED’s have mustered. So I remain bullish on energy, utilities, gold, agro, international large construction and anything that spells exports for the US. But I remain very skeptical about the mounting sub prime debacle and what it means for the financial sector. And I still remain very negative on the leadership issues in the US and finaly I find all this cheerleading for the financial sector a bit unsettling .So I am sticking to the sector picking story for now .Focusing on areas that benefit from a weaker dollar ie..that mean stronger exports and lower consumption .
James J Foytlin
Wednesday, January 30, 2008
Tuesday, January 29, 2008
The FED Shades of 1970's William Miller
Miller succeeded Arthur Burns as Fed Chairman in January of 1978. He inherited a high inflation economy, still suffering from the increase in oil prices from OPEC. The change in the Consumer Price Index was 4.9% in 1976 and 6.7% in 1977.[3] Nevertheless, Miller maintained a Keynesian belief that inflation could "prime the pump" of the economy, and would at any rate be self-correcting.[4] He thus pursued a strongly doveish policy and opposed raising interest rates. The effect of this was to send the dollar's value spiraling downward. In November 1978, only 11 months into his term, the dollar had fallen nearly 34% against the German mark and almost 42% against the Japanese yen, prompting the Carter administration to launch a "dollar rescue package" including emergency sales from the U.S. gold stock, borrowing from the International Monetary Fund, and auctions of Treasury securities denominated in foreign currencies.[5][6] This proved only a short-term fix; while temporarily steadying the dollar, it soon resumed its fall.[7] The portmanteau stagflation, the combination of stagnation and inflation, increased in popularity during this time to describe the high rate of inflation that was failing to spur the economy.
Miller's lackadaisical measures against inflation caused distress among members of the Carter Administration itself. Treasury Secretary Blumenthal, Inflation Adviser Alfred Kahn, and Chief Presidential Economist Charles Schultze all advocated for increasing the interest rate prior to the April 1979 meeting, where Miller opposed such measures. Carter had to admonish his own staff over the press leaks used to carry on the dispute.[8]
Miller was not perceived as having great prestige; not coming from an economics or Wall Street background, he was seen as an "outsider."[9] A 2003 article in The Economist said that "America's central bankers have all made their weight felt across the political sphere, with the possible exception of William Miller, whose brief tenure in 1978-79 was notable for his attempts to ban smoking at the board."[10] It is rare for the influential chair's opinion to not carry the vote at the Federal Reserve's meetings, but Miller was outvoted by the Board of Governors at a meeting in 1979 where he opposed an increase in the discount rate, the rate at which the Federal Reserve lends to banks.[9]
Economic historians have generally considered Miller's short tenure unsuccessful. The high inflation that Miller allowed required harsh "shock therapy" treatment by his successor Paul Volcker to bring under control, which sent the U.S. economy into recession from 1980-1982. Steven Beckner, a Federal Reserve analyst, offered a particularly harsh assessment:
Under Arthur Burns, who chaired the Fed from 1970 to 1978, and under G. William Miller, who was was chairman from January 1978 to August 1979, the Fed provided the monetary fuel for an inflation that began as a flicker and grew into a fearsome blaze... If Nixon appointee Burns lit the fire, Miller poured gasoline on it during the administration of President Jimmy Carter. Without question the most partisan and least respected chairman in the Fed's history, this former Textron executive worked in tandem with fellow Carter appointee, Treasury Secretary W. Michael Blumenthal, in pursuit of monetary policies that were expansionist domestically and devaluationist internationally. The goals were to spur employment and exports, with little thought to the dollar's value. By early 1980, inflation was running at 14 percent.[6]
—Steven Beckner, Back from the Brink: The Greenspan Years
Miller's lackadaisical measures against inflation caused distress among members of the Carter Administration itself. Treasury Secretary Blumenthal, Inflation Adviser Alfred Kahn, and Chief Presidential Economist Charles Schultze all advocated for increasing the interest rate prior to the April 1979 meeting, where Miller opposed such measures. Carter had to admonish his own staff over the press leaks used to carry on the dispute.[8]
Miller was not perceived as having great prestige; not coming from an economics or Wall Street background, he was seen as an "outsider."[9] A 2003 article in The Economist said that "America's central bankers have all made their weight felt across the political sphere, with the possible exception of William Miller, whose brief tenure in 1978-79 was notable for his attempts to ban smoking at the board."[10] It is rare for the influential chair's opinion to not carry the vote at the Federal Reserve's meetings, but Miller was outvoted by the Board of Governors at a meeting in 1979 where he opposed an increase in the discount rate, the rate at which the Federal Reserve lends to banks.[9]
Economic historians have generally considered Miller's short tenure unsuccessful. The high inflation that Miller allowed required harsh "shock therapy" treatment by his successor Paul Volcker to bring under control, which sent the U.S. economy into recession from 1980-1982. Steven Beckner, a Federal Reserve analyst, offered a particularly harsh assessment:
Under Arthur Burns, who chaired the Fed from 1970 to 1978, and under G. William Miller, who was was chairman from January 1978 to August 1979, the Fed provided the monetary fuel for an inflation that began as a flicker and grew into a fearsome blaze... If Nixon appointee Burns lit the fire, Miller poured gasoline on it during the administration of President Jimmy Carter. Without question the most partisan and least respected chairman in the Fed's history, this former Textron executive worked in tandem with fellow Carter appointee, Treasury Secretary W. Michael Blumenthal, in pursuit of monetary policies that were expansionist domestically and devaluationist internationally. The goals were to spur employment and exports, with little thought to the dollar's value. By early 1980, inflation was running at 14 percent.[6]
—Steven Beckner, Back from the Brink: The Greenspan Years
FED : Shades of the 1970's Arthur Burns
Burns served as Fed Chairman from February 1970 until the end of January 1978. He has a reputation of having been overly influenced by political pressure in his monetary policy decisions during his time as Chairman[1] and for supporting the policy, widely accepted in political and economic circles at the time, that Fed action should try to maintain an unemployment rate of around 4 percent.[2] (See also: Phillips curve)
When Vice President Richard Nixon was running for President in 1959-1960, the Fed was undertaking a monetary tightening policy that resulted in a recession in April 1960. In his book Six Crises, Nixon later blamed his defeat in 1960 in part on Fed policy and the resulting tight credit conditions and slow growth. After finally winning the presidential election of 1968, Nixon named Burns to the Fed Chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972.[1]
Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed.[3][4] Inflation resulted, which Nixon attempted to manage through wage and price controls while the Fed under Burns maintained an expansive monetary policy. After the 1972 election, price controls began to fail and by 1974, the inflation rate was 12.3 percent.[1]
Another factor contributing to inflation under the Burns Fed was the belief among Burns and other Fed Governors that "the country" was not willing to accept rates of unemployment in the range of six percent as a means of quelling inflation. From the Board of Governors meeting minutes of November 1970, Burns believed that:
...prospects were dim for any easing of the cost-push inflation generated by union demands. However, the Federal Reserve could not do anything about those influences except to impose monetary restraint, and he did not believe the country was willing to accept for any long period an unemployment rate in the area of 6 percent. Therefore, he believed that the Federal Reserve should not take on the responsibility for attempting to accomplish by itself, under its existing powers, a reduction in the rate of inflation to, say, 2 percent... he did not believe that the Federal Reserve should be expected to cope with inflation single-handedly. The only effective answer, in his opinion, lay in some form of incomes policy.[2]
During Burns' tenure, the consumer price index rose from 6%/year in early 1970 to over 12%/year in late 1974 after the Arab Oil embargo, and eventually falling to under 7%/year from 1976 to the end of his tenure in January, 1978, with an annual average rate of consumer price inflation of approximately 9% during his term. Negative economic events included multiple oil shocks and heavy government deficits arising in part from the Vietnam War and Great Society government programs. The high interest rates set by Paul Volker with the support of Ronald Reagan were able to mitigate certain policy outcomes derived from the earlier actions of Burns and the FOMC under his leadership.
When Vice President Richard Nixon was running for President in 1959-1960, the Fed was undertaking a monetary tightening policy that resulted in a recession in April 1960. In his book Six Crises, Nixon later blamed his defeat in 1960 in part on Fed policy and the resulting tight credit conditions and slow growth. After finally winning the presidential election of 1968, Nixon named Burns to the Fed Chairmanship in 1970 with instructions to ensure easy access to credit when Nixon was running for reelection in 1972.[1]
Later, when Burns resisted, negative press about him was planted in newspapers and, under the threat of legislation to dilute the Fed's influence, Burns and other Governors succumbed.[3][4] Inflation resulted, which Nixon attempted to manage through wage and price controls while the Fed under Burns maintained an expansive monetary policy. After the 1972 election, price controls began to fail and by 1974, the inflation rate was 12.3 percent.[1]
Another factor contributing to inflation under the Burns Fed was the belief among Burns and other Fed Governors that "the country" was not willing to accept rates of unemployment in the range of six percent as a means of quelling inflation. From the Board of Governors meeting minutes of November 1970, Burns believed that:
...prospects were dim for any easing of the cost-push inflation generated by union demands. However, the Federal Reserve could not do anything about those influences except to impose monetary restraint, and he did not believe the country was willing to accept for any long period an unemployment rate in the area of 6 percent. Therefore, he believed that the Federal Reserve should not take on the responsibility for attempting to accomplish by itself, under its existing powers, a reduction in the rate of inflation to, say, 2 percent... he did not believe that the Federal Reserve should be expected to cope with inflation single-handedly. The only effective answer, in his opinion, lay in some form of incomes policy.[2]
During Burns' tenure, the consumer price index rose from 6%/year in early 1970 to over 12%/year in late 1974 after the Arab Oil embargo, and eventually falling to under 7%/year from 1976 to the end of his tenure in January, 1978, with an annual average rate of consumer price inflation of approximately 9% during his term. Negative economic events included multiple oil shocks and heavy government deficits arising in part from the Vietnam War and Great Society government programs. The high interest rates set by Paul Volker with the support of Ronald Reagan were able to mitigate certain policy outcomes derived from the earlier actions of Burns and the FOMC under his leadership.
just right....
Looks to me like the FED is painted into a corner ,if the cut ½ its too much ,if they cut ¼ its too little either way at this point it looks like the FED is still reacting and not leading .
NEWSWEEK says we are in a Recession ...oh my
Dispite the cover of NEWSWEEK ( a significant bullish event):
At the end of the day the problem with FED rate cuts is that they don’t fix the Sub Prime Mortgage problem !
At the end of the day the problem with FED rate cuts is that they don’t fix the Sub Prime Mortgage problem !
Thursday, January 24, 2008
It aint Over till it's Over
$7.2 Billion lost by ONE rogue trader …and NO ONE knew anything about it …yea right.Mean while too many people are still calling the bottom for my taste, there is just too many cheerleaders.
Again when they stop calling the bottom it’s the bottom!
Think late 1970's look toward energy, agro utilities and gold.
Again when they stop calling the bottom it’s the bottom!
Think late 1970's look toward energy, agro utilities and gold.
Tuesday, January 22, 2008
too Little Too Late
So the Treasury Speaks and the FED cuts, but as usual the action is muddled. A FED rate cuts in order to have maximum impact needs to catch the market off guard. A better move would have been to remain silent and run into a sinking market with a rate cut once trading began. This move was just too telegraphed and keeps the FED looking in the reaction mode. This FED action is not a confidence builder on the contrary the FED continues too look reactive instead of proactive. Worse yet is looking for this congress to do anything substantive, which seems to be no more than a pipe dream.
I have reevaluated (once again) my trading model and found the historical data was out of sync, I plugged in new data and it seems more inline with the current situation of the post 2000 melt down till the current time. I Think is more of the 1960’s, very strong economy but not much upside in the stock market with creeping economic policy mistakes that culminated in the destructive period of 1970’s ,we have just arrived in the 1970’s and look for a jimmy carter presidency no matter who wins this election….
Wednesday, January 16, 2008
It aint over till its over
I will be more apt to call the bottom when everyone gives up calling the bottom
Yep 2008: back to the 1970's
Well that’s it its official the thing I have feared the most has come apoun us ,we are heading back to the 1970’s ,a period noted for bad hair,bad taste,bad music ,divorce,cheesy clothes ,a lousy economy ,an abrigation of personal resonsibility ,rabid statism ,sticking up for failed policies and a blind adherence to abject stupidy(one dumb thing after the next) .Don’t dispair at lest football was good and I can show you how to make money off all this and have a great laugh at the same time.
So why is this happening ,well the generation that came of age in the 1970’s that brought you DISCO,hair helmuts ,global terrroism and so on is like all generations looking to make its mark. Since the 1970’s were such an abject disaster ,this generation now of an age to effect change is once again asserting its self in an attemp to prove they really were right the first time. It is a demographic shift as baby boomers retire and now the 1970’s (bad taste) generation wrestels for control over the decision making process of the economy .
Dought me look at the data ,inflation is faning the fires,productivity slowing ,regulation and taxes are creeping ever upward . Now I am not saying that the hyper inflation and maylasse of the 1970’s is coming back ,but inflation will be higher ,and growth will be slower than we have been used to . So whats an investor to do? Focus on the sectors that prospered in the 1970’s or go short against the market and make money off the market decline. For the average investor there are now many ETF’s (exchange traded funds) that one can use to bet against the market.Understand that these bets can offer high returns but also entail extensive risk. So dust of your DISCO ball and break out your white pollyester suite ,here we go again…
Tuesday, January 15, 2008
Thursday, January 10, 2008
Begining of the end or the end of the begining ?
So does a deal between Bank of America and Country Wide signal as Jim Crammer says the beginning of the end of the sub prime lending debacle? Or as it looks to me a company desperate to cover up a so far failed investment by buying the whole company and merging it into a far larger balance sheet so no one will be the wiser? I been thru this before weather it’s the Latin American crisis, saving and loan debacle or 1998 Asian Contagion and I am bit skeptical. So far we have heard many times that after this write down we will finally be getting our act together. Yet write down after write down is met with cheers then groans when we get the “oh by the way we omitted to mention” ….. The devil it seems is in the details.
The second issue is the FED which seemed to bemired into the stumble and then recovery mode, I am just not feeling the leadership, just too many mixed signals. My other problem with the FED is that I just think the credit markets are dysfunctional right now, it’s not the rate of interest, it’s the lack of availability that is the issue, which if it continues could lead to a serve credit contraction.
The next problem is once again leadership in Congress and as the Congress once pressed to lend to all ,credit standards be damned, they now look to punish those that followed their lead . My fear is that the political fix may inadvertently stop lending all together.
This blogger has seen over the years that 9 times out of 10 times all roads lead to Citi bank so I am sticking to my original prognostication .Which is until Citi cuts its dividend I think there is just way to much risk not accounted for on balance sheets to say the bottom has been reached and we see light at the end of the tunnel. My bet is that we are more likely at the end of the beginning, than the beginning of the end.
The second issue is the FED which seemed to bemired into the stumble and then recovery mode, I am just not feeling the leadership, just too many mixed signals. My other problem with the FED is that I just think the credit markets are dysfunctional right now, it’s not the rate of interest, it’s the lack of availability that is the issue, which if it continues could lead to a serve credit contraction.
The next problem is once again leadership in Congress and as the Congress once pressed to lend to all ,credit standards be damned, they now look to punish those that followed their lead . My fear is that the political fix may inadvertently stop lending all together.
This blogger has seen over the years that 9 times out of 10 times all roads lead to Citi bank so I am sticking to my original prognostication .Which is until Citi cuts its dividend I think there is just way to much risk not accounted for on balance sheets to say the bottom has been reached and we see light at the end of the tunnel. My bet is that we are more likely at the end of the beginning, than the beginning of the end.
Tuesday, January 08, 2008
Utilities look to entering a very favorable investment period.
As I stated at the end of December Utilities look to entering a very favorable investment period. First Utilities have a tendency to out perform durring periods of declining interest rates.Secondly even in a slowing economy consumers still have to have lights and heat also the regulated side of the business gives utilities a predictable income stream which in times of uncertainity is very desirable . Another interesting factor is the current upgarde cycle in the whole power generation industry ,weather it is investments in alternative energy or opertunities to expand traditional capacity thru conservation. Finaly all the uncertainty in the bond markets have income investors looking for a place to go .
Monday, January 07, 2008
there is a Bull Market Somewhere ...
Clients are asking if I think we are going into to Bear market? I will repeat we have been in a Bear Market since March of 2000. The simple fact is that the economy and productivity have grown like a weed over the last 7 years yet the stock market has barely managed to out perform cash. Does that mean you can’t make money? No there is as Jim Crammer is famous for saying (and this blogger has said for years)a bull market somewhere we just have to find it .
Thursday, January 03, 2008
Oil Spikes Yikes!!!!
January 2, 2008
Once again happy New Year!
First I want to apologize for the slow turn around this last 10 days for P&L’s or anything else you asked me to look into. I have been a bit overwhelmed by year end demands and been slowed down with technical problems with my internet service. I am playing catch up for the next couple of days.
Oil spikes but looks like some profit and loss taking got pushed from 2007 to 2008. I am not sure it really means anything more than there is a lot of tax driven transactions or perhaps a warning of things to come.
For the beginning of 2008 the market looks to offer more of the same. Energy, Agriculture And Global Construction look to continue to dominate, the key to 2008 looks to be when will the financials come clean and turn around and my guess is a lot of money will be made in financials once this happens but at this point and I know I was late to the party on” sub prime” I think there may be more bad news to come. Several major regional banks are have trouble raising capital and as I warned in my previous post I have become concerned about a spill over into the Muni bond Market. Perhaps a clue to the bottom in financials will be when Citibank cuts its dividend or some shot gun weddings arranged by the FDIC or SPIC.
Another issue that cropped up once again was the preponderance of high priced stocks to out perform there lowre priced brethren . The effect being a huge distoration and lots of volitility for returns in smaller accounts and huge advantages in larger accounts.
Once again happy New Year!
First I want to apologize for the slow turn around this last 10 days for P&L’s or anything else you asked me to look into. I have been a bit overwhelmed by year end demands and been slowed down with technical problems with my internet service. I am playing catch up for the next couple of days.
Oil spikes but looks like some profit and loss taking got pushed from 2007 to 2008. I am not sure it really means anything more than there is a lot of tax driven transactions or perhaps a warning of things to come.
For the beginning of 2008 the market looks to offer more of the same. Energy, Agriculture And Global Construction look to continue to dominate, the key to 2008 looks to be when will the financials come clean and turn around and my guess is a lot of money will be made in financials once this happens but at this point and I know I was late to the party on” sub prime” I think there may be more bad news to come. Several major regional banks are have trouble raising capital and as I warned in my previous post I have become concerned about a spill over into the Muni bond Market. Perhaps a clue to the bottom in financials will be when Citibank cuts its dividend or some shot gun weddings arranged by the FDIC or SPIC.
Another issue that cropped up once again was the preponderance of high priced stocks to out perform there lowre priced brethren . The effect being a huge distoration and lots of volitility for returns in smaller accounts and huge advantages in larger accounts.
Wednesday, January 02, 2008
Yikes................
Oil spikes but looks like some profit and loss taking got pushed from 2007 to 2008
So far 2008 look to offer more of the same,
Energy, Agriculture And Global Construction look to continue to dominate, the key to 2008 looks to be when will the financials come clean and turn around and my guess is a lot of money will be made in financials once this happens but at this point and I know I was late to the party on”sub prime” I think there may be more bad news to come. Several major regional banks are have trouble raising capital and as I warned in my previous post I have become concerned about a spill over into the Muni bond Market. Perhaps a clue to the bottom in financials will be when Citibank cuts its dividend or some shot gun weddings arranged by the FDIC or SPIC.
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