Apr 26, 2013

Margaret Thatcher on consensus

The process of abandoning all beliefs, principles, values, and policies in search of something in
which no one believes, but to which no one objects.

~ Margaret Thatcher

Apr 16, 2013

MarketWatch's David Weidner on the death of gold

You don’t need to have an advanced degree in economics to understand the fascination with the shiny stuff. Gold is the dummy’s hedge. It’s the purview of old people who are understandably confused by modern investing. It’s the realm of conspiracy theorists who worry about collusion between central banks, hyper-inflation and a new world order.

Of all the investments out there, people feel they understand gold.

Maybe it’s the beauty of the metal, but what really is happening when investors think they have a line on where gold is going to go isn’t that much different from a shell game on a street corner.

Hey, if it looks easy, it must be, right?

Well, on Monday they lifted up the shell and the ball wasn’t there. Today that street corner is empty.

Gold is dead, but suckers are born every minute.

~ David Weidner, MarketWatch, "The day gold died," April 16, 2013

Apr 10, 2013

Randall Kroszner on continued dovish Fed policy

Until we see sustainable job growth the punch bowl is not going to be taken away.

~ Randall S. Kroszner, former Federal Reserve governor, as appeared on CNBC, April 10, 2013

Apr 7, 2013

Kevin Duffy on the Bank of Japan's policy to double its purchases of Japanese government bonds and extend maturities up to 40 years


The BoJ should be careful what they wish for.  There is no scenario under which JGBs can rally from these levels.  There is no upside with their aggressiveness, only downside.  In fact, they risk bringing down the whole house of cards.  The central tenet of the asset inflation of the past 2 decades has been central bank omnipotence.  The BoJ risks pulling back the curtain on this fantasy.  In fact, I think they just did.  Have we crossed the Rubicon into a different world, one in which central bankers do not control events and economic laws overwhelm their feeble attempts to do so?
 
~ Kevin Duffy, April 5, 2013

Apr 5, 2013

Raymond DeVoe on reaching for yield

Keeping score on investments is tough. For instance, it can push you to seek out the highest yield you can find on an income-producing investment, rather than balancing yield against risk. More money has been lost reaching for yield than at the point of a gun.

~ Raymond F. DeVoe, Jr., Legg Mason Wood Walker analyst, February 22, 1995

RBS Securities analyst on the return of synthetic CDOs

Synthetic CDOs are sort of the natural evolution, and in many respects the final frontier, of investors’ search for yield against a backdrop of historically low interest rates. I think the big takeaway here is, ironically, the Fed and regulators are forcing investors to the darkest corners of the structured finance market and the structured credit market to find yield.

~ Richard Hill, RBS Securities analyst, "Behold the Ghosts of Bubbles Past," Bloomberg Businessweek, April 1, 2013

Apr 4, 2013

Richard Fisher on moral hazard of "Too Big to Fail" and creation of megabanks

Here are the facts: A dozen megabanks today control almost 70 percent of the assets in the U.S. banking industry. The concentration of assets has been ongoing, but it intensified during the 2008–09 financial crisis, when several failing giants were absorbed by larger, presumably healthier ones. The result is a lopsided financial system.

Today, these megabanks—a mere 0.2 percent of banks, deemed candidates to be considered “too big to fail”—are treated differently from the other 99.8 percent and differently from other businesses. Implicit government policy has made the megabank institutions exempt from the normal processes of bankruptcy and creative destruction. Without fear of failure, these banks and their counterparties can take excessive risks.

Their exalted status also emboldens a sense of immunity from the law. As Attorney General Eric Holder frankly admitted to the Senate Judiciary Committee on March 6, when banks are considered too big to fail, it is “difficult for us to prosecute them … if you do bring a criminal charge, it will have a negative impact on the national economy.”[1]

The megabanks can raise capital more cheaply than can smaller banks. Studies, including those published by the International Monetary Fund and the Bank for International Settlements, estimate this advantage to be as much as 1 percentage point, or some $50 billion to $100 billion annually for U.S. TBTF banks, during the period surrounding the financial crisis.[2] In a popular post by editors at Bloomberg, the 10 largest U.S. banks are estimated to enjoy an aggregate longer-term subsidy of $83 billion per year.[3]

~ Richard Fisher, Ending 'Too Big to Fail', Remarks before the Conservative Political Action Conference, National Harbor, Maryland, March 16, 2013


  1. For a recap of comments made during the Q&A period following Attorney General Eric Holder’s Senate testimony, see “Holder: Banks May Be Too Large to Prosecute,” Wall Street Journal, March 6, 2013.
  2. For one example of the TBTF advantage observed in the spreads paid for longer-term debt, see “BIS Annual Report 2011/12,” Bank for International Settlements, June 24, 2012, pp. 75–6.
  3. See “Why Should Taxpayers Give Big Banks $83 Billion a Year?” Bloomberg, Feb. 20, 2013.