The Fed’s Latest Round of Quantitative Easing

I read the following in last weekend’s Wall Street Journal, “Heard on the Street”, p. B16, October 9-10, 2010 …

Being a bear with a capital “B” is tough when the Federal Reserve is juicing markets. The prospect of more extraordinary easing measures Friday pushed the Dow back above 11,000.

But that hasn’t deterred David Rosenberg, Gluskin Sheff’s chief economist.  While the National Bureau of Economic Research (NBER) has said the recession ended in June 2009, Mr. Rosenberg insists we are still in a depression.

That view is based on a less-technical measure of downturns than that used by the NBER.  Mr. Rosenberg says a recession is when government tries “to stimulate the private sector.” A depression is when government tries “to sustain the private sector.” The latter, he argues is very much the case today.

And for those who question the absence of 1930s-style bread lines, Mr. Rosenberg counters that today, thanks to food stamps and other government-assistance programs, “the soup and bread lines are in the mail.”

He makes a good point.  Due to the recession, 1 in 8 Americans now receives food stamps.  If you were to count all those who are eligible, but for whatever reason do not collect, the number is something like 1 in 5 Americans.

Let’s see whether the Fed is successful in stimulating the economy with lower long-term interest rates.  It might work, but it might not.  Personally, I’m not convinced it will.  The Fed is trying to pull a rabbit out of a hat.

Amongst other things, the Fed is also trying to juice housing prices, and I think the juice will help prices to bounce somewhat.  But a dead cat will bounce only so many times.  Eventually, a dead cat is a dead cat.  Don’t get me wrong … Housing will eventually recover, but don’t hold your breath waiting.  It might be a very long time.

And as for the economy, it too will recover, but only when the fundamentals allow it to recover.  Until then, there’s a fair amount of debt that needs to be flushed out of the financial system before that happens.  In the meantime, and to that end, mortgage refinancing might be in order.

Those So-Called ‘Green Shoots’ in the Economy

I was reading a transcript of an interview Warren Buffett gave to CNBC yesterday, and I found this following comment to be funny, succinct, and matter-of-fact.

BECKY: We hear people on our air all the time who talk about the “green shoots” that they’re seeing. Are you seeing any of those green shoots?

BUFFETT: (Laughs.) I looked. I wasn’t seeing anything. I had a cataract operation on my left eye about a month ago and I thought maybe now I’ll be able to see green shoots. We’re not seeing them. Whether it’s retailing, manufacturing, wherever.

I have to agree. Looking at the data, I don’t see green shoots.

Links:

The Economist (magazine)

It’s been a while in the making, but yesterday, I broke down and subscribed to the weekly magazine The Economist. In a sense, this is a big step for me, because I’ve not ever subscribed to newspapers or news magazines before. Truthfully, I’ve not ever had to, because I’ve always digested news in a piecemeal manner, picking up whatever print material I happen to find wherever I go. Newspapers have been much more readily available, but I will also read magazines periodically. (By the way, I rarely watch television, except for occasional episodes of 60 Minutes or BBC World News.)

Whether I’m at the airport on my bimonthly trips to Boston, the coffee shop just a few doors away from my residence in San Francisco, the sandwich shop near work, on public transportation, or at the dentist’s office, I’m always reading whatever happens to be lying around near me: San Francisco Chronicle, The New York Times, Wall Street Journal, USA Today, Time, BusinessWeek, etc.

Throughout the current turmoil gripping the financial markets in September and October 2008, I’ve been more aggressive in my appetite for news. And the piecemeal approach hasn’t cut it. I’ve been hitting the online web sites of the previously-mentioned magazines and newspapers. In the process of all the reading I have done, both online and offline, I’ve come to realize something fundamentally lacking in the media I read. They have not satisfied my fundamental need for understanding the intricate details of why things are the way they are, in today’s economy. My undergraduate degree is in Business Administration, so I have a fairly good knack for understanding business, finance, and economics. However, these publications do not provide nearly enough detail to satisfy my needs. I have specific questions, and so, I want specific answers.

Being a Unix systems administrator, I’m naturally inclined to look inside of things to understand how they work. That is fairly easy in systems administration, because I can look at the source code of shell scripts and C programs. I can look at the state of memory, disk, network, and CPU on a heavily-loaded system. However, doing the same for understanding the economy’s intricacies seams less accessible to me. I’m not looking to become a professor of Economics at Harvard University, but I would like to understand things better. (Wouldn’t it be totally cool if there was such a thing as dtrace for the economy?)

With that in mind, I decided I wanted to subscribe to a magazine or newspaper that would help me in my quest for deeper understanding. My mind turned instantly to The Economist, a weekly news magazine that I had read a couple times in the past. And during the past several years, some of my Google searches have yielded really good articles I found on their website at http://www.economist.com/. However, I had some concerns about media bias, and specifically about which way The Economist leans.

Suffice to say, I’ve always identified myself as a liberal. I grew up in Massachusetts, and I’ve lived nearly a decade in the San Francisco Bay Area. However, in recent years, I’ve begun to notice that my beliefs and political leanings have shifted somewhat. I don’t exactly know how to characterize them today, but I recognize they are shifting. Though I still consider myself a liberal, I have started to take on more fiscally conservative ideas.

In spite of my political leanings, I have always considered myself a fair and balanced person, and as such, I would like the same of any newspaper or magazine I plan to subscribe to. I realize that human beings are biased by nature, but I still would like to seek out a publication that can be considered fair and balanced. Or at least, one that presents me with some divergent viewpoints, not just those from a predominantly liberal or conservative perspective.

I’ve previously read about liberal leanings and conservative leanings of various publications, but I never stopped to think much about them. I suppose I’ve digested my news from enough sources that I probably managed to achieve a balanced perspective on most topics anyway. But still, now that I was planning to start a subscription, I needed to do a little home work.

Online, I found some research articles regarding media bias, and I read numerous opinions people had about various publications. I was happy to read predominantly favorable and satisfactory reviews about The Economist from various sources. It seems that both conservatives and liberals will find issue with the magazine at times, but overall, it is very well-respected. And that is comforting to me. At a subscription cost of $119 (USD) annually, it isn’t cheap, but I believe it will be well worth it. The fact that it covers such a broad range of topics is also important. On the About page at economist.com, you can read more about the publication’s history and philosophy. What I read there was also encouraging. The paper describes itself as “classical liberalism,” and according to this Wikipedia page, it sounds like those ideas might be inline with my own. I look forward to my first issue.

Opposition to the $700 Billion Mortgage Bailout

The more I read, the more I’m disgusted.  The Bush administration wants this bill passed quickly, without Congress (both Democrats and Republicans) attaching appropriate conditions to it.  And yet, President Bush continues to expand the original scope of the legislation: agreeing to the demands of lobbyists who are now scrambling to get a piece of the action.  Foreign banks want in, credit card companies want in, banks want it to apply to commercial loans, etc, etc.  Vultures!  Where does it stop?  What happened to the original goal of the plan to resolve the residential mortgage mess contributing to the financial instability?

A bill of this magnitude should not be signed lightly.  It will have a significant financial impact on our nation today and for generations to come.  Financially responsible members of Congress will do right to question whether this bailout plan is appropriate.  I believe there are better alternatives for spending the $700 billion, without rewarding the people who created the mess.

The bill, as it stands today, will essentially reward those firms whose bets did not payoff.  Without the pain of a hard lesson learned, these same firms will create yet more troubles in the future.  In fact, they will be more emboldened to take risks in the future.  After all, why should they care about the risks if they believe that Uncle Sam will help them out in a pinch?

Enough is enough.  It’s time we stopped paying attention to the threatening bullies on Wall Street.  They hold Congress and the American People over a ledge of fear.  But in fact, they are the biggest bunch of cry-babies I have ever seen.  First, they wanted deregulation, so they could be unfettered in their ability to make money.  And now they are asking for a bailout when their methods have proven to be disastrously wrong.

It is important to remind the bullies on Wall Street of the old saying “Live by the sword, die by the sword.”  More appropriately, “Live by the capital markets, die by the capital markets.”

I have so much more I can say about this bailout plan, and I understand the further downside risks of doing nothing.  But my message is clear, and my position is still the same.  No bailout!