Thanks Ben!
Posted by Eddy Elfenbein on August 12th, 2009 at 3:15 pm

Here’s the latest statement from the FOMC:

Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

August 12, 1982
Posted by Eddy Elfenbein on August 12th, 2009 at 1:54 pm

The great bull market began 27 years ago today, and ended a little over nine years ago.
Here’s a look at the S&P 500 since then:

If Anyone Can Occupy that Space to Larry Kudlow’s Right
Posted by Eddy Elfenbein on August 12th, 2009 at 1:31 pm

It’s John Carney.

Goldman Discussion on KCRW
Posted by Eddy Elfenbein on August 12th, 2009 at 10:37 am

I missed this when it first came out. Here’s a discussion about Goldman Sachs on KCRW from about a month ago. It’s long but if you have the time, it’s worth listening to.
Richard Bove is especially worth hearing while Matt Taibbi is completely and totally out of his depth. It’s actually pretty embarrassing.

Short Selling of S&P 500 Drops to Lowest Level Since February
Posted by Eddy Elfenbein on August 12th, 2009 at 9:26 am

This isn’t a good sign:

Wagers against the Standard & Poor’s 500 Index fell to the lowest level since February as investors shorted fewer shares of financial stocks.
Short interest on the S&P 500 declined to 8.77 billion shares as of July 31, a 12 percent decrease from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg yesterday. That’s the steepest drop since Sept. 30. Investors reduced bearish bets on financial stocks the most, slashing them by 31 percent to 2.05 billion shares.

What to Expect from the Fed
Posted by Eddy Elfenbein on August 12th, 2009 at 9:22 am

I remember when Fed meetings used to be interesting:

The Federal Reserve is expected to give a nod to signs the U.S. recession is waning but will likely warn that the recovery will be slow and dampen any expectations it will soon start to raise interest rates.
The Fed’s policy-setting committee, which meets on Tuesday and Wednesday, is expected to hold its benchmark overnight rate in a range of zero to 0.25 percent. A statement on the decision is due about 2:15 p.m. EDT on Wednesday.
“The markets have begun pricing in a near-term increase in interest rates. That is extremely unlikely. The Fed is going to want to discourage that,” said former Fed Governor Lyle Gramley.
The Fed is likely to decide to let its $300 billion Treasury purchase program expire, as scheduled, in September. Fourteen out of 16 primary dealers polled by Reuters last week said they expect the Fed not to extend the controversial program.

The Case Against Talented Coin Flippers
Posted by Eddy Elfenbein on August 11th, 2009 at 4:10 pm

Proponents of Efficient Market Theory often dismiss the track records of superior money managers as something that ought to be expected given normal probability. They claim that it’s like calling a person who just nails ten heads in a row a superior coin flipper.
Sorry Mr. Buffett, old sport, you just got really, really lucky.
The problem I have with this is that the folks who are often listed as the top money managers seem to share some key traits—specifically they’re often value investors who have no time for EMT. If it truly were an odds game, I doubt we would see these traits appear so often.
Megan McArdle links to a post of managers who have excellent long-term track records. At the top is the late Bill Ruane who was a good friend of Warren Buffett. They met at Ben Graham’s value investing course at Columbia. In other worlds, they took the same class, learned the same lessons and both generated superior returns. There are plenty of other Graham-and-Dodd guys like Peter Lynch, or the guys at Leucadia National (LUK), and the guys at Danaher (DHR), who went on to trash the market year after year.
So it’s not just good coin tossing—it’s good coin tossing following the same coin-tossing lessons, the same coin-tossing methods taught by the same coin-tossing teachers. At what point do we agree that it ain’t just luck?
The Forbes list of billionaires contains lots of shrewd investors. I’m not aware of any that are pure technical guys. There are people who follow every conceivable strategy from astrology to Elliot Wave. Yet, time after time, it’s the value guys who rank near the top.

Stocks Hate the President — Any President
Posted by Eddy Elfenbein on August 11th, 2009 at 10:49 am

I had never heard this one:

According to research from the folks at Ned Davis dating all the way back to 1959, stocks do better when the public thinks the man in the White House is doing worse.
In fact, in weeks when the presidential approval rating sagged below 50 percent, stocks rose at an annual rate of 9 percent — versus only 2 ½ percent when the president in office sported a wildly popular 65 percent approval rating in the polls.
Americans witnessed this phenomenon firsthand on Inauguration Day; despite the national excitement about an Obama presidency and an approval rating near 70 percent, the Dow plunged 332 points.

Outlook for Q3 Improves
Posted by Eddy Elfenbein on August 11th, 2009 at 10:29 am

Here’s an interesting chart. This shows the Intrade contract betting that third-quarter GDP will be positive.

When the market was at its low in March, it was widely assumed that Q3 would be another bad quarter. Since then, the outlook has steadily improved and now it’s assumed that GDP will be positive. (Don’t read too much into that last downward data point, it seems to be a trade going off at the bid.)
One positive quarter doesn’t mean the recession is over. Also, it’s possible to see the numbers jump thanks to inventory rebuilding which may not mean that the underlying economy is improving. Still, the Intrade contract seems to match the resurgence of stock prices. We won’t get our first report on Q3 until late October.

Productivity Surges
Posted by Eddy Elfenbein on August 11th, 2009 at 8:51 am

People were complaining that Q2 earnings reports were good simply due to cost-cutting. That’s true, but they said it as if it doesn’t count. Improving productivity is crucial for an expanding economy:

The productivity of U.S. workers grew in the second quarter at the fastest pace in almost six years as employers squeezed more out of remaining staff to bolster profits.
Productivity, a measure of how much an employee produces for each hour worked, rose at an annual 6.4 percent pace, more than forecast, after a 0.3 percent gain the prior three months, Labor Department data showed today in Washington. Labor costs fell by the most in eight years.
Lower expenses mean companies may need to fire fewer workers as sales stabilize, the first step toward ending the worst employment slump in the post World War II era. Efficiency gains also help curb inflation, giving Federal Reserve policy makers, meeting today and tomorrow, extra time to remove stimulus.