Questions for Greenspan
Posted by Eddy Elfenbein on September 21st, 2007 at 10:28 am

Caroline Baum has some questions for Alan Greenspan. Here are a few:

4. In that same vein, you write you were “struck by how relatively easy it was to bring inflation down.” When you assumed the Fed chairmanship in August 1987, the consumer price index was rising at an annual rate of 4.3 percent. In January 2006, the month you left, the CPI was rising 4 percent.
You inherited a core CPI, which excludes food and energy, of 4.2 percent and cut it in half. That computes to a decline of 0.1 percentage point a year. If lowering inflation was such a chip shot, why don’t you have more to show for your effort?
5. When you were Fed chairman, you wondered out loud about “irrational exuberance” in the stock market, even though Bob Rubin, whom you call one of your “foxhole buddies” (the other was Larry Summers), said such comments were inappropriate for a government official.
When Leslie Stahl asked you about your personal investments, you refused to comment on the stock market. Aren’t you confusing your role as a public servant and private citizen?
6. You say it’s improper for a president to comment on monetary policy, yet you actively tried to influence fiscal policy. You told Leslie Stahl you were an “economic consultant” to Bill Clinton, that you are “very knowledgeable about lots of different subjects.” And no one else is?
You told Al Hunt you “give advice because they ask me.” Your successor, Ben Bernanke, has made a point of not offering pronouncements on fiscal policy. What part of “no comment” don’t you understand?

Cyclical Divergence
Posted by Eddy Elfenbein on September 20th, 2007 at 2:54 pm

Merrill Lynch tracks two cyclical indexes, one for Early Cyclicals (^XE) and one for Late Cyclicals (^XT). The Earlies are mostly big box retailers like Wal-Mart and Lowe’s while the Lates are your classic Johnny Lunch Bucket stocks like U.S. Steel.
For about four years now, the Lates have clobbered the Earlies. Yet here’s the interesting part: There’s an especially large divergence today. The Early Cyclicals are down about 2% while the Late Cyclicals are basically flat.

A Tale of Two Banks
Posted by Eddy Elfenbein on September 20th, 2007 at 10:39 am

Profits at Goldman Sachs (GS) were up 79%. The company earned $6.13 a share, far more than the $4.35 Wall Street was expecting.

“They dominate the business in so many different ways,” said Michael Vogelzang, who helps manage $2.3 billion, including Goldman shares, as president and chief investment officer at Boston Advisors LLC. “Goldman will tell us what the state of the industry is because they have their hands in most of this stuff.”

Meanwhile at Bear Stearns (BSC), profits dropped 61%.

“Bear Stearns is in the worst shape on Wall Street because it has the most exposure to fixed income and least to international markets,” said Matt Albrecht, a New York-based equity analyst at Standard & Poor’s who recommends selling Bear Stearns shares. “Their reliance on the mortgage market isn’t going to help as that market continues to roil.”

Connection?
Posted by Eddy Elfenbein on September 20th, 2007 at 9:43 am

$5 Bill to Have Splashes of Purple, Gray
Dollar Falls to Record Low

A Turn for Large-Caps
Posted by Eddy Elfenbein on September 19th, 2007 at 1:01 pm

This hasn’t been a pleasant decade for large-cap stocks. Consider General Electric (GE). The company’s earnings-per-share this year will be about 75% higher than in 2000, yet the stock is 30% below its 2000 high.
But the outlook for large-caps may be changing. During the July-August correction, the S&P 100 fell less then the S&P 500, and it’s risen more off the August 15 bottom.

Greenspan on the Daily Show
Posted by Eddy Elfenbein on September 19th, 2007 at 9:26 am

Here’s Alan Greenspan on the Daily Show last night. Jon Stewart basically gets him to admit that the Fed is not consistent with free market capitalism.

Looking at the Fed’s Decision
Posted by Eddy Elfenbein on September 19th, 2007 at 8:53 am

I don’t quite understand the strong reactions to yesterday’s move by the Federal Reserve. To me, it seems perfectly reasonable for the Fed to cut rates by 50 points.
I’ll put the easiest way I can. The Fed last raised rates in June 2006. From June 2006 to August 2007, the year-over-year core CPI has fallen from 2.64% to 2.13% (the data just came out). That’s 51 basis points. In other words, the Fed is just keeping up with inflation. If you keep rates the same while inflation goes down, you’re really tightening.
You can skip all the mumbo-jumbo about commodities and gold and M2 and simply look at real interest rates (meaning after inflation). During a recession, the Fed Funds rate should exactly match the core CPI. During an expansion, it should be about 3% higher.
Here’s a look at recent history:

Missy Francis
Posted by Eddy Elfenbein on September 19th, 2007 at 7:53 am

Jon Friedman sits down with CNBC’s Melissa Francis:

Francis doesn’t include her childhood TV fame anywhere in her official biography. “The only people who recognize me from [“Little House”] these days are CNBC viewers who are watching and suddenly make the connection,” she mused. “Then they say it’s nice to see a child actor who didn’t end up in rehab or robbing their local dry cleaner.”

Chart of the Day
Posted by Eddy Elfenbein on September 19th, 2007 at 7:37 am

Leucadia National Corporation (LUK) compared with the S&P 500:

50 Points!
Posted by Eddy Elfenbein on September 18th, 2007 at 2:16 pm

Wow!!

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; Eric Rosengren; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City, and San Francisco.