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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Fed Statement: From “Modest” to “Moderate”?

On March 13, 2012, in Economy, by Tim

The policy making committee of the Federal Reserve gathered today in Washington to pass judgment on the state of the economy and the stock market certainly liked what it heard, though precious metals markets surely did not.

Fed Rate Cutting CyclesAs expected, there were no changes to short-term interest rates, existing policies were unchanged, and no new policy moves were announced.

The Fed acknowledged an improving labor market and rising oil prices while also downplaying the threat of spillover effects from Europe, that is, now that the European Central Bank has finally seen fit to print up more than a trillion dollars for the greater good.

“Steady as she goes” is what equity markets were waiting to hear and they responded accordingly (Susie Gharib and Tom Hudson no doubt had twinkles in their eyes on PBS’s Nightly Business Report) while gold and silver traders were again disappointed to hear nary a mention of further central bank money printing on this side of the Atlantic and many of them exited positions as a result.

None of that should come as much of a surprise.

But, what was interesting about today’s meeting was that the policy statement released after its conclusion had a few subtle changes as annotated in the graphic below, something that has been the exception to the rule lately.

(more…)

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Stressing Over the Fed Stress Test Scenario

On March 13, 2012, in Banks, by Tim

Late yesterday, the Federal Reserve released details of its stress test scenarios for the nation’s too-big-to-fail banks and they included the worst case (a.k.a. nightmare or doomsday) scenario summarized below from this story at CNBC:

The results of the stress tests are slated for release on Thursday (don’t look for any big banks to fail badly) and, given all the bad press that Bank of America has received in recent months about its long-term viability, it should be interesting to see how it fares.

Of course, if banks’ assets had to be marked to market, few of them would likely pass this or any other stress test, however, that’s just a minor detail.

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So, We Got That Going For Us, Which is Nice…

On March 12, 2012, in Currencies, Debt, by Tim

Prompted by last week’s trial balloon about “sterilized bond purchases”, I went looking for that clip from a few years ago when Fed Chief Ben Bernanke told Congress during the early stages of the financial crisis that central bank’s asset purchases would be “sterilized” (as if Congressman understood what that meant). I never did find that clip, but, I did find this:

The post title is a paraphrasing of words of wisdom from Caddy Shack’s Carl Spackler:

So I jump ship in Hong Kong and make my way to Tibet, and I get on as a looper at a course over in the Himalayas. You know, a caddy, a looper, a jock. So, I tell them I’m a pro jock, and who do they give me? The Dalai Lama, himself. Twelfth son of the Lama. The flowing robes, the grace, bald… striking. So, I’m on the first tee with him. I give him the driver. He hauls off and whacks one — big hitter, the Lama – long, into a ten-thousand foot crevice, right at the base of this glacier. And do you know what the Lama says? Gunga galunga…gunga – gunga galunga. So we finish the eighteenth and he’s gonna stiff me. And I say, “Hey, Lama, hey, how about a little something, you know, for the effort, you know.” And he says, “Oh, uh, there won’t be any money, but when you die, on your deathbed, you will receive total consciousness.” So I got that goin’ for me, which is nice.

I wonder what that was that Austan Goolsbee muttered to himself there…

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Trying to Change How the Game Is Played

On March 9, 2012, in Banks, by Tim

We haven’t heard too much about the Consumer Financial Protection Bureau lately but, one thing seems certain, if control of the Senate or White House changes hands in the fall, they’ll likely have a much tougher time doing their job in the years ahead.

Consumer Protection

From the RJ Matson archive at the St. Louis Post Dispatch.

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Principal Reductions Averaging $100,000?

On March 9, 2012, in Banks, Housing, by Tim

In today’s Wall Street Journal report about the side deal that Bank of America made with Obama Aministration officials (related to the robo-signing settlement announced a few weeks ago) comes word of a surprisingly generous approach toward principal reductions for nearly a quarter of a million underwater homeowners.

Big Banks and their MortgagesUnder the arrangement, part of the recent $25 billion settlement of alleged foreclosure abuses between government officials and five large lenders, Bank of America will make deeper and broader cuts in balances than other banks

The plan will offer qualifying borrowers a chance to cut their mortgage balances to their home’s current market value. Other banks are required under the national settlement to cut principal to no more than 120% of the home’s value.

Borrowers who qualify are expected to receive principal reductions averaging more than $100,000, a Bank of America spokesman said. The pact’s total value will depend on how many borrowers take up the offer.

Based on the 200,000+ homeowners the article cites as being eligible for this action, a little simple math puts the total principal writedowns by BofA at over $20 billion! Now that seems like an even more unbelievable number than the $100,000 per household.

Of course, per the report, this will allow BofA to avoid $850 million in fines and they’ll save a bundle in taxes by adjusting these mortgage balances down, many of which they’d end up taking back as foreclosures anyway.

I guess homeowners are finally getting their bailout too!

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Only the Shadow Inventory Knows…

On March 8, 2012, in Housing, by Tim

It’s funny to look at the chart below from this report($) by Standard & Poors on the housing market’s “shadow inventory” and then think back to the recently released 2006 transcripts from Federal Reserve policy meetings where they were more interested in praising former Fed Chief Alan Greenspan and having a good laugh as the curves began to steepen.

Shadow Inventory

Of course, the more important story is what’s been happening lately and, though there has been some overall improvement, conditions are not much better than they were at the height of the housing and credit market crisis a few years ago, the growth of the “Recently cured expected to redefault” category not being a particularly encouraging sign.

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