Continue reading Congress, SEC and Goldman Sachs Failures -- Part 2

Congress, SEC and Goldman Sachs Failures -- Part 2 originally appeared on BloggingStocks on Wed, 12 May 2010 17:00:00 EST. Please see our terms for use of feeds.

The U.S. Federal Reserve has an important job for its top dog: be able to say with a straight face that it will be able to control inflation. Bonus points are available if you can claim the ability to do this over the long-term. Fed Chairman Ben Bernanke showcased his skills yesterday, claiming that the Fed has everything at its disposal needed to stem inflation for the next few years.

Specifically, he laid out five ways that the Federal Reserve can keep money supply and inflation from spiking, with interest rate management the primary tool. It looks like he's trying to get out in front of inflation concerns early, but only time will tell if he can deliver the goods. For now, keeping inflation contained remains a "top priority."

Continue reading Bernanke confident on inflation ... we've heard that before

Bernanke confident on inflation ... we've heard that before originally appeared on BloggingStocks on Tue, 21 Jul 2009 10:40:00 EST. Please see our terms for use of feeds.

Continue reading Message to Fed: Leave rates alone!

Message to Fed: Leave rates alone! originally appeared on BloggingStocks on Tue, 28 Oct 2008 15:45:00 EST. Please see our terms for use of feeds.

The New York Times reports that the Federal Reserve has less reserves. Specifically, a year ago it had $800 billion in reserves and that number is down 63% to $300 billion. The other $500 billion is "encumbered" -- that's a nice way of saying that instead of being invested in "safe" Treasury bills, the Fed owns the assets of American International Group (NYSE: AIG), $29 billion worth of grubby former Bear Stearns collateralized debt obligations (CDOs) and the like through a little something it calls "Maiden Lane LLC", and tens of billions worth of the same from Lehman Brothers Holdings Inc. (NYSE: LEH) and other banks.

I raised the question of Fed solvency in July. Whether it was solvent then, it is less so now. But is there a limit to how much money the Fed can create to fund itself? With demand for Treasury Bills skyrocketing (albeit at interest rock bottom interest rates of 0.14% for the 1-month bill), it looks like now would be a great time for the Fed to replenish its coffers by issuing a trillion dollars worth to shore up its balance sheet. If it can indeed do that, the downside is that these low rates will pay it very little income.

And assuming that the Fed does not want to be in the business of owning half a trillion worth of encumbered assets, it will eventually need to get rid of them. And in so doing, it could find itself in competition with the ever- dwindling portion of the investment banking and insurance industry which the government does not own. How so? Because the Fed will be competing to get the best price for the assets it is trying to sell.

Will it use its power to put those publicly traded companies in a pickle? Or will it forgo the advantage to the taxpayer so its competitors can profit? Beats me.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns AIG shares and has no financial interest in the other securities mentioned.

Here we go again: Is the Federal Reserve solvent? originally appeared on BloggingStocks on Thu, 18 Sep 2008 10:10:00 EST. Please see our terms for use of feeds.

The DJIA is up almost 300 points on speculation that Federal Reserve Board chairman Ben Bernanke will announce another reduction in the overnight discount rate charged to banks. But it is not investors creating all this uproar; this is a trader's paradise, and in some cases a fool's paradise.

The stock market has been jumping up and down on snippets of news while traders search for some trend or short term conviction. Long term investors are probably playing wait and see. If the Fed does not meet expectations, then all the hot air will be let out of today's euphoric rise. On the other hand, if expectations are met or exceeded, then maybe we go up from here -- but I would not count on it.

Continue reading Here we go again: Dow up on rate cut speculation

Here we go again: Dow up on rate cut speculation originally appeared on BloggingStocks on Tue, 18 Mar 2008 12:45:00 EST. Please see our terms for use of feeds.

I often try to put clever titles on my "Chasing Value" column here at BloggingStocks. But today I have to hand it to my fellow BloggingStocks contributor Jim Cramer, who came up with a doozy this morning. His post is titled, "Fed has grounds to cut to zero." In it, he suggests that the economy is in such poor shape that the Federal Reserve could actually cut rates back to ZERO -- yes 0%.

Is Cramer's close association to Wall Street fogging his thinking? If interest rates get anywhere near 0%, you can sign me up now for all the money in all the banks. I guess than we won't need the Fed anymore since I will have all the money. Everyone can sit by their favorite form of media, waiting to hear what I think about where the economy is going. Of course that won't matter either because if I have all the money the economy will go where I say it will go -- or maybe not?

Then again if the interest rates go to zero, perhaps the value of the dollar will go to zero as well. Cramer needs to look beyond the needs of Wall Street.

To find potential opportunities and verify my track record, read Chasing Value or Serious Money.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

Cramer, sign me up for $10 billion at 0% - at least to start originally appeared on BloggingStocks on Fri, 02 Nov 2007 14:48:00 EST. Please see our terms for use of feeds.

For the past week, I have been making the case for the Federal Reserve Board to leave interest rates alone and protect the dollar. HEY BEN I HOPE YOU HAVE BEEN LISTENING! Today and tomorrow, the BIG meeting is going on and the world awaits which way we go. Stand your ground Ben, you have given enough breaks to Wall Street and the bankers, let them pay for the mess they created, not John Q. Public (again).

No investment bankers are giving back the multi-million dollar bonuses they received when they were pushing their CDO packages out the door as fast as the ratings agencies' (perhaps fraudulent) AAA ratings stamps dried. No way should they be given a pass on this.

I also am not that worried about home foreclosures. If speculators take a loss, they will learn a lesson (I hope) and if you bail them out they will be at it again. If the banks take a loss on the foreclosures, they will have to sell them at a lower price (current market) to other families that also need a home -- THE HOMES WILL NOT SIT EMPTY, the banks will unload them.

Continue reading Hey Ben - Leave the rates alone and don't worry about foreclosures!

Hey Ben - Leave the rates alone and don't worry about foreclosures! originally appeared on BloggingStocks on Tue, 30 Oct 2007 14:12:00 EST. Please see our terms for use of feeds.

Did you ever feel you were on a ship of fools?

That's how I feel sometimes when I watch the market zig and zag with every little news tidbit. Today housing news and the Federal Reserve's lack of simpathy for speculators and hedge funds drove share prices down. I would be perfectly happy if the Fed rate stayed at 5.25% for years. I think consistency is a good thing, and we have not had any for a long time. If it is the goal of the current members of Federal Reserve to establish more stability and predictability in the market place, I'm all for it, and in the long run everyone will know where they stand.

If the Federal Reserve lowers rates and other nations do not, where do you think investments will move? The rate has not changed in over a year and most companies did fine. The housing market was pushed by cheap money and speculation. We do not need a return of those circumstances. We can be confident that the Fed will continue to support the banking system and depositors. It ends there.

Lowering rates devalues the dollar. Perhaps foreign buyers improve our balance of trade if this happens. Even more likely foreign investors come in scooping up precious resources and property on the cheap. Let's all clean up our own balance sheets, tighten our own belts and encourage Mr. Bernanke and company to run a tight ship. There will continue to be rough times ahead but in the long run we will be better off.

Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He is on the advisory board of Internet start-up CircleBuilder.com.

The Dow throws a 280 point hissy fit! originally appeared on BloggingStocks on Tue, 28 Aug 2007 20:15:00 EST. Please see our terms for use of feeds.

The Fed's decision Friday morning to lower the discount rate -- the rate at which the Fed makes direct loans to banks -- by 50 basis points to 5.75% is being viewed, at least initially in financial and policy circles, as a prudent step to address a liquidity crunch.

Further, Wall Street's initial reaction was positive, with the Dow up about 200 points to about 13,047 in the first hour of trading.

For the most part, analysts agreed that the Fed, by using the discount rate, has provided essential liquidity, while not violating the doctrine of moral hazard, i.e. create a monetary stance that encourages reckless, irrational lending.

Further, the Fed's move Friday also maintains the Fed's option of cutting, raising or maintaining the federal funds rate - the rate at which private institutions lend to other depository institutions overnight. The target for the federal funds rate remains 5.25%. Even so, many economists expect the Fed to cut that rate at the Fed's next meeting on Sept. 18.

Continue reading Fed's discount rate cut deemed prudent first step

Fed's discount rate cut deemed prudent first step originally appeared on BloggingStocks on Fri, 17 Aug 2007 12:12:00 EST. Please see our terms for use of feeds.

In general I am not in favor of bailing anyone out of their mistakes in judgment. This goes double for investment banks and hedge funds. If investors in these funds want relief they can go to court in those cases where shenanigans or negligence occurred.

I was going to write a post suggesting that Chairman Bernanke do nothing for the next five years and leave the 5.25% Fed Rate alone. It seems to me that stability and consistency in the market are very important and I do not believe that Wall Street should go crying to uncle Ben when they blunder. I have reassessed this position and now believe a 0.25% rate cut would at least reassure the markets that the Federal Reserve is not in hibernation and is paying attention to current events. While the price of a bottle of milk has gone up and so have many other staples. Fuel prices, and home prices have come down as have most modern appliances. Computing power and productivity continue to rocket upward.

Based on my lowly observations inflation is at least temporarily holding steady so while we might debate the subject, there is no debate about the credit crunch. Having come to this conclusion, The Fed should still wait until their next meeting to take action and not before, because they need to show some discipline in an environment where all of our other financial institutions have lost their minds and a lot of credibility Moody's & S&P credibility called into question - my rating FFF.

Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well -- INCLUDING ANY BAD CALLS.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

Time for the Federal Reserve to step up to the plate and take a swing! originally appeared on BloggingStocks on Thu, 16 Aug 2007 08:45:00 EST. Please see our terms for use of feeds.

While it is being reported the Fed Not Expected to Change Key Rate from the 5.25% level it has maintained for over a year now, I feel that eventually Federal Reserve Chairman Ben Bernanke and fellow Board members might have no choice but to raise rates.

Yes, that would hurt the housing industry further and other major sectors of the economy would feel the pinch. Naturally, this would affect corporate earnings and the stock market too. The Fed is the self-proclaimed inflation hawk that has made its priorities well known. However, if other countries raise their rates (as they have been), we may have no choice but to follow suit. If we do not, then we will have to print money to make up for the lack of borrowing power via treasury notes. While both borrowing and running the printing presses are inflationary, the latter solution is more so in the short term, because with notes the government only prints money to pay the interest on the debt.

According to an article published on June 15 by the Economic Policy Institute entitled U.S. current account deficits contributing to surging long-term interest rates:

Continue reading The Fed may have to raise interest rates

The Fed may have to raise interest rates originally appeared on BloggingStocks on Wed, 27 Jun 2007 11:27:00 EST. Please see our terms for use of feeds.

While reaffirming their focus on keeping inflation in check, the Federal Reserve Board has been passive about interest rate increases lately. The Board has been very clear they will remain inflation hawks and will take action to prevent any significant upward inflationary trend.

In the meantime, Wall Streeters are taking on ever increasing debt with more leveraged buy-outs, issuance of more corporate bonds and preferred stock and the first-ever unsecured bond offering by a hedge fund. According to the December 11, 2006 issue of Barron's, Citadel Investment Group of Chicago sold $500 million of five year notes yielding 6.343%.

It is not just Wall Street, either. In the real estate world the same thing is happening. While mortgage rates have moved up over the last 30 months, they are still historically low. For example, in 1998 we refinanced a property using a conduit loan and were thrilled to lock-in a rate of 6.7% (25 year / due in 10). The best traditional loan at the time was 8.1%. After rates moved down our fantastic loan seems only average but we saved some money and had predictability.

Now we find conduit loans can be had as low as 5.7% and traditional mortgages at 6.2%. These rates are typically offered at a maximum of 75% loan-to-value (LTV), with high occupancy, and credit tenants and may vary during the course of the day, based on many factors. At these rates we are interested in borrowing more money. Our business model is very conservative so we do not pursue maximum leverage. We might only seek up to 65% LTV. However other real estate investors are maxing out their leverage, apparently believing the market rates will move higher in the foreseeable future.

Continue reading Will interest rates move up or down?

Will interest rates move up or down? originally appeared on BloggingStocks on Mon, 18 Dec 2006 16:40:00 EST. Please see our terms for use of feeds.

As expected, the Federal Reserve Board is leaving rates unchanged following their meeting today. The federal funds rate will remain 5.25% until next month's meeting. While many analysts believe this lack of change will continue through the end of the year, some are saying that one more increase will take place in the next few months.

Unfortunately, Ben Bernanke gave no interesting snippets in the press release announcing the results of the Fed meeting, so we'll just have to wait for the juicy stuff I suppose.

Fed leaves rates unchanged, again originally appeared on BloggingStocks on Wed, 20 Sep 2006 14:15:00 EST. Please see our terms for use of feeds.

Today we are supposed to learn from the Federal Reserve Board if interest rates will rise. There is plenty of speculation as to whether rates will rise by a quarter point or a half point. I don't think they should do anything. I say take a rest for a couple of months, guys!

They have been sitting around trying to decide where the economy will be in 18 to 24 months. What are the chances they can figure that one out? Close to zero! What are the chances they cause a recession instead of preventing one? About 50/50! 

If they know whats going to happen 18 months out then why don't they each make a zillion dollars in the stock market? I would like to ask them where the price of gold, or oil, Microsoft or eBay will be in 18 months. They are speculating just like the Wall Street analysts!

When interest rates were 1% or 2%, an increase did not matter. But the higher they go the more each increase matters. They should take a breather and cogitate a while. It would show some financial maturity.

Here's my prediction -- if we have a little inflation in 18 to 24 months because they guessed wrong, then we can live with it. But if we are in a recession by then, then good or bad, the Democrats will be in the White House and the Fed will have put them there!

Previous Rant: "Take the chalk away before Bernanke hurts someone"

The Fed is just a bunch of higher profile Wall Street analysts originally appeared on BloggingStocks on Thu, 29 Jun 2006 11:50:00 EST. Please see our terms for use of feeds.