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Archives for June 2012

Taxpayers on the Hook for Risky Student Loan Bet

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In early 2010 at the urging of the Obama administration, Congress forced the private sector out of the student loan business. Two-and-a-half years later the Department of Education owns the majority of the student loan market, and America’s taxpayers own the accompanying risk. Josh Mitchell writes in the Wall Street Journal: The federal government now provides the bulk of student loans. Federal loans accounted for more than 90% of all student borrowing in the 2010-2011 academic year, according to the College Board. Nonfederal loans—including those issued by states, banks and credit … [Read more...]

Show Me the Money

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Last week the Federal Reserve approved a proposal that will require all 7,307 U.S. banks to comply with international capital standards known as Basel III. This comes at a terrible time for small banks. They have seen their share of industry assets fall from 31% in 1992 to 10% today according to FDIC data.  Being forced into the more restrictive Basel III requirements will force even more small banks out of business in the United States. … [Read more...]

Euro-area Black Magic

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From the lead article in this morning’s Wall Street Journal: “With foreign investors almost completely absent from Spanish bond markets for months, Spanish banks have propped up the government, which is now forced to turn to Europe for help propping up the weaker banks. Meanwhile, the stronger banks are shying away from buying government bonds—for fear they would be dragged down, too.” Just so this is clear, the Spanish government whose only source of funding is Spanish banks, just bailed out those same banks by taking on an additional $125 billion in debt. Problem solved? Global equity … [Read more...]

Recession Pending? This Indicator Says Yes

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One economic indicator we’ve been watching at Young Research is the Ceridian-UCLA Pulse of Commerce Index. The Index is a leading indicator compiled using real-time data measuring the quantity of fuel being purchased for over the road trucking around the country. The more the economy accelerates, the more goods will need to be moved from production facilities and warehouses to retail outlets and final consumers. Measuring truck fuel consumption can provide analysts with a sneak-peak at demand trends throughout the economy. So what is the index saying? You can see on our first chart that the … [Read more...]

#1a and #1b Investment Firms

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Who wants to partner with Wall Street banks? You have JP Morgan tangled up with a recent trading loss of $2 billion and counting. Then there’s Morgan Stanley and the disastrous Facebook IPO. And not to be outdone was the 2008 bailout of Wall Street banks with taxpayer (your) money. What you’re seeing now is a market that never found a true bottom back in 2008. For my money, Fidelity and Vanguard are at the top of the hill of investment firms, with all the others a distant—and I mean real distant—second, third, etc. When it comes to choosing a custodian for your money, there should be no … [Read more...]

Greenspan: We Don’t Have a Plan B

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Say what you will about former Fed Chairman Greenspan (yes he made lots of mistakes), but he strikes us as a much deeper thinker than the current gentleman who chairs the Federal Reserve. Mr. Greenspan tends to acknowledge the flaws of interventionist fiscal and monetary policy and at least in these videos he focuses on bigger picture structural issues. In contrast, Mr. Bernanke focuses on manipulating quarterly GDP statistics, at all costs, and misses the forest for the trees. Both videos are well worth a watching. … [Read more...]

Bond Yields Turn Negative

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If you thought 25 basis point yields on two-year US Treasuries were bad, take a look at the yields on German Bunds. Two year German government bond yields are now negative. Investors (and rightfully panicked Greek and Spanish savers) are now paying for the right to lend Germany money. 30-year German government yields have also plummeted. Germany can borrow for 30-years at a rate of only 1.6%--a full percentage point less than the U.S. If you are looking for a return on your capital, the German bond market isn’t the place to invest. … [Read more...]