China's ETF Move Pushes Up Gold By Chris Oliver And Matt Whittaker, Wall Street Journal “HONG KONG—China's securities regulators are allowing mainland Chinese to invest in foreign exchange-traded gold funds for the first time, unleashing the full buying power of the world's second-biggest economy on funds that already own more gold than most central banks… Lion Fund Management Co. received permission to invest in exchange-traded gold funds outside the country, making the fund the first of its kind for mainland China, according to a statement posted on the Shenzhen fund provider's website.” … [Read more...]
QE 2 is Risky
QE2 is Risky and Should be Limited - Martin Feldstein, Financial Times “The Federal Reserve’s proposed policy of quantitative easing is a dangerous gamble with only a small potential upside benefit and substantial risks of creating asset bubbles that could destabilise the global economy. Although the US economy is weak and the outlook uncertain, QE is not the right remedy…Like all bubbles, these exaggerated increases can rapidly reverse when interest rates return to normal levels. The greatest danger will then be to leveraged investors, including individuals who bought these assets with … [Read more...]
Bernanke Outsources Monetary Policy to Wall Street
Fed Asks Dealers to Estimate Size, Impact of Debt Purchases - Rebecca Christie and Craig Torres, Bloomberg You can’t make this stuff up. The Fed has asked bond dealers to weigh in on their expectations of quantitative easing 2.0 (a.k.a. more money printing). The Fed is trying to gauge market expectations to avoid a potential downside surprise. This is idiotic. The Street knows what the Fed is up to and they are the primary beneficiaries of more money printing. Do you think Goldman is going to tell the Fed that they only expect a few hundred billion in money printing? Not a chance, bond … [Read more...]
Fed Makes Mistakes
The Fed Compounds Its Mistakes – Allan Meltzer, The Wall Street Journal “The Federal Reserve seems determined to make mistakes…Anyone can make a mistake, but wise people don't repeat the same one. Increasing inflation to reduce unemployment initiated the Great Inflation of the 1960s and 1970s…The most important restriction on investment today is not tight monetary policy, but uncertainty about administration policy. Businesses cannot know what their taxes, health-care, energy and regulatory costs will be, so they cannot know what return to expect on any new investment…The only lasting … [Read more...]
Readers Roundup
Enough With the Low Interest Rates! by Charles S. Schwab, The Wall Street Journal “The negative impact of current policy is clear. The near-zero interest rate experiment is weighing on consumer and investor confidence, and the Fed signals its lack of confidence with each "extended period" proclamation…Small businesses that create jobs are unable to borrow in any meaningful amounts except via 100% collateralized loans. Banks continue to hold large capital bases, mostly because they have no definitive signal yet from the federal government or regulators about what their capital requirements … [Read more...]
China’s Real Inflation Rate
What's China's Real Inflation Rate? by Dexter Roberts, Bloomberg Businessweek "There has been a jump in prices that isn't reflected in the numbers," says Chinese Academy of Social Sciences economist Yu Yongding, who formerly served as an adviser to China's central bank…Another sign of rising prices: Multinationals in China expect to hike wages an average of 8.4 percent this year, according to human resources consultant Hewitt Associates (HEW). Ordinary Chinese, meanwhile don't see the steep jumps in their housing, education, and medical expenses reflected in the official stats. "Inflation … [Read more...]
From Alan Abelson’s Always Informative Barron’s Column:
Let's Hear It for Bad Estimates – Alan Abelson, Barron’s "China, it turns out, doesn't report gross-domestic-product data as most everyone else does. It announces a growth rate, but neglects to supply a quarterly breakdown of real demand. Absent such vital information, it's tough to get a grip on whether growth is healthily widespread or dependent on a handful of sectors...As Ben (we trust Mr. Simpfendorfer won't mind the informality) notes, "in the case of China, there is risk the country is spending too much on building highways and factories, resulting in overcapacity and bad … [Read more...]
Japan’s Lost Decade
Japan’s ‘Lost Decade’ Wins Fresh Attention – James Mackintosh, Financial Times “The 1990s were certainly bad for Japan. Gross domestic product rose at half the rate of slow-growing France and a third that of the US. The Nikkei 225 index halved from its peak above 36,000…On paper, the 2000s too look dire: GDP rose only 10 per cent from 2000-08, just over half the UK or US level, even after Japan belatedly addressed its troubled banking system and embraced limited quantitative easing. But as economist Andrew Smithers points out, the ageing of the population affects the data. GDP per person of … [Read more...]
A CEO Polygraph
How Can You Tell If A CEO Is Lying? – Kyle Stock, DealJournal, The Wall Street Journal Conference call Q&As are a confusing and cryptic dance. Executives try to be attractive to investors, without giving away too much. In many cases, they are trying to put a good spin on bad results. But what if an investor could read right through all of the posturing and careful prose to know if they were being strung along? A pair of professors at Stanford recently tried to do just that. The team built a model that tries to flush out executive lies, using psychological and linguistic studies … [Read more...]
Quotable
From the July 28, 2010 Financial Times, Vulnerable to Vertigo “Using past forecast errors as a guide, the new UK Office for Budget Responsibility sees an 80 per cent chance that the British economy will grow between a negative 0.4 per cent and a positive 4.7 per cent in 2011, a range so wide it encompasses both boom and bust. Not much more helpful in diving the future is its calculation that there is a 50:50 chance that 2011 growth will be below 1.2 per cent or above 3.9 per cent.” From Andrew Ross Sorkin’s Too Big to Fail “Not everyone at the Fed was in agreement with Geithner’s … [Read more...]