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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Tuesday, January 27, 2009

1.Monetary Policy 2.New Bank Bailout Plan

Monetary Policy
The Fed's FOMC concludes its regular meeting tomorrow. The Fed
has so far put in a ZIRP regimen, infused the system with a very
large amount of basic monetary liquidity, and through a $1.3
tril. expansion of its balance sheet, has further liquified the system
via loan/swap programs. The basic money supply now has a sensible
5 year growth rate of 6%, and the Fed's programs have replaced the
$1 tril. originally lost in the commercial paper market. The much
broader measure of credit driven liquidity I use is now but $200 bil.
short of a decent 6% 12 month rate of growth. The Fed has about
done its job and should now be only in standby mode. Realistically,
if the liquidity in place cannot put the economy on a sounder footing
over the next 5-6 months, it just may not happen, because that
would mean that cash liquidity preference for consumers, business
and banks was just too strong.

2. New Bank Bailout
Hints and trial balloons from industry and Beltway sources suggest
the Obama admin. may unveil a new program to purchase non
performing and toxic debt from banks and related entities at some
point over the next 7-10 days. To avoid shrinking bank capital
well below a level needed to service our very large economy, the
Feds will ultimately have to offer equity capital which does not
further significantly deplete bank cash flow. In fact, if Team
Obama goes ahead with the program, they would be smart to
swap cheaper equity for the very dear TARP money. In response,
the US needs a massive taxpayer shitstorm to force everyone's
hand so all can see the mess and what needs to be done.

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