by Aaron Krowne Monday, April 28, 2008
It seems to me that predominating now in the markets is something that could be called the “shrinking pie effect” (as I try my hand at my own version of Winterisms…) : basically this is the propensity of the credit bubble in the widest sense to continue deflating even as various bailouts and pumping schemes (i.e. by the central banks) enjoy some measure of success (with predictable cheers by the financial media). While these schemes may stabilize certain corners of the credit markets and avert near-term major money center bank failure, they cannot bring the markets back to their recent glory days of even a year ago. Too much “bid” is now gone, never to return, and the amount of such bid goes down with each passing month. Hence “shrinking pie.”
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by Aaron Krowne Thursday, February 21, 2008
The following piece is adapted from a letter to a friend, discussing economist Nouriel Roubini’s “The Twelve Steps to Financial Disaster“; his explanation of why the Fed suddenly aggressively cut rates in January.
I completely agree with Roubini’s assessment as to the severe risks the economy faces. But he is wrong, wrong, wrong and CLUELESS as to why the Fed lowered rates.
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by Aaron Krowne Wednesday, December 5, 2007
Yesterday wasn’t the best of news days for Citigroup. The key stories I saw were:
by Aaron Krowne Wednesday, November 14, 2007
Equities markets rallied strongly today on stronger-than-expected earnings from Wal-Mart (up 8%), with the Dow bounding eagerly upwards by more than 300 points on the news. The market was clearly looking for any excuse to divert attention from the continued spread of the subprime contagion—and it found what it needed in the Wal-Mart news. $3 billion worth of new write-downs connected to subprime CDOs at Bank of America were ignored. Scratch that… BofA actually rallied more than 5%. Granted, if the Wal-Mart data were true as naively interpreted, it might appear that consumer spending was coming back. This conclusion, however, would be deeply misguided.
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by Aaron Krowne Sunday, September 23, 2007
My summary answer to this question is “no”. The debate spurring my remarks here, which is presently raging in the Fed-skeptic/hard money camp, has splintered into the “austere Fed” vs. “profligate Fed” sub-camps. There are assumed to be important practical ramifications of the answer to this question regarding investing, trading, and the health of the economy. And there are. However there is a major problem with each side’s position: the austerity camp, which argues that “the Fed is shrinking the monetary base” is correct, but only about a different (and as I’ll argue, narrower) question than the one posed above. And the profligate Fed side, with its “the Fed is pumping inflation” argument (often pointing to M3) is generally right — but for the wrong reasons.I will argue here that the Fed is in fact (or almost certainly) adding more credit to the system — which is just what most hard-money cynics would expect — but is not doing so in any way the monetary aggregate-watchers would tend to see. Here’s why.
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by Aaron Krowne Sunday, August 12, 2007
August 9 – The Wall Street Journal (Henny Sender and Kate Kelly): Quant funds – ‘quant’ stands for quantitative — generally operate by building computer models of market behavior and then allowing the computer programs to dictate trading. A recurring characteristic of the recent trouble in financial markets is that many lenders, funds and brokerages were following statistical models that grossly underestimated how risky the market environment had become. ‘Our risk models failed to pick up the fact that we were due for a correction,’ says Keith Campbell, founder of Campbell & Co. ‘We were highly diversified. It was the perfect negative storm.’”
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by Aaron Krowne Sunday, July 29, 2007
While the final results won’t be tallied until Monday morning, it looks like the LDP (Shinzo Abe’s party) is out in Japan. As the linked article points out, Abe’s top priorities were basically the projection of Japanese power globally, and more nationalism at home.
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by Aaron Krowne Monday, July 2, 2007
Resuming a familiar refrain, the market is moving up today for all the wrong reasons. Bad news is being taken as good—as if the deteriorating economic situation over the past year is not proof enough that doe-eyed readings of the leading month or week’s data is pure folly.
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by Aaron Krowne Tuesday, May 22, 2007
Another day, another episode of being bathed in forest fire smoke for the city of Atlanta. We had a really bad day last week as well—and this unfortunately looks set to become a more frequent occurrence, much to the dismay of anyone even remotely sensitive or vulnerable to atmospheric pollutants.
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by Aaron Krowne Friday, May 11, 2007
“The bottom line here is very clear: The US Congress just doesn’t do macro.” –Stephen Roach, in Past The Point Of No Return
Isn’t it remarkable that the pea-brains on Capitol Hill don’t link the obvious negative consequences of the trade imbalance with China (manufacturing job loss) with the “positive” results we’ve come to depend on: cheaper goods and easy money (recycling of dollars).
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