| Greatest Movie Comedies of All Time Posted: 25 Jan 2013 04:30 PM PST Flying home today, I recalled something someone sent me — a list of the funniest comedies of all time, with the number 1 flick . . . Caddyshack. Now, for those of you not of a certain age, who may not have seen Caddyshack, it is an amusing little film filmed with memorable quotes and an insane, hilarious performance by Bill Murray. But funniest movie comedy of all time? It’s not even in the top 10. Which raises an interesting question: What are the all time funniest films? No rules (like last time) — the only requirements: 1) Funny and 2) Movie. I’ll get you started with a list that I am sure I rearrange easily into other orders: 50. Pee-Wee’s Big Adventure
49. Rat Race
48. Life of Brian
47. When Harry Met Sally
46. Planes, Trains and Automobiles
45. Fast Times at Ridgemont High
44. Clueless
43. Airplane!
42. It’s a Mad Mad Mad Mad World
41. Naked Gun 40. There’s Something About Mary
39. The Jerk
38. Ferris Bueller’s Day Off
37. This is Spinal Tap
36. Horse Feathers
35. The 40 Year Old Virgin
34. Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb
33. The Big Lebowski
32. M*A*S*H
31. Animal House 30. Ghostbusters
29. A Fish Called Wanda
28. Bridesmaids
27. Ace Ventura: Pet Detective
26. Wedding Crashers
25. The Nutty Professor
24. The General
23. Beverly Hills Cop
22. Liar Liar
21. The Hangover 20. My Cousin Vinny
19. Raising Arizona
18. Sullivan’s Travels
17. Arthur
16. Bringing Up Baby
15. What’s Up, Doc?
14. The Producers
13. Groundhog Day
12. Trading Places
11. Young Frankenstein 10. Duck Soup
9. South Park: Bigger, Longer and Uncut. Freed
8. Tootsie
7. The Princess Bride
6. Blazing Saddles
5. Some Like It Hot
4. Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan
3. The Lady Eve
2. Annie Hall
1. Monty Python & The Holy Grail Note that most of these, especially the top 20, have lots of heart. What did I miss?  |
| How to Create Great Slides for Presentations Posted: 25 Jan 2013 12:30 PM PST |
| Gold: Good Investment or Waste of Time? Posted: 25 Jan 2013 10:30 AM PST Since I am in a mining part of the world today, via Visual Economics, the single biggest gold infographic you will see: click for complete graphic
click for full size graphic
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| Investors Continue to Pick ETFs over Active Funds Posted: 25 Jan 2013 09:00 AM PST 
Source: FT.com This was part of theme of my presentation this week — while equity markets in general have seen huge outflows, ETFs in general — and Vanguard in particular — have seen large inflows . . .  |
| An Open Letter to Mary Jo White Posted: 25 Jan 2013 07:00 AM PST 
An Open Letter to Mary Jo White Dear Mary Jo, Congratulations on your nomination for SEC Chairman. As you may know, we at Themis Trading are, and have been, very critical of the current US equity market structure. We believe that a series of rule changes begun under the stewardship of one of your predecessors, Arthur Levitt, are largely responsible for turning deep, centralized, and diverse pools of liquidity into our current fragmented mess of a market, which includes thirteen stock exchanges and dozens of dark pools. These fragmented trading venues are shallow and non-diverse in their participation, have non-uniform matching rules, and in many cases are extremely non-transparent. And in times of market stress, this current fragmented system has an Achilles heel, which has been exposed in the May 6th Flash Crash, as well as in the countless mini-flash-crashes, botched IPOs, and algo-glitches. Ironically, the SEC has been very aware of so many conflicts of interests and flaws in our modern market structure. It recognized many of these flaws back in the actual Reg NMS 2007 document, but chose to implement Reg NMS anyway. In 2009 it proposed banning "flash-style" orders, although it has never followed through. In that same year it proposed regulating dark pools, recognizing that publicly displayed market quotes are important for the price discovery process, although again it had never followed through. Since May 6th 2010, the SEC has proposed some marginal patches for the exposed market structure flaws, including the removal of stub quotes and the addition of single stock circuit breakers, which are soon to be replaced by a limit up limit down safety mechanism. These actions, however, amount to little more than band aids on an infected wound. These actions do not address root plumbing issues and instabilities in our structure. They did not prevent the Knight algo disaster last August, and they will most likely not prevent the next flash crash. While our regulatory bodies are quite adept at holding roundtables, and "looking into" troublesome issues, they need to follow through in order to command respect from the investing public. While markets are currently near historic highs, there exists a temptation to ignore problems as complex as market structure. However, we think it is precisely at this point in time that we need to fix our capital-raising system's plumbing. We think that you have a great opportunity as the new Chairman to take a holistic approach to market reform. We hope you will seriously consider: - Banning payment for order flow at all levels. - Eliminating the maker-taker exchange pricing model. - Mandating that exchanges route to each other when fragmented markets become "locked". - Simplifying/eliminating complex and unnecessary exchange and dark pool order types. - Instituting dark pool regulation. - Changing the SRO rulemaking process so as to include input from investors, and not just traders. The time has come to recognize that the Frankenstein market that has been created, perhaps unintentionally, does not possess a sound foundation. While technology has been a crucial and cherished driver of good for investors, the SEC must make sure technology is leveraged in alignment with the goals of investors, and not traders – no matter how fast they are. As you settle in, be prepared to be bombarded with self-interested industry participants and their lobbyists who want to sway your opinion. You are likely to hear from: - Exchange executives. They will tell you technology has created a very cost effective and efficient market. They will say there is no need for reform and things are going smoothly despite some recent "glitches". They will tell you not to throw out the baby with the bath water, and that all is needed is a kill switch here or there, and a lifting of a ban on locked and crossed markets. They will tell you it is a good thing for a buy order at 50 cents to exist alongside a sell order at the same price – and they not trade. - High frequency trading firms. They will claim spreads have never been tighter and liquidity is abundant, and it is due to their activity. This is untrue. They will also tell you that the real problem is a financial media, and some old school brokers, who are scaring investors about the dangers of high frequency trading unnecessarily; the problems are simply message management. - Lobbyists - Be prepared for this group to wave around their cherry-picked sponsored academic studies that claim high frequency trading has lowered costs for all. Make sure you ask them who funded the studies, as well as examine their assumptions. To help you prepare for those meetings, we recommend that you gander at this robust collection of academic studies on market structure and high frequency trading. And we also recommend you pick up the following books, one of which is co-authored by us: - Crapshoot Investing (Jim McTague) - Broken Markets (Sal Arnuk and Joe Saluzzi) - Dark Pools (Scott Patterson) - The Problem of HFT (Haim Bodek) - The Payoff- Why Wall Street Always Wins (Jeff Connaughton) We wish you great success in your new role. We are excited for the leadership of an SEC Chairman with a prosecutorial mindset. Feel free to call on us any time. We would love to help you build a case for convincing investors to bring back their trust to the marketplace. Sincerely, Your Friends at Themis Trading ~~~ Joseph Saluzzi (jsaluzzi-at-ThemisTrading.com) and Sal L. Arnuk (sarnuk-at-ThemisTrading.com) are co-heads of the equity trading desk at Themis Trading LLC (themistrading.com), an independent, no conflict agency brokerage firm specializing in trading listed and OTC equities for institutions. Prior to founding Themis, Sal and Joe worked for more than 10 years at Instinet Corporation, pioneers in the field of electronic trading, and at Morgan Stanley.  |
| Yen trading around 91 against the US$ Posted: 25 Jan 2013 06:30 AM PST Japan remains in deflation. CPI (ex fresh food) declined by -0.2% Y/Y in December, in line with estimates. It was the 7 time in 8 months that CPI was negative. Ex food and energy, CPI came in at -0.6% Y/Y, worse than the -0.5% expected. The data leads me to ask how Japan will achieve their 2.0% inflation target, based on current policies. The more I look at the recent BoJ statement, the more of a non-event it truly was. The measures announced are not going to make the material difference necessary. In addition, the BoJ's own forecast expects inflation to come in around +0.9% for the fiscal year ending in April 2014. The BoJ monetary easing programme will result in the BoJ buying just Yen 800bn (US$9bn) per month, net of maturing bills, starting in January 2014 (as opposed to Yen 3 Tr a month this year), according to Nomura, so that's not going to create inflation. The Finance Minister, Mr Aso, talks about limiting bond issuance, as opposed to the Japanese PM who talks about a Yen 20 Tr stimulus programme. In addition, Mr Aso is even talking about reducing the budget deficit (currently around 10% of GDP) by half or indeed to eliminate it – OK many years hence. However, that would not allow for the fiscal stimulus proposed by Mr Abe, the Japanese PM. Basically, it just does not add up. The Yen, well expect volatility, though I remain of the view that it will depreciate materially. Comments by Japanese politicians and officials, including the PM, Mr Abe, acknowledge that the BoJ did not deliver as they had (prior to the BoJ meeting) lead us all to expect. As a result, expect on-going rhetoric about changing the BoJ law, placing more "compliant" people onto the BoJ board in March/April, including a new governor etc, etc. However, the focus on Japan has, in my humble opinion, highlighted the economic, financial and other serious problems facing the country – basically market sentiment is turning. Will Japan retain its "safe haven" status it has had to date – in my humble opinion, it will not. Indeed, it never deserved it, which I believe is what the market is finally beginning to understand. The Yen blew through Yen 90 against the US$, as I thought, but is now hovering around Yen 91, which is pretty impressive. Are Japanese financials selling – certainly looks like it – if I was a Japanese financial, I would certainly look at least to try and hedge somewhat. In addition, the most recent data, trade numbers, CPI (deflation still), problems with China etc, etc is all negative news which should weigh on the Yen, with little on the positive side. The Nikkei, well it continues to rise. However, I briefly listened to an interview with Kyle Bass – missed most of it. He stated that investors buying Japan is akin to "investors picking up dimes ahead of a bulldozer". Hmmm, I can see where he is coming from. Really must follow him more closely; Japanese officials stated that the Chairman of the Chinese Communist Party, Mr Xi, agreed to "consider" talks with the Japanese PM, Mr Abe. Mr Yamaguchi, the head of the coalition partner of Mr Abe's LDP, met with Mr Xi in Beijing. I certainly hope they do talk and soon. China has, for domestic political considerations, way overplayed its hand over the disputed territories in the South China Seas. Putting the genie back into the bottle will prove difficult, given the previous rhetoric (and to need to save face and appease their public), though they will have to try really hard. Conflict with Japan, which will involve others in the region (and the US) is certainly not in China's interest. OK, not in Japan's either, but China will suffer materially as well, threatening the current regime; The Indian government has raised the limit on foreign investment into Rupee denominated bonds by US$10bn to US$75bn. The cap on government bonds was increased to US$25bn, from US$20bn previously, yesterday. The move is yet another attempt to avoid a downgrade, (due to the current a/c deficit) though I don’t believe it will be enough. Generally, countries that face problems open up their markets more. The Rupee is little changed today; The Italian government bailout of Monte dei Paschi di Siena may be delayed, following reports that the bank hid E700mn of losses, from regulators, on structured finance transactions. The loss will embarrass Mr Monti and Mr Bersani – Mr Bersani's party runs the local government in Siena and which owns the largest shareholding in the bank. Mr Berlusconi has been quick to exploit this mess, though his administration was the first to start to bailout the bank. Will there be other problems at the bank – well, who knows, but it is an Italian bank !!!. The former Chairman of the bank and until a few days ago, head of the Italian Banking Association, Mr Mussari, resigned. This scandal could impact the upcoming general elections; 278 banks in the EZ have given notice that they will repay E 137.2 bn back to the ECB, in respect of the ECB's 1st E489bn 3 year LTRO programme, well above the E84bn forecast. The actual repayment will occur 1 week later, on the 30th January. Repayments of borrowings from the ECB's 2nd LTRO programme (E529bn) can occur on 27th February. Banks may have switched from the 3 year LTRO to a shorter maturity financing, so the true repayment will only be known some time ahead. The ECB allows banks to borrow as much as they need (against collateral) for 1 week and 1 and 3 months .The Northern European banks have repaid the most. The Southern European banks cannot afford to do so. The risk (a real risk) is that it will create a 2 tier EZ banking system, with the banks that repay considered stronger than those who cannot. The ECB has worked hard to avoid a banking crisis. However, will investors want a premium to fund those banks who do not repay – I would guess so. However, the ECB is likely to introduce further funding if necessary to avoid any potential liquidity issue, which will reduce, (though not eliminate), the borrowing spread between the banks that have repaid and those that have not. The equity markets should also ascribe a valuation premium to those that have repaid, as opposed to those that have not. Given the general calm, I do not expect a crisis at present, as investors do believe that the ECB will do "whatever is necessary" (as Mr Draghi put it) to deal with these and other issues. However…….The Euro rose on the news; An amusing comment by Ms Christine Lagarde, the former French Finance Minister and now head of the IMF. Basically she stated that its would be "extraordinarily ambitious" for France to achieve its 2013 budget deficit target. Go for it Christine, you tell them. However, she should have said that those in France who reiterate that the country will achieve the 3.0% budget deficit forecast that they should definitely lay off the Absinthe – it really does make people delusional and, I suspect, leads them to cloud cuckoo land; Mr Draghi, the President of the ECB, believes that the EZ economy will recover in H2 this year - so do I, ex Spain, in particular through , France, Italy and Portugal look vulnerable as well. I'm ignoring Greece – need a breather from that country. Indeed, we may even see some green shoots earlier; The important German IFO index (business confidence) rose to 104.2 in January, higher than the 103.0 expected and up from 102.4 in December. The expectations component rose to 100.5, up from 98, with the current situations component also higher at 108.0, up from 107.1 in December. The government and the Bundesbank forecasts that GDP will rise by +0.4% this year, in my opinion, is well below the likely outcome – I continue to believe that German 2013 GDP will be +1.0%, indeed better. Furthermore, IFO raised Q1 2013 German GDP from flat to +0.2%. Yesterdays much better manufacturing and services data confirms the robustness of the domestic German economy, in particular and signalled that the manufacturing sector was recovering. I would expect that a number of economists will upgrade German Q1 GDP from flat to +0.2%/+0.3%. Yes Germany exports around 40% of its products to the Euro region, which remains deeply distressed, but exports to EM's in particular are rising, as are exports to the US and the UK; UK Q4 GDP declined by -0.3%, worse than the decline of -0.1% expected, though would have been -0.1% if it were not for maintenance issues with respect to oil production in the North Sea. GDP was unchanged Y/Y, weaker than the +0.9% growth in 2011.The UK economy was -3.3% in Q$, from pre-recession levels, the worst (apart from Italy) of the G8 nations. The current Q will be affected by the bad weather, though I believe that the UK economy will surprise to the upside this year. Sterling is being whacked – the Euro is currently over 0.85; As I reported previously, Mrs Merkel has started to make more conciliatory comments in respect of the proposed UK referendum. With the exception of some issues on social policy and the financial sector in particular, the governments share roughly the same agenda. Expect more similar comments from Mrs Merkel – the French are going to go ballistic; The US December index of leading indicators rose by +0.5% (unchanged in November), the most in 3 months and higher than the +0.4% expected. I'm not sure why, but the indicator which is supposed to look some 3 to 6 months ahead rarely has a major market impact. The Markit US manufacturing Index for January rose to 56.1, the highest since March 2011, from 54 in December. There is a view that yesterday’s strong unemployment data was due to a guesstimate of California's jobless claims numbers as the State did not file a report. If that's the case (and there is some debate on this speculation) an adjustment should be noticed in next week’s numbers. Outlook China, Taiwan , Korea and Hong Kong closed lower, though most other Australasian markets closed up on the day – the Nikkei was up +2.9%. European markets are trading higher, with Germany above +1.2%, given the good IFO numbers.The FTSE is the laggard. US futures suggest a higher open. The Euro is up again, currently trading around US$1.3444, with the Yen at Yen 90.96 against the US$, having been above 91 earlier Spot gold is trading at US$1662, with March Brent at US$113.50. Markets look perky. Have a great weekend. Kiron Sarkar 25th January 2013  |
| Was 2012 the Year the Housing Market Recovered? Posted: 25 Jan 2013 05:30 AM PST Was 2012 the Year the Housing Market Recovered?
Daniel Carroll and Samuel Chapman
1/11/13 On many occasions during the past few years, housing market conditions have been cited as a key factor contributing to the slow recovery. For a typical household, the largest component of wealth is house value. As house prices fell and sales were depressed, household wealth shrank. The decline in house values has been indicted as leading cause of restrained consumption, as households saved from current income to recoup the loss in housing wealth. The decline in house values has also been suggested as partly responsible for stubbornly high unemployment due to "lock-in," where a household that is underwater on its mortgage limits its job search because it cannot afford to move. Fortunately, over this past year there have been signs of modest, yet sustained, improvement in the housing market. According to the latest report, sales of single-family units, both of new and existing, have been up year-over-year from January to November. The latest month shows new and existing sales up by 15.3 and 12.4 percent, respectively, compared to their values in November 2011. Since April 2012, monthly sales of existing multifamily units have also been positive relative to the previous year, with the November data turning in a whopping 33 percent increase. 
After several years of weakness in the home construction sector, 2012 has also been marked by large increases in home starts. For single-family units, the change each month from its counterpart in 2011 has averaged 23.6 percent; for multifamily units the average is 38.0 percent. 
The descent of home prices has leveled off, and prices have begun to move upward again. 
During 2011, home price indexes reported negative year-over-year changes each month; however in 2012, these changes have been increasing each month. As of October, house prices were roughly 5 percent greater than the previous year. Price increases are a welcome sign as they point to a steady return of demand and suggest household conditions are improving both in terms of income and credit. The recovery also has a positive implication for general aggregate activity as it increases household net worth, thereby stimulating consumption. 
Finally, while the good news discussed above is certainly encouraging, it should be noted that it is unclear at what point we should declare the housing market "fully recovered." The data on sales, starts, and prices were all well above trend before they began to plummet in 2005. Therefore, the previous peak level is not likely the correct baseline by which to judge recovery. Nevertheless, any recovery must begin with a sustained increase in housing activity, and 2012 has, so far, appeared to deliver just that.  |
| Short History Of The Debt Ceiling/Government Shutdowns Posted: 25 Jan 2013 05:15 AM PST With all the political talk about the debt ceiling, we thought a short history of the debt ceiling and government shutdowns was in order. The Second Liberty Bond Act of 1917 Prior to World War 1 every bond issued by the U.S. Treasury needed to be approved by Congress. During World War 1 Congress approved four different Liberty Bond Acts to issue bonds (and a fifth Victory Loan Act of 1919). With the second Liberty Bond Act in 1917, Congress also established a $15 billion "aggregate debt limit" because it was easier than countless bills to approve individual bond offerings. Thus was born the debt ceiling. It has been raised (and lowered) almost 100 times since. History of Debt Ceiling Fights Throughout history the debt ceiling has been called unnecessary and dangerous, much as it is now. Calls for its elimination are at least 80 years old. A review of the stories below read like the talking points from President Obama's press conference earlier this week. (h/t The Big Picture): - The Milwaukee Journal – (March 20, 1939) Boost for Debt Limit Ditched -Roosevelt Calls on Congress, However , to Remove Curb on Issue of Bonds
President Roosevelt informed congress Monday that there is no present necessity for legislation to increase the legal limitation of $45,000,000,000 on the toal public debt, but recommended increase of the present $30,000,000,000 limitation on outstanding government bonds. The special message transmitted a letter from Treasury Secretary Morgenthau informing thim that the current balances of the treasury indicate no immediate necessity for advancing the debt ceiling. - The New York Times – (March 31, 1939) PRESIDENT URGES ENDING OF LIMIT ON BONDED DEBT
President Roosevelt told Congress today that there was no immediate need for raising the $45,000,000,000 limitation on the public debt. He asked, however, that the $30,000,000,000 "ceiling" on Treasury bond issues be removed. - The Portsmouth Times – (November 9, 1940) The Debt Taboo Is Lifted
Treasury Secretary Morgenthau officially opens post-campaign business with an announcement that he is going to ask congress for a public debt limit of either 60 or 65 billion dollars. That is a matter which could not have been discussed conveniently in advance of Election Day, but must be discussed now. Like the skeleton in the closet it can't be kept hidden forever. - The New York Times (February 15, 1941) $65,000,000,000 Debt Limit Voted; Senate Critics Deny It Is Enough
The Senate approved today, with slight changes, the House bill to raise the national debt limit to $65,000,000,000, a ceiling which, according to Administration spokesmen, will suffice until June 30, 1942, at least. - The Pittsburgh Post-Gazette – (May 10, 1944) Boosting the Debt Ceiling
With the national debt already standing at approximately 187 billion and slated to reach the 240 billion mark next March, this business of raising the limit by successive jumps instead of taking it off altogether is little more than a psychological gesture. By holding that flexible limit over the Administration's head, perhaps some congressmen feel that they will exert pressure on some officials to hold down expenditures. But since those officials know as well as the congressmen that the debt limit is going up and up until the war is won, maybe this economy gesture is intended only for public consumption. In rare instances the debt ceiling was even cut: - The St. Petersburg Times – (April 24, 1946) Senators Favor Debt Limit Cut
The first step to cut back the limit of what the federal government might owe, from its historic high of $ 300,000,000,000 was taken yesterday by the senate finance committee. The committee voted to reduce the public debt limit to $275,000,000,000. Its unanimous action forecast congressional approval for the first reduction in the debt ceiling, pushed upward steadily during the war years.
More often than not, however, the debt ceiling is being raised: - The Lewiston Daily Sun – (June 28, 1955) Extension of National Debt Ceiling Voted; House Action Leaves Limit at 281 Billion for Year
The House voted 226-56 today to continue for another year the "temporary" 281 billion dollar limit on the national debt. The Senate is expected to act by Thursday: without congressional action, the limit would fall back then to 275 billion. Democrats got in some additional cracks at the administration on its handling of government finances before the extension sailed through on the 170 vote margin in the House. - The New York Times – (July 26, 1958) The Federal Debt Ceiling
"A specter that has been putting in an appearance more or less regularly every year now since 1953 is again back to haunt the Administration. That is the problem of keeping the public dept within the dept ceiling – a problem that will be additionally complicated in the present fiscal year at least by the prospect of a very substantial budget deficit. The dept ceiling is a comparatively new instrument of fiscal control in this country. In 1938, with the dept then standing at what many regarded as the dangerously high level of $37 billion, Congress acted to discourage future reckless spending by setting a limit on the debt of $45 billion. During the ensuing eight years, most of which were marked by war or preparation for war, Congress had little choice but to revise this limited ceiling upward when such action was requested by the President. The ceiling was lifted five times in that period, until it reached $300 billion in 1945. A year later it was revised downward for the first time to its present level of $275 billion." - The Pittsburgh Press – (June 15, 1962) $308 Billion Debt Ceiling is Approved
The House has approved President Kennedy's request to raise the national debt ceiling to a record 308 billion dollars after rejecting a Republican effort to trim the hike. The vote on final approval late yesterday was 210 to 192, an 18-vote margin. Asked whether Republicans were justified in charging the Pentagon had tried to "black mail" them into supporting the bill, President Kennedy said he hoped everyone understood the possible effects of failing to raise the limit. - The Eugene Register–Guard – (June 10, 1966) Another June Rite: Raising Debt Limit
Raising the national debt limit has become a June rite in Congress. This year the only doubt about it is whether the ceiling will be boosted by $2 billion or $4 billion. Congress already has approved the projects and voted the appropriation that will call for today's federal debt to rise – as it has been doing year after year. The United States Treasury says it needs a $332 billion limit to give it elbow room to maneuver and be sure of paying its bills. The House says $330 billion is enough. The Senate will discuss the question next week. - The Pittsburgh Post- Gazette – (January 31, 1967) US Seeks loans to pay its Bills
Secretary of the Treasury Henry H. Fowler told Congress today that the government would be unable to pay all its bill if the ceiling on the national debt was not lifted within 30 days. Fowler ran into Republican hostility in day-long testimony before the House Ways and Means Committee — not on the need to raise the limit but on the government's debt and budget accounting methods as well as related matters. Fowler asked that the ceiling be raised by $7 billion to $337 billion to cover the period until June 30. Further legislation covering the period after June 30 will be needed later he said. - The Palm Beach Post – (May 26, 1970) Congress Asked to Hike Debt Ceiling
The Nixon administration asked Congress yesterday for an $18 billion increase in the national debt ceiling primarily because the slumping economy is producing lower than expected federal income. The administration asked Congress for an $418 billion increase in both the permanent ceiling no at $365 billion and in the temporary ceiling of $377 billion the government is operation under this fiscal year. Treasury Secretary David M Kennedy and Budget Director Robert P Mayo told the Ilouse Ways and Means committee the increase was needed to cover a $1.8 billion deficit this fiscal year and $1.3 billion deficit in fiscal 1971. - The Miami News – (December 1, 1973) Senate may meet tomorrow on debt limit, election reform
The federal government's debt is $63 billion over the legal limit and the Senate is preparing for its first Sunday session in 112 years – all because of a tangle created by an election reform measure. Despite the government's technical violation, officials said bonds and other government debts could be paid off over the next few days out of about $4.5 billion in cash on hand. - The New York Times – (November 14, 1975) CONGRESS ADOPTS NEW DEBT CEILING
After a partisan dispute and a last-minute appeal by Speaker Carl Albert, the House of Representatives narrowly approved today a bill increasing the Government's debt limit. - The Youngstown Vindicator – (October 5, 1977) Rise in Debt Limit Approved in House
Concerns about the government being unable to borrow more money can be set aside. The ceiling on the national debt will be raised. But a congressional stalemate over raising the debt caused some uneasy moments at the Treasury Department. The government also had to do some juggling of the books to hold its auction of short term treasury bills to investors on Monday. The loan from the Federal Reserve pushed the national debt almost to its limit, teaching $ 699.96 billions dollars. - The Montreal Gazette – (April 3, 1979) U.S. Raises Ceiling on National Debt
The U.S. House of Representatives passed legislation yesterday extending the government's borrowing authority and preventing the U.S. from defaulting on its debts for the first in its history. The vote to accept Senate amendments and to send the legislation to the White House was 209-165. It came after the House rejected, 216-160, a Republican-led attempt to tack on a strong amendment calling for a balanced federal budget. The House vote came after U.S. Treasury Secretary Michael Blumenthal claimed in a letter that the treasury was on the verge of a default and that retired persons would be hit first. About $8 billion in Social Security cheques already had been mailed to 35 million Americans, Blumenthal said, and there would be no funds to cover them if the House failed to act. In addition, he said, the treasury would not be able to pay civil service retirement benefits, veterans benefits and railroad retirement benefits due for collection today. - The New York Times – (November 1, 1983) SENATE DEFEATS BILL TO INCREASE DEBT CEILING
The Senate, in an extraordinary and unexpected move, defeated a bill late tonight to raise the nation's debt limit, leaving the Treasury without the authority to borrow. The defeat, with both Republicans and Democrats voting against the bill, came on a vote of 56 to 39 just after 11:30 P.M. Although there is no immediate threat of shutting down the Government, the Senate defeat left unclear whether the Senate would be able to approve an increase in the ceiling in time to prevent a serious disruption. Twenty-five Republicans joined 31 Democrats in voting against the bill. Twenty-eight Republicans and 11 Democrats voted for it. The defeat was seen by some Republicans and Democrats as a way to put enough pressure on the White House and the Congress to get both to agree on some major measures to reduce the projected Federal budget deficits through spending reductions, tax increases or both. - The New York Times – (May 04, 1987) Time Bomb in the Debt Ceiling
There is a time bomb in the national debt ceiling, set to go off at midnight May 15. If a new and higher ceiling has not been set, or the current ceiling extended, Government borrowing must stop and the United States will slide quickly into default. Unthinkable, but that's how Congress wired the debt limit law last October. Each year Congress goes down to the deadline, then lifts the ceiling. But the game is trickier this year, and could have more serious consequences. Congress threatens yet another crisis to rattle already-worried financial markets. What's needed instead is a simple bill to raise the ceiling, with dispatch and no strings. The ceiling is a sham. It has no effect on the debt. Deficits create debt; the Reagan deficits have more than doubled the national debt, to $2.25 trillion, ceilings notwithstanding. Each time Government borrowing gets close, the ceiling is raised – but not without costly eleventh-hour shenanigans that force the Treasury into devious financing. - The New York Times – (May 12, 1987) REAGAN URGES A RISE IN DEBT CEILING
Warning of dire financial consequences, the White House urged Congress today to raise the national debt ceiling before the Government runs out of authority to borrow money this Friday. "We cannot overestimate the effect of such a dereliction of duty," Marlin Fitzwater, the President's spokesman, said. But a number of conservative Republicans refuse to heed the Administration, and White House legislative strategists say they do not have the votes to assure passage of such a measure. Periodic Ritual: The fight to raise the debt ceiling is a periodic ritual on Capitol Hill, and every battle is surrounded by predictions of fiscal ruin. Accordingly, there is deep skepticism that the Government will ever be allowed to run out of money and stop paying its bills. - The New York Times – (October 19, 1989) Debt Limit Increase Is Sought
"The Treasury Department has formally notified Congress that it would like to have an increase in the national debt ceiling in place by Oct. 24 to permit planning for Treasury bond auctions and avoid a default on Government obligations when the current ceiling expires on Oct. 31. Some House Democrats fear that the Administration is trying to create an artificial need for a short-term increase of the debt ceiling, to which Senate supporters of a capital gains tax cut could attach their proposal." - The New York Times – (October 8, 1990) U.S. Sales Contingent on New Debt Ceiling
Treasury financings this holiday-shortened week are confined to tomorrow's auction of three- and six-month bills and Wednesday's auction of seven-year notes. On Thursday, the Resolution Funding Corporation, the agency established to raise money to finance the savings and loan bailout, will auction 30-year bonds. These auctions, however, are contingent on a new debt-ceiling increase being enacted. The rate for a three-month bill on Friday was 7.04 percent and for a six-month bill it was 7.08 percent. By late in the day the outstanding seven-year note was trading at a price to yield 8.50 percent. - The New York Times – (November 11, 1995) Debt Ceiling Impasse Dampens Bond Prices
Discussing the possibility of a Government default, Mr. Gamba said, "I believe that the repercussions would far exceed anyone's estimation." But, he added: "I don't believe the Government would allow that to take place. It's really hard to say how the market would react, because it's never happened." Carroll J. Delaney, director of research at Stires, O'Donnell & Company, called the impasse between Congress and the Administration macho theatrics that were being played to the hilt. Still, he saw a potential for both a "loss of credibility and a significant decline in prices." Mr. Delaney said that the "procrastination and posturing is negative for both the markets and national image in the long run." He added that if "the Treasury pulls out all stops to insure timely payment on principal and interest," there will be a short-term, temporary effect of uninvested cash looking for a home. - The New York Times – (January 13, 1996) Gingrich Promises Solution on Debt Ceiling
Speaker Newt Gingrich promised today to avoid more uncertainty about the nation's borrowing during the impasse on the Federal budget, saying, "We will find a way to take care of the debt ceiling." Mr. Gingrich, a Georgia Republican, made the comment at a news conference here and left immediately for the next stop on a 10-day fund-raising tour for Republicans. The nation's debt reached the statutory limit of $4.9 trillion on Nov. 15, and since then Treasury Secretary Robert E. Rubin has avoided defaulting on bonds by borrowing from Government pension funds, a practice that does not count against the debt ceiling. - The New York Times – (March 1, 2002) G.O.P. Strategy On Debt Ceiling
Republican leaders in the House told the Bush administration that they did not have enough votes to increase the legal limit on the national debt and urged the White House to attach the measure to another piece of popular legislation, possibly a supplemental military appropriations bill. The administration has asked Congress to raise the debt limit by $750 billion, to $6.7 trillion, by the end of March, when the government is likely to breach the limit. - The New York Times – (December 25, 2002) Bush Seeks Increase in National Debt Limit
The Bush administration asked Congress today to approve another increase in the limit on national debt, saying it will run out of the authority to borrow money by late February. The deputy Treasury secretary, Kenneth W. Dam, in a letter to the House speaker, J. Dennis Hastert, cited the cost of combating terrorism and the economic slowdown for the government's growing indebtedness. The federal government, which enjoyed a budget surplus as recently as two years ago, had a shortfall of $157 billion this year and is expected to have a larger one in 2003. Congress raised the government's debt limit in July by $450 billion, to a total of $6.4 trillion, but administration officials predicted even then that they would need to raise the limit again by some time next year. - The New York Times – (October 15, 2004) As U.S. Debt Ceiling Is Reached, Bush Administration Seeks to Raise It Once Again
Less than a day after President Bush implied that Senator John Kerry lacked "fiscal sanity," the Bush administration said on Thursday that the federal government had hit the debt ceiling set by Congress and would have to borrow from the civil service retirement system until after the elections. Federal operations are unlikely to be affected because Congress is certain to raise the debt limit in a lame-duck session in November. Congressional Republicans had wanted to avoid an embarrassing vote to raise the debt ceiling just a few weeks before Election Day. Since Mr. Bush took office in January 2001, the federal debt has increased about 40 percent, or $2.1 trillion, to $7.4 trillion. Congress has raised the debt ceiling three times in three years, raising it most recently by $984 billion in May 2003. - The New York Times – (March 16, 2006) Senate Approves Budget, Breaking Spending Limits
The Senate narrowly approved a $2.8 trillion election-year budget Thursday that broke spending limits only hours after it increased federal borrowing power to avert a government default. The budget decision at the end of a marathon day of voting followed a separate 52-to-48 Senate vote to increase the federal debt limit by $781 billion, bringing the debt ceiling to nearly $9 trillion. The move left Democrats attacking President Bush and Congressional Republicans for piling up record debt in their years in power. - The New York Times – (July 30, 2008) Bush signs sweeping housing bill
President George W. Bush signed into law on Wednesday a huge package of housing legislation that included broad authority for the Treasury Department to safeguard the nation's two largest mortgage finance companies and a plan to help hundreds of thousands of troubled borrowers avoid losing their homes. The law authorizes the Treasury to rescue the mortgage finance giants, Fannie Mae and Freddie Mac, should they verge on collapse, potentially by spending tens of billions in federal monies. Together, the companies own or guarantee nearly half of the nation's $12 trillion in mortgages. To accommodate the rescue plan for the mortgage companies, the bill raises the national debt ceiling to $10.6 trillion, an increase of $800 billion. The bill also creates significant liabilities and risks for taxpayers, that are virtually impossible to calculate. History of Government Shutdowns – 18 Times Since 1976! The laundry list above highlights how common these political battles have become over the debt ceiling. The same hyperbolic language used today has been used for the last 80 years. The same warnings used for the last 80 years are being used today. The same metaphors used for the last 80 years are being used today. Given the recurrent nature of debt ceiling battles, it should come as little surprise that government shutdowns are also quite common. While we all remember the 1995 government shutdown, the list below tallies the 18 shutdowns since 1976: - September 30 to October 11, 1976 (10 days)
- September 30 to October 13, 1977 (12 days)
- October 31 to November 9, 1977 (8 days)
- November 30 to December 9, 1977 (8 days)
- September 30 to October 18, 1978 (18 days
- September 30 to October 12, 1979 (11 days)
- November 20 to November 23, 1981 (2 days)
- September 30 to October 2, 1982 (1 day)
- December 17 to December 21, 1982 (3 days)
- November 10 to November 14, 1983 (3 days)
- September 30 to October 3, 1984 (2 days)
- October 3 to October 5, 1984 (1 day)
- October 16 to October 18, 1986 (1 day)
- December 18 to December 20, 1987 (1 day)
- October 5 to October 9, 1990 (3 days)
- November 13 to November 19, 1995 (5 days)
- December 5, 1995 to January 6, 1996 (21 days)
To be clear, most of these government shutdowns were due to a lack of a budget or Continuing Resolutions to fund and run the government. They did not necessarily occur because of the debt ceiling. We see this as a distinction without a difference. Some of the more notable government shutdowns are highlighted below: In December 1981 the government shut down and President Reagan sent home 20% of the non-military federal workforce (400,000 of 2.1 million people). During the episode there was no talk of default and the markets largely ignored it. (When the government was re-opened, all Federal employees were paid for the furloughed period.) - November 20 to 23, 1981
The spending feud between the Republican President Reagan and the Democratic Congress led to a shutdown. The November 20 deadline for a stop gap spending bill was on a Friday, however the House-Senate Conference delayed it to the following Monday to finalize a bill. The compromise bill consisted of 4 billion in spending savings/cuts, by reducing 2 percent of government spending. The White House in reviewing the numbers claimed there would only be 2 billion in savings from the proposed cuts. When presented with the bill in the morning, Reagan refused to sign Congress's continuing resolution. Reporting in the New York Times stated "President Reagan vetoed the measure as "budget-busting." Faced with the "difficult choice" of either signing the bill or disrupting Government services, the President said, "I have chosen the latter." Reagan's veto led to a shutdown in the government for the afternoon, forcing 400,000 of the 2.1 million federal employees home. Congress approved a stop gap spending bill which later the same day Reagan signed, ending the shutdown with work resuming the next morning. Only on December 12, 1981, did the Congress and and President Reagan approve an Omnibus spending bill, "setting the spending ceilings for the entire year, except in foreign aid. Thus, although the continuing resolution will be superseded by enactment of individual appropriation bills." In October 1984, 500,000 federal employees were sent home, one-sixth of the non-military federal workforce. During the episode there was no talk of default and the markets largely ignored it. (When the government was re-opened, all Federal employees were paid for the furloughed period.) - October 3 to 5, 1984
Congress failed to pass a stopgap money bill, when a new budget was not passed for the new fiscal year. On October 4th 500,000 civil servants out of the 2.9 million civil servants where sent home from their jobs; leading to a partial shutdown. An emergency spending bill passed, which Reagan signed, and normal government operations continued the next morning. Both times the shutdowns were limited in their implications and impacts. - November 10 – 14, 1985
In Reagan's second term the government again faced a shutdown. Congress could not agree over a budget agreement, and the need to extend the federal borrowing limit, beyond the limit which was 1,823 trillion, which contradicted plans to balance the budget by 1991. In 1986, 500,000 federal employees were again sent home. There was no talk of default and the markets largely shrugged it off. (When the government was re-opened, all Federal employees were paid for the furloughed period.) - October 16 – 18, 1986
The Democratic Congress and the Presidency's inability to agree on a new fiscal budget led to another half day furlough. Congress had also failed to come to an agreement and pass a spending bill. At Midday 500,000 non-essential federal employees were forced home. An emergency spending bill passed, returning employees the next day to work. A shutdown in 1990 forced President H.W. Bush to go back on his "read my lips" tax pledge by raising taxes. This was a seminal moment for the Republican party, which has not favored any kind of tax increase until this day (the fiscal cliff fight and subsequent tax deal is not considered a tax hike). Again during this period there was no talk of default or market crashes because of the government shutdown. (To be fair, markets were under tremendous stress during this period, but it was more about Iraq's invasion of Kuwait, the specter of the first war since Vietnam and an ongoing recession.) - October 5 – 9, 1990
All previous government shutdowns lasted only short periods of time, in 1990 that changed under Reagan's successor and former Vice President, and then President George H.W. Bush when the government experienced its longest shutdown. In October 1990 the government was shut down a total of three days, because of Democratic Congress and the Republican President could not agree on a budget for 1991. As signs of economic problems were visible on the horizon, the battle was centered on the Gramm-Rudman-Hollings Act to balance the budget. Democrats wanted to increase taxes on the nation's richest to reduce the ballooning deficit, but in the 1988 campaign Bush had promise he would not increase any taxes across the board. Bush threatened to veto any budget that Congress presented to him that included a tax increase. Oct. 6, 1990: President Bush made good on his veto threat; with the budget vetoed and without a continuing resolution agreed upon, the government was shut down throughout the three day Columbus Day weekend. Both the President and Congress wanted to limit the negative impact of a shutdown, and they agreed the new budget would not include any surtax or tax increases. Over the weekend President Bush then signed a continuance, and government opened on Tuesday morning. The closure during the holiday weekend, limited the impact a three day closure would had on running the government, had it been closed for three days during the week. Bush was however, was forced to agree to tax increases, going against his main campaign pledge. The President signed the Omnibus Budget Reconciliation Act of 1990 on November 5, 1990 securing a budget for the fiscal year. In 1995 a Democratic president shut down the federal government and sent nearly half the federal workforce home! There was no talk of default and the markets largely ignored this episode. During the few days of this shutdown the S&P500 rallied over 1.5% and the 10-year yield fell 5 basis points. - November 13 – 19, 1995
he first shutdown commenced at midnight on November 13, 2005, after a last minute attempt to avert the shut down; Clinton, Gingrich, House Majority Leader Dick Armey, and Senator Bob Dole met, but failed to reach a compromise. Clinton described the negotiations in his memoirs, My Life; "Armey replied gruffly that if I didn't give in to them, they would shut the government down and my presidency would be over. I shot back, saying I would never allow their budget to become law, "even if I drop to 5 percent in the polls. If you want your budget, you'll have to get someone else to sit in this chair!" Not surprisingly, we didn't make a deal." At the midnight, a partial shutdown led to 800,000 "nonessential employees" being sent home or told not to come into to work, with only emergency government services remained open. This represented 42 percent of the civil servants employed. The shutdown only ceased with an agreement on a temporary spending bill. - December 5, 1995 to January 6, 1996
When the temporary funding measures expired, and no continuance was yet again signed, the government shut down this time for 14 days from December 16, 1995 and finally ending on January 5, 1996; the longest shutdown period in US history. Although Congress enacted resolutions to end the shutdown and another temporary spending bill was signed ending the 21 day partial government shut down, the government did not go back to fully functioning until April. Clinton agreed to submit a seven year balanced budget plan approved by the Congressional Budget Office to ensure the government would keep running after the January 26, 1996 spending extension end date. With the agreement, Clinton declared 'The era of big government is over.' Conclusion – It Only Matters Because We Want It To Matter The United States has a nearly 100-year history of debt ceiling and budget fights which include 18 federal government shutdowns between 1976 and 1995. However, none of these prior episodes produced chaos in the financial markets or any speculation of default. Why might the current stalemate prove different? When the government is forced to shut down, the President has wide latitude in how this occurs. So, the President can dictate how this will happen and presumably will do it in a way that helps him politically. In the 1980s President Reagan was trying to shrink the government and had no problem demonstrating how unnecessary many government functions are. So he closed the government several times and often sent home up to one quarter of the federal workforce (400,000 to 500,000) and justified it by calling them "non-essential." It was the Democrats who feared people asking, "What do these federal workers do and why do we pay them?" who rushed to agree with Reagan to re-open the government. In 1995 President Clinton proclaimed the era of big government over, so he could not argue that the world economy hinged on the operation of the federal government. Instead, he wanted the public to view a government shutdown as an unnecessary inconvenience. He accomplished this by sending home almost half the federal workforce (800,000) and closing high profile programs/monuments like the National Zoo and the Washington Monument. It worked. News reports of saddened Boy Scouts that could not walk the steps of the Washington Monument and the sheer number of disrupted federal workers weakened the Republicans resolve and they quickly compromised with Clinton to reopen the government. Now President Obama wants the government to be viewed as the single most important driving force in the world economy. So, a shutdown brings talk of default, depression and crashing markets. This fear of armageddon is the leverage he hopes to use over the House Republicans. And to be fair, he needs this kind of leverage. As we detailed last month, the Republicans and Democrats are more divided now than anytime since the end of the Civil War. Both sides are dug in and will to take it to the brink. If one side or the other was not prepared to go to the brink, they would have no leverage over the other side. Unfortunately, this means what used to be a non-economic event or merely an unnecessary inconvenience is now a critically important event to the world economy.  |
| Mercedes-Benz Ener-G-Force: Off-road into the Future Posted: 25 Jan 2013 05:00 AM PST 
 
 
Concept car that could change the “Highway Patrol Vehicle” by 2025 and the future of the SUV design. Source: Classic Driver
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| 10 Friday AM Reads Posted: 25 Jan 2013 04:00 AM PST My early morning pre-travel reading: • Getting Technical: Apple Still in Rising Trend (Barron’s) but see How Apple ate Wall Street: No company has ever had as big an impact on your portfolio (Marketwatch)
• Market Bears on the Brink: ‘I Can’t Fight It Anymore’ (CNBC)
• The Dual Duties of the Next S.E.C. Chief (NYT) see also A Signal to Wall Street In Obama's Pick For Regulators (Dealbook)
• Natural gas is just what clean energy needs (Fortune)
• Norris: Housing Offers Hope of Strength in the Economy (NYT) but see Gross: Housing's Back—and That's Bad News (Daily Beast)
• Stories, Control, Fundamentals and Panic (Psy-Fi Blog)
• The truth behind Mickelson’s taxes (CNN/Money)
• JP Morgan CEO condemns ‘five years of scapegoating’ of banks (theguardian) see also Timothy Geithner on Populism, Paul Ryan, and His Legacy (The New Republic)
• Journalists in the service of Pete Peterson (Remapping Debate)
• A $17-billion RIA doubles down on a social media strategy that netted it 50 Facebook employees (RIABiz) see also Why sudden wealth at Facebook is gushing into a $17-billion RIA and triggered a merger of two DFA giants (RIABiz)
Whats up for the weekend? Aging US Labor Force
Source: Economix  |
| World Economic Outlook October 2012: Coping with High Debt and Sluggish Growth Posted: 25 Jan 2013 03:00 AM PST Figure 1.1.1. Growth Forecast Errors and Fiscal Consolidation Plans
Activity over the past few years has disappointed more in economies with more aggressive fiscal consolidation plans, suggesting that fiscal multipliers used in making growth forecasts have been systematically too low. This relationship holds for different components of GDP, the unemployment rate, and forecasts made by different institutions.
 Growth Forecast Errors and Fiscal Consolidation Plans Activity over the past few years has disappointed more in economies with more aggressive fiscal consolidation plans, suggesting that fiscal multipliers used in making growth forecasts have been systematically too low. This relationship holds for different components of GDP, the unemployment rate, and forecasts made by different institutions. 
Figure 1.1. Global Indicators
The global manufacturing cycle has turned down again. Industrial production has slowed sharply in advanced and emerging market and developing economies and so has world trade. The deterioration is broad based. Unemployment in advanced economies remains appreciably above precrisis levels and is elevated in eastern Europe and the Middle East and North Africa. 
Figure 1.5. Monetary Policies
Expectations are for very accommodative monetary policies in the major advanced economies. Real interest rates are also low in many emerging market and developing
economies, and several economies have cut their policy rates in the past six months. However, only a few economies implemented large cuts. Over the medium term, policy rates will have to be raised, but considering the downside risks to the outlook, many central banks can afford to hold steady now or ease further. In advanced economies, central bank balance sheets have expanded appreciably, but their size is not unusual compared with those of various emerging market economies.
Figure 1.11. Risks to the Global Outlook
Risks around the WEO projections have risen, consistent with market indicators, and remain tilted to the downside. The oil price and inflation indicators point to downside risks to growth, while S&P 500 options prices and the term spread suggest some upside risk.
Figure 1.17. Global Imbalances
Global current account balances narrowed sharply during the Great Recession and are not projected to widen again, except for the contribution of emerging Asia. Exchange rate developments since the onset of the crisis have been consistent with global demand rebalancing. However, the appreciation of external surplus currencies has stopped during the past eight months. IMF staff assessments suggest that current account balances remain larger than desirable in emerging Asia and weaker elsewhere. Sustained accumulation of international reserves in these economies is contributing to global current account imbalances and associated vulnerabilities that are larger than desirable.
 Source:
International Monetary Fund
October 2012
www.imfbookstore.org  |
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