Money and Finance
- Does Central Bank Independence Frustrate The Optimal Fiscal-monetary Policy Mix In A Liquidity Trap? – By Paul Mcculley And Zoltan Pozsar
Found via Calculated Risk. The United States and much of the developed world are in a liquidity trap. However, policymakers still have not embraced this diagnosis which is a problem as solutions to a liquidity trap require specific sets of policies. There...
- A Template For Understanding What’s Going On - By Ray Dalio
I provided a link to this in a previous post, but I thought I’d also give it its own post as I believe this paper from Ray Dalio is one of the most important things I’ve read all year. As Dalio mentions, there is a big difference between a normal...
- Hussman Weekly Market Comment: "illusory Prosperity" - Ludwig Von Mises On Monetary Policy
Illusory Prosperity - Ludwig von Mises on Monetary Policy"Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth...
- Wsj: The Man Who Predicted The Depression - By Mark Spitznagel
Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.Mises's ideas on business cycles were spelled out in his 1912 tome "Theorie des Geldes und der Umlaufsmittel"...
- Fpa Capital Fund's Semi-annual Report
In light of the above comments, we believe the odds of a 2008 recession have increased to at least 50%, or more. Given the growing credit contraction, oil prices approaching $90 per barrel and the dollar setting new alltime lows versus a basket of currencies;...
Money and Finance
Credit Crisis - Robert Rodriguez, FPA Funds
To begin with, I believe FPA Capital Fund and FPA New Income are well structured to weather this credit-crisis storm. FPA Capital stands with nearly 43% in liquidity that we believe should help it withstand the crisis and provide us with the necessary capital to use at the appropriate time. FPA New Income’s credit quality has never been better, and with over 66% of the Fund invested in short-term government/Agency securities, it too is well positioned to both protect and grow your capital.
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This letter will provide a background as to what policies and procedures have been taking place at First Pacific Advisors and within your Funds as this credit crisis developed.
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The general hope is that the Fed, along with regulatory changes and fiscal policy stimulation, will be able to contain and soften this credit contraction. Given that this crisis was not a function of high interest rates or restrictive monetary policy, it seems like an optimistic view that lower rates and a few changes of regulatory policy, along with a potential $100-150 billion tax cut, will save the day. This crisis is a function of a credit bubble that financed an asset bubble that is now in the process of deflating. Until overpriced assets, as well as excess and unsound leverage, are allowed to clear the system, the recovery from this credit crisis should be delayed. As I wrote in the September FPA New Income Shareholder Letter, “future Fed policy actions may prove rather ineffective in dealing with these challenges.” The word “challenges” was referring not only to the credit contraction but also to high oil prices and a weak dollar. I also referred to Chairman Bernanke as “Greenspan Lite” because his initial rate cuts were examples of what an Alan Greenspan policy might have been. Again, this crisis is not about the level of interest rates but of excesses in lending and borrowing on inflated assets. The process of clearing these unsound practices is analogous to allowing a body fever to run its course, when appropriate medication is unavailable. The Fed’s medication is likely to be ineffective in dealing with this economic fever. Misguided policies could make the situation better in the short run but worse in the long run. This refers to short-term fiscal policy stimulation that was referred to in a recent Wall Street Journal opinion piece as “feel good economics.” Our problems and challenges that we are witnessing currently are the outgrowth of similar unsound monetary and fiscal policies of the past.
- Does Central Bank Independence Frustrate The Optimal Fiscal-monetary Policy Mix In A Liquidity Trap? – By Paul Mcculley And Zoltan Pozsar
Found via Calculated Risk. The United States and much of the developed world are in a liquidity trap. However, policymakers still have not embraced this diagnosis which is a problem as solutions to a liquidity trap require specific sets of policies. There...
- A Template For Understanding What’s Going On - By Ray Dalio
I provided a link to this in a previous post, but I thought I’d also give it its own post as I believe this paper from Ray Dalio is one of the most important things I’ve read all year. As Dalio mentions, there is a big difference between a normal...
- Hussman Weekly Market Comment: "illusory Prosperity" - Ludwig Von Mises On Monetary Policy
Illusory Prosperity - Ludwig von Mises on Monetary Policy"Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth...
- Wsj: The Man Who Predicted The Depression - By Mark Spitznagel
Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.Mises's ideas on business cycles were spelled out in his 1912 tome "Theorie des Geldes und der Umlaufsmittel"...
- Fpa Capital Fund's Semi-annual Report
In light of the above comments, we believe the odds of a 2008 recession have increased to at least 50%, or more. Given the growing credit contraction, oil prices approaching $90 per barrel and the dollar setting new alltime lows versus a basket of currencies;...