The Big Picture | Currency

The NonGuidebook Version of What to Do (and Not Do) in NYC

Wednesday, May 14, 2008 | 10:00 AM

in Consumer Spending | Currency | Psychology/Sentiment

Its that time of year: New York City is flooded with tourists. Thanks to the weak American Peso, the place is just thick with 'em.

There are lots of standard guides you might find helpful to use (i.e., NYC Guide for Tourists), but they are primarily designed for that gullible visitor, the double decker riding, Hawaiian shirt wearing, one born every minute visitor -- the Rube.

That's not you. You are much hipper than that. You want to be in the know, plugged in, well connected. Well, ya came to the right place. I'm going to give you the straight dope, the inside info that the guidebooks don't tell you about. This is real insider trading, "Blue Horse Shoe Loves Anacot Steel" type stuff that people go to jail for. Not you or me, but people. Some people. Mostly tourists.

Anyway, instead of relying on a Fodors or Let's Go NYC, consider these suggestions from a born and bred Nu Yawkah (I even got dah aksent dat gos wit da place). A Brooklyn born guy who works in finance and has worked in NYC most of his Adult life, this guy knows a thing or two about Gotham.

These suggestions will help make your stay in the city enjoyable and safe. It well help you get the most out of your visit here. As an added bonus, I get to keep all of you birkenstocked, rucksack wearing, slow walking, camera snapping touristas out from underfoot of us locals.

Enjoy.

~~~

A New Yorker's Guide for Tourists: 20 Ways to Make Your Stay in New York City More Enjoyable

1. DO NOT DRESS ALIKE. This is for your safety, as well as for the benefit of the typical New Yorker's highly refined aesthetic sense. At all costs, avoid wearing identical matching outfits. Worse than looking like hicks from the sticks, you will look like a group of out-of-towners begging to be mugged.

I don't mean literally mugged by a criminal element, but rather, robbed by unscrupulous taxi drivers and retail merchants alike. They will spot you as a rube, and be all too happy take advantage of your apparent naivete to lighten your wallets.

You might as well carry a sign that says "Rob Me!" -- and they will.

The corollary to this is to avoid festooning every item of clothing you have on with "New York, NYC, or Yankees" logos -- No one is THAT big of a fan -- for the same reason as above.

~~~

2. BATHROOMS: Here's the thing: There just aren't many public bathrooms in NYC.

Why? Its a long story, which I don't have time to go into, but there just aren't that many. Plan accordingly.

Your best bets are as follows:

Department stores
Starbucks
Barnes & Noble/Borders Bookstores
Restaurants
Hotels

The nicest public toilet in the city is Bryant Park at 42nd Street between 5/6. Sometimes there is a wait.

For those of you who have real, um, reallygottagonow issues, its best that you plan ahead. Get a copy of Where to Go: A Guide to Manhattan's Toilets. Thats right, the NYC toilet situation is so absurd that someone wrote a book about it.

On the plus side, the Rainbow Room and the Grand Havana Club have some of the nicest bathrooms I've ever been in -- floor to ceiling windows, right next to the urinals!

~~~

3. Tipping: The city has a service-based economy, and tipping is encouraged/demanded/insisted upon.

Some basic suggestions: 15% of the bill for "Fair" service, 20% for "Good" service. This applies to waiters, waiteresses, bartenders, cab drivers, call girls, etc. Note that you can easily ballpark 15% by doubling the tax (~16%). Chamber maids should get $5 per day.

Leaving a 5-10% tip is considered a complaint -- but stiffing (leaving nothing) is not perceived as a complaint, but as a sign of cheapness/cluelessness.

Note that for large parties (6 or more) some restaurants automatically add the tip to the bill, so double check that bill (don't double tip).

~~~

4. See a LIVE TV Show: This requires some advanced planning, usually 6 months to a year ahead of time. I suggest Late Show with David Letterman, The Daily Show, The Colbert Report, Late Night with Conan O'Brien, and Saturday Night Live (email SNL TIckets).

If you did not plan in advance for this year, no worries: Just diary this for next December or January to order tickets for Summer 2009.

Imagine where the US Dollar will be then -- we'll practically be paying you to come here!

~~~

5. Do a bunch of local New York things: Hang out in Central Park, Explore Brooklyn, wear black, enjoy the free WiFi in Bryant Park (use the bathroom there -- nice). Attend a lecture at the 92nd ST Y, go to Chinatown in Queens. Buy junk at a street fair, and eat street meat (don't ask). Have a cigar at the Grand Havana Room (members only). Catch an author speak at a Barnes & Noble (use the bathroom while you are there).

Spend a weekend at Fire Island or the Hamptons (make arrangements first). Go to a designer sample sale. Do the NYT crossword puzzle on mass transit. Jog around the reservoir in Central Park. Go to a Woody Allen retrospective. See the Mets at Shea.

The ultimate New Yorker activity? Buy the Sunday NY Times late Saturday night; skim it, then lounge around early Sunday morning, with the paper -- and a pot of strong coffee -- in bed Sunday morning. Heavenly!

~~~

6. iPod walking guides

Continue reading "The NonGuidebook Version of What to Do (and Not Do) in NYC"

Is the Fed Causing a Global Food Crisis?

Friday, April 25, 2008 | 07:20 AM

The Federal Reserve's irresponsible bailout of Wall Street's most reckless players is having very significant repercussions, both in the US and abroad.

It starts with the US dollar, now off 40% from its highs earlier this decade. This has had a huge impact on commodity prices, and is the prime reason so many countries are considering dropping their peg to the US Dollar.

Overseas, price spikes in basic foodstuffs has led to riots and political unrest. Considering that in many regions of the world most of a family's income goes to basic survival purchases such as food shelter and energy, it doesn't take much in the way of price rises to lead to significant turmoil. According to Bloomberg, the average household in India spent 32% of its income on food last year. Compare that with 6% in the U.S., and 43% in Indonesia, or 36% for the Philippines.

Hence, the 50% rise in the price of rice in recent months is leading to increasing turmoil.

In the US, the results aren't nearly so dire. With Sam's Club and Costco limiting rice purchases to four 20 pound bags per visit, starvation isn't an issue. But the Government's credibility is, as more and more folks come to the realization that the official statistics are nonsense. And, the absurd Fed focus on the core rate of inflation has people shaking their head in wonder over how out of touch our Central bankers are. Consider this recent San Diego Union Tribune column:

"For the Federal Reserve, the core inflation rate amounts to a green light to continue its policy of lowering interest rates in order to keep the economy from falling into a deep recession. A higher inflation rate could conceivably make the central bank freeze or raise interest rates.

But many economists say the core rate does not show how inflation is affecting the typical consumer. Because salary raises for most people are not keeping pace with the rising cost of living, people are using a greater percentage of their wages to buy a smaller amount of goods."

That's typical of the sort of coverage that is gaining traction -- and it only took $120 Oil and $5 milk to get some attention focused on the issue.

We've been beating the drum on this for years now. The cat is out of the bag, and we will have to see if any of the candidates have the stones to step up and address the issue.

Digging deeper into this situation is the cover story of the May 2008 edition of Harpers is titled "Why the Economy is Worse than We know" ~~(pdf)~~ (print). It contains a review of the myriad ways the government has corrupted the way official statistics are reported for jobs, inflation, GDP, etc. (I have a brief mention in it).

The article is by Kevin Phillips, the author of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.

Meanwhile, more and more people are recognizing the reality beneath the spin. The President and members of congress seem genuinely perplexed at the public's negativity. (Public's View of Economy Takes Fast Turn Downward). They keep blaming the Iraq war for this, despite the fact media coverage has dropped significantly (and completely disappeared from Fox News).

~~~

The Fed meets again next week, and the expectation is for "only" a quarter point rate cut. That is how distorted our perspectives have become -- parts of the world is having food riots, and merely taking rates down another 25 bps is somehow perceived as a moderate action.

Previously:
Inflation ex-inflation
http://tinyurl.com/4qaek6

Agflation !
http://bigpicture.typepad.com/comments/2007/06/agflation.html

Sources:
Asia Risks `Silent Famine' as Food Soars, WFP Warns
Jason Gale and Paul Gordon
Bloomberg, April 21 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axuenSYeMBJU

Hard numbers: The economy is worse than you know
Kevin Phillips, Harper's Magazine
Tampa Bay Times, Sunday, April 27, 2008
http://www.tampabay.com/news/article473596.ece

The Fed's inflation gauge isn't realistic, critics say
Dean Calbreath
San Diego UNION-TRIBUNE, April 17, 2008 http://www.signonsandiego.com/news/business/20080417-9999-1n17inflate.html

Public's View of Economy Takes Fast Turn Downward
Jennifer Agiesta and Jon Cohen
Washington Post, Friday, April 18, 2008; Page A07
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/17/AR2008041703769.html

Related:
Era of cheap food ends as prices surge
Steve Hawkes, Greg Hurst and Valerie Elliott
Times Online, April 23, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article3799327.ece

Moms' new battle: The food price bulge
Parija B. Kavilanz,
CNNMoney.com, April 21, 2008: 10:33 AM EDT
http://money.cnn.com/2008/04/21/news/economy/moms_foodshopping/index.htm

Download HarpersMagazine-2008-05-0082023.pdf

U.S. Dollar Euro Position

Thursday, April 17, 2008 | 04:32 PM

in Currency | Trading

This is bouncing around currency trading desks on Wall Street:
>

The current US Dollar position against Euro:

I just realized that i can post pretty much anything, regardless of how offensive it might be, even if its not true, so long as I preface it with the phrase: "This is bouncing around trading desks on Wall Street."

I will try not to abuse this privilege too often . . .

O'Neill: Strong Dollar Policy Is 'Vacuous Notion'

Thursday, April 17, 2008 | 03:30 AM

in Currency | Economy | Video

Former U.S. Treasury Secretary Paul O'Neill discusses the U.S. economy and global financial markets, the performance of the U.S. dollar versus other currencies, and the Federal Reserve's response to the mortgage and credit crisis.

click for crappy windows media video

Former Treasury Secretary Paul O'Neill"

The "strong dollar'' policy that he and every other Treasury chief since 1995 endorsed is "a vacuous notion.''

"It implies in it that somehow we have the ability to manage the relationship between the value of the U.S. dollar and other currencies around the world,'' O'Neill, now a special adviser to Blackstone Group LP, today said in an interview with Bloomberg Television.

O'Neill roiled currency markets when he was in office from 2001 to 2002, at one point with comments in an interview with a German newspaper that the U.S. pursued a policy of a strong economy, rather than currency. The current Treasury Secretary, Henry Paulson, has repeatedly stated that he is a "very strong'' supporter of the "strong dollar'' policy.

"When I was Secretary of the Treasury I was not supposed to say anything but 'strong dollar, strong dollar,''' O'Neill said today. "I argued then and would argue now that the idea of a strong dollar policy is a vacuous notion.''

The U.S. currency today fell to a record low against the euro, and has declined 15 percent against its European counterpart in the past year.

Sources:
O'Neill Says U.S. `Strong Dollar' Policy Is `Vacuous Notion'
Rhonda Schaffler and John Brinsley
Bloomberg, April 16 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ackYQhodd4Nk

O'Neill Says Strong Dollar Policy Is `Vacuous Notion'
Bloomberg, April 16 2008
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vwyrSX9M2QsQ.asf

Jobless vs. Unemployed

Saturday, April 12, 2008 | 09:22 AM

in Currency | Economy | Employment

In today's NYTimes, Floyd Norris hits on a subject that has been a favorite of ours over the years: Finding the true measure of the economy's labor situation.

"The unemployment rate is low. The jobless rate is high.

Those two seemingly contradictory statements are especially true for American men in what should be the prime of their working lives. Those facts may help to explain the stark pessimism of Americans about the economy, and shed some light on the rise of illegal immigration as a political issue."

How is that possible? The two different rates measure two very different things:

"The unemployment rate paints a less gloomy picture. Among men ages 25 to 54 — a range that starts after most people finish their education and ends well before most people retire — the unemployment rate is 4.1 percent. That is not especially low, but it is well below the peak rate in all but one post-World War II recession. Only people without jobs who are actively looking for work qualify as unemployed in the computation of that rate. It does not count people who are not looking for work, whether or not they would like to have a job.

But there is another rate — called the jobless rate in this article — that counts the proportion of people without jobs. To be sure, some of them do not want to work. Some are raising families on a spouse’s income, or are disabled, retired or independently wealthy. But others may be discouraged workers, who would take jobs if they thought any desirable positions were available.

So how bad is the "Jobless" rate? How about the 2nd highest sinbce WWII:

In the latest report, for March, the Labor Department reported the jobless rate — also called the “not employed rate” by some — at 13.1 percent for men in the prime age group. Only once during a post-World War II recession did the rate ever get that high. It hit 13.3 percent in June 1982, the 12th month of the brutal 1981-82 recession, and continued to rise from there.

A Tale of Two Rates

chart courtesy of NYT
>

Good stuff, Floyd.

Previously:
The Misleading Jobless Rate (March 2008) http://bigpicture.typepad.com/comments/2008/03/the-misleading.html

A Closer Look at Unemployment (September 2007)
http://bigpicture.typepad.com/comments/2007/09/a-closer-look-a.html

Unemployment Levels and Labor Participation Rate (February 2006) http://bigpicture.typepad.com/comments/2006/02/unemployment_an.html

Unemployment vs Underemployment (July 2004) http://bigpicture.typepad.com/comments/2004/07/unemployment_vs.html

Chart of the Week: Augmented Unemployment Rate (January 2004) http://bigpicture.typepad.com/comments/2004/01/chart_of_the_we_2.html

Source:
Many More Are Jobless Than Are Unemployed
Floyd Norris
NYT, April 12, 2008
http://www.nytimes.com/2008/04/12/business/12charts.html

Fantasy-based Economics

Tuesday, March 11, 2008 | 06:47 AM

in Currency | Markets | Psychology/Sentiment | Taxes and Policy

Here's the latest work of David Malpass, chief economist at Bear Stearns. You can find it in the romance & fantasy section of your local ~~bookstore~~ WSJ Oped page:

"When President George W. Bush addresses the Economic Club of New York on Friday, his comments on the dollar crisis will be the crucial issue for markets and the economy. The best thing he could do would be to state clearly that he wants a stronger dollar. That would draw liquidity back to the U.S., lower inflation risks, and head off the growing calls for government bailouts and support programs.

Absent administration support for the dollar, recent Fed rate cuts have simply sped up the flood of capital away from the U.S. without providing enough domestic stimulus. The rest of the world is already full of cheap dollars, pushing gold and oil to new highs, European tourists onto Madison Avenue, and petro-dollar sovereign wealth funds into building islands to use up their excess.

A clear presidential preference for a stronger dollar could cause an immediate leap in financial markets. U.S. stocks and corporate bonds are attractively priced -- except for the dollar risk. No matter how high a bond yield or how strong the track record of a U.S. private-equity manager, the threat of continued dollar weakness holds global liquidity at bay. The prospect of a stronger dollar would reverse that." (emphasis added)

Um, no.

The folks who believe this sort of drivel would do well to recall Ralph Waldo Emerson: "Your actions speak so loudly that I can't hear what you're saying."

The President's words about the dollar, in the waning lame duck months of his presidency, are irrelevant. His actions over the past 7+ years, in concert with those of the Federal Reserve, are what matters. Can anyone honestly believe that mere speechifying is going to overcome the impact of enormous deficits, excessive government spending, reckless growth in M3, historically ultra-low rates, and an ongoing intervention in credit, currency, capital and fixed income markets ?

I've noticed this wingnut fantasy sequence repeatedly over the past 8 years: ignore reality, jawbone the way you hope things should be, ignore the results of your words and actions, declare victory. Mission accomplished.

It is an absurdly infantile way to manage any sort of enterprise. You will note that none of this crowd truly runs anything -- much less manages assets. The returns would overwhelmingly disprove the theory; this group is long on blahblahblah and short on accountability.

Here is a simple truism: Capital goes to where its treated best. All the bully pulpit speeches and wishful thinking cannot change that reality. The Fed's mad dash towards zero interest rate policy (ZIRP) has debased the dollar in pursuit of an even more absurd policy aim: ending the ups and downs of the business cycle.

Who is more culpable: The emperor, or those who comment on his finely woven garb?

Source:
Bush and the Dollar
DAVID MALPASS
WSJ, March 11, 2008; Page A21
http://online.wsj.com/article/SB120519657936325885.html

Previously:
Quote of the Day: Malpass (WTF?) on the Dollar http://bigpicture.typepad.com/comments/2007/11/david-malpass-w.html

The "Chutzpah" of Bear Stearns
http://bigpicture.typepad.com/comments/2007/08/the-chutzpah-of.html

What's the U.S. Savings Rate Really? http://bigpicture.typepad.com/comments/2005/05/whats_the_us_sa.html

Gold/Dollar Correlation

Monday, March 10, 2008 | 03:00 AM

in Commodities | Currency | Technical Analysis

"Regardless of the dollar price involved, one ounce of gold would purchase a good-quality man's suit at the conclusion of the Revolutionary War, the Civil War, the presidency of Franklin Roosevelt, and today."

-Peter A. Burshre

Is there anyone left that does not believe Gold and the Dollar are highly (inversely) correlated?

Source: Chart of the Day

Faber Says Bernanke Policy Will `Destroy' U.S. Dollar

Thursday, March 06, 2008 | 03:00 AM

in Currency | Federal Reserve | Inflation

Click for Video

UPDATE: March 6, 2008 9:43am

Yeah, I can see and hear this on the Dell in the office, but not on the iMac at home . . .

Saving the House!

Monday, March 03, 2008 | 04:00 PM

in Currency | Real Estate

This is way too amusing not to post:

Tom Toles via Yahoo!

~~~

Oil = All Time (Inflation Adjusted!) High

Monday, March 03, 2008 | 12:53 PM

in Commodities | Currency | Energy | Technical Analysis

click for updated chart

Oil prices today passed their all time, inflation-adjusted record, just kissing the underside of $104 dollars. As the chart above shows, crude prices have broken out from a 6 month consolidation between $85 and $95.

The commodity looks like it has legs, which is trader talk for its going higher. While I do not make a habit of forecasting commodity prices, $110, and then $125 are our next two targets.

I got your core inflation right here . . .

Dollar Submerged

Thursday, February 28, 2008 | 02:00 PM

in Currency

Dollar Weakness

Wednesday, February 27, 2008 | 09:00 AM

in Currency | Financial Press | Music

Here's another fun quote, via the NY Sun:
>

"The last time the dollar was this low, Jimi Hendrix was on tour," the director of equity research at Fusion IQ, Barry Ritholtz, said.

>
Now, I find this quite intriguing.

Why? Well, any interview I do with print media runs pretty much the same way. I give a short answer to the immediate question, than some background for context (usually random and long-winded babbling). I always slip something in that amuses me, which almost never gets used.

Until lately. These quips -- note the musical theme -- seem to be increasingly finding their way into print. And I wonder why. I do the same interview pretty much each time; Missus BP will assure you that I am no wittier than before.

Has the media simply tired of boring dry discussions? Is it a bit of recessionary gallows humor? Or perhaps the economic beat reporters are younger, of the generation who grew up in an era of sarcasm and ironic detachment and The Daily Show?

Regardless, I find it an intriguing change . . .

Previously:
Quote of the day: Stagflation & the 1970s
http://bigpicture.typepad.com/comments/2008/02/quote-of-the--6.html

Source:
Dollar Plunges as Bernanke Goes to Hill
JULIE SATOW
NY Sun, February 27, 20
http://www.nysun.com/article/71900

Jimi Hendrix Official Site
http://www.jimihendrix.com/index.php
Wikipedia entry

The New Fiver

Saturday, February 23, 2008 | 05:30 PM

in Currency

How very purple of them:

via Portfolio

Forbes vs Peter Schiff: Petty Smackdown

Friday, February 22, 2008 | 06:42 AM

in Commodities | Currency | Financial Press | Investing | Psychology/Sentiment

Forbes magazine:

"Herein is a formula for making a lot of money as a money manager. Have a shtick, get known, wait for your sector to get hot. In the 1970s James Dines acquired fame and fortune by being a gold bug. In the 1990s George Gilder minted money as a fan of technology stocks. In the past six years Renee Haugerud's Galtere International Fund ( FORBES, Jan. 20, 2003) has grown from $1 million in client capital to $1.5 billion by being in commodities . . .

That was the reductio ad absurdum paragraph from what I can only describe as a really weird hit piece from Forbes on Peter Schiff. I'm not sure why they are took this route, but the column is rather unsatisfying in both its critique and its proof:

"Schiff's Chicken Little take on the U.S. economy--that it is on the brink of collapse--isn't new. He's been serving up the same spiel for a decade. But these days he's getting more applause than eye-rolling from jittery investors. He's also getting a lot of attention from financial media outlets, in part because he has mastered the delivery of three-alarm sound bites. ("The consumer is in great trouble!" "Things are worse than in the 1970s!")

Schiff perfected his rant in stock newsletters in the late 1990s, when few investors had heard of him or Euro Pacific. He posted commentaries on his Web site and started sending them to CNBC. His first big media hit came in April 2005, when CNBC asked him to appear on Squawk Box. Schiff faced a hostile panel when he said the dollar would lose half its value--which still hasn't happened. That first interview ended with the host, Mark Haines, saying: "I don't know whether to shoot him or shoot myself."

Now, if Schiff is really such a perma-bear who has been negative and wrong on US stocks for 10 years, that would be worth discussing. There must be 100s of examples of his bad calls if that's the case. But oddly, Forbes cites exactly zero examples online. (I haven't seen the dead tree version).

Such bald accusations make for poor journalism. If you are going to make that claim, then back it up. Is it asking too much to pull a few wrong trades as evidence? Can you show me the guy was Bearish on Tech in 1998, hated dividend payers in 2002, avoided firms Oil firms in 2003, sold industrials in 2004, dissed the miners in 2005, shorted exporters in 2006? Just imagine what a similar hit piece on Jim Cramer would have to include.

Anyone who works on Wall St. long enough should be able to pull a long list of pretty bad calls over the years. (My own list of market boners is extensive). If you are any decent at running money/doing stock or market analysis, however, the good ones should outweigh the bads ones.

What's so very odd about this whole affair is, at its core, a critique of a strategy that is making investors money. Weird.

I'm not looking to defend Schiff -- he's a big boy, and can do that on his own. My beef is with Forbes -- its a sloppy work.

What I was singularly disappointed with involved the lauding of George Gilder's 1990's success. What Forbes failed to mention was what came after: From 2000 forward, Gilder's readers lost 44%, then 43%, then 56% in each successive year (WSJ). Apparently, it was okay for George Gilder Newsletter to lose 89.4% of his readers money, because he was permanently bullish.

Oh, and one other thing: Gilder's newsletter is a joint publishing venture with Forbes, another disclosure also somehow misplaced in the column. Shame on Forbes for omitting that disclosure; if Schiff had done that, it would be worthy of an SEC/NASD investigation.

According to this article, making money by identifying risk is somehow not good, but losing nearly all of it by cheerleading the tech bubble is A-okay. That doesn't seem very much like the Forbes "free market" ideology I know from over the years. Then again, it is an election year.

Capitalist tool? The article makes them look more like capitalist fools to me . . .

UPDATE: February 23, 2008 9:29am

Schiff discusses the Forbes piece in a radio interview here.

Source:
Spin Cycle
Michael Maiello
Forbes, 03.10.08
http://www.forbes.com/forbes/2008/0310/072.html

Previously:
Where Are They Now: George Gilder
MARCELO PRINCE
WSJ, May 8, 2006
http://online.wsj.com/article/SB114433479738318882.html

George Gilder: So THAT explains it
Tuesday, May 09, 2006 | 07:15 AM http://bigpicture.typepad.com/comments/2006/05/george_gilder_s.html

Gilder Technology Report
Gildertech: "GTR is published by Gilder Publishing, LLC in association with Forbes Inc., 1996-2007"
http://www.gildertech.com/

Housing and Monetary Policy

Thursday, February 14, 2008 | 09:15 AM

in Currency | Federal Reserve | Fixed Income/Interest Rates | Real Estate

Interesting academic work on Housing Prices, Monetary Policy, and Subprime issues from Stanford's John B. Taylor. Incidentally, if you recognize the name Taylor -- as in Taylor rule -- they are one and the same person.

Here's the abstract:

Housing and Monetary Policy

Since the mid-1980s, monetary policy has contributed to a great moderation of the housing cycle by responding more proactively to inflation and thereby reducing the boom bust cycle. However, during the period from 2002 to 2005, the short term interest rate path deviated significantly from what this two decade experience would suggest is appropriate. A counter-factual simulation with a simple model of the housing market shows that this deviation may have been a cause of the boom and bust in housing starts and inflation in the last two years. Moreover, a significant time series correlation between housing price inflation and delinquency rates suggests that the poor credit assessments on subprime mortgages may also have been caused by this deviation.

That's the academic overview. I found Taylor's charts to be quite revealing:

>
For those of you who want to get into the details, Taylor's academic paper (10 pages) is rather readable for an academic work.

Sources:
Housing and Monetary Policy
John B. Taylor
Stanford University, September 2007
http://tinyurl.com/26vznb

Housing and Monetary Policy
John B. Taylor
NBER Working Paper No. 13682
December 2007
JEL No. E22,E43,E52
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1077808

John B. Taylor Home Page
Mary and Robert Raymond Professor of Economics at Stanford University
Bowen H. and Janice Arthur McCoy Senior Fellow at the Hoover Institution
http://www.stanford.edu/~johntayl/

Taylor Rules
Athanasios Orphanides
Board of Governors of the Federal Reserve System, January 2007 http://www.federalreserve.gov/Pubs/FEDS/2007/200718/200718pap.pdf

The Taylor Rule and the Transformation of Monetary Policy
Pier Francesco Asso, George A. Kahn, and Robert Leeson
Federal Reserve Bank of Kansas City, Research Division, December 2007
http://www.kansascityfed.org/Publicat/Reswkpap/RWP07-11.htm

Mario Cuomo on the Economy

Thursday, February 07, 2008 | 04:30 PM

in Currency | Economy | Politics | Psychology/Sentiment

Interesting discussion with former NYS Governor Mario Cuomo:

Great quote: "You campaign in poetry, you govern in prose"

Cuomo Talks Economy

Quote of the Day: The Dollar

Monday, January 28, 2008 | 01:15 PM

in Currency

“We want to support your American peso with our strong Canadian dollar.”
-Pink Eyes, lead singer for the punk band Fucked Up

Source:
Outrage, Bile, Hardcore Punk ... and a Sensible Lost-and-Found
KELEFA SANNEH
NYT, November 12, 2007
http://www.nytimes.com/2007/11/12/arts/music/12musi.html

Possible Improbables

Monday, December 31, 2007 | 08:27 AM

Doug Kass is out with his annual list of long shot events that have a better chance of occurring than most people expect. They are, as always, quite intriguing and thought provoking.

Interestingly, almost half of Kass' last year's improbable surprises came to pass (up from 33% in 2006 and 20% in 2005).

Its subscription only, but will eventually get moved to the free site. Consider this a teaser -- these are just the headlines, without the full analysis/explanation.

Without further ado, here is the excerpted list of 20 improbable surprises:

Kass' 20 Surprises for 2008

1. The Housing Depression of 2007 morphs into the Retail Spending Depression of 2008.

2. Corporate profits drop by 10% in 2008.

3. The S&P 500 Index falls by 5%-10% in 2008.

4. Volatility pushes even higher. Daily moves of 1%-2% become commonplace.

5. The Federal Reserve eases monetary policy in 2008, with nearly every meeting accompanied by a 25 bp cut.

6. Growth in the Western European economies deteriorates.

7. The Chinese juggernaut continues apace. Chinese stock market doubles again in 2008.

8. The Japanese market puts on a surprising resurgence.

9. The housing bust accelerates. High profile bankruptcies in 2008 include Countrywide Financial (CFC), Beazer Homes (BZH), Hovnanian (HOV), Standard Pacific (SPF), WCI Communities (WCI) and Radian Group (RDN).

10. Financial stocks fail to recover.

11. Research in Motion (RIMM), Apple Computer (AAPL) and Google (GOOG) move into bubble status and their shares double in 2008.

12. Yahoo! (YHOO) and eBay merge. So do Amazon (AMZN)and Overstock.com (OSTK).

13. General Electric (GE) will sell NBC Universal to Time Warner (TWX), which will not sell or spin off AOL.

14. U.S. dollar's value falls by over 10% in 2008; Gold rises to over $1,000/oz.

15. The price of crude oil eclipses $135/barrel.

16. Acts of cyberterrorism occur that compromises the security of a major government. Financial markets will be exposed to hackers.

17. The Hedge fund community are disintermediated in 2008. Outflows accelerate.

18. There are several Enron-like accounting scandals in 2008.

19. Democrats Clinton/Kerrey and Republicans McCain/Crist represent their parties in the Presidential/Vice Presidential contest in November. Democrats grab the White House.

20. Sovereign Wealth Funds become targets of American politicians.

Thanks for putting this together, Doug. It's a terrific, fun exercise in creative thinking. (The full version can be seen at Real Money Silver).

Source:

Kass' 20 Surprises for 2008
Doug Kass
Real Money Silver, 12/31/2007 7:56 AM EST
http://www.thestreet.com/b/dps/te/20071231/theedge1.html#entryId10396433

NYC Bargains for Europeans

Wednesday, December 26, 2007 | 01:30 PM

in Consumer Spending | Currency | Real Estate | Retail

Hey, not everything I say is negative. Here's some upbeat comments about Europeans going shopping here in NYC I made to the NY Post.

They actually left out my favorite datapoint: Luggage sales at shops like Tumi are up 30% year over year. Europeans are buying so much stuff, they need more bags to schlepp it home !

via NY Post

Money Supply Growth? Its Much Worse Than That!

Friday, December 21, 2007 | 10:18 AM

in Credit | Currency | Economy | Federal Reserve

Earlier this week, my pal Larry Kudlow showed a chart of M1. His purpose was to demonstrate that the growth of the money supply was modest, therefore future inflation expectations would/should subside. Hence, this would leave the Fed free to slash rates much further.

The unspoken subtext was this was needed to bail out a weakening economy and an increasingly volatile stock market.

If you want to prove that the Fed has been stingy, M1 is the wrong data point to use -- it paints a misleading portrait of money supply, as the nearby chart reveals. The Fed, as we have seen, has been doing their work not via the printing press, but rather through the Repo Credit market. The near daily repos, along with a little help from their Euro-buddies (who just injected half a trillion dollars of short term notes into their system.

M1 is merely physical currency, plus demand accounts. What you really need to see is M3, which includes eurodollars and repurchase agreements. (Hey, what do you know! The Fed no longer reports M3. What an astounding coincidence!).

Forget the printed dollars and focus on the rapid creation of credit by the Fed -- not actual paper dollars for the metaphorical helicopter drop, but actual credit -- and we discover an even uglier truth: The Adjusted Monetary Base (See St. Louis Fed chart below) is collapsing EVEN AS MZM GROWTH IS MOVING TO NEW HIGHS. As Bill King points out, this means that "Capital is now being destroyed faster than credit can grow."

Net net, all these liquidity injections are merely moderating the collapsing credit facilities, and not actually injecting much in the way of credit into the economy.

>
Credit Collapsing Faster than it can be created:

Courtesy of St Louis Federal Reserve Bank

>
Signs of economic of economic weakness abound, despite the massive injections of credit and liquidity.

Deep down inside, I suspect Larry realizes that much of the "boom" from 2002 til '07 was driven by the absurdly cheap money -- and not tax cuts, as has been argued by many on his show. Just about everything from share buybacks to M&A to private equity bids to the Housing boom and MEW driven consumer spending to weak dollar led export boom were functions of ultra-low rates. Now, that cycle has ended, and we are seeing the repercussions of the irresponsible policies of Alan Greenspan.

Time and time again we observe that *TANSTAAFL . . .

UPDATE: December 21, 2007 1:55pm

Here's the requested shadow Fed M3 chart:

Sources:

*TANSTAAFL: "There Ain't No Such Thing As A Free Lunch"

Monetary Trends
Research Division, Federal Reserve Bank of St. Louis
JANUARY 2008
http://research.stlouisfed.org/publications/mt/20080101/mtpub.pdf

How Sick the Dollar?

Monday, November 12, 2007 | 06:07 AM

in Currency | Politics | Psychology/Sentiment | Taxes and Policy

Be sure to check out the WSJ article (Doctor the Dollar? Depends How Sick) on page C1 this morning:

"The dollar has fallen 9.5% against major currencies since Henry Paulson became Treasury secretary 16 months ago. His response has been to repeat the mantra that a "strong dollar is in our nation's interest."

What would it take to make Mr. Paulson and Federal Reserve Chairman Ben Bernanke, who has seen the dollar fall 11% since he took office in February 2006, respond to the dollar's drop? And what could they do?"

When a currency falls as precipitously as ours has, it is, in no small part, a referendum by foreign governments (and their private investors/traders) on a country and its government. We know that the current administration is not particularly popular overseas. Its no coincidence that since they took office on January 20, 2001, the dollar has fallen ~35%.

The false conceit of the article was summed up in the sub-heading: "Bush Administration Prefers to Let Markets Operate, And Cures Open to Fed and Treasury Are Limited."

This is, of course, sheer nonsense. This government, like the ones that preceded it, only like Free Markets for the upside of the cycle. When the cycle turns down, and things get dicey (as always happens), they become interventionists, interfering with the Free Markets to avoid the real and necessary pain markets regularly mete out. Hence, the ultra-low interest rates and the all so regular Open Market Operations.

Of course, the Free market mantra is "The Big Lie." Repeat something enough, regardless of how obviously false it is, and even otherwise intelligent people (and reporters) begin to believe it.

>
10 year Dollar Index

Sources:
Doctor the Dollar? Depends How Sick
DEBORAH SOLOMON
WSJ, November 12, 2007; Page C1
http://online.wsj.com/article/SB119481779722489320.html

Further reading:

The FRB Atlanta trade-weighted dollar index is a summary statistic for tracking and analyzing the foreign exchange movements of the U.S. dollar: Dollar Index Data
http://www.frbatlanta.org/econ_rd/dol_index/di_index.cfm

Greenback worth nothing in terms of American pride
Tim Harper
Toronto Star, Nov 09, 2007 04:30 AM
http://www.thestar.com/News/article/275023

Quote of the Day: Malpass (WTF?) on the Dollar

Friday, November 09, 2007 | 11:30 AM