See You Hawaii, At Sundown

May 22, 2015 — Headed west in search of some much-needed downtime and recharging. It’s been a relentless year merger talk, the path we anticipate for rates, and perhaps the very best change of all, new life. The world around me has changed quite rapidly. Here’s to hoping I can deal with yet another 10 and a half hour flight to the Hawaiian islands. Been planning it for a while more to use some vacation days which I haven’t used any in the past 3 years and perhaps a lame attempt to reconnect with the world around me.

This will probably be the last time in several years I’ll be able to take an actual vacation one completely free of work, email, or any inclination to Instagram the journey. I won’t be able to scuba dive, nor paraglide, and the doctor doesn’t recommend I partake in anything too strenuous or physically demanding… sure doc, I’m fine. Wouldn’t want an early delivery lol. I’ll have to be a spectator when my husband goes spear fishing – have a trip planned as a surprise for him – snorkeling with some sea turttles or dolphins is definitely in.

I can’t wait to see the pacific again. I hope the water is as blue as its been in my dreams. I’ll have a lot of emails to catch up on when I get back but the next 10 days are all about living in the world pre electronic devices. Ok, I admit I might use GPS if we manage to get lost on some hiking trail… and I’ll have my good camera as well.

3 hours till our flight. Hope to write a few blogs on the ride over.

Breaking Points… 80 To Go

May 16, 2015 — The year has flown by already we are done with Q1 earnings season. The energy sector reported the largest year over year sales decline. Markets remain range bound, frustrating for many, choppy. We’re still reading daily articles about when we all believe the Federal Reserve will “lift off” and begin the path to a return to normal rate regime.

We’re still watching CNBC guests comment on the impending collapse of equities, bonds, and european sovereigns balanced with the never-say-never perma-bulls who won’t ever admit to ever taking a loss and parade the “why worry, only price pays” — bullshit argument. Did price pay 10/15/87? BTW the USD has given up all its gains for 2015.

The regular media puts out daily articles on the 2016 US Presidential election even though they are still 541 days away. Especially Vox. Not sure when that website became relevant, but they do a damn good job or stirring the pot, pondering the most vexing issues facing America such as… Who will run, who won’t run, does Marco Rubio drink bottle water from unicorn tears, who donates to the Clinton foundation? The usual regurgitated political arguments #TeamAmerica — it is what it is politics.

The usual AAPL giddy fanboys are out breathlessly commenting on TV and in print publications about the Apple Watch. I mean, if aliens invaded earth and they were to ask humanity what have we accomplished, what will we show them? We can send them our heartbeats via the watch… please. No.

The latest iPhone, Apple Watch, iPad or the Periscope app? Show them the Sistine Chapel? Read them the tragedy of Faust, play them Beethoven’s 5th, show them Van Gogh’s Sunflowers?

Don’t embarrass me… AAPL.

Dr Bernanke in a recent blog ripped Senator Warrens bill on limiting the Federal Reserve’s emergency lending powers in the event of a financial crisis. It’s a beautiful thing seeing the former Fed chair have more flexibility to speak his mind and how he really feels. For better or for worse flexibility of the Fed has been one of the institutions most enduring tools in the tool fit.

There’s a belief from some that only they are privy to news. We still need humans running capital that much is clear as the algos everyone loves to bash got fooled the other day by the fraudulent bid for AVP. Back to the news its career suicide to believe that no other investor, fund manager, except you knows the news.

If it’s in the news, it’s already been traded. Now if you know something about next year’s news, something that no one can has considered, something that everyone has overlooked, then you should place a bet, and let us know too on TWTR of course. The fact is Wall St has invested billions to update all parameters with every piece of news as it comes through the wire, and that I suppose that is, “Old Wall.”

There’s still a few blogs ripping on the banks. Ok. The bailouts happened 7 years ago. To quote the great Neil Barofsky, “Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.”

Hopefully we learned from the experience and are better institutions and better people for it. Inaccurate financial mathematical models should not pose a threat to humanity but somehow they do.

Humans are arrogant, and believe they can explain everything, (self included here). Reality always wins over human perception of reality. Markets are indeed engaging but nothing they offer in the capital markets is a prerequisite for life.

On mixing politics and markets… it would be wise to take politics out of the markets. If you have an issue with the banking system take it up with the system, not the price that I agree to exchange shares with someone.

On bonds… it’s a bit wild some of the moves. But I’m no expert on bonds. We all know the Fed has bought up trillions. However, I don’t think they are too concerned about shrinking the balance sheet before any potential hike. The Fed is the last dealer standing. Frank-Dodd wanted to divest all TBTF desks, all trading, radically reduce revenues from FICC trading, and go back to “boring banking.”

On social media… I believe we have built internal add-blockers and are immune to clicking on them. On twitter how many times do I have to click “tweet offends me, or tweet is not relevant” for the damn thing to go away? TWTR with horrible earnings is really struggling. Facebook on the other hand many are saying it’s gonna take over the internet. I’ve seen Facebook break up families and I’ve seen Facebook reconnect families.

Personally Facebook belongs to the vast world of things that bore me.

As with life there’s an important distinction that we shouldn’t forget, about the events that life hands you: Some events you have near full control over, if you run across a freeway, getting injured comes with the territory. There’s an easy solution: don’t run across the freeway. If you do you have no right complaining about getting injured.

But it’s the events that you have minimal control over that are often the toughest to handle, especially as they pile on. The market you have no control over. It’s gonna do whatever it want to is and make a mockery of a good deal of us while it’s at it.

By way of example, let’s say you’re driving and get a flat tire. Well it sucks, but most can handle it no big deal. Then let’s say you are late and you speed, and you get into a car crash, okay well more hassle not the best day, but most can handle it. Then let’s say you get a call from you boss that you have lost your job. Well that’s bit tougher, especially if you have a family that you have to support.

At this point you may experience a minor set you back for day, or a colossal  fuck up, defending on your tolerance level. But wait let’s say the day is not over yet. Let’s say within minutes you receive a call from loved family member having been diagnosed with cancer. I think most can still juggle that many issues, but you are not having a good day.

Then let’s say you get a call from (God forbid) your Father is having a heart attack, and you have to get over there somehow, you struggle to find a bus, and it breaks down. You need to get the situation under control, cause it’s your duty and family expectation. But then let’s say you get there but you realize you lost your wallet, and your father has no insurance, but you do have $20 in your pocket, and you go to the bank get some cash, but then someone robs you, on the way back to the hospital… well I can go on with examples forever…

The point life is so bizarre, and there are some many unexpected turns. I think most of us have a breaking point, no matter how tough, it is just how much stuff you are handed and how fast. Of course some would say that isn’t fair.

Seems like we go about assuming there is a law that says life should be fair, well that is not reality. We made up “fair”, and try to impose it on the world, but if the world is not “fair” you can’t blame the world. Maybe instead we should re-evaluate our perceptions. That’s life… Life is fleeting. Try to enjoy it while we’re still here.

Truth is not in the crowd ~ Søren Kierkegaard

Dudley on Monetary Policy

May 13, 2015 — Monday NY Fed President Dudley in prepared remarks said he does not know when the timing of normalization will occur. He reiterates the timing depends on the economic outlook. Laying out conditions needed for normalization 1) improvement in the US labor market 2) the FOMC being “reasonably confident” inflation moves to 2% target.

a few words on the timing of normalization.  To be as direct as possible: I don’t know when this will occur.  The timing of lift-off will depend on how the economic outlook evolves.  Since the economic outlook is uncertain, this means the timing of liftoff must also be uncertain. Because the conditions necessary for liftoff are well-specified, market participants should be able to think right along with policymakers, adjusting their views about the prospects for normalization in response to the incoming data.  This implies that liftoff should not be a big surprise when it finally occurs, which should help mitigate the degree of market turbulence engendered by lift-off.  — Dudley 5/12/15

Dudley said it would be naive not to expect some impact during a rate hike. He stated that the US monetary policy actions often have global implications. Pointing to the positives of EME’s — improved debt service ratios, larger foreign exchange reserve cushions, “generally” improved fiscal discipline, and better capitalized banking systems.

Dudley cautioned about getting policy wrong domestically. Perhaps leaning towards the view of sooner, but a slower hike cycle.

Dudley On Rates

Cape Town — Friday NY Fed President Dudley made his first comments on rates and the rate cycle since December 2014. Noting really new here — Dudley largely dismisses and doesn’t buy into the “secular stagflation” argument; he views raising rates too soon as a mistake. Dudley believes, like I, that normalization of monetary policy should happen gradually.

Dudley says monetary policy cannot be put on autopilot guided only by a fixed policy rule. He points out long rates are too low.

In this case, the fact that market participants have set forward rates so low has presumably led to a more accommodative set of financial market conditions, such as the level of bond yields and the equity market’s valuation, that are more supportive to economic growth.  If such compression in expected forward short-term rates were to persist even after the FOMC begins to raise short-term interest rates, then, all else equal, it would be appropriate to choose a more aggressive path of monetary policy normalization as compared to a scenario in which forward short-term rates rose significantly, pushing bond yields significantly higher.

My view — unlikely to see too harsh of a hike with the weak recovery we’re in. Dudley and Yellen both preparing the market for the inevitable hike. We’ll see just how well hedged market participants are. Personally believe there’s a lot of large one way directional bets to try and cash in before the coming hike cycle is viewed as less favorable to current asset prices.

No preset course in hiking. Dudley isn’t set on using the “taylor” rule — which, in my view, is a good idea NOT to. Stoping reinvest and drain excess reserves RRP and runoff. We don’t want the reserves anyways (stricter bank leverage ratio requirements). ER’s are deposit liability for large financial institutions. With reserve draining the overall balance sheet of the banking system levers down — hence fewer reserve assets and fewer liabilities.

Without draining excess reserves the Fed cannot achieve a functioning fed funds market. Institutions not eligible for IOR specifically GSEs, FHLBs are primary sellers of fed funds. Depository institutions don’t really have any incentive to lend at rates lower than IOR.

Foreign banks operating in the US do not have to pay the FDIC fees which explains why they are large holders of reserves. GSE’s and FHLBs have an incentive to lend into the fed funds market, even though the current rate is lower than IOR.

ZIRP won’t be around forever. For now too soon to tell, with the benefit of hindsight, if it’s a policy mistake for not tightening monetary policy aggressively enough — as hawks like Richard Fisher assert. My advice would be run it hot, cease reinvestment of securities principal allowing the Fed’s balance sheet to shrink as securities matured, then we can see if we’re all ready for RRP and the much talked about “lift off.”

Appreciating Life

Cape Town — Today marks the third year and 2nd day since Maurice André passed away at the age of 78. André was the greatest human being to ever pick up the trumpet. He is perhaps best remembered for his impassioned performances of Baroque era music, his soul-stirring high notes, and the piccolo trumpet.

I’ve been on the road for 17 days now. 5 different time zones. Living through the onslaught of “breaking news,” FOMC minutes, Greece exit threats, dysfunctional eurozone politics, GDP revisions,  and man-made controversies — so many — that it’s enough to make a person lose their mind.

Perhaps there just isn’t anymore camaraderie left in the world. Life will always be to a large extent what we ourselves make it. My father used to always say don’t let those cynical bastards ruin your life and take away your happiness. Live for you.

Even when dad was diagnosed with terminal cancer, for the most part, he kept his sunny disposition — that life was worth living. That we can accept the things we can’t change. There is an innate feeling that we all want to be connected to a universe which celebrates life.  To feel that there is always light at the end of the tunnel – and no – it’s not a freight train barreling towards us.

Life. It’s something so often neglected in our instant gotta-wana-have-it-right-now world. When monetary policy around the world is beyond frustrating. When politics is so demeaning and even diabolical in its very nature we feel helpless. The frustration becomes overwhelming.

Surely one has to find a way to deal with all the insanity in the world. Constantly thinking about a “collapsing economy” and “banksters” and interpreting the stupid shit Presidential hopefuls say, what algo 1 and algo 2 are trading, and the latest buzzfeed click-bait article isn’t healthy.

If we always dwelled on misery and human suffering we would want the first ticket out of here. In one way or another disappointment can be turned into drive or it very well could destroy us — if we allow it to. Move so you can grow, and get on with your life.

I’ve always found solace from the raging, unrelenting news cycle humanity finds itself living though, in the unsurpassed greatness of Baroque era music. Bach. Telemann. Handel. Corelli. The immortal Vivaldi. But perhaps today, more so than ever, Maurice André does that for me. Clarifies raw human emotion in the most astonishing way with his playing style and ability to hold the high notes.

There’s nothing petty, there’s nothing vulgar, nor cringeworthy about how  André plays Telemann’s Trumpet concerto in D. It’s preformed flawlessly. It’s one of the few pieces of music that captures every emotion. Perfect in every way like bees processing nectar into golden honey.

I’m left with such an appreciation of his talent. That life is so worth living — to the very fullest.

It’s been a long few weeks away from home, and I’ve still got a few miles to go. I’ve tried not to dwell in the past, yet the world’s changing, and I’m changing, too.

Life is so very precious. Each day is a gift. Maurice André was a gift to humanity. That for two minutes and 30 seconds, after closing my eyes and turning the volume all the way up can maybe, just maybe almost touch heaven.

And life goes on. Things change. There’s so much I’d want to tell my father. And although I am no longer bitter and have accepted reality, on some nights it still hurts. And I miss him.

Maybe what they say is true relying on our faith. That perhaps those whom we love who are no longer with us have the very best seats in the house. Lord knows I’ll need some guidance over the new few months. I just wish he could’ve meet him, and held him, and looked me in the eye and said “thanks — now you finally understand life, Lauren.”

Maybe children are like little emerging market economies. And they just need someone to lead them along the way. To teach them right from wrong. To support them through thick and thin. Someone to believe in them and love em.

Because like it or not, parents won’t always be there by our sides. I found that out the hard way and much sooner than I would’ve liked. And losing someone so close is devastating in itself, you hold onto the good times. But it’s times like now… many emotions.

I know I’ve made the investment for the long haul. We’ll see what happens. The only appropriate response is one of gratitude.

We protect what we fall in love with.

BOJ Keeps Monetary Policy Unchanged, Strikes Optimistic Tone On Economy

February 2015 — The BOJ kept monetary policy unchanged continuing with QQE and pointed to Japan’s “moderate recovery trend.” The central bank noted that CPI would likely be constrained with the decline in energy prices.

Japanese exports picked up while business fixed investment has been on a moderate increasing trend as corporate profits have improved noted the BOJ.

Kuroda told the Lower House Budget Committee, “So far I don’t see any problems about implementing the quantitative and qualitative easing.”

With the central bank continuing to buy bonds it has weakened the currency thus helping boost profits for exporters. The BOJ notes private consumption remained resilient against the background of steady improvement in the employment and wages (which many view as finally getting a jump this year).

The BOJ is buying all new government debt in the secondary market to keep long-term interest rates pined to the floor, however many point out that this has vastly reduced liquidity in the JGB market.

Overall an optimistic note. That said a few in Japan whom feel the BOJ does not appear to be fully convinced of the strength of the economic recovery, and perhaps more stimulus measures will be announced this spring.

Abe and Kuroda strong fiscal and monetary stimulus has been the strategy for countering deflation. Kuroda believes that the BOJ’s 2 percent inflation target and that QQE was not causing “any problems” in the JGB but he was closely monitoring developments.

* Side note — my time in Tokyo is up, what an incredible experience. It’s off to Dubai now — the good in all this travel… I’m missing out on all the snow in New York…

Japan Escapes Recession For Now…

February 2015 — It’s been an eye-opening experience here in Japan. Tokyo has been a bit overwhelming. Definitely a booming city with great food, great nightlife, and fantastic hospitality.

Japan reported GDP annualized growth of 2.2% from the previous quarter — which declined 2.3%, and officially the country is back out of recession after previously declining the past two quarters.

Private consumption increased just 0.3% from the previous quarter. Wage compensation declined 0.5% on the year; wage growth hasn’t kept pace with the April 2014 sales tax increase, the sales tax is set to increases an additional 2% to 10% with Abe delaying the increase for 18 months.

Capital spending increased by a meager 0.1% while exports increased by 2.7%.

Abenomics aside Japan has a major problem — its population — declining by 268,000 in 2014. Just over 1 million were born last year while 1,269,000 persons died. On average every 32 seconds a baby is born while every 25 seconds a person dies. Simply put – we need more babies, and we need them now.

In the long run without addressing this problem of population decline, sustained economic growth will not happen. Another hindrance is the number of reproductive-age women in Japan is on the decline. Yet even if Japan were able to raise the birth rate tomorrow, it would be at least 20 years before any impact on Japan’s economic growth was noticed.

Japan needs to address its immigration policies to find working alternative means (foreign workers that would take the place of jobs traditionally going to Japanese natives) to offset the negative impacts of a declining population. Leaders would face the challenges of openly discussing the social and economic impacts of having more foreigners working in Japan.

The choice is pretty stark: economic power wanes as its population ages or implement a more open immigration policy — which could perhaps revitalize a dynamic economy. Either way Japan is working against unfavorable demographics unless policy changes are implemented.