Tag Archives: Federal Reserve

An Economic Plan Worth Considering

We’ve heard so far a number of economic plans from a number of the GOP Presidential candidates. Some very solid and detailed, others barely scratching the surface.

 

Given my 30 year experience on Wall Street, I thought I’d share some of my personal thoughts against the plans we’ve heard so far and maybe compare notes.

 

I believe the first thing to be done is to abolish the Federal Reserve. It is owned by and operated for the benefit of the biggest banks in the world. Its sole purpose has been to enrich the few at the expense of the many through its insidious use of inflation and debt issuance. It has been around for less than 100 years and has debased the USD by 96%. The U.S. Treasury has the authority to issue the currency of the country. It did so from 1789 until 1913.

 

The 2nd thing to do would be to have the Securities Exchange Commission be an essential part of the corrections needed on Wall Street because Wall Street’s business ethics are frankly at the lowest they have ever been and Wall Street simply cannot be trusted to manage its business properly anymore. $34 trillion in wealth destruction since 2008 & bankers from major institutions still haven’t been held responsible for financial crash. Insanity at its best.

Financial Policy Best Practice Framework

On March 18th 2014 the US Federal Reserve Chair Janet Yellen stated the need for “reasonable confidence” in order to effectuate a more conservative monetary policy focusing on interest rate raise.  Chair Yellen has indicated four macroeconomic factors that need to be further monitored.

 
•    The labor market with further unemployment rate decline;
•    A continued rise in currently slumped wages;
•    Core inflation stabilization (independent of energy ‘push’);
•    A higher “market-based” expected inflation rate.

 
The Fed’s decision to hold off on short term rate hikes comes one week after its macroprudential bank stress tests. Notable amongst the results was the “conditional approval” of Bank of America’s capital plan, with complete rejection of Deutsche Bank and Santander’s capital plans. It is clear that under Yellen the Federal Reserve is attempting to uphold the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

 

From a general standpoint, it is also quite glaring that the Federal Reserve as a central bank is fast adopting more of an eco-political role as a quasi-indirect financial system regulator through financial system monitoring. As has been mentioned before, monetary policy is the fastest mechanism to quell financial system defects, as fiscal policy results tend to lag.

 

For More: Financial Policy Best Practice Framework

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The Federal Reserve’s True Agenda and how to deal with it

Following up on my blog of July 15, 2010 entitled “Why Reshaping the Federal Reserve is today an Absolute Must”  I thought I’d share these thoughts with you, demonstrating the Federal Reserve’s true agenda in the economy today, and why reshaping the Fed is again needed more than ever at this juncture of our country’s economic history.

 

In fact, contrary to popular belief, I frankly believe that the Fed has spent the last two decades creating the illusory “wealth effect” in people’s minds; knowing very well that what they do has no direct effect on the economy. If you can drive the market up 50 percent, people feel richer…and happier.

 

The Fed basically wants us to go out there and buy stocks, which are overpriced because bonds they have manipulated into being even less attractive. So, we’re being forced to choose between two overpriced assets. Plain and simple.

For More: The Federal Reserve’s True Agenda and how to deal with it

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America Tear down the wall before it’s too late

I am afraid America makes less sense every day.

 
Little children are randomly slaughtered in their schoolrooms. Predator drones roam the skies over foreign countries exterminating bad guys, along with innocent women and children (collateral damage when it occurs in a foreign country). Drugged up mentally ill kids with no hope and no future live lives of secluded quiet desperation until they snap. Ignorant, government educated, welfare dependent drones with no self respect or respect for others, assault, kill and rob within their government created urban ghettoes.

 

Sociopaths who committed the largest financial crime in world history walk free and continue to occupy executive suites in luxury office towers in downtown NYC, collecting millions in bonuses as compensation for crushing the American middle class. Academics, whose theories have been thoroughly disproven, continue to steer our economy into an iceberg while accelerating the money printing and debt issuance that will sink our ship of state. Corrupt, bought off politicians pander to the lowest common denominator as their votes are only dependent upon who contributed the most to their election campaigns, which never end. Delusional, materialistic, narcissistic, math challenged consumers (formerly known as citizens – live for today, enslave themselves in debt, vote themselves more entitlements, and care not for future generations.

 

For More: America Tear down the wall before it’s too late

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What Would Our Founding Fathers Think if They were Alive Today?

I believe the Founding Fathers would surely be proud of the vastness and strength of the United States, but they would be strongly disappointed with how we’ve come to interpret the Constitution.

 
Furthermore, they would be even more disappointed with the fact we have created a central bank that artificially foments growth and debases our currency through fraudulent monetary policy.

 
The Framers warned about our country and capitalist structure suffering from a central bank that purposefully imbalances the market in order to create phony credit and fake booms in the business cycle.

 

The size and scope of the federal government, the incredible power of the Federal Reserve, and our empire overseas all would be considered perversions of the U.S. Constitution.

 

For More: What Would Our Founding Fathers Think if They were Alive Today?

 

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Wall Street Power – Facts v/s Fiction

Having been on Wall Street for around three decades now, I am often asked – mostly by foreign investors – , what’s so special about Wall Street that gets people’s attention the world over and what are the facts from the fiction when it comes to this “Mecca of Finance”.

 

Here are some of my personal thoughts.

 

I guess it all started when the Panic of 1907 occurred and the New York Stock Exchange fell 50% in a year peak to trough, JP Morgan bought stocks and called up a few other Wall Street titans to buy. This prevented a total collapse of the financial system and the US economy.  JP Morgan did this ostensibly to protect the country. But sometimes doing the right thing at the right time is a necessary expense to build your brand and to prove to the government and your critics that you yourself don’t need to be regulated – so you and your tight oligopoly can continue making obscene profits in normal times…. I believe this is around the time Wall Street was really shaped- followed by the creation of the Federal Reserve in 1913 and all other regulatory agencies over the next 20 years.

 

So what makes Wall Street so powerful and what are the facts from the fiction out there?

 

Let’s start by the most obvious.

 

1. Wall Street is important because that’s where the money is. When they asked John Dillinger, a famous bank robber, why he robbed banks, that was his answer.

 

2. The titans from Wall Street banks have been closely tied to Presidents, Treasury secretaries, finance ministers, CEOs and prime ministers for a long time. So, quite simply, the folks who run Wall Street care about power and they know how to get it. Money is the means Wall Street titans use to accumulate power and they love it. They love having it. Getting more of it. Befriending those who have it, and befriending those connected to the powerful.

 

3. Money is Wall Street’s currency to get power. When I fundraised for Romney, I spent a lot of time on Park Avenue. All the fundraisers were held there. Well 90%…. Then I got a glimpse of how things worked. These folks all gave a ton of money and did a ton of fundraising. Like, a boatload. So when you’re a leading candidate for President, you go to the wealthiest financier’s homes late at night for meetings, so you can ask them for advice they were going to give you anyway, while they make sure they have continued access to you so they can work those levers of power to their advantage – or at least not let the government get in their way.

 

4. Besides political fundraising, Wall Street does tons of highly relevant tasks and favors to big governments, big companies, big pensions and billionaires. If you’re one of those people, Wall Street can and will get you the money you need or want, for a fee. That’s if you need a lot of it and you can pay it back -even if you have to print it or confiscate it. Argentina, I’m looking at you.

 

5. Wall Street knows the folks with the real money who are seeking investments and hedges and speculative positions. Wall Street knows how to transfer all types of risks – currency, market, credit, interest rate, company, litigation and other risks – from those who want to get rid of it to those who are willing to be paid to take it.

 

6. Wall Street also knows market making and price discovery and efficiency. It will trade and trade and trade money and financial instruments and commodities and lots of other things in its various forms. So, Wall Street is important. And it uses its importance to be powerful.

 

7. To date, the Secretaries of Treasury have come from Goldman Sachs, Morgan Stanley, Merrill Lynch, etc…. When they leave the government, they go back to those elite banks. Summers, Geithner, Rubin, etc… all went to banks or private equity funds when they left government work at some point (Summers was at a fund after leaving Harvard).

 

8. Certainly everybody’s hands are a little bit dirty when it comes to the global financial crisis. A lot of dumb mistakes were made all around. Some of them were idiosyncratic in nature (you can pinpoint many questionable trades made by both investment banks and hedge funds), and some of the mistakes were systemic in nature (think Fannie and Freddie).  You can easily assign blame to any market participant you want to, but at the end of the day, if you construct a pie chart of all the blame-able people in 2008, my hunch is that hedge funds would make up a very small portion of that pie. The reason is that they do not control public policy and regulations (which play a huge role in bringing about the crisis), nor do hedge funds put on as much risk as other market participants do because they simply do not control that much capital. Fannie, Freddie, pension funds, insurance companies, foreign central banks, investment banks, etc., dwarf the hedge fund industry by many, many orders of magnitude. I think it’s fine go out of your way and blame the 20-something hedge fund trader at Magnetar or Paulson for constructing trades which have a vested interest in seeing the mortgage market fall apart, because there’s something probably morally questionable about that, but understand that they didn’t cause that market collapse because they can’t. And before you say anything: Yes, I am probably biased being a Wall Street financier myself but No, I did not work in the hedge fund industry during the relevant time period.

 

9. If you think the Hollywood movie “The Wolf of Wall Street” is of any characterization of the real Wall Street, you are delusional. Nothing to do with reality and I frankly expected much better from an overrated Scorsese or a supposedly brilliant De Caprio.  The movie is total fantasy addressed basically to an ignorant public and/or third rate stockbroker wannabees who know squat but think they know it all and are hustling like the movie producer and lead actor to dump their crap to the world… Sorry to spoil your enthusiasm.

 

10. On the same note, if you think that Wall Street abides by any of the propaganda as per below you are equally delusional. Time for a rude awakening.

 

  • We don’t care about social costs
  • We worship the invisible hand
  • We don’t care about the environment
  • We all go to business schools
  • We’re all elitist and are all rich
  • We’re all conservatives

I met Hank Paulson very briefly after he left Treasury. I name dropped a current deputy secretary of state I knew he would know from Goldman Sachs. He had a business going, helping big important governments around the world. This meeting led me to a number of similar meetings to the high and mighty which gave me a real glimpse trough luck and fate and hard work of how the financial elite work.

 

Bottom Line: Consider it like this.  Imagine if all supermarkets, grocers, and other sellers of food closed suddenly.  We need food to survive and function and would shrivel up and die without it.  Now imagine if the major retailers of consumer electronics closed.  The effect would be hugely significant throughout our society, but we would be able to continue on.

 

To major corporations, Wall Street is the “supermarkets, grocers, and food sellers.”  Wall Street provides them with the lifeblood, money, that they need to continue their operations.  Thus, Wall Street has power over them.

 

Now that you know who runs America and the world, I strongly suggest to anyone of you wanting to build a career in any industry to spend some time there – even a stint – . It is an experience second to none which will benefit you in the long run while truly learning how the “money world” works.

 

Share your thoughts….

Game Of Finance

Have we learned anything from the Financial Crisis?

I would say nothing at all…. In fact, instead of changing their behavior to prevent another crisis regarding finance, the Powers-that-be seem to be doubling down on the strategies that Caused the Financial Crisis in the First Place

Liberals blame deregulation and reckless Wall Street greed for the economic crisis. Conservatives blame bad government policy.

What are they doing? Well here again…. they are:

1. Pushing banks to make home loans to people with weaker credit (sound familiar?)

2. Deregulating and even promoting insane levels of derivatives (ring a bell?)

3. Following policies which lead to rampant inequality (that didn’t work out so well last time)

4. Letting white collar criminals know that they have free rein to do whatever they want, and they won’t be prosecuted (once again)

5. Letting the giant banks get bigger and bigger (the government helped them get big in the first place)

Continue Reading: Financial Crisis

 

 

Welcome to the New World of Physical Commodities Trading & Wealth Creation

As JPMorgan Chase & Co has now exited the physical commodities trading business, one wonders what the future of the business at large – along with the one of the two major banks that have dominated Wall Street’s involvement in the natural resources supply chain for 30 years – will be, particularly when it comes to Goldman Sachs and Morgan Stanley; the ultimate “Wall Street Refiners”.

Goldman Sachs and Morgan Stanley may hold one advantage over JPMorgan, as their long history of operating in physical commodities as less regulated banks may provide them with “grandfathered” ownership of assets like warehouses, pipelines and storage tanks that other commercial banks aren’t allowed…I am afraid though this advantage is clearly narrowing by the day.

It is a fact that since 2012 Morgan Stanley has looked at selling its commodity arm and Goldman has made moves to scale back its physical operations.

Market deterioration has also complicated matters. Since hitting its all-time high in July 2008, the benchmark Goldman Sachs Commodities Index has dropped 57 percent, creating losses in some physical arenas and driving many of the banks’ key institutional investors out of the asset class.

Given those seismic changes in the marketplace coming to hit us all, I foresee many more commercial bank divestitures in the years ahead as the U.S Senate will probe more than ever whether banks should be allowed to own pipelines, warehouses and other commercial assets. The Fed after all wants those banks to conform their business activities to the Bank Holding Company Act.

I also foresee even major investment banks getting out of their peripheral business and refocusing only on their core physical oil trading arm. In fact, I believe the commodities business of the future will most likely devolve to its financing and risk management core and the banks will be less active in the physical markets. Wall Street will just become “paper traders”.

The $64,000 question that remains though is whether banks will be able to choose their own future, or will the Federal Reserve’s decision to review the entire role of Wall Street in physical commodities markets see regulators make the choice for them?

At the end of the day, I suppose that the increasing capital strains on banks, and especially the political heat being directed at the industry may not be worth fighting for given the slimmer profits derived from playing the physical trading market at most banks today…. Adding to that the fact that the Fed is also considering imposing a surcharge on bank commodities holdings linked to the amount of capital they require or risk they take, though no formal decisions have been made.

Read More: Welcome to the New World of Physical Commodities Trading & Wealth Creation

 

 

Don’t be fooled by what policy makers tell you !!! Read the facts

As part of Blackhawk’s close group of family and friends, we thought we’d share with you some of our most salient views as to the state of the world economy today and what to watch for in case you’re also in the “Wealth Creation” business.

We hope these thoughts will help you better position yourselves in the months and years ahead.

Even if you disagree with our points on the trajectory of where the world is heading, it cannot hurt to understand and prepare for the worst case scenario while still hoping for the best.

So here they are…..

About the markets at large:

Contrary to what the talking heads and pontificating gurus are saying, markets are not out of control, central banks are out of control printing money…and we believe they will never tighten monetary policy again, but merely print, print, and print more as they love to see asset prices go up, and as their policy reflects their desperation to perpetuate the process. As far as we are concerned, we know the Federal Reserve will keep interest rates at 0, precisely 0…in real terms.

About the Federal Reserve:

The lifetime achievement of Greenspan and Bernanke is really that they created a bubble in everything, everywhere. In fact, you have to ask what they were smoking during the housing bubble, as prices were increasing by 18% annually when interest rates started to steadily rise in 2004.

It seems that the tremendous economic Sophism of the day is that a nation can print its way into prosperity. By the same token, if debt and money printing equaled prosperity then Zimbabwe would be the richest country in the world. Go figure if Mugabe is not the economic mentor of Ben Bernanke.

Read More: what policy makers tell you

Thank you

Ziad K Abdelnour

The Perils of Inattention – Financial Policy Council

In many sports, players are advised always to “keep your eye on the ball.” In 2008, we took our eye off the ball; as a result, we chose a president, and an administration, that did the same.

In the 2008 election cycle, voters were fed up with George W. Bush – and certainly not without some justification. They were ready to vote “not Bush” and “not Republican.” However, in a time fraught with enormous economic difficulty and peril, we elected a president whose background showed no particular familiarity with or interest in economics, and whose record revealed that he was likely to pursue, and to prioritize, the very sorts of policies he has in fact pursued.

For a man who has been president of the United States for nearly a full term, there is much that is not known about Barack Obama. What we do know, however, and can say with some certainty, is that Obama sees himself as a transformative figure in American history. His deepest and most abiding
concerns are with his perception that the economic system is unfair and demands reform, particularly in the form of more social benefits to those he sees as in some way underprivileged, a larger government role in the regulation of business, and higher tax rates for high earners.

Viewed from this perspective, it is easy to see how Obama and his administration lost their way. At a time when the American economy cried out for attention and a skilled hand on the rudder, Obama’s focus was always elsewhere and his best skills lay in other areas. During his first term, with nearly veto-proof majorities in both houses of Congress, Obama concentrated on passing a health care reform act that was never widely popular, expending enormous political capital to pass it.

Moreover, the economic efforts he has made were often ideologically driven: enormous sums were invested in “green” energy goondoggles, for example. Likewise, the GM and Chrysler bailouts were shaped by the administration’s desire to please the UAW – at the expense of bondholders.1 A scintilla of business experience would have suggested that inducing unpredictable risk into the bond market during a recession was not a policy designed to encourage investment; but despite his frequent statements about how important the economy was, Obama’s actions belie his statements.

Read more:  The Perils of Inattention