Market Talk

I said it almost exactly one year ago: a better tag for Alan Greenspan would be the “Sorcerer’s Apprentice.” When your policies lead to as much havoc as his did, nobody but nobody should be calling you a maestro.

But the former Fed chairman soldiers on, putting out a paper that lays the blame on the “weak recovery” at the feet of an overreaching government, which sends Paul Krugman into orbit:

Greenspan writes in characteristic form: other people may have their models, but he’s the wise oracle who knows the deep mysteries of human behavior, who can discern patterns based on his ineffable knowledge of economic psychology and history.

Sorry, but he doesn’t get to do that any more. 2011 is not 2006. Greenspan is an ex-Maestro; his reputation is pushing up the daisies, it’s gone to meet its maker, it’s joined the choir invisible.

He’s no longer the Man Who Knows; he’s the man who presided over an economy careening to the worst economic crisis since the Great Depression.

You’ve got to appreciate Krugman consciously parroting (pun intended) an old Monty Python bit, the famous dead-parrot sketch.

“This is an ex-parrot.”

(h/t Big Picture)

GMO’s Jeremy Grantham continues to be among the most coherent, rational and entertaining voices commenting on US markets and the economy. His latest quarterly piece is the usual must-read, titled “Night of the Living Fed.” Here’s a little taste:

In almost every respect, adhering to a policy of low rates, employing quantitative easing, deliberately stimulating asset prices, ignoring the consequences of bubbles breaking, and displaying a complete refusal to learn from experience has left Fed policy as a large net negative to the production of a healthy, stable economy with strong employment.

Enjoy the rest here.

- Gold hit a fresh record high yesterday just as the euro and stocks also gained, while the VIX fell to a six-week low. “Maybe the strange cross-currents were a sign that some market players were wrapping up their week a day early and heading for the beach,” Tom Petruno says. “In fact, Friday might be a good day to take off.” Spot on – Dow finishes up 16 in a sleepy session.

- Not much action out of Palm since word of acquisition by H-P (HPQ), but expect that to change in the near future, Digital Daily blogger John Paczkowski says. At a developer event yesterday, PALM developer liaison Josh Marinacci offered some of the company’s upcoming plans. “We are working on future devices. And a new version of the OS. So I think you’re going to find the next year very exciting.”

- It appears the White House may be changing its mind on reining in CEO pay, according to The Huffington Post. But the change doesn’t seem to be garnering the attention it deserves. “Well, the BP disaster, in particular the intense press coverage of this week, appears to have provided the Administration with some very useful air cover, by diverting public attention from the final rounds in the battle to reform Wall Street,” Yves Smith says.

- Investor sentiment readings this week were mixed. “Although far from extreme bearishness, this level of optimism is consistent with an oversold market, but does not necessarily signify that all is clear,” Pragmatic Capitalism notes. “The majority of the reliable short-term buy signals have coincided with lower levels of bullishness.”

- Ratings agencies played a prominent role in the financial crisis, but the big three agencies have “escaped much blame, liability and scrutiny for most of the post-crisis period,” FusionIQ CEO Barry Ritholtz writes. But that may be coming to an end.

- Enthusiasm for Apple’s (AAPL) iPad has been obscured by excitement over its new iPhone 4, but DigiTimes says the tablet computer is moving quickly. The Taiwanese technology publication says iPad monthly shipments reached a whopping 1.2M units and could balloon to 2.5M by year’s end.

- Nevada registers the highest monthly state unemployment rate in May, coming in at a staggering 14%, marking the first time in four years Michigan wasn’t awarded the dubious distinction, according to a new Labor Department report (via NYT’s Economix blog). By contrast Michigan’s rate was 13.6%.

- Twitter’s strong growth continues. ComScore reports the microblogging service registered 90.2M unique visitors last month, a 7.6% increase from 83.8M uniques in April. “After a lull in the winter, it’s clear that Twitter is back on track,” TechCrunch says.

- “No one will pay any heed to the now discredited Greenspan who ironically was worshiped for all the things he got wrong and ignored the few times he ever said anything that made any sense,” Mish opines.

- WSJ’s Jim Chairusm writes about why the lost US goal in the Slovenia game today shouldn’t matter.

Should’ve posted this earlier (that Times article really set me back like an hour,) but Deal Journal is live blogging today’s Financial Crisis Inquiry Commission hearing, which includes testimony from the Sorcerer’s Apprentice. Here’s a nice tidbit from Michael Corkery:

They can’t pin him down. Greenspan is ducking and weaving on whether the Fed could have done more to regulate supbrime.  He says I’ve been in government in 21 years. He says “I was right 70% of the time and wrong 30% of the time.” That’s fine.  But the 30% that he was wrong may have contributed to the greatest financial crisis of the modern age.

I’m still confused about why we’ve got this commission doing anything if a financial reform bill is going to be passed well before we get the commission’s report, but hey, whatda I know.

Please tell me this isn’t really happening:

It is very evident to me that the underlying crisis was caused by what is clearly a once-in-a- century event.

I don’t mean, please tell me a once-in-a-century event isn’t happening; I mean, please tell me Alan Greenspan isn’t telling me the financial meltdown was caused by a once-in-a-century event. Because I’ve about had it with this nonsense. Look, it’s bad enough when some sell-side analyst peddles this nonsense, or some party hack with banking-lobby money behind them. But to hear it from “The Maestro,” well, it’s just galling (by the way, that is the last time I will use that nickname to refer to him; “The Maestro”? Are you kidding me? More like “The Sorcerer’s Apprentice.”) Because he is far too smart to actually believe that nonsense.

I’m not sure how many more times this will need to be said: everything about this crisis was 100% man-made. There’s no “perfect storm” nothing about it. If you want to point out that the financial meltdown was the result of a big, complex series of individual and institutional choices over a series of years that led to it, fine. That is true. But every single of them was made by a thinking, sentient being. Therefore, the entire fiasco was preventable. If only somebody in a position of authority, somebody in a position to make a difference, was paying attention.

Continue reading…

- Early P&L statements for YouTube emerge. By August 2006, it had $2.5M in revenue and generated at $575,500 profit. “A lot of people assumed that YouTube had to find a buyer like Google a few months later, because it could never pay its own bandwidth bill,” Peter Kafka writes. “But these numbers suggest that may not be true.”

- “While [Alan Greenspan] is correct in pointing out that his own failures as a bank regulator are in part to blame, he needs to also recognize that his failures in setting monetary policy was also a major factor,” Barry Ritholtz says.

- It may not have reached the Smoot-Hawley level yet, but the whiffs of protectionism in the air are definitely a reminder of the kinds of attitudes that exacerbated the Great Depression, Ed Harrison writes at Credit Writedowns.

- Most important aspect from FedEx’s (FDX) earnings release yesterday wasn’t its F3Q profit doubling from a year ago, or its raised 2010 earnings guidance, but rather the higher bonus accruals it announced, Jeff Matthews says.

- Yahoo (YHOO) CTO Sam Pullara is leaving the company to join Benchmark Capital, the second major executive to leave Yahoo this week. “Unfortunately, there seems to be more departures to come from Yahoo, said multiple sources throughout the company, many of whom are key execs that Yahoo can ill afford to lose,” Kara Swisher says.

- Tiffany (TIF) is attracting some unwanted attention from the shorts, MarketBeat reports, even as shares hit a 52-week high of $48.38 yesterday, according to Data Explorers. The short crowd seems to be betting it will be tough for TIF to drive shares higher with its quarterly earnings report due Monday.

- Housing price-to-rent ratio is getting closer to normal levels. “House prices are still a little too high on a national basis,” Calculated Risk says. “But it does appear that prices are much closer to the bottom than the top.”

- Palm shares plunge to their lowest level in more than a year.

- “The next app gold rush is on,” John Paczkowski says. Apple’s now accepting iPad app submissions.

- March Madness is in full swing. And while the talent level for college basketball seems to be at its lowest level in years, March is as mad as ever, WSJ reports.

There were a couple of things that occurred to me while watching “The Warning” last night, the Frontline documentary that recounted the 1998 battle between Brooksley Born, then head of the Commodities Futures Trading Commission, and Robert Rubin, Alan Greenspan and Lawrence Summers — the so-called “Committee to Save the World” — over the regulation of the derivatives market. Turns out Born was the one trying to save the world, the others were trying to save somebody else’s bottom line.

Anyhow, beyond thinking, I wonder how the Yankess are doing, here are the three key takeaways that occurred to me during the one-hour special:

1. This was a 100% man-made crisis.

From the near-failure of Long-Term Capital Management in 1998 onward, there were key developments that could have turned this Great Recession into either a merely typical downturn, or no downturn at all even

Bailing out LTCM set the “too big to fail” trade in motion. Not regulating derivatives created a Wild West outpost on Wall Street. Cutting interest rates to 1% to fight the ’01 recession sparked the disastrous housing boom. Rescinding the cap ratios on Wall Street in 2004 was the last stick of dynamite in the box.

At every step, people had the chance to make a right decision, and didn’t. Born tried to do the right thing, and was hogtied and railroaded out of Washington. And that leads me to my second point.

Continue reading…

Former Fed Chairman Alan Greenspan recommends graduated capital requirements for banks to discourage them from getting too big to fail. In his FT op-ed piece, Greenspan said anticipating the onset of crisis appears out of the Fed’s forecasting reach.

Even with the breakdown of self-regulation, the financial system would have held together had the second bulwark against crisis – our regulatory system – functioned effectively. But, under crisis pressure, it too failed.

But Yves Smith notes Greenspan earlier admitted before Congress that he was wrong about his assumptions that firms could regulate themselves. “I have yet to see another central figure in the banking meltdown admit error,” she says. “But he has now gone back to trying to salvage burnish his reputation.”

Continue reading…