Randomly Noted

In the heat of August, the Federal Reserve didn’t want to say the U.S. economy was getting better. It chose the phrase “leveling out.”

It was as if  the policymakers collectively squinted in August and saw a barely flickering light at the end of the recessionary tunnel.

In this cooling September, the light still requires a squint but it seems to have stopped flickering quite as much. Improvement.

In the time between Aug. 12 and today, information suggests U.S. economic activity has “picked up,” the Fed statement closing out its two-day policy meeting said.

“Picked up” in Fed parlance is reasonably bold. It is straightforward. It leaves minimal wiggle room. The economy is simply getting better.

Household spending “seems to be stabilizing,” the Fed said today, which is just a tad better than August’s “continued to show signs of stabilizing.”

But in this important consumer category, the usual engine of growth for both the U.S. and global economies, the caveats loom large. They are important words chosen by the Fed, and its Open Market Committee used them today and used them back in August.

Ongoing job losses, sluggish income growth, lower housing wealth and tight credit haunt consumer spending, the Fed said.

On the business side of the equation, the Fed categorizes things as less bad, not good. “Businesses are still cutting back on fixed investment and staffing, though at a slower pace,” the Fed said today.

All this tea-leaf reading about the economic and inflation outlook (on the latter the U.S. central bank remains sanguine) is necessary because the Fed remains deeply inactive, as it should be, when it comes to actual changes in interest rate policy. 

It has done nothing new (target range for Federal Funds 0% to 0.25%) and will do nothing new on policy for a long time.

There is no reason to do a thing, because slowly but surely things are going the Fed’s way. The economy is a bit better or a bit less bad. Financial markets are a bit more normal. Equity prices are way up, higher than many think they should be, but their very buoyancy informs and aids the economic recovery.

The Fed will not do a thing on policy for as long as it can. Chairman Ben Bernanke laid out an “exit strategy” to be put in place once the economy is  in full repair and the Fed has to start undoing all the monetary ease and financial underpinning it provided in the heat of the crisis.

That was smart. It helped restore confidence. So the Fed wants to be very cautious now, not even hinting at an exit strategy ujntil the need to start actually exiting is in sight. We are not there yet and the Fed needs not inspire undue speculation.

There are some surprising results in a study of hedge funds by France’s Olympia Capital Management, reported on today by Newswires’ Margot Patrick.  Only a handful of the 2,659 funds surveyed has made concessions to investors by reducing the time between redemption dates or by cutting back initial lock-up periods, the study showed. And, contrary to the results of other recent studies,  Olympia Capital Management found that the fees charged by hedge funds remained steady during the first half of 2009.  Other studies have suggested that the famous “2 and 20″ fee structure – where hedge funds charge 2% management fees as well as taking 20% of performance gains – is breaking down under pressure from investors.  The recovery in global markets, and the resulting improvement in hedge fund performance, has helped hedge funds hold their ground in the face of investor demands for better exit terms and lower fees,  Margot writes.  And there could be a survivor bias at work as well. Many funds have disappeared as a result of the awful market conditions in 2008. Those that survived are by definition stronger, and better able to hold the line on fees and exit terms.

General Mills delivered some pretty strong earnings today and with it, a little bit of good news for companies whose raison d’etre is tied to the advertising business.

General Mills said net sales increased to $3.52 billion for the quarter, with a 6% increase in the U.S. It also said that it had decided to increase its advertising spend by 16%. The media business, not to mention the ad business, have been hard hit by a recession thatled many companies to significantly cut back on their advertising budgets. There’s no doubt that the ad business has changed permanently and that companies have sought non-traditional ways of getting their names and brands in front of consumers. But some of the traditional channels remain and news like this is good.

Wells Fargo made a mistake by handing the additional duty and title of chairman to its chief executive officer, John Stumpf.

Richard Kovacevich, who stayed on as chairman after he left the CEO post, is now retiring.

This critique has nothing to do with the individuals involved, but instead is about a better idea for corporate governance, especially at big companies. That means splitting the chairman/CEO jobs between two individuals.

Continue reading…

Andy Kessler, the former hedge fund manager turned author, pens a worth-reading op-ed piece in today’s Wall Street Journal.

His thesis is the Obama administration is wrong to target banker pay to control over-the-top risk taking that led to credit crisis.

“It wasn’t reckless schemes and excessive risk that sunk banks and wall Street; it was excessive leverage,” writs Kessler.

On pay, he writes, “Outlaw pay and pay will only go to those outside the reach of the law – whether they move to a hedge fund in Greenwich, Conn., or to an investment banking firm in London.”