Wednesday, September 13, 2017

The current topic of the month in Washington is the budget and tax reform. Both are subjects worthy of discussion. The Republican party wants to cut taxes, which everyone in the country agrees is a good idea. After all, who wouldn't like a tax cut? This will lead to decreased revenue for the government and government programs; just look at Kansas if you need proof. Very conservative members of the House and Senate have clamored for spending reductions to offset this reduced revenue. So far so good. Everyone believes in reducing spending on programs they don't participate in and will fight to death to protect programs that benefit them or their states personally.

Congress has centered the discussion on "entitlements", i.e. social programs. The one area that no one talks about is defense spending. Defense spending as currently constituted is little more than corporate welfare. We are spending enormous sums for Aircraft Carriers ($13 billion per), jet fighters that don't fly all that well (F-35), new littoral ship that can't keep salt water out of the engines (a problem that was solved when the Monitor and the Merrimack fought) and other expensive hardware. They say Generals and Admirals are always fighting the last war and in the case of the U.S. budget it seems to be spot on. In today's world the way to have global impact is in cyber space. It seems that Russia, for the price of a couple of decent laptops and a really good internet connection, is having its way with the western democracies. Recent events have shown that elections can be significantly impacted by social media and the Russians have focused their energies on that aspect. We continue to focus our spending on shiny new ships and planes while the largest threat we face is from hacking and misinformation. If you want to fund tax cuts, skip a few ships and tanks and buy some Dell laptops and engage our geopolitical rivals in the arena of the future.

Tuesday, January 10, 2017

With the constant demand for content to fill the 24-hour news cycle, I wonder if anyone bothers to think about what they have written before they air it.  Case in point: on one of the major business news channels the other day, amid the wringing of hands about the decline of retail store sales among the big chains during the Christmas season, the crawling headline read "Amazon Bucks the Trend."  I guess they were trying to indicate that Amazon had a better season than brands such as Macy's.  Don't they get it yet?  Amazon is the trend!

The headline of an article in the weekend WSJ read "Wells Revamps Pay After Scandal".  In my naiveté I thought to myself "Good, some of the board members and executives are finally going to held accountable for the fraud, misstated public reports, breach of fiduciary duty and probably a few thousand violations of the banking laws.”  What planet do I live on?  The new pay scale was for low-level employees at the branches.  Why are the directors still in place?  Doesn't there have to be some accountability at the board level?  What about the concept of "known or should have known"?  This is reminiscent of the mortgage crisis in 2008, where the only guy personally charged with any wrong doing was a mortgage-backed salesman for Goldman Sachs who worked in Paris.  Are you kidding me?


Great article on the CBS website concerning a study of the housing bubble and subsequent meltdown in 2008 here.

 

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Thursday, December 8, 2016

Bait and switch is one of the oldest games in existence. Keep this in mind when you start hearing about regulatory relief in the financial industry during the coming months. Everyone engaged in any business that is regulated by a state or a federal agency will agree that there are a lot of nit-picking rules that are counter productive, rules that were promulgated in earlier times that are no longer applicable to today's world and should be discarded. These facts give air cover to Wall Street. Whenever Congress opens the dance to give regulatory relief to the banks, they completely ignore the outdated and burdensome regs and, at the bidding of the industry, focus on planting the seed of the next big meltdown. History has given us two glaring examples of how this works.

 

The Garn-St. Germain Depository Institutions Act of 1982 allowed the Saving and Loan Industry to make speculative investments with CD money, and led to the S & L failure and bailout in 1989 which cost the taxpayers $124 billion (low estimate). The original impetus for this was Ronald Reagan's efforts to ease regulation on private enterprise. The act passed Congress with widespread bipartisan support. This was the blueprint for bigger things to come.

 

In 1999 Congress passed the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999, to repeal Glass Stegall. Eight days later Bill Clinton signed it into law. With the lines between investment banks and commercial banks erased, Wall Street convinced regulators that they should be allowed to increase their leverage from 16:1 to 33:1, leading to the speculative frenzy that ended in the 2008 financial meltdown.


Please don't ignore the man behind the curtain. When Congress announces they are going to "fix" the Dodd-Frank bill, passed in response to the last crises, be afraid, be very afraid.

 

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Any comments or statements made herein do not necessarily reflect those of R. Seelaus & Co., Inc. its subsidiaries and affiliates.  This transmission may contain information that is privileged, confidential, legally privileged, and/or exempt from disclosure under applicable law.  If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution, or use of the information contained herein (including any reliance thereon) is STRICTLY PROHIBITED.

Tuesday, November 29, 2016

Sometimes when I read the papers there is a disconnect between the reported stories and what seems to me to be obvious. Recently there is a lot of ink spilled about OPEC reaching an agreement about cutting production to raise the price. Every major oil producer is strapped for cash and the chance of these countries reaching a agreement to cut their cash flow voluntarily is non-existent. The US-Iran deal allows Iran to sell their oil on the world markets putting pressure on Russia and Saudi Arabia who are  pumping oil with both hands because they need the money. If I was betting on a sustainable oil price increase I would be very nervous.

The Financial Times has an article this morning about the Italian banking system. Ever since the financial crisis in 2008 the worry about the banking system in Italy has been bubbling below the surface. I don't believe anyone has done anything about it and it seems ready to finally surface depending on the referendum next week. Throw an Italian banking crisis on top of Brexit and it might be time to turn on the fasten seat belt sign and strap in for a bumpy ride.

Why bank stocks in the US markets are up big since the election is a mystery to me. Traditionally a Republican administration is favorable to the industry, but the incoming President ran anything but a traditional campaign. There was a large component of populism in his victory and this will create a conflict between the financial industry and the voters who supported his election. Some direction about dealing with this dilemma will be indicated by whoever is appointed Secretary of the Treasury. Stay tuned.

 

This communication is for informational purposes only.  It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction.  All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. 

Any comments or statements made herein do not necessarily reflect those of R. Seelaus & Co., Inc. its subsidiaries and affiliates.  This transmission may contain information that is privileged, confidential, legally privileged, and/or exempt from disclosure under applicable law.  If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution, or use of the information contained herein (including any reliance thereon) is STRICTLY PROHIBITED.