With the IMF annual meeting taking place this weekend in Washington, D. C., it is hard to pick on any other topic than what is happening in economics and finance in the world.
The underlying story: the United States has not been challenged, financially as well as economically, in many years and has grown comfortable with its position as the Number One Player (NOP) in the World.
Plot line: the United States will not fall from its position as NOP but other countries are becoming relatively stronger, especially China.
Scenario: China smells weakness in the United States position. When an “opponent” smells weakness, that “opponent” steps up its game. Most experts expected China to “step up its game” at some time in the future, but they did not expect this behavior to happen so soon.
Response: the NOP calls “foul”! The first reaction of the NOP is to claim that the “opponent” is cheating or playing dirty. The NOP tries to get those on the sideline into the game in order to overcome the pressure that the “opponent” is applying to the NOP. China bashing has become de rigueur in the United States, especially for those running for office in this fall’s elections. (“China-Bashing Gains Bipartisan Support,” http://professional.wsj.com/article/SB10001424052748704689804575536283175049718.html?mod=ITP_pageone_2&mg=reno-wsj.)
Script: the battle goes on. This conflict is not going to be resolved this weekend. Nor is the conflict going to be resolved at the G-20 meetings in November. The conflict, for the time being, is going to be played out on the playing fields. The “opponent” is going to push the NOP and is going to hit the NOP on many different fronts.
For example, another move by the “opponent’ is the effort by the Chinese to make its currency, the yuan, more global. Last week, electronic trading of the yuan began. Further efforts are underway to expand this trading to banks in the United States and in Europe. (“Yuan Goes Electronic in Global Market Bid,” http://professional.wsj.com/article/SB10001424052748704011904575537754269611906.html?mod=ITP_moneyandinvesting_0&mg=reno-wsj.)
“China’s government has made a series of moves in the past year to encourage the yuan’s use outside China, an effort to become less dependent on the dollar for trade and investment. The moves are allowing pools of yuan to accumulate in bank accounts outside of China, particularly in Hong Kong.
Hong Kong banks have been trading the currency among themselves, but through over-the-counter trades where the banks contact each other directly or through brokers.”
This new move will mean that prices and trading amounts will be posted for all to see.
The effort to improve its relative position in the world is not going to stop. China is making efforts on many fronts to strengthen its position in the world. The contest is on.
Leaders in the Obama administration, from the President to the Secretary of the Treasury on down, are speaking out more forcefully against the actions of the Chinese.
World leaders are observing this conflict and are trying to keep the discussions civil and “in bounds”. This is why someone like the managing director of the IMF, Dominique Strauss-Kahn, as well as others, are attempting to temper the rhetoric and bring things into the existing organizations that deal with trade and international finance. (“IMF Chief Steps into Dispute over China’s Currency Policy,” http://www.nytimes.com/2010/10/08/business/global/08currency.html?ref=business.)
Players crying “foul” can only achieve so much. Sooner or later the NOP will have to modify its game plan and raise its play to another level. The “opponent” is not going to lessen its pressure as long as weakness in perceived in the NOP.
And, where does this weakness show? One very prominent place this weakness shows is in the value of the dollar. Since the early 1970s when the dollar was taken off the gold standard, the value of the dollar has declined by about 40%. Except for the “flight to quality” periods experienced during the financial unpleasantness of the 2008-2009 period, the dollar has continued to be in decline from the level it reached during the Clinton years. The international investment community is not “in love” with the fiscal and monetary policy of the United States government.
This contest between China and the United States is for real. The pressure from the Chinese is not going to abate anytime soon. The “rest-of-the-world” is not in any position to contain this conflict unless it shuts down world trade, something it will not do.
This means that the United States must get its act in order. The United States cannot compete with 20% to 25% of its industrial capacity not being used. The United States cannot compete with 20% to 25% of its labor force under-employed and not trained sufficiently to work in the modern economy. The United States cannot compete when its government creates incentives for people to protect themselves from credit inflation rather than engage in productive pursuits.
And, fiscal stimulus by the government and quantitative easing on the part of the monetary authorities will not correct these problems. They will only indicate to the Chinese how weak the United States has become.
This contest between China and the United States is for real. The only way the United States can “raise its game” is by focusing on what can make it more competitive. I don’t believe that the United States will ever again get the “free ride” it benefitted from over the past thirty years or so. So, the United States government must change the way it does business.
The Chinese are only the first in line to “take us on”. Right behind them are the Brazilians, the Indians, and, of course, the Russians, again. And, right behind them is a whole host of other nations.
Showing posts with label Secretary of the Treasury. Show all posts
Showing posts with label Secretary of the Treasury. Show all posts
Friday, October 8, 2010
Thursday, September 17, 2009
It's the Dollar, Stupid!
“A nation’s exchange rate is the single most important price in its economy.” Paul Volcker
The value of the United States dollar is heading to the lows it reached in the summer of 2008. My belief is that the value of the dollar will reach these lows in the fall and then proceed to even lower levels in 2010.
The reason given for the current decline? The U. S. economy is getting stronger and the recession (Bernanke) is “very likely over.” In other words, uncertainty and, consequently, the financial market’s perception of risk are declining. A simple measure of the risk the financial market perceives is the interest rate spread between Baa-rated bonds and Aaa-rated bonds. The near term peak, 338 basis points, in this spread occurred in November 2008, a time when all hell was breaking lose in the financial markets. In recent weeks this spread has narrowed to about 120 basis points, a level that has not been seen since January 2008, one month after the current recession is said to have begun.
Financial markets are relatively calm and so market participants can direct their attention to some of the longer term issues that still have to be addressed in the world.
Of particular interest is the economic policy stance of the United States and not just the recent reprieve from economic collapse. The crucial elements? First, there is the massive amount of government debt that is projected to accumulate over the next ten years: maybe $10 trillion in additional debt; maybe $15 trillion; maybe more. Second, there is the Federal Reserve balance sheet that currently shows over $2 trillion in assets, substantially more than the $840 billion in asset the Fed held as late as August 2008.
This is a tremendous cloud hanging over the financial markets!
We know that the value of the United States dollar rose in late 2008 because of the crisis in world financial markets. Almost everyone concerned contends that this move came about as financial market participants moved to what they considered to be less risky assets, and that move brought them to U. S. Treasury securities and the U. S. dollar. This concern over risk was exhibited in the Baa-Aaa spread.
But, now with the strengthening of the U. S. economy and other economies around the world and with the calming of the financial markets, investors are moving their money out of dollar denominated assets. And, they are once again focusing upon the fundamentals of the economic policy of the United States government.
And what are the fundamentals? Just looking at the numbers one would have a difficult time telling the difference between what the Bush 43 administration did and what the Obama administration is doing. During the Bush 43 administration, there were massive increases in the federal debt and the Federal Reserve kept interest rates extremely low for an extended period of time. Now in the Obama administration we are seeing massive increases in the federal debt and the Federal Reserve is keeping interest rates extremely low for an extended period of time.
This is not a financial mix that participants in international financial markets like.
Let’s take a look at the historical record. We start during the Nixon administration because until August 1971 the value of the dollar was fixed in value relative to other currencies. But, once the value of the dollar began to fluctuate we saw some very consistent behavior in the currency markets. During the Nixon administration the gross federal debt increased at an 8.5% annual rate. The value of the dollar declined by 12.7% during this time period.
In the period between 1978 and 1992, the gross federal debt rose at a 12.6% annual rate. The value of the dollar only declined by 4.6%, but we must remember that during this time there was the period that Paul Volcker was the chairman of the Board of Governors of the Federal Reserve System and short term interest rates were pushed above 20%. As a consequence, the value of the dollar actually rose during the early part of the period even though the federal debt was continuing to increase. However, it was all downhill for the value of the dollar after 1985.
The exception to the other periods of time examined here was the 1992 to 2000 period. During that time the gross federal debt rose at a miserly annual rate of 3.6% and the value of the dollar actually rose by 16% during this period. By the end of the Clinton administration, the federal budget was actually showing a surplus.
Now we get back to Bush 43. During the 2001 to 2009 period the gross federal debt rose at an 8.5% annual rate. From January 2001 through to January 2009, the value of the dollar declined by 23.0%! (Through one stretch, the value of the dollar actually declined by more than 40%.)
With substantial budget deficits forecast into the foreseeable future, the Obama administration is causing the gross federal debt to continue to increase at annual rates that are relatively high by historical standards. The result? Since January 20, 2009, the value of the dollar against major currencies has declined by about 10.5%; the value of the dollar against the Euro has declined by more than 12%
I don’t believe that the current declines in the value of the dollar are just a result of the strengthening of the United States economy. To me, the fall in the value of the dollar is just a continuation of the market’s response to the general economic and fiscal policies of the latter part of the 20th century. Since at least 1971, the United States government has consistently deflated the value of the dollar.
In 1971, President Richard Nixon, as he embraced deficit spending, said that we had all become Keynesians. Unfortunately, he was right then and I fear that he is still right about the policy makers now in charge in Washington! Because of this I cannot see any long term relief in sight for the dollar. The debt of the federal government will continue to increase at a very rapid pace and the value of the dollar will continue to decline.
The value of the United States dollar is heading to the lows it reached in the summer of 2008. My belief is that the value of the dollar will reach these lows in the fall and then proceed to even lower levels in 2010.
The reason given for the current decline? The U. S. economy is getting stronger and the recession (Bernanke) is “very likely over.” In other words, uncertainty and, consequently, the financial market’s perception of risk are declining. A simple measure of the risk the financial market perceives is the interest rate spread between Baa-rated bonds and Aaa-rated bonds. The near term peak, 338 basis points, in this spread occurred in November 2008, a time when all hell was breaking lose in the financial markets. In recent weeks this spread has narrowed to about 120 basis points, a level that has not been seen since January 2008, one month after the current recession is said to have begun.
Financial markets are relatively calm and so market participants can direct their attention to some of the longer term issues that still have to be addressed in the world.
Of particular interest is the economic policy stance of the United States and not just the recent reprieve from economic collapse. The crucial elements? First, there is the massive amount of government debt that is projected to accumulate over the next ten years: maybe $10 trillion in additional debt; maybe $15 trillion; maybe more. Second, there is the Federal Reserve balance sheet that currently shows over $2 trillion in assets, substantially more than the $840 billion in asset the Fed held as late as August 2008.
This is a tremendous cloud hanging over the financial markets!
We know that the value of the United States dollar rose in late 2008 because of the crisis in world financial markets. Almost everyone concerned contends that this move came about as financial market participants moved to what they considered to be less risky assets, and that move brought them to U. S. Treasury securities and the U. S. dollar. This concern over risk was exhibited in the Baa-Aaa spread.
But, now with the strengthening of the U. S. economy and other economies around the world and with the calming of the financial markets, investors are moving their money out of dollar denominated assets. And, they are once again focusing upon the fundamentals of the economic policy of the United States government.
And what are the fundamentals? Just looking at the numbers one would have a difficult time telling the difference between what the Bush 43 administration did and what the Obama administration is doing. During the Bush 43 administration, there were massive increases in the federal debt and the Federal Reserve kept interest rates extremely low for an extended period of time. Now in the Obama administration we are seeing massive increases in the federal debt and the Federal Reserve is keeping interest rates extremely low for an extended period of time.
This is not a financial mix that participants in international financial markets like.
Let’s take a look at the historical record. We start during the Nixon administration because until August 1971 the value of the dollar was fixed in value relative to other currencies. But, once the value of the dollar began to fluctuate we saw some very consistent behavior in the currency markets. During the Nixon administration the gross federal debt increased at an 8.5% annual rate. The value of the dollar declined by 12.7% during this time period.
In the period between 1978 and 1992, the gross federal debt rose at a 12.6% annual rate. The value of the dollar only declined by 4.6%, but we must remember that during this time there was the period that Paul Volcker was the chairman of the Board of Governors of the Federal Reserve System and short term interest rates were pushed above 20%. As a consequence, the value of the dollar actually rose during the early part of the period even though the federal debt was continuing to increase. However, it was all downhill for the value of the dollar after 1985.
The exception to the other periods of time examined here was the 1992 to 2000 period. During that time the gross federal debt rose at a miserly annual rate of 3.6% and the value of the dollar actually rose by 16% during this period. By the end of the Clinton administration, the federal budget was actually showing a surplus.
Now we get back to Bush 43. During the 2001 to 2009 period the gross federal debt rose at an 8.5% annual rate. From January 2001 through to January 2009, the value of the dollar declined by 23.0%! (Through one stretch, the value of the dollar actually declined by more than 40%.)
With substantial budget deficits forecast into the foreseeable future, the Obama administration is causing the gross federal debt to continue to increase at annual rates that are relatively high by historical standards. The result? Since January 20, 2009, the value of the dollar against major currencies has declined by about 10.5%; the value of the dollar against the Euro has declined by more than 12%
I don’t believe that the current declines in the value of the dollar are just a result of the strengthening of the United States economy. To me, the fall in the value of the dollar is just a continuation of the market’s response to the general economic and fiscal policies of the latter part of the 20th century. Since at least 1971, the United States government has consistently deflated the value of the dollar.
In 1971, President Richard Nixon, as he embraced deficit spending, said that we had all become Keynesians. Unfortunately, he was right then and I fear that he is still right about the policy makers now in charge in Washington! Because of this I cannot see any long term relief in sight for the dollar. The debt of the federal government will continue to increase at a very rapid pace and the value of the dollar will continue to decline.
Sunday, February 15, 2009
Stree Testing the Banks, Bank Regulation, and Bank Failures
It is obvious from my recent posts that the amount of debt in the economy is my biggest concern right now. Of course, the focus of current concern is the banking industry. Bankers got caught up in the euphoria of the stock market bubble of the 1990s and the credit market (housing) bubble of the 2000s and showed the way to others about how to take on riskier and riskier assets and finance these assets with more and more debt. Off-balance sheet financing and virtual deals added to the fragile structure of the banking system as innovation built upon innovation.
I will not place all the responsibility for not catching everything that was going on, on the shoulders of the regulators because one of the things that a market system is very good at is finding ways to get around regulations and regulators. This is one of the reasons why regulation will always fail in the end…it just cannot keep up with what private institutions can find to do…and so regulation is always lagging behind in its ability to know what is going on in financial institutions and financial markets.
Let me just say that I have served in the Federal Reserve System and I have been the CEO of two publically traded financial institutions and CFO of a third, and, although the banks I worked with did not have the resources to be innovative in this way…my knowledge of the banking industry leads me to applaud the ingenuity and creativity of bankers to come up with new instruments, new markets, and new ways to do things. Innovative behavior is the pride of a market economy.
The law of economics in irrefutable…if incentives exist within a given market situation…economic units will make an effort to take advantage of them. Thus, if rules and regulations are placed on a market or on institutions and incentives exist to get around these rules and regulations…people will get around them!
The effort is not to break laws…but rules and regulations are never complete in and of themselves…hence there will always be wiggle room for an organization to maneuver and take advantage of the incentives available to them. This is why regulation will never…read me again…never…be able to gain complete control. The only way to gain complete control over institutions and markets is…to totally take over and own the institutions and markets, themselves.
We must remember this as people in Washington, D. C. attempt to build up the new regulatory system.
That said…I think a lot of responsibility does fall on the shoulders of the regulators for falling so far behind the banking system in their examination and oversight of individual banks. There is a need for rules and regulations to be imposed on the banking system because of the problem…not of one or two banks failing…but the fear that there could be a contagion within the banking system that could severely damage the financial and economic system…either in terms of a liquidity crisis…which took place in December 2007…or a solvency crisis which we are going through right now.
A liquidity crisis and a solvency crisis are not the same and should not be compared with one another. A liquidity crisis the Federal Reserve System can do something about. A solvency crisis is beyond the ability of the Fed to resolve. However, the Federal Reserve and other regulatory bodies, through their responsibility for the examination and oversight of the banking system, can help to prevent a liquidity crisis by doing a deep and thorough review of the books of financial institutions and hold these financial institutions to the standards of “good” banking practice. This effort is a first line defense against a failure of banks that could lead to a contagion amongst financial institutions.
Now, Tim Geithner, Secretary of the Treasury, has informed us that a “stress test” will be performed upon banks to determine whether or not specific banks will be eligible for financial aid from the United States government. The “stress test” is to be broad enough and deep enough to discern if a bank is still breathing or not…and if it is breathing…it can be eligible to receive capital from the government in order to help it work out its asset problems.
My question is…shouldn’t the government already know this? Wasn’t this their job!
If we have to go through an additional examination process on a large number of banks to find out whether or not they are solvent…what have we been paying for over the past 20 years or so?
And, I hear the cry for “regulatory forbearance”…that the regulators should ease up on the bad assets of the banks…and give the banks a chance to “work things out over time.” I think this is crap!
I like “mark to market”! If banks know that they are going to be responsible for marking their assets to market then one should not feel sorry for them when they have underwater assets…and want “regulatory forbearance”. To me this situation has arisen because bankers never felt that regulators were going to hold them responsible for this procedure and so they went along believing full well that they would never have to mark their assts to market. Now, they are ticked off! Now, they believe that the regulators have double-crossed them! I say…too bad!
Finally, let me say that I believe that banks that are insolvent should be allowed to fail. The stock holders have lost everything. Others may have lost large chunks of wealth…but, the banks have been badly mismanaged. The banks took on too much risk and they assumed too much leverage. The executive at the larger ones took it for granted that they would be considered to be too big to fail…and their jobs would be safe.
I know that I have not run a bank with a trillion dollars or more in assets…or even hundreds of billions. Yet, in those I did run, I never wanted to have the regulators or central bankers or Treasury officials tell me what to do. My rule of thumb was to always maintain operating procedures that were more conservative than those that the regulators required. I wanted to be in control of the bank…I did not want someone else imposing their standards on me!
When you push yourself right up to the edge…and even over the edge…with financial innovations and creative accounting…you run the risk of losing control of your organization. If this is the way you want to lead and manage your organization…then you are exposing yourself to the possibility that you will lose control of the future of your organization. Don’t cry when the government comes and takes away your goodies. It was a choice that you made.
There are going to be more bank failures. We have only had 13 failures so far this year…possibility 18 or so by the end of this month. At this rate we would have about 110 failures during the year. Most of these will be small ones, although the probability of two or three or more large failures taking place is increasing every day. However, this is far below the 200 or so bank failures that took place during the S & L crises.
In the present case, there is a good chance that several banks will be “nationalized” in some form or another. In my mind, the worst thing that Secretary Geithner can do is to try and soften the situation. Debt is our problem right now…see my blog “The Three Problems We Face: Debt, Debt, and Debt” posted on February 11, 2009, http://maseportfolio.blogspot.com/ …and debt is going to be our problem for some time into the future. We need to be honest about the problem, transparent about what is being done about the problem, and we must be courageous in addressing the problem. To me this is the only hope we have in shortening the present downturn.
I will not place all the responsibility for not catching everything that was going on, on the shoulders of the regulators because one of the things that a market system is very good at is finding ways to get around regulations and regulators. This is one of the reasons why regulation will always fail in the end…it just cannot keep up with what private institutions can find to do…and so regulation is always lagging behind in its ability to know what is going on in financial institutions and financial markets.
Let me just say that I have served in the Federal Reserve System and I have been the CEO of two publically traded financial institutions and CFO of a third, and, although the banks I worked with did not have the resources to be innovative in this way…my knowledge of the banking industry leads me to applaud the ingenuity and creativity of bankers to come up with new instruments, new markets, and new ways to do things. Innovative behavior is the pride of a market economy.
The law of economics in irrefutable…if incentives exist within a given market situation…economic units will make an effort to take advantage of them. Thus, if rules and regulations are placed on a market or on institutions and incentives exist to get around these rules and regulations…people will get around them!
The effort is not to break laws…but rules and regulations are never complete in and of themselves…hence there will always be wiggle room for an organization to maneuver and take advantage of the incentives available to them. This is why regulation will never…read me again…never…be able to gain complete control. The only way to gain complete control over institutions and markets is…to totally take over and own the institutions and markets, themselves.
We must remember this as people in Washington, D. C. attempt to build up the new regulatory system.
That said…I think a lot of responsibility does fall on the shoulders of the regulators for falling so far behind the banking system in their examination and oversight of individual banks. There is a need for rules and regulations to be imposed on the banking system because of the problem…not of one or two banks failing…but the fear that there could be a contagion within the banking system that could severely damage the financial and economic system…either in terms of a liquidity crisis…which took place in December 2007…or a solvency crisis which we are going through right now.
A liquidity crisis and a solvency crisis are not the same and should not be compared with one another. A liquidity crisis the Federal Reserve System can do something about. A solvency crisis is beyond the ability of the Fed to resolve. However, the Federal Reserve and other regulatory bodies, through their responsibility for the examination and oversight of the banking system, can help to prevent a liquidity crisis by doing a deep and thorough review of the books of financial institutions and hold these financial institutions to the standards of “good” banking practice. This effort is a first line defense against a failure of banks that could lead to a contagion amongst financial institutions.
Now, Tim Geithner, Secretary of the Treasury, has informed us that a “stress test” will be performed upon banks to determine whether or not specific banks will be eligible for financial aid from the United States government. The “stress test” is to be broad enough and deep enough to discern if a bank is still breathing or not…and if it is breathing…it can be eligible to receive capital from the government in order to help it work out its asset problems.
My question is…shouldn’t the government already know this? Wasn’t this their job!
If we have to go through an additional examination process on a large number of banks to find out whether or not they are solvent…what have we been paying for over the past 20 years or so?
And, I hear the cry for “regulatory forbearance”…that the regulators should ease up on the bad assets of the banks…and give the banks a chance to “work things out over time.” I think this is crap!
I like “mark to market”! If banks know that they are going to be responsible for marking their assets to market then one should not feel sorry for them when they have underwater assets…and want “regulatory forbearance”. To me this situation has arisen because bankers never felt that regulators were going to hold them responsible for this procedure and so they went along believing full well that they would never have to mark their assts to market. Now, they are ticked off! Now, they believe that the regulators have double-crossed them! I say…too bad!
Finally, let me say that I believe that banks that are insolvent should be allowed to fail. The stock holders have lost everything. Others may have lost large chunks of wealth…but, the banks have been badly mismanaged. The banks took on too much risk and they assumed too much leverage. The executive at the larger ones took it for granted that they would be considered to be too big to fail…and their jobs would be safe.
I know that I have not run a bank with a trillion dollars or more in assets…or even hundreds of billions. Yet, in those I did run, I never wanted to have the regulators or central bankers or Treasury officials tell me what to do. My rule of thumb was to always maintain operating procedures that were more conservative than those that the regulators required. I wanted to be in control of the bank…I did not want someone else imposing their standards on me!
When you push yourself right up to the edge…and even over the edge…with financial innovations and creative accounting…you run the risk of losing control of your organization. If this is the way you want to lead and manage your organization…then you are exposing yourself to the possibility that you will lose control of the future of your organization. Don’t cry when the government comes and takes away your goodies. It was a choice that you made.
There are going to be more bank failures. We have only had 13 failures so far this year…possibility 18 or so by the end of this month. At this rate we would have about 110 failures during the year. Most of these will be small ones, although the probability of two or three or more large failures taking place is increasing every day. However, this is far below the 200 or so bank failures that took place during the S & L crises.
In the present case, there is a good chance that several banks will be “nationalized” in some form or another. In my mind, the worst thing that Secretary Geithner can do is to try and soften the situation. Debt is our problem right now…see my blog “The Three Problems We Face: Debt, Debt, and Debt” posted on February 11, 2009, http://maseportfolio.blogspot.com/ …and debt is going to be our problem for some time into the future. We need to be honest about the problem, transparent about what is being done about the problem, and we must be courageous in addressing the problem. To me this is the only hope we have in shortening the present downturn.
Saturday, November 22, 2008
A Whiff of Leadership?
In the last hour of trading Friday November 21, the stock market staged a significant rally.
The cause of the rally?
The leaked news that President-elect Obama was going to choose Timothy Geithner, President of the Federal Reserve Bank of New York as the next Secretary of the Treasury.
Market participants…hungry for leadership of any kind…reacted with enthusiasm to this possibility and began to buy. As I wrote in my blog of November 20, “Discipline or the Lack Thereof”, http://maseportfolio.blogspot.com/, the market, more than anything else right now, is thirsting for leadership.
It has also been leaked that on Monday President-elect Obama will introduce his economics team. Doing this will reduce a lot of uncertainty that has been hanging over the markets and provide some insight into the direction an Obama Presidency will head. If anything, Obama is showing with his choices that he is not afraid to have strong and intelligent people around him and will not be cowered by the presence of such people. In fact, he gives off the impression that he will thrive in such an environment.
And, the people he has indicated that he will appoint are pragmatic and successful people. They find what works!
I know there are many that are disappointed in the choices that Obama is making because they don’t think that these choices represent the “change” that Obama promised in the campaign. I think that they are wrong in this charge.
As I have written in many of my blog-posts, LEADERSHIP BEGINS AT THE TOP! It is the top person that sets the culture and it is the top person that sets the agenda. Change will come because the person at the top requests that those that report to him/her provide options that incorporate change. But, this kind of change is not going to take place with a bunch of neophytes that have to learn the ropes of government first and are unproven in working at this level of issue and pressure.
There must be tested members of the team…especially at this time! But, the charge that is given the team and encouraged is to provide some new answers and solutions to the problems that are now being faced. Top quality members of the team will jump at this opportunity and, with the continued strong guidance coming from the chief executive officer, they will produce results. Good leadership raises the level of performance of all those around the leader. As we have seen in the last eight years or so…weak leadership results in the sub-par performance of all those around the leader and none escape with an unblemished record.
One can be happy with the choices that are being made and still be concerned about the future of the financial markets and the economy. There is still a lot of bad news to come in the future. As Obama, himself, has said…there cannot be two Presidents at the same time. The new administration will not take office until January 20, 2009. And, even so, economies do not reverse direction overnight and there are a lot of dislocations in the United States economy and the world that need to be worked out.
There is still great concern that financial institutions have not really discovered or revealed just how badly their assets portfolios are underwater. The layoffs and dismissals of employees are growing and we have not seen how badly this is going to affect the spending of the consumer. The housing market still seems to be declining and no one knows how the situation with respect to foreclosures and mortgages that exceed housing prices are going to be worked out. With respect to businesses, bankruptcies are still increasing and a great deal of industrial restructuring is going to have to take place even though firms don’t go into bankruptcy. State and local governments are in bad shape financially. And, what about nonprofit organizations? Educational institutions? The sports and entertainment industries? And, so on and so on…
We are just in the early stages of this reconstruction of the United States…and the world…economy. Even with the best of appointments, the United States…and the world…is going to have to go through the process of restructuring.
However, let’s concentrate on what seems to be the good news for the present time. President-elect Obama is making appointments that are giving financial market participants some hope. Even though there is still a long, difficult road ahead of us…we will gravitate toward any sign of positive leadership that is available and hang on to the hope that is present in the possibility that that leadership will take us where we need to go!
The cause of the rally?
The leaked news that President-elect Obama was going to choose Timothy Geithner, President of the Federal Reserve Bank of New York as the next Secretary of the Treasury.
Market participants…hungry for leadership of any kind…reacted with enthusiasm to this possibility and began to buy. As I wrote in my blog of November 20, “Discipline or the Lack Thereof”, http://maseportfolio.blogspot.com/, the market, more than anything else right now, is thirsting for leadership.
It has also been leaked that on Monday President-elect Obama will introduce his economics team. Doing this will reduce a lot of uncertainty that has been hanging over the markets and provide some insight into the direction an Obama Presidency will head. If anything, Obama is showing with his choices that he is not afraid to have strong and intelligent people around him and will not be cowered by the presence of such people. In fact, he gives off the impression that he will thrive in such an environment.
And, the people he has indicated that he will appoint are pragmatic and successful people. They find what works!
I know there are many that are disappointed in the choices that Obama is making because they don’t think that these choices represent the “change” that Obama promised in the campaign. I think that they are wrong in this charge.
As I have written in many of my blog-posts, LEADERSHIP BEGINS AT THE TOP! It is the top person that sets the culture and it is the top person that sets the agenda. Change will come because the person at the top requests that those that report to him/her provide options that incorporate change. But, this kind of change is not going to take place with a bunch of neophytes that have to learn the ropes of government first and are unproven in working at this level of issue and pressure.
There must be tested members of the team…especially at this time! But, the charge that is given the team and encouraged is to provide some new answers and solutions to the problems that are now being faced. Top quality members of the team will jump at this opportunity and, with the continued strong guidance coming from the chief executive officer, they will produce results. Good leadership raises the level of performance of all those around the leader. As we have seen in the last eight years or so…weak leadership results in the sub-par performance of all those around the leader and none escape with an unblemished record.
One can be happy with the choices that are being made and still be concerned about the future of the financial markets and the economy. There is still a lot of bad news to come in the future. As Obama, himself, has said…there cannot be two Presidents at the same time. The new administration will not take office until January 20, 2009. And, even so, economies do not reverse direction overnight and there are a lot of dislocations in the United States economy and the world that need to be worked out.
There is still great concern that financial institutions have not really discovered or revealed just how badly their assets portfolios are underwater. The layoffs and dismissals of employees are growing and we have not seen how badly this is going to affect the spending of the consumer. The housing market still seems to be declining and no one knows how the situation with respect to foreclosures and mortgages that exceed housing prices are going to be worked out. With respect to businesses, bankruptcies are still increasing and a great deal of industrial restructuring is going to have to take place even though firms don’t go into bankruptcy. State and local governments are in bad shape financially. And, what about nonprofit organizations? Educational institutions? The sports and entertainment industries? And, so on and so on…
We are just in the early stages of this reconstruction of the United States…and the world…economy. Even with the best of appointments, the United States…and the world…is going to have to go through the process of restructuring.
However, let’s concentrate on what seems to be the good news for the present time. President-elect Obama is making appointments that are giving financial market participants some hope. Even though there is still a long, difficult road ahead of us…we will gravitate toward any sign of positive leadership that is available and hang on to the hope that is present in the possibility that that leadership will take us where we need to go!
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