Author: Matthew G. Saroff

Economics Update

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Well, the Federal Reserve’s beige book is reporting that economic growth is generally weak, though better than the last one two months ago, but James Bullard, President of the Federal Reserve Bank of St. Louis is saying that inflation is their primary worry right now, joining Bernanke and Federal Reserve Bank of New York president Timothy Geithner.

Canada is concerned about inflation too, with their central bank holding rates steady instead of lowering rates, as was expected, which pushed the Canadian dollar up.

I think that it’s likely that we will see inflation concerns in Japan driving central bank policy there too, as they just raised their 1Q GDP estimate to 4%, which is high enough to raise inflation concerns.

This would imply interest rates going up in the relatively new future, which would undoubtedly force another dip in house prices.

Of course, the resets coming in option ARMs may do this before rates get raised:

This is a scary picture.

There is some not bad news in real estate, Mortgage applications rose 10.9% last week, though one wonders how much of this is driven by bargain hunters REOs*, which was what drove the recent increase in existing housing sales.

More generally, the lack of confidence is not limited to real estate, as evidenced by the concerns that the LIBOR† is still not trusted, and that the proposed changes to it are largely viewed as inadequate.

In brighter news, rates are falling onauction rate securities, those financial instruments that were supposed to be as good as a cash account, but have locked up investor money.

This implies that some confidence in the auctions is returning to the market, and as a result, governments are redeeming fewer of the bonds, about $2 billion a week, down from over $5 billion/week for the past few months.

Still, we have problems in energy, with oil prices up over $5/bbl, and gasoline hitting a new record, $4.052/gallon.

*Real Estate Owned. Property which is in the possession of a lender as a result of foreclosure or forfeiture.
†London interbank offered rate, a critical measure used to do things like set credit card rates and mortgage rates adjustments.

SEC Proposes Changes in Ratings, Asset Backed Debt

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Bloomberg wrings its hands over this, and calls the proposed regulation that would give asset backed debt a different ratings scale a “scarlet letter” for these instruments.

This letter is well deserved. What is clear is that these byzantine products cannot be rated reliably, and as such people need to be warned off of them.

They are also calling for more transparency in the ratings process, with the ratings companies making public the data that they used.

It’s a good start, but only that, a start.

US NATO Rep Boosts Russian Membership in Alliance

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This proposal is actually good policy, as Russia continues to see, with no small justification, NATO as a military institution directed against it.

That being said, she doesn’t really mean it:

“Speaking as a mom and as a strategist and a lifetime student and friend of the Russian people, I would love to live in a world where Russia wanted to be a NATO member and Russia had met the very high standards that NATO sets for openness, democracy, reform, rule of law that new NATO members must meet,” Victoria Nuland said in an interview with RIA Novosti and the Argumenty i Fakty weekly.

What she’s saying is that she wants Russia to be more like western nations, and then she would consider it.

When one considers the fact that at least two NATO nations, Greece and Turkey, spent much of their time in the cold war under military rule from a Junta, I would think that Russia has already met that standard.

Seriously though, Russian membership in NATO would go a long way towards easing relations.

As I’ve said before, the eastern expansion of NATO following the collapse of the Berlin wall was a bad idea, and this is one of the few ways to undue the damage done.

As to why the original NATO members enthusiastically expanded eastward, I think that it was two things, uncritical euphoria at the fall of the Warsaw Pact, and the desire for arms sales in the newly liberated countries.

Supreme Court Reaffirms Patent Exhaustion

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The case is LG Electronics vs Quanta, where LG licensed the technology to Intel, who made the chips used, but wanted to charge buyers of the chips an additional royalty.

Basically, patent exhaustion says that if someone licenses a patent from you, and they sell stuff made with that patent to someone else, the recipient can use that stuff without any more restrictions. It’s a 100 year old precident, but the patent court decided to ignore it.

You can find a very good primer on why this happened here.

The district court ruled for Quanta, but the patent court ruled for LG on appeal, and the Supreme Court completely reversed the patent court, which is becoming a regular thing.

The special patent court is out of control and needs to be abolished.

Do Not Send Money to These Bush Blue Dogs

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One of the things Tim Mahoney and Allen Boyd, both of Florida, won’t do is endorse Barack Obama for president.

These are both folks who have received lots of support from the Democratic grass roots, Mahoney is in Mark “Just as soon as I get to the end of the page” Foley’s old seat following the sex scandal, and when the time comes for them to do little things, like endorse the Democrat, or in Mahoney’s case, criticize John McCain for opposing Mahoney’s own insurance relief bill, they just don’t have the guts.

Screw them.

Lobbyists Complaining About Obama Donation Ban

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Good. It means that he’s done something right.

So are some Congressman, or at least that’s what the lobbyists say in the article.

Seriously though, is there any reason for Steny Hoyer to have, “received a higher percentage of his campaign contributions from PACs this cycle than has any other member of Congress?” He’s in a completely safe district. He could win if he spent 50 bucks on his hole campaign.

Two snaps up from me.

Gates Bitch Slaps Fighter Mafia

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Since 1984, the Air force chiefs have staff have all been former fighter pilots. Before that, they were all bomber pilots.

With the appointment of General Norton Schwartz, who flew C-130s and AC-130s, it’s clear that Robert Gates is slapping down the so called “fighter mafia” hard.

What’s more, Vice Chief is now General William Fraser III, a former bomber pilot, which is another slap at the fighter jock leadership culture.

Maybe now, we can start seeing the Air Force do something useful at the upper leadership.