The Capital Wire

PITCHING RSS

I’ll be starting a personal campaign pitching RSS (really simple syndication) via email to any publications that are willing to adopt it. It would be nice if all my favorite publications could be aggregated into my RSS feed – not just blogs and major media names (NY Times, Bloomberg, etc.). Being that this blog carries a economic slant, I’ll start by sending emails to various mega financial names such as Merrill and Morgan Stanley (Global Economic Forum) – the latter of which is most interesting being that one of its stars, Mary Meeker, put out of research piece touting the potential of blogs and RSS. Some other possibilities include think tanks such as IIE, The Brookings Institute, AEI, buy-siders like PIMCO, First Quadrant, etc.

Other ideas? Academia. Professors/Scholars/Visiting Fellows could distribute workings papers via RSS. Trade journals are another. How about the political realm? Sites like The Weekly Standard and Prospect have yet to adopt RSS (although I’m sure many have already voiced their discontent). 

I encourage anyone reading this post to promote RSS as the standard distribution platform for online content. Sending a simple email to your favorite news/opinion/research providers stating, “Distribute your content via RSS. I’m for RSS – you should be too,” will suffice. I’m not selling product, but merely ease of use. Gone are the days of manually refreshing websites – or at least they should be. It’ll make our lives easier and give shops like Morgan Stanley a chance to back up their own words.

If you don't know much about RSS/XML or news aggregators, simply Google it.

--UK

STRONG DOLLAR POLICY

The dollar managed to register yet another fresh low vs. yen/euro despite positive economic numbers.

Via Bloomberg:

"The market is not trading on the economic data. It's a much more policy-charged environment,'' said Sophia Drossos, a currency strategist in New York at Morgan Stanley who used to work at the Fed. "Until we get more clarity on the policy front, economic data are going to continue to take a back seat.''

When have we ever received clarity on the FX policy front? The “strong dollar policy” label has served U.S officials well, by allowing them to bask in the sheer brilliance of its inherent ambiguity. By failing to clearly state the set of laws that govern dollar policy, the government created a backdoor by which to avoid committing themselves to a specific position. As a remnant of the Clinton-era, the label has allowed current administration officials to circumvent any discussion on the condition of our currency. Play the “strong dollar policy” tune and discussion is put to rest. Call it a rhetorical hedge. Don’t expect government officials to give up this hedge anytime soon.

In an earlier post, I stated that I was puzzled by Former Treasury Sec. Robert Rubin’s remarks that if he were still at Treasury, he’d still back a strong dollar policy. I assumed that his statement was a call toward fostering global imbalances. I oversimplified his statement by taking it much too literally. Unlike the Japanese, our currency policy isn't about physical intervention but rather verbal stalwartness (which is perhaps more effective). Rubin wouldn’t foster global imbalances per se, but would rather reuse the ambiguous verbiage he created that has in turn served government officials so well. Basically, keep our current stance and let market forces reign. I stand corrected.

--UK

Chairman Greenspan warns lawmakers on tax/spending policies and the record budget/current account gaps. This makes Greenspan one of at least seven Fed officials (including, Susan Bies, William Poole, Robert McTeer) in recent months to voice out against fiscal irresponsibility. So, why the recent deluge? Aside from their obvious objections toward fiscal profligacy, I believe the hidden message deals with concern over the fiscal authority’s growing influence and the pressure it poses on the monetary authority.

There are two primary ways to finance deficits: bonds sales (a Treasury feature) and revenue from money creation, or siegnorage (a Fed feature). Simply put, if fiscal deficits are large enough, in that they cannot be financed solely by issuing new bonds, then the monetary authority is forced to make up the difference by creating money (largely a product of cutting rates). This poses a problem since this comes precisely at a time when the Fed is tightening. Understandably, today’s innovative financial landscape presents influential players such as hedge funds, mega GSE’s, and innovations such as exotic derivatives - all of which have a role in extending credit and thus the money supply. Regardless, the Fed is still the linchpin.

I point to Thomas J. Sargent & Neil Wallace’s seminal paper titled, “Some Unpleasant Monetarist Arithmetic" Specifically:

"...the monetary authority faces the constraints imposed by the demand for government bonds, for it must try to finance with seignorage any discrepancy between the revenue demanded by the fiscal authority and the amount of bonds that can be sold to the public.”

Sargent & Wallace further state:

“If the principal interest and interest due on these additional bonds are raised by selling still more bonds, so as to continue to hold down the growth in base money, then, because the interest rate on bonds is greater than the economy’s growth rate, the real stock of bonds will grow faster than the size of the economy. This cannot go on forever, since the demand for bonds places an upper limit on the stock of bonds relative to the size of the economy. Once that limit is reached, the principle and interest due on the bonds already sold to fight inflation must be financed, at least in part, by seignorage, requiring the creation of additional base money. Sooner or later, in a monetarist economy, the result is additional inflation.”

Bottom line: mobility at the Fed is getting squeezed.

--UK

THE BLURRING SEPERATION

Gary Hart in the NY Times:

"As a candidate for public office, I chose not to place my beliefs in the center of my appeal for support because I am also a Jeffersonian; that is to say, I believe that one's religious beliefs - though they will and should affect one's outlook on public policy and life - are personal and that America is a secular, not a theocratic, republic. Because of this, it should concern us that declarations of "faith" are quickly becoming a condition for seeking public office.

Declarations of "faith" are abstractions that permit both voters and candidates to fill in the blanks with their own religious beliefs. There are two dangers here. One is the merging of church and state. The other is rank hypocrisy. Having claimed moral authority to achieve political victory, religious conservatives should be very careful, in their administration of the public trust, to live up to the standards they have claimed for themselves...."

The resignation of John Ashcroft is a step closer toward reinstating the lines of seperation between faith and policy. Whether this is a prelude to the replacement of Chief Justice Rehnquist, we'll have to see.

--UK

RUBIN SPEAKS OUT

Former Treasury Secretary Robert Rubin issues a warning on the dollar:

"If markets begin to fear long-term fiscal disarray and if foreign providers of the capital inflows upon which we have now become so enormously dependent share this fear and also develop a concern about our currency, then the markets may begin to demand sharply higher interest rates on long-term debt and possibly even create conditions of serious disruptions in our financial markets, with all the problems that that can lead to for our economy."

Click on the link above and notice Rubin states that the dollar decline could "accelerate." That's key. I wish more politicians/economists/columnists would emphasize that it's not just the fall of the dollar but the velocity at which it falls that leads to economic dislocations and eventual problems. An orderly decline is a boon, not a bane, to a healthy global rebalancing act.

Here's something that puzzles me. Rubin states:  "If I were still at Treasury, I'd still be a strong advocate of a strong dollar policy." To what, further global economic imbalances?

--UK

NOT SEEN SINCE 97'-98'

BCA Research reports that corporate bonds spreads (the option-adjusted spread of the ML high-yield index to U.S Treasuries) have contracted to levels not seen since 1997-1998. The underpinnings for this contraction are hardly mistakable. The U.S government (through historic government spending stimulus), Federal Reserve (historic monetary stimulus), Wall Street and the financial community (highly leveraged speculation), and the GSE’s (mortgage issuance and appreciating home prices) have all given companies the mobility to clean up their balance sheets and accumulate cash by providing them the precious oil that drives the economic engine – liquidity.

The contraction in credit spreads comes in the face of severe global imbalances, public deficits, a total credit debt market that is approaching 300% of GDP, an abysmal net savings rate, a semi-oil shock, geopolitical uncertainty, etc (most of which were absent during the 97’-98’ period). Although corporate America is probably the best hedged (consumers being the least) against economic or political uncertainty, these strains are still worrisome. Not so in the corporate bond market. Which raises an important question: does corporate bond market complacency signal tougher financial conditions ahead? Could the trigger come in the form of a Greenspan snafu, Japanese U.S bond ticket sales, a Chinese currency reval?

I’m throwing out possibilities here – however remote they might be. The point is, rarely do we experience malaise when we most expect it. At the moment, the corporate bond market is discounting economic placidity not seen since the halcyon days prior to that economic mess in the far east.

--UK

BLOGGERCON III. MORE THOUGHTS...

At the Information Overload session w/ Robert Scoble...a participant brought up an interesting idea on how to limit the amount of flow we receive from blogs. He proposed that bloggers use more discretion as to what they blog. Neat. It addresses the other end of the spectrum, away from technology and content management tools (advanced search queries, ways to limit subject duplication, etc.). Although it goes against what we view blogs as, and to what we'd like to preserve them as (an unadulterated, unencumbered, free for all. Blog as you see fit!), it is needed. There's simply a limited degree to which management tools can condense/compartmentalize content flow.

At the conference, Steve Gillmor stated that he has 100,000+ posts marked as unread.

--UK

BLOGGERCON III - Some thoughts...

Just got back from BloggerCon III at the Stanford Law School. An excellent conference, in which I'd like to congratulate Dave, CIS, and anyone else involved in organizing the event.

On behalf of the Podcasting segment moderated by Adam Curry,I'd like to write a small note on why I believe podcasting is a natural extention of text-based blogging. It's for the same reason Steinbeck wrote and Howard Stern speaks. We all favor different channels of communication - not just as recipients, but as originators. And the form we choose adds to, or diminishes, the effectiveness of our message. Imagine if Howard replaced his morning broadcast with a morning manuscript posted on his site. No good, right?

The fact that Howard communicates to us audibly, adds to the potency of his message. That's his forte. That's his realm. That what he's comfortable with. By choosing the right medium that blends in with his innate ability, he's being a more effective communicator. Same goes for Steinbeck. It was only natural for the blogosphere and RSS to expand in order to accomodate those that want to get their message across audibly. Podcasting has serious potential. Which doesn't bode well for someone with a vested interest in seeing podcasting fail (I own shares of Sirius).

--UK

Peter Schiff has a contrarian view on the better than expected employment number and what that entails for the dollar:

"The over-bloated service sector added another 272,000 jobs, while the beleaguered manufacturing sector lost an additional 5,000. In other words, the wealth producing sector of the economy lost jobs while the wealth consuming sector gained. The last thing the U.S. economy needs is more non-productive service sector jobs, which will only lead to higher trade deficits, as Americans imports more goods that service sector workers do not produce, and larger current account deficits, as greater interest payments become necessary to service growing external debts.

While this reality may have been lost among U.S. investors, who reacted foolishly by buying stocks, it was not the case among currency traders, who despite an initially, almost reflexive action to buy dollars on apparent "good" economic news, quickly re-evaluated the data and sold, sending the buck to a new all time low against the euro, a twelve year low against the Canadian dollar, and the U.S. Dollar Index to a nine year low. However, unlike recent dollar routs, U.S. bond prices plunged as well. In fact, today's tandem move in bonds and the dollar may signal an end of the recent anomaly of the two moving in opposite directions. If so, the days of American consumers exchanging IOUS's for imported goods may finally be coming to an end."

The weakening dollar/lower bond price relationship is a bit premature. Simply because strong employment data has resulted in the massive sale of treasuries numerous times in the past year - and today is no different. A lower dollar coupled with bond weakness will need to be seen independent of a strong employment number. However, dollar weakness in the face of this strong data is a first. The weakness most probably stems from German Chancellor Gerhard Schroeder's remarks that he would tolerate a stronger Euro. Coupled with European Central Bank President Jean Claude Trichet's failure to protest the Euro's recent four-week advance, and you have more of the same - a European authority that remains content in its role as a exporter of goods and capital (obviously to a lesser extent than China/Japan) to fund U.S consumption.

Policy measures will change only if dollar weakness results in bond weakness on a more consistent basis. It's just too early to tell.

-UK

U.S October payrolls rise substantially. Compared to last month, how politically insignificant is this!

--UK