Europe: Your Rope

The financial crisis has shown the lies of transparency, disintermediation and risk management. The former maestro, Alan Greenspan, suggests that the crisis reveals a flaw in his thinking that bankers would act in the interests of their shareholders. At the same time both friends and enemies of the United States say a function of excesses and inadequacies—excess consumption, excess borrowing, excess financial engineering—and insufficient supervision and regulation, created the crisis.

If the US is the epicenter of the crisis, then it is ironic, or “unfair” according to Niall Ferguson, that the situation has manifested more ferociously abroad. The Japanese economy contracted at an annualized pace of almost 13%, while Germany’s diminished at an 8% pace.

Did Timid Timmy Under-Sell?

On February 10th, having postponed it for a day, newly confirmed Treasury Secretary Timothy Geithner, unveiled the broad outlines of the Obama Administration’s strategy to resolve the credit crisis. His presentation was under-whelming. Where he needed to shock and awe, he was soporific. The markets responded accordingly.

The old saw is “don’t shoot the messenger”, but in this case, perhaps the problem lies more with the messenger than the message. It is not simply a question of managing expectations. The markets had a right to expect more. Geithner is well steeped in the issues and, as the President of the New York Federal Reserve since November 2003, has been intimately involved with the policy response to crisis since the very start.

Dollar Ranges Intact Midway through the First Quarter

The price action against the euro and yen in recent days reinforces the US dollar’s trading ranges. After testing the strong side of the ranges recently, the risk is that the greenback now slips toward the lower end, which comes in near $1.4900 for the euro and toward JPY106 against the yen.

CNBC: Global Opportunities

The Four Percent Solution

There are many observers claiming to know the solution to the financial and economic crisis that befuddles even the best and brightest. It is pretty straight forward, they say, until the politicos muck things up. The solution will be painful and in modern democracies, politicians tend to sugar-coat the issues for fear of joining the unemployment queues themselves.

At its core, the financial crisis and steep economic downturn are the proverbial chickens coming home to roost. To change metaphors, it is time to pay the piper for the years of Americans living beyond their means. To what extent do Americans live beyond their means? There is a generally agreed upon metric that captures the gap between savings and investment. It is called the current account deficit. That gap is a little more than 4% of G.D.P.

U.S. Shock and Awe ... Or Not

Obama's presidential campaign was regarded as near flawless, but over the last few weeks, it has been underwhelming, and today's delayed Treasury presentation is more of the same. The details were largely leaked which essentially sacrifices any element of surprise. There seems to be little that is bold or new that will break the negative psychology. On top of that, while the Senate has voted to pass their version of the stimulus plan 61 to 37, there is concern that negotiations between the House and Senate, may be delayed for another week or so. If there is a new element to the Obama Treasury's Plan it seems to be the public/private scheme--to start at $500 bln and may grow to $1 trillion. There will be $50 bln for home foreclosure relief.

Two Overlooked But Revealing Developments

There were a couple of important developments that seemed to have been over-looked or under-appreciated in recent days, and I am not talking about the groundhog Punxsutawney Phil not seeing his shadow, foretelling another six weeks of winter.