Financial Sarcasm Roundup for 09/16/13

I'll lead off this particular roundup with a bizarre twist in the Fed-head replacement saga.  Larry Summers has withdrawn from consideration as the next Fed chairperson.  That means Janet Yellen is once again the heir apparent to Helicopter Ben.  I have two theories about this sudden pullout.  My first theory is that Summers' media game was a lot stronger than his real candidacy.  Old Washington hands are skilled at spinning the media even if they advocate a weak case.  If this theory is correct, Summers never had much of a chance and Yellen was always the front-runner, as I've long suspected.  Nothing negative in her background ever emerged in the media.  My second theory (which does not conflict with the first theory) is that Summers' public commentary on the limited effectiveness of QE was the dealbreaker.  Yellen's dovishness on inflation indicates she will continue QE-infinity, and that's ultimately what politicians want from the Fed now.  Bernanke likes Yellen because she'll continue his policies and thus take the fall for their eventual failure.  He's off the hook with the old "I'll be gone, you'll be gone" banking adage..

The reality of economic annihilation is filtering into the daily awareness of more Americans.  A record number of Americans self-identify as "lower class."  People receiving EBT cards and HAMP modifications have no illusions about their station in life.  That's why those programs aren't alleviating poverty.  Many of the working poor will simply give up on upward mobility if this class consciousness becomes permanently ingrained and they settle for a lifetime of collecting public benefits.  That may very well be what the plutocratic class wants the poor to do.  The country club's parking lot only has so many spaces and nobody wants to see a cheap compact car next to a Rolls Royce.

Emerging markets are on a debt binge.  This will end badly for markets that aren't export-driven.  It may be a blessing for markets that export hard assets and borrow in US dollars.  Hyperinflation will eventually destroy the dollar's value and leave hard asset owners feeling fine.  The Fed's hints of tapering QE have pounded emerging market equities lately.  Those hints will end once Yellen is running the Fed.  It's a great time to be a BRIC exporter.  

The Limerick of Finance for 09/15/13

Now Summers will not lead the Fed
So Yellen can become its head
Most quants will chase risk
Forex trades will be brisk
Market bears may as well go to bed

The Haiku of Finance for 09/14/13

Summers to the Fed?
Beltway campaign paying off
Media savvy

The Haiku of Finance for 09/13/13

Rich country system
Rule of law is paramount
Right way for success

The Haiku of Finance for 09/12/13

Disruptive workspace
Assemble many startups
Seed with small cash pile

The Haiku of Finance for 09/11/13

Web analytics
Real-time tracking and parsing
Making Big Data

Top Earners' Income Slices Social Stability

The top 1% are collecting a larger slice of the nation's total income than ever, or at least since just before the Great Depression.  This is only good news for celebrity journalists and high-end retailers who cater to the rich and famous.  The rest of us have cause for concern.

The Cato Institute once entertained an endorsement of income inequality, with the caveat that it may lead to social instability.  I get the argument that enormous talent deserves enormous rewards.  It does not necessarily follow that lesser talents deserve no compensatory training whatsoever.  Not every profession has the winner-take-all income distribution of professional sports or pop music.

Researchers in the late 2000s first started noticing degradations in the quality of health care as income inequality increased.  The ideal policy solution should have included curbs on litigation and drug development monopolies.  These would have made health care more affordable for the lowest earners.  Instead policymakers opted for the Affordable Care Act's protection of high-cost health care monopolies.  This is the expected outcome of a captive policy elite.  Income inequality supports plutocratic public policy that generates further income inequality.

Middle Eastern countries with income inequality became unstable in 2011 when price inflation put food staples out of the reach of the poor.  Dr. Nouriel Roubini nailed the causes and symptoms of income inequality in a sweeping 2011 assessment of the developed world's economic models.  The Fed's unlimited quantitative easing since then places food security at risk for millions of Americans if a run on the dollar leads to immediate hyperinflation.

Nature tends to correct imbalances.  An income distribution skewed this far from historical norms does not last forever.  The distribution of income towards the top of society only continues if every other socioeconomic indicator resides at a historic norm.  Americans are not living in normal times.  

The Haiku of Finance for 09/09/13

Bond investor choice
Sell now or risk inflation
Find other income

Ground Lease Notes

Today I learned about the "ground lease" at an Urban Land Institute seminar in San Francisco.  The speaker from Grosvenor Americas mentioned that these are common in the UK but not popular in the US.  I'll hazard a guess that it's a cultural preference.  Many American investors like healthy cash flows from commercial real estate investments.  Ground leases, according to our speaker, tend to raise a property's value over time but the cash flows from the property remain constant.

I don't know about you, but I would consider leasing a ground lease if I owned some vacant urban parcel and a big shot developer came along with deep pockets.  I would hire a decent real estate attorney to write covenants into the lease that assign all liabilities to the tenant so I don't get sued or assessed fines.  I would ensure that I am able to raise the lease amount annually if local authorities reassess the property's value after improvements and increase my property taxes.  If the lessee doesn't want to business on my terms, that's too freaking bad.  They can buzz off.  I make the rules once I own some property free and clear.

There must be a bunch of other things involved with ground leases that I can't address from ignorance.  These things are useful in developing property that would otherwise have limited economic use.  

Financial Sarcasm Roundup for 09/09/13

Another gala week has opened the annual social calendar of San Francisco.  I performed my public duty by attending some high-profile black tie functions so the hot women of this town can marvel at my extreme manliness.  I tone down my sarcasm at social functions.  I turn it back up when I'm online.  

The Mexican government has a fiscal reform plan.  The government's assumptions for the costs of subsidizing a new social security regime need more transparency.  It looks like a good try at getting control of the gray-market economy if small businesses accept the new tax regime.  The narco-warlords won't like that at all.  I hope there's a budget line in there for subsidizing more hot Mexican actresses to make movies up here in the US.  

China's banks will sell preferred stock.  It will have the same accounting treatment and liquidation preference as preferred stock available in the West.  This is good long-term news for the transparency of China's capital markets.  It's also good Basel regime capital for banks as long as they can pay the preferred dividends.  It's only bad for Chinese investors if and when inflation gets out of control.  Collecting a 7% preferred dividend at par means nothing if inflation degrades that par value to nothing in real terms.  

NYSE Euronext is investing in an online private placement market.  I have been wondering since late 2012 when the big securities exchanges were going to recognize the listing potential of companies whose securities trade in secondary markets.  Partnerships with other crowdfunding portals won't be far behind.  The crowdfunding revolution is reaching the public capital markets with or without guidance from the SEC.  

The Affordable Care Act isn't going to cover everyone.  Well, no kidding.  I don't think it was ever intended to provide universal health insurance coverage.  It has too many moving pieces and allows for too many exemptions to cover everyone.  Its designers from the managed care sector wanted to lock in a guaranteed customer base and its public policy advocates wanted something attractive enough to win elections.  The hybrid result is a mandate of cash flows from the pockets of taxpayers into politically favored sectors.  

Tourism is booming in Greece.  Foreigners love bargains in a devastated economy and Greeks love hard currency that isn't inflating.  Here's real confirmation that investors holding currency from financially sound countries preserve their lifestyles when other countries hit hard times.  I'd like to be rich enough to afford dates with a bunch of hot Greek women.  

The Economist is spewing total garbage about how the world's financial sector is safer now than in 2008.  It errs in fact by saying the US has reduced its excess debt; no such thing has happened.  It errs in logic by ignoring how the bond bubble has inflated the value of Treasury bonds banks own, regardless of risk-weighted capital.  I am dismayed that the Economist has sunk to this level of ignorance.  I console myself by realizing that some very sophisticated investors are going to take this false picture seriously and invest accordingly.  I won't miss them when they're bankrupt.

The Limerick of Finance for 09/08/13

China says inflation is tame
No one can believe such a claim
The yuan is toast
No way can they boast
The bull case for yuan is so lame

The Haiku of Finance for 09/07/13

Don't count on taper
Fed must pump or assets fall
Market addiction

The Haiku of Finance for 09/06/13

Unbanked need a choice
Payday loan or prepaid card
No way to build wealth

Public Banking for the Unbanked in BDDs

I've blogged before about how public banking combined with crowdfunding can be a powerful wealth generator.  I now think there is an excellent opportunity for public banks to serve the unbanked and help low-income Americans build wealth.

The biggest national initiative to serve the unbanked that I've found so far is Bank On.  The program focuses on lobbying local bank branches to offer no-cost services to the unbanked and was pioneered right here in my town with Bank on San Francisco.  The national rollout of EARN's Bank on USA is supposed to be a federally funded initiative but I can't find any federal government site describing this program's implementation.  The FDIC's Economic Inclusion initiative has data from several pilot programs and financial education curricula, but serving the unbanked needs a permanent effort.

I've got the all-in-one solution.  Let's go back to my earlier blog article (linked up top, folks) about a public bank in every state that also runs a crowdfunding platform.  This public bank should offer no-cost checking and savings accounts to low-income individuals and should be the sponsoring institution for Individual Development Accounts (IDA).  Almost all of its transactions can be done online, but local branches of the public bank can be a nucleus for developing a Banking Development District (BDD).  The whole point of a BDD is to attract bank branches into underserved neighborhoods.  I see no reason why a public bank can't be the first to jump in to a BDD.  The New America Foundation's BDD concept works in New York.  Check out NY's state BDD program and NYC's BDD program.

I spin up these kinds of ideas all the time.  It's all part of my job as an aspiring big-shot in finance.  Now I just need to get policymakers to listen to me.  Stay tuned to this blog for more financial innovation from Alfidi Capital.  

The Haiku of Finance for 09/05/13

Light sweet crude is good
Better to refine and sell
Harder to find now