Shock and Awe vs. Forward Guidance...

 

https://www.sagia.gov.sa/Global/top_banner/1/monetaypolicy.jpgThe role of forward guidance in steering monetary policy and subsequently consumer/business expectations had emerged to be of primary importance as the FED struggled to cope with economic downturn witnessed at the aftermath of the financial crisis. With interest rates hovering about the zero lower bound this was the only channel of formulating short term rate expectations and by iteration long term rate trajectory.

However with the US continuing to move on a sustainable growth trajectory amidst global imbalances, the role of forward guidance in moving the economy from artificially low interest rates might be nearing its end. The debate of conducting monetary policy via commitment as opposed to ‘time inconsistency’ is an age old one with commitment winning by delivering the same output growth as compared to time inconsistent policy however with lower inflation. Forward guidance can be viewed as an offspring of the policy of commitment.

While economists have always advocated the policy of commitment, the relevance and effectiveness is challenged by the present global economic scenario. With impeccable technological progress ushering in an era of ‘productive disinflation’ (like development in horizontal fracking technology leading to lower oil prices). Price dampening of this kind can coexist peacefully with stagnating wages while simultaneously improving consumer welfare and perhaps lowering long term inflation expectations.


Market Commentary by: James Investment Research (3/23 - 3/27)

Stock Market Analysis

Last week stocks sagged with nearly 1,200 advancing against about 1,700 declining. Volume mostly declined on the pullback, but when stocks tried to rally Friday, volume fell off sharply. New highs were achieved by 367 NYSE issues, only 77 set new lows. Notwithstanding the relative number of new highs, it was, on the surface, a discouraging picture.

Margin debt declined again, and so did customer free credit, both thought of as negatives. Overall, the entire economic picture includes element of weakness as well as strength.


Good Lines to Meet People

I don't have a problem approaching people I don't know but want to meet. I am lost for words and I don't know how to initiate the conversation. What are good lines to say to people and also to keep the conversation going?


BIG NEWS: 2014 WSO Compensation Report is OUT!

Dear WSO Community,

I'm pleased to announce the release of the 2014 WSO Compensation Report! We had another great year with even MORE entries than last year (over 5,000)! It took many months of hard work and finally, it's here ...and it's still free :-)

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I miss the 90s/ early 2000's

That was, in my opinion, the GOAT time period for music:
- Incubus
- Staind
- Vertical Horizon
- Linkin Park
- Puddle of Mudd
- Nirvana
- Red Hot Chili Peppers
- Lenny Kravitz
Etc.
Every time I just lay back and listen to any of the above I have an eargasm.

Post your favorite 90's bands and songs!


Is Private Equity Dead?

Andy Kessler, a former Hudge Fund Manager who writes periodically for the WSJ has recently discussed his thoughts on the future of Private Equity. This article discusses how the industry is overflowing with hundreds of firms chasing after the same opportunities such as how will interest rates affect the future of these firms? "Leveraged loans are the lifeblood of private equity," says Mr. Kessler and seeing as most firms borrow the majority of the funds.

Then add the potential of tax reforms to the scenerio that place interest rate deductions on the chopping block and then we lose one major benefit of debt, tax deductions on interest payments, for these firms. In the words of Mr. Kessler, "the interest-tax symmetry is long overdue and makes enough sense that it could end up in future tax reform." He goes on saying that Private equity has actually been hurting the economy and that the future will show that Private Equity will not make it in the end. So how solid is Mr. Kessler's arguement? And are you setting yourself up working towards a job in Private Equity? The answers to those question will unfold in due time so then I will end with his last statement,


The GM Buyback: Beyond the Hysteria!

Here is a script for a movie about the evils of stock buybacks, with the following players. The victim is an well-managed company in a business with significant growth opportunities and profit potential. The company has delivered products that its customers love, while paying its workers top-notch wages & benefits and invested heavily and prudently in its future. The villain is an activist investor, and for added color, let's make him greedy, short term and a speculator. In the story, he forces the  company to redirect money it would have spent on more great investments to buy back stock.

The white knight can be a regulator, the government or a noble investor (make him/her successful, wealthy and socially conscious, i.e., Buffett-like) who rides in and saves the hapless company from the villain and stops the buyback. The story ends happily, with the defeat and humiliation of the activist investor, and the moral  is that stock buybacks are evil (and need to be stopped). As you read some of the over-the-top responses to GM's buyback, such as this one, you would not be alone in thinking that you were reading about the mythical company in the movie. But given GM's history and current standing, do you really want to make it the basis for your case against buybacks?


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"RBS Is Going To Go Ahead And Take Those First Year Job Offers Back"

Ouch.... Will this happen at any other banks or just RBS? Anyone personally affected by this? Is RBS a sinking ship?

From NYT Dealbook:

Quote:
“Hearing from incoming summer analysts (now soon to be full-time hires) that their offers were rescinded and they were all given a 10k severance. This is the case for all incoming analysts in IB at RBS.


Small PE Firm or BB IBD

What is better? I want to end up in PE, but don't know if starting with a PE firm with under £250 m AUM is too small to start off, or if its better to have a BB brand name in a couple years time...


IB INTERVIEW ALERT: NEW 2014 Version of WSO Investment Banking Prep Pack Released!

Another 100+ Questions Added...Now Over 500+:

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