Market Udpate 12 15 11 _ Against the wind

It’s been a boring few weeks around here lately.  No fishing, no jumping out of planes, no mountain biking, no travelling…it was all rainy days and sick kids until Saturday.  What changed on Saturday? Last week I got an invitation to go to the Bob Seger concert at the FedEx Forum here in Memphis…and these were front row seats.  I immediately jumped on the invite and began counting the days until the show. 

The first thing you notice at a Bob Seger concert is that Bob Seger has gotten really, really old.  His hair is gray and he’s wearing orthopedic shoes, and the stage is padded/carpeted and you start to feel a little sorry for the guy when he walks out.  The average age of the band looks to be about 100.  The second thing you notice is that these guys absolutely rock.  Halfway through the second song I turned to my wife and told her I hope I’m half as cool as Bob Seger when I get to be his age.  She assured me I’m already that cool but I think she was just saying it so she wouldn’t have to walk home.  It was an awesome event…many times you could hear the entire stadium singing along over the volume of the band.  Everyone was on board and rocking in the same direction.  This was a really strong performance for a guy whose first album came out the year I was born.

What does this have to do with monetary policy?

The first thing that comes to mind is that the Fed, like the members of Bob Segers band, is almost 100 years old.  The Federal Reserve System was founded in 1913…the same year the Post Office began parcel deliveries…which might be an ominous parallel.

The second thing that comes to mind is that not everything ages well.  Bob Seger is going to rock all the way to the grave…he will be as relevant the day he dies as the day he released his first album.  The Fed, however, may not have what it takes to remain as relevant. 

In fairness, the Fed has a much more difficult operating environment than Seger does.  In the old “US Centric” model the Fed had a lot of leverage and could exert significant control over the system with the traditional tools they had available (Open Market Operations, Reserve Requirements and the Discount Rate).  Nowadays we have a global economy, with many developed economies working to maximize their positions versus the rest of the world.  Hundreds of economies and currencies, many with powerful central banks, are all working day and night to advance their own positions on the global stage.  Capital can flow into and out of most countries almost instantaneously, and the exchange rate of that capital is also fluctuating in real time.  This is the world in which the Fed must now operate.  It is a far cry from the environment that spawned them in 1913.  In 1913 most people didn’t own cars...there had never been a phone call from the west coast to the east coast…and I find it interesting to note that prior to 1913 there was no personal income tax in the United States…my what a different world that must have been.  Nowadays most families have at least two cars, everyone over the age of 8 has a phone, and I don’t even want to start talking about income taxes.  

Many of the tools the Fed has used for the past 100 years are no longer as powerful as they once were.  Years ago in the old US-Centric model the Fed may have been able to create a significant economic impact with a 50 basis point cut in the overnight rate.  Now with a high-tech and fast-paced global economy we are down to zero percent on Fed Funds…and it’s still not enough.  The Fed can’t get the traction they desire so they come out with various Quantitative Easing programs in an attempt to get additional leverage on the problem.  Those measures have also come up short.  We are now four years into this economic downturn, the fed has ballooned its balance sheet, taken the overnight rate to zero, unemployment is still hovering near 9% with many arguing that “structural” unemployment is taking hold, and just this week they reiterated their pledge to leave rates at zero through mid-2013.

Despite all of the Feds actions the economy is still in the dumps.  They simply can’t jump start things the way they used to.  As we enter 2012 I think it’s helpful to take a good hard look at where we are, and what we should realistically expect from the Fed over the next 12 months. 

I wouldn’t count on the Fed riding to the rescue of the economy in 2012.  It is readily apparent that they don’t have a magic bullet for the issues that confront us…but it will be helpful to know what their plans are none-the-less.

What can you count on?

If you can bank on one thing it’s the Feds statements.  They have gone to great lengths to improve communication with regard to policy.  When they’ve told us they were going to do something…they have done it.  So while their monetary policy tools may not be as effective as they used to be…they at least have a solid track record of following through on their statements. 

The first thing to recall is that their baseline forecast is for the overnight rate to remain at zero percent through mid-2013.  If you are still holding your breath in Fed Funds hoping for a rapid rise in the overnight rate it looks like you’re might pass out before that day comes.  We have an analysis that shows “the cost of waiting” to help people determine if they are better off staying in Fed Funds or investing given their outlook on rates.  If you’d like to see this report just shoot me an e-mail and we can run the report.  This report will show you the difference in income between your Fed Funds projection and any investment you’d like to use as a comparison.  

The second big item is that they remain committed to reinvesting cash flows from their securities portfolio to fund the purchase of longer maturity Mortgage Backed Securities.  The goal here is to help the housing market by keeping downward pressure on mortgage rates. 

As we enter 2012 these seem to be the “constants” that we are getting from the Fed and I would certainly build them into my thinking for 2012.

So these are just some random thoughts on the Fed, their past, and our future. 

Now every time I read an FOMC statement I think of their 1913 start date and I look at all they’ve done right up until yesterday…and my focus fades from the words leaving Bernanke’s mouth at the press conference…and I start to hear Bob Seger singing softly in the background…

The years rolled slowly past
And I found myself alone
Surrounded by strangers I thought were my friends
I found myself further and further from my home
And I guess I lost my way
There were oh so many roads
I was living to run and running to live
Never worried about paying or even how much I owed
Moving eight miles a minute for months at a time
Breaking all of the rules that would bend
I began to find myself searching
Searching for shelter again and again

Against the wind
A little something against the wind
I found myself seeking shelter against the wind

If you have any questions or if there is anything I can be doing for you just let me know.

Steve Scaramastro, SVP

800-311-0707

 

 

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INTENDED FOR INSTITUTIONAL INVESTORS ONLY. The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. Interest rate swaps and derivatives are offered and sold via Vining Sparks Interest Rate Products, LLC. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.

Market Update 11 29 11 _ Holiday Cheer

Yaaaay…it’s all better!

Yesterday morning we had snow here in Memphis, TN.  Normally just the forecast of snow would mean car crashes and snarled traffic in this town...but yesterday it was magical…there were no traffic problems at all and I arrived at work remarkably un-stressed from the commute.

After I parked my eco-friendly 5,500 lb, 4x4, V8 powered pickup truck I walked through the parking garage where I could see the snow falling outside and the intercom system was playing Bruce Springsteen’s “Santa Claus is Coming to Town” and the air was just crisp enough to remind you that it’s early winter.  I sipped my coffee as I walked and took in the sights and sounds and I felt very much in the holiday spirit for the first time this year.  I even passed a sign near the front door that read “Santa Parking Only”.  Geez…this is perfect.

For a moment I thought I had landed in Mayberry.  Then I came inside, sat down at my desk, and saw the headlines.  Troubles continue to rage in the Eurozone…a breakup is being rumored…businesses and governments are making plans on how to deal with the potential disaster.  A co-worker then pointed out what had to be the quote of the day.  It came from Poland’s foreign minister Radek Sikorsky.  He was giving a speech about the euro and he expressed that Poland’s largest threat wasn’t an attack by a neighboring country or rogue state…their biggest threat was the collapse of the Euro; and he viewed Germany as the one player that could avert that disaster.  He said:

“And I demand of Germany that, for your own sake and for ours, you help it (the Euro) survive and prosper. You know full well that nobody else can do it. I will probably be first Polish foreign minister in history to say so, but here it is: I fear German power less than I am beginning to fear German inactivity.”

I frequently joke that if I were Greece I would be very uncomfortable having my fate in the hands of the Germans due to historical precedent.  But that’s just little-ol-me…a fixed-income salesman and former Marine from Memphis TN with a dark sense of humor…nobody cares what I think.  Here, however, we have no-less-than the foreign minister of POLAND…the country that hosted Germany on their first away-game of WWII…saying something not too far removed from my quip on Greece.  Poland now sees Germany as its best chance of survival.  I’m starting to hear tones of Princess Leia ringing in his statement:  “Help us Obi-Wan, you’re our only hope”. 

So, yesterday went from “winter wonderland and Christmas music” to seeing the victims of the Blitzkrieg begging for help from the Germans of all people.   Just when I’m confident that this crisis can’t get any weirder this happens.

What a difference a day makes

Today we have a much different set of stories in the market.  On September 9th I wrote a piece titled “Smells like Coordination”.  That piece basically said that based on what I was seeing at that time it seemed like another round of coordination between Central Banks might be in the offing.  As it turns out it appears that they were in fact scheming along those lines…this morning we see the results…six Central Banks have announced coordinated efforts to help ease pressure created by the crisis in Europe. 

The Fed, ECB (European Central Bank), Bank of Canada, Bank of England, Bank of Japan, and the Swiss National Bank have all coordinated their efforts.  The short story is that they are essentially providing guarantees of cheap liquidity in a number of currencies through February.

European banks had seen their cost on dollar denominated loans increasing recently as potential lenders watched with alarm as problems in Europe escalated.  Fear not…the Central Banks are riding to the rescue with more cheap money.  This is a continuation of the recurring strategy of “buying time” that has come to define much of this business cycle.

It’s like Broadway

I don’t often go to see a “play”…you know…like on a stage in a theater.  I have however been to one or two in the distant past so any of you who like to call me completely uncultured will have to dial it back just a notch. 

Today’s market activity reminds me of the theater.  On stage right now I have a group of actors who are singing about a recovery.  The songs are all about the ADP Employment figures being higher, and Pending Home Sales rising, and Black Friday Sales going through the roof...and the Dow is up 400 and the 10-year is up to a 2.09%, and all of the actors are happy and singing and everything is great.   But backstage behind the curtain the stagehands (represented by the Central Banks) are fighting like mad to put out a fire that is threatening to burn up all of the props needed for the next scene…and maybe even the theater itself.

Seen from this point of view it’s difficult for me to get excited that the play is going to be a great one.  Normally what would happen is that during the intermission I could try to talk the wife into going to a sports bar instead of seeing the second half of the play…but I’m afraid this one will end like the others…I have no hope of getting out of watching the whole thing unfold.  Good or bad we’ll all have to stay here and watch the rest of the play.

If you have any questions or if there is anything I can be doing for you just let me know.

Steve Scaramastro, SVP

800-311-0707

 

Market Update _ Grocery shopping and sector analysis

 

Last night I was in the kitchen when the wife came home from the grocery store.  As she was putting the groceries away she announced that she had just bought some special apples that taste like grapes.  Curious, I asked how much she paid for them.  She responded with “I don’t know…why?” 

 

“Because if they’re more expensive than grapes we just got robbed.” I replied.  After all, why would I pay up to get something that “tastes like” grapes if I can get the actual grapes cheaper?  She quickly brushed aside my economic commentary on our groceries and left the room.  Tough crowd. 

 

Many people will look at the “apples that taste like grapes” story as tale of a unique culinary/scientific achievement…but when I see these grape-flavored apples on my counter-top I see a sector-analysis story. 

 

Why do these funky apples remind me of sector analysis?  Because if I like grapes, but grapes are expensive, I might be able to find a really good grape-substitute in another part of the fruit world.  In this case if I can get the grape-flavored apples cheaper than grapes themselves then there is some value available there and I’m willing to purchase them.  Same grape taste in a little bit different package at a lower price?  Great…sign me up.

 

This in turn leads me to the investment portfolio.  If I’m an Agency Callable buyer, but callable yields have dropped, maybe I can find some yield in another product that has the same maturity/average life/price volatility characteristics.

 

How about an example?

 

A very recent example is in the world of Callable Agency bonds.  Consider the following numbers:

 

A 3 year non-call 1 year with a one-time call will bring you a 0.75% yield today

 

A basket of 3 year CD’s with no call options, and zero risk weight will bring you a 1.50% yield (with the convenience of DTC delivery)

 

You get a lot more grapes for your money with the CD than with the callable.  In fact you get twice as many grapes for the same price.  Supplies are limited on the CD side so there is a limit before you have to go back to buying callables but it shows that you can occasionally get some shots off at much better levels if you keep looking in all areas.

 

 

Another example would be:

 

A 4 year non-call 3 month brings 1.125% with -11.00% price volatility this morning

 

A 10 year 3.00% MBS currently brings 1.65% yield in the base case with -11.00% price volatility

 

Again we get more grapes for our money.

 

Wrapping it up

 

If you’re looking to put money to work as we head into the end of the year remember to look around and pick up value where you can find it.  Compare sectors and make sure you’re getting the most bang for your buck. 

 

If you have any questions or if there is anything I can be doing for you just let me know. 

 

Steve Scaramastro, SVP

800-311-0707

 

 

 

 

Market Update 11 1 11 _ Show me the money

 

If you’ve been following these Market Update pieces you have been reading about how the recent pullback has been a buying opportunity and how I suspected the Treasury yields might not last for long at the lofty and optimistic levels we had recently attained.

 

Two stories are impacting the market today

 

The first is that politicians in Greece are doing some things that are putting the rescue plan in doubt.  Despite the markets upbeat attitude toward Europe’s plans…reality is creeping back in.  The Greek government is considering putting the EU’s bailout plan up for a vote…which could cause the plan to be derailed.  I don’t understand politics in my own country so I won’t even try to guess how Greek politics work.  Perhaps the best summary I can find of what’s going on in Greece is the following quote from Societe Generale:

 

“What the Greeks are considering doing would result in about as disorderly a default as you can get. That threatens to return Europe to the maelstrom”

 

That should sum up things on the European bailout front.  A disorderly default will cause a lot of problems…it might cause the type of problems that make me glad there is an ocean between us.  Germany’s Angela Merkel openly warned of war coming to Europe if the Euro is allowed to fail.  When a head of state is making statements like that I tend to listen.  It would be different if it were the leader of some third world, ragtag, banana republic country…but this is the leader of Germany so you have to pay attention.

 

The second story is that the MF Global plot continues to thicken.  Before we talk about the problems at MF Global we need to do a quick review of “margin calls”.  A margin call is where a position has moved against you and your broker or counterparty calls and demands you put some more money into the pot to cover the increased loss/risk.  Normally you’d cover the margin call with cash or by selling something to generate cash.  Then you sit back and hope the position comes your way…if it moves against you again you get another margin call and you’ll have to raise more cash and/or sell more positions.  Many of you will remember this cycle from late 2008 and 2009 when the hedge funds were all getting destroyed.  Their trash positions were moving against them and they had to sell their high quality paper (GSE debt).  Spreads widened as supply was dumped on the market and we were all able to buy MBS at huge spreads as we took advantage of the geniuses that were running hedge funds.

 

Show me the money

 

This brings us to current day Wall Street.  MF Global began getting margin calls as some of their positions began moving against them.  At first they covered with cash…then they ran out of cash.  Apparently somebody notices that while the firm was out of cash, they still had a lot of customer money lying around.  I don’t know how the next chain of decisions gets made…but I picture it going something like this:

 

Trader 1: “Hey, we’re getting more margin calls on these European bonds…and I just used up the last of our cash.”

 

Trader 2: “Dude if we can’t meet these margin calls our counter-party is going to liquidate the positions and the losses will go from “un-realized and un-nerving” to “immediate and tragic”.  We are going to get canned.  What are we gonna do?”

 

Trader 1: “Well…there is a ton of cash sitting in these accounts that we manage for customers…they’re not using it right now, they’re just sitting on it.  They’ve been sitting on it for like two years…it’s just sitting there doing nothing.”

 

Trader 2: “Great idea…we just need it to cover until our positions come back.  Once things calm down and prices recover we’ll just pull some equity out of our positions and put the money back.  Their cash will be back in the account before anyone knows what’s up.”

 

Trader 1: “Sweet….grab me a few hundred million of it to cover these margin calls…then we can get back to surfing the net.”

 

Trader 2: “Done.”

 

I don’t know how the actual conversation went but I have no idea how you could get to a point where stealing customer funds to cover your own mistakes sounds like a good idea.  I’m tempted to ask “Where has “integrity” gone?” but in reality the people that do these types of things never had it to begin with. 

 

Many years ago the Marine Corps taught me that the quick and easy definition of “Integrity” is that “you do the right thing even when no-one is looking.”  That rule has served me well over the years…and it sounds like MF Global could have benefited from it as well.  Another big lesson that looks to be coming from this is that MF Global lacked appropriate controls…after all…integrity is great and all but when there is a lot at stake trust should go out the window and verification should take its place.  This leads me to another phrase that is famous in the military…”Trust me with your life…not your money or your wife”.  Trust is great…but verification is even better.

 

If hundreds of millions of dollars of customer cash are unaccounted for at MF Global it is just one more giant sign that things were poorly run.

 

Is this the first time a trader has stolen money?

 

The history of finance is littered with stories of theft and fraud.  Without having to look anything up I can think of several cases.  Barings PLC (Britain’s oldest investment bank) was brought down in 1995 by a rogue trader named Nick Leeson who was trying to cover losses and using the firm’s weak internal controls to do it.  In that case a single trader in a far flung branch office in Singapore was able to bring the entire bank down because of poor controls.  Leeson generated losses that were more than twice the amount of capital the bank had available.

 

More recently Societe Generale got smacked with a $7.2 billion loss by a rogue trader named Jerome Kerviele.  That one was so shocking that people internally thought at first that it was a joke.  Another was hedge fund Amaranth Capital that got torpedoed by one of their own natural gas traders who generated a $6.6 billion loss.

 

I guess it surprises me a lot that customer money could be misappropriated at MF Global after we’ve had so many big firms destroyed by employees operating in an environment with poor internal controls. 

 

Maybe I’m jumping the gun…maybe the hundreds of millions of dollars of customer money will show up…perhaps it was just put in the wrong drawer.  We’ll see how it turns out…but if you had money at MF Global I’d start making some calls to see if you’ll be getting it back. 

 

From the bad timing file

 

Another interesting fact from MF global is that a group of investors were so enamored with John Corzine’s leadership abilities that they bought $650 million in bonds from the firm just a few months ago.  In what has to be just about perfect timing, the firm will be bankrupt before they make their first interest payment on those bonds.  This reminds me of the scene from Vegas vacation where the guy takes Clark (Chevy Chase) to the second-rate casino’s that are “off the strip” and have some familiar games like rock-paper-scissors and flip-a-coin. 

 

Clark walks up to a table where the game is called “guess the number”.  He puts his money on the table and the dealer says “I’m thinking of a number between 1 and 10”  Clark says “seven”.  The dealer says “nope” and then promptly takes his money.  That scene just became a lot less funny to investors in MF Global debt. 

 

The end

 

So…MF Global and Greece are the latest news…its’ now “Game off!” and people are rushing to the sidelines with their money.  The 10-year Treasury is up over a point this morning, pushing its yield down to a 1.97% currently.  It’s yield has dropped 43 basis points in the last three trading days. 

 

People are starting to realize that things haven’t changed.  Anytime we see yields pop up with no change in the underlying fundamentals I think we should view it as a buying opportunity.  That’s all the news to report for now.  I think I’m going to call my broker and make sure he’s not inter-mingling my funds to cover his losses.  This should be a fun one.

 

If you have any questions or if there is anything I can be doing for you just let me know.

 

Steve Scaramastro, SVP

800-311-0707

 

 

 

Market Update 10 31 11 _ It's Halloween and the market is spooked

 

What better day to announce the failure of a primary dealer than Halloween? 

 

Remember the old movie “Wayne’s World”?  There were some scenes in the movie where Wayne and Garth would play street hockey out in front of their house.  They’d put the goal right in the middle of the street and one would be the goalie and the other would take shots.  When a car came down the street one of them would yell “Game off!” and they’d run for the sidelines, then when the car passed they’d yell “Game on!” and they’d come back out and play.  This scene reminds me of our current market.  Each time a danger comes close, market participants yell “Game off!” and run to Treasuries.   Then some amount of time will pass and it’s “Game on!” again and Treasury prices fall and yields bump up a bit but inevitably another car comes down the street and it’s back to “Game off!” and yields drop down again.  The economy just can’t get any sustainable momentum…each time you think it’s safe to play in the middle of the street another car comes by.

 

Today someone was playing in the street and they got flattened by a European car.  Today’s big news is the failure of MF Global…a US Primary Dealer.  Here is the description from the NY Federal Reserve website of what a Primary Dealer does:

 

“Primary dealers serve as trading counterparties of the New York Fed in its implementation of monetary policy. This role includes the obligations to: (i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and (ii) provide the New York Fed's trading desk with market information and analysis helpful in the formulation and implementation of monetary policy. Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account-holders.”

 

MF Global will no longer be performing any those functions listed above.  I don’t know what the “MF” in “MF Global” stands for…but I’m pretty sure I know how “MF” was used this morning behind closed doors when the NY Fed realized that one of their primary dealers was going bankrupt. 

 

MF Global was not only a Primary Dealer; they were deeply involved in derivatives and commodities trading. It will be very interesting to see how the ripples from this failure affect other markets and market participants.  Apparently the firm suffered very large losses from their holdings of European sovereign debt.  This will remain a very interesting story as the recent plans in Europe are to force haircuts on debt, then backstop their own banks with a big liquidity fund so they don’t get hammered like MF Global did. 

 

Anyone who thought that the European problems were just going to go away with the new announcement of some plans last week just got a shocking wake-up call…the problems are still here and they are big enough to take down big important firms run by really smart people.  The good news is that if anyone was looking to become a primary dealer…there is now an opening. 

 

Market reaction

 

The Treasury curve is up sharply at every point on the curve.  The 10 year is up a point and five tics to trade at 2.18%.  The 30 year bond is up over 3 points to trade at 3.21%.  The Dow is off about 200 points currently.  This story has to have a lot of people thinking that we are pushing a very shaky apple cart.  How far and fast can the global recovery go?  Who will be the next to fall?  How widespread will the damage be?  How much money will flow back into the safety of the US Treasury markets and how low will it drive yields?  What does this mean for economic recovery?  What about market liquidity?  Does this affect our year end planning outlook? 

 

These questions will be wrestled with as we go forward…for now I’m going to just assume that more people will succumb to problems coming out of Europe and I also have to assume that those stories will help keep a lid on interest rates.  Fear will continue to have us yelling “Game off!” and running for the sidelines. 

 

For now I’ll leave you with words of encouragement from Wayne’s World to help get you through month end…“Party on, Garth”.

 

If you have any questions or if there is anything I can be doing for you just let me know.

 

Steve Scaramastro, SVP

800-311-0707

 

 

Market Update 10 28 11 _ On second thought....

 

 

From: Steve Scaramastro [mailto:SScaramastro@Viningsparks.com]
Sent: Friday, October 28, 2011 10:52 AM
To: sscaramastro@viningsparks.com; 'Lisa Butler'
Subject: Market Update 10 28 11 _ On second thought....

 

 

News out of Europe was greeted with great enthusiasm yesterday.  After the announcement was made that a plan was in place to “fix” the problems the market breathed a huge sigh of relief and stocks went up and bond prices went down and all was well.  In fact things were so good it looked like the Texas Rangers might even win the World Series...first Europe is saved and now the Rangers will win the series…how much better could a day get, right?  Then everyone went home and after the buzz wore off they got a chance to think about things…and then reality started to creep in…and maybe they realized “hey…Europe is still pretty hosed right now…and this business they announced looks a lot like our QE1 plan…and that didn’t really fix anything here when we tried it…maybe I shouldn’t get too excited by all of this.”  And then they watched in disbelief as the Texas Rangers lead began to slip and the sure-thing win was now in doubt…and then they had to stay up late because things got ugly and the game went to extra innings…and then the Rangers lost and they went to bet angry. 

 

Then they came in to work today and started throwing money back into Treasuries.  We are rallying this morning and yields are heading lower from yesterday’s highs.  The 10-year Treasury is up almost a point in price at the moment and is trading at a 2.30%.  That is still a level we can live with…but it’s a sign that the market is contemplating the news and starting to hedge the bets it made yesterday.

 

I don’t know what Europe’s road to recovery will look like but I seriously doubt it’s going to be a smooth ride that takes them quickly from riots and tear-gas to prosperity and fiscal responsibility.  I picture it being more like a rain-rutted dirt road that hasn’t seen a bulldozer in years…there will be a lot of bumps along the way, it will be slow going, and at times you will be worried that the vehicle might actually break. 

 

That’s all the news to report so far…but they day isn’t over.  Yields are moving lower and I’m thinking of dressing up as a Greek debenture for Halloween…I’ll have a very limited audience that gets it, but those that do should really appreciate it.  

 

Have a great weekend, and if you have any questions just let me know.

 

Steve Scaramastro, SVP

800-311-0707

 

 

Live from Germany...it's a pullback!

 

Just because you want it to happen…doesn’t mean it will…

 

The other day I was driving with my family toward our weekend getaway destination.  Despite my objections we were on our way to Branson, MO for three days with the kids.  When the wife told me where we were going I immediately but politely objected, stating that Branson is for old people…which is true.  She responded rather quickly by saying that Branson has changed over the years…it’s not just for old people anymore.  Now she had me laughing as I imagined the Branson, MO tourism board printing up new advertisements that say “Branson…it’s not just for old people anymore.”  Ultimately I acquiesced to the will of the family to avoid a mutiny, and now I had my truck pointed toward Branson.

 

So now we were about 5 hours into the trip and we began getting hungry.  Being the gentleman that I am, I inquired where she would like to eat.  She stated that she had no preference and deferred the decision to me, as usual.  What you need to know about me on a road trip is that if I am within sight of a Taco Bell and you give the decision to me…that’s where we are going.  Taco Bell is the perfect fast food restaurant.  There are only about six ingredients inside the store so it’s almost impossible to get your order wrong…no matter what you order it’s just the same stuff just in different shapes.  This means that I can get good food and minimize the odds of getting the order messed up at the drive through at the same time.  It’s perfect. 

 

Decision made… “Taco Bell” I announced.  Her response surprised me…”I’d rather not do Taco Bell” she said. 

 

Hmmm…OK…”There’s a burger joint” I offered in reply

 

”I don’t know if I want a burger”

 

This exchange went on one or two more times until I finally had to point out that for a person who just said she had no preferences…she sure had a lot of preferences.

 

What does this have to do with the market?

 

The market is pulling back this morning on the most recent news out of Europe.  Eurozone leaders have just completed a meeting where they came up with their plans (read that as preferences) for how to deal with their issues.  The market is getting as excited as me heading toward a Taco Bell on a road trip…but as we’ll see...they could meet significant obstacles to their preferences as we move forward.

 

The market is a fickle friend.  Just a few short weeks ago the 10-year Treasury traded down to a 1.69% on scary news out of Europe, a global slowdown, and poor domestic data.  Yesterday the German government openly foreshadowed an outbreak of war if the Euro failed…that is language that would make me very nervous if I were a country that’s turning to Germany looking for aid.  Today there is hope in the markets as European leaders announce that they’ve made progress in solving their regional issues.   The early reports that I’m reading are that the agreement they reached involves:

 

1 – forcing bigger haircuts (nicer word for losses) on holders of Greek debt

 

2 – shoring up European banks that are about to be hit with big losses from the haircuts mentioned in “Step 1” …this sounds a lot like our QE1 but it should be good news for investors that hold bonds issued by those banks

 

3 – reinforcing a bigger bailout fund that would serve as a firewall to keep other countries from dragging the rest of the region down (this is the “I hope Spain and Italy aren’t next” fund)

 

In some respects I find it amazing that the market is pulling back on this news.  Nothing has been done yet…at this point we just have plans from politicians.  I’m no political analyst but history has taught me that plans from politicians are frequently ill planned and difficult to implement.  I understand that investors need to move fast to be the first one into an asset so they can make money…but what I’m seeing right now feels like an over-reaction. 

 

The 10-year Treasury was at a 1.69% a few short weeks ago…this morning it stands at a 2.30%.  I love the fact that we’ve pulled back to this level…and if things do indeed get better in Europe we will see yields move higher still as investors reverse the prior flight to quality that drove us to these lows.

 

But I’m left with the question…what makes the market think that Europe’s issues will all be solved after this meeting?  All of the problems are still there.  Making matters worse is that many of their problems are structural in nature…these have no easy short term solutions.  Structural problems can take a very long time to be solved.

 

The way this looks from my seat is that the initial euphoric, knee-jerk reaction to the new plan in Europe is creating a huge buying opportunity for investors who have been holding back cash and waiting for yields to pick up a bit. 

 

You have an opportunity today to buy bonds when the 10 year Treasury is sitting at a two-month high.   The 10-year Treasury is 60 basis points higher today than it was just a few short weeks ago.  This is a classic buying opportunity. 

 

If you have any questions or if there is anything I can be doing for you just let me know.

 

Thanks,

 

Steve Scaramastro, SVP

800-311-0707

 

 

 

 

 

 

Market Update 10 19 11 _ Welcome to Mediocrity

Expanding…kind of…

The Fed released its Summary of Commentary on Current Economic Conditions this afternoon. This is also known as the Beige Book, partly because it’s easier to say and partly because that is the actual color of the front cover on this report. This is a report that summarizes business activity in the various Federal Reserve Districts as measured by anecdotal evidence gathered by the various Fed Presidents.

Today’s Beige Book brings tidings of mediocrity. Reports from the 12 Fed districts indicate a slow motion expansion in September with many districts describing the pace of growth as “modest” or “slight” with mention of “weaker or less certain outlooks for business conditions”.

Historically the Fed hasn’t been known for its crystal clear communications. At times I think it might be more effective for them to play a game of charades where we try to figure out what type of economic data they are acting out. I want them to put someone on the committee like the old CEO of Toll Brothers (home builders) who said in a conference call a few years ago “this year is going to suck…all 12 months of the calendar year…there is no other way to put it.” THAT is the type of communication I appreciate…and I wish the Fed would be as clear.

I understand however that the Fed doesn’t care about my wants and needs….so we have the Beige Book. And today the Beige Book is telling us in modest tones that things aren’t great, but they aren’t terrible. I thought it might be informative to break the report out by sector with a brief summary of the activity in each. I know you all have been dying to learn what all of the sectors are in the report so this method will help scratch that itch as well. Here we go:

Consumer Spending and Tourism – Up slightly with most districts reporting an increase in auto sales. Greater availability of new models is now evident, and indicates an easing of the market disruptions wrought by the Japanese earthquake

Business Spending – Increased somewhat from the previous report

Nonfinancial Services – Mixed

Manufacturing & Transportation – Increased in most districts

Real Estate & Construction – Little changed in all 12 districts

Banking & Finance – Weakened some since last report

Ag & Natural Resources – Crop conditions at harvest were less favorable than a year ago

Employment, Wages, and Prices – Labor market conditions were little changed (interpret this as “unemployment ain’t going down anytime soon”)

Look at those descriptions….up slightly, increased somewhat, mixed, little changed, weakened some, less favorable...I’m starting to hear my old friend from Toll Brothers echoing in my mind.

Recent discussions with bankers

The overall tone of the conversations lately has been somewhat depressed. This is unusual…as tough as things have been for the last few years most people could still manage a laugh or two and shrug off the bad news. Lately the mood has become a shade darker. I had one friend tell me that he’d rather get my fishing reports than economic reports. I don’t know if he thinks I’m a good fisherman or a bad economist. The fishing reports are entertaining, and as much as I was tempted to take the boat to the lake I figured I’d go a different route.

Maybe what we need now is a reminder that things won’t always be bleak…that they haven’t always been terrible. Rather than go fishing (and it was very tempting) I decided to spend some time doing historical research on economics. How’s that for fun?

Where were you on June 16, 2004?

The first half of 2004 could serve as a benchmark for good economic times. Since most people recall time periods based on cultural references rather than based on cold economic data I thought I’d throw out a mix of pop-culture and historical references for 2004 so you could recall where you were at the time. After all…you never sit around with friends having a drink and telling old stories when someone asks “remember where we were that time when GDP hit 3.8%?” Thankfully it doesn’t work that way. So…here are some reminders….and feel free to shoot me an e-mail letting me know where you were in 2004. We could get some interesting responses to that one.

1/4/04 Brittany Spears gets married, and has annulment in under 55 hours.

2/1/04 Janet Jackson coins the term “wardrobe malfunction” at Super Bowl XXXVIII.

2/13/04 The Harvard-Smithsonian Center for Astrophysics discovers the universe's largest known diamond, white dwarf star BPM 37093.

2/14/04 Despite the discovery of an entire planet made of diamond, prices in earths diamond market are unaffected…I guess an increase in supply only affects prices if you can actually get your hands on it.

2/16/04 The Pittsburgh Penguins set an NHL record by losing their 12th consecutive home game.

3/1/04 Pavarotti announced his last opera performance.

3/2/04 George Michael announces that “Patience” will be his last commercial album…thankfully.

3/08/11 US hands power over the interim Iraqi Government.

4/1/04 Google introduces its Gmail product to the public (I just got a gmail account this month…I’m not what marketing guru’s would call an early-adopter or “trendsetter”).

5/6/04 the final episode of the TV show “Friends” is aired…and no I didn’t see it.

6/02/04 Ken Jennings begins his 74-game winning streak on the syndicated game show Jeopardy!

Where have all the good times gone?

Hopefully that headline got a little Van Halen started in your head and now as you listen to the tune in your mind I wanted to point out what the Beige Book looked like in June 2004…our bench mark for good times. Below are the Beige Book sector summaries from June 16, 2004.

Consumer Spending 6/16/2004 – Reports on overall retail sales in most Federal Reserve districts were generally positive. Sales were strong at discount and drug stores.

Manufacturing 6/16/04 – Overall manufacturing activity increased in all Federal Reserve districts. There was particularly strong growth in defense, semiconductor, food processing, paper, lumber and other building products, textiles, automotive parts, furniture, heavy and other industrial equipment, metal products, transportation equipment packaging, and recreational equipment.

(editor’s note…basically everything was strong)

Real Estate and Construction 6/16/04 – Residential Real Estate remained robust in most districts.

Banking and Finance 6/16/04 – In most Federal Reserve districts, lending activity increased.

Agriculture 6/16/04 – Conditions across the nation were generally favorable

Natural Resources Industries 6/16/04 – Activity in the mining and energy sectors remains strong.

Labor Markets, wages, and prices 6/16/04 – Most districts indicated strengthening of labor markets. Many districts experiences “increasing employment, plant expansions, and plant openings across many sectors.

I like these descriptions a lot more…increased in all districts, generally positive, robust, remains strong, strengthening…we’ll eventually see these return to the beige book.

What next?

The optimist in me says that the good times will return, the government will get out of our markets, the regulators will retreat to a more proper role, and banks will get back to making money and we’ll all be going to happy hour and talking about how dreadful it was “back when…”

The pessimist in me says we’re on the road to Greece…except we don’t have a Germany to bail us out.

Who is right? Time will tell…but whichever is right we need to keep our banks well positioned. Until then the plan needs to be “live to fight another day.” We don’t know if the good times are coming back in 2012 or 2016. This brings me to our current position…year end.

4Q 2011

It’s time for some year-end planning. The 4^th Quarter of 2011 is underway and the Fed just recently told us that they are keeping Fed Funds rate at zero until the middle of 2013. I believe them.

I don’t agree with many of the things they have done…but they haven’t lied to me yet with regard to what they plan to do. If they’ve announced a plan of action at an FOMC meeting they have followed through on their word. That should serve as our baseline.

We will enter 2012 with Fed Funds at 0% and a commitment to keep them there through the middle of 2013.

Regulatory burdens will continue to be hefty. It’s important to know that you don’t have to shoulder that load alone. We have developed a lot of tools to help you satisfy recent regulatory requirements.

Need post purchase analysis on your muni portfolio? We can do it at no cost.

Need help tracking news and ratings on corporate bonds? We can do it at no cost.

Need to beef up Investment, Liquidity, Contingency Funding, or A/L policy? We have sample policies available at no cost.

Need help analyzing strategies to extend your FHLB advances to lower costs? We can do it at no cost.

Need help finding investment solutions that fit your needs? We can do it at no cost.

Need help on Asset/Liability modeling or calculating EVE? We can help.

Need help raising capital in a management friendly fashion? We can help.

The short story here is that as you begin your year-end planning process…you don’t have to go it alone. Time is expensive and we’ve created tools to help you save a bunch of it.

If you’re curious as to what else we might have to help you, consider registering for our website. This will allow you to search our arsenal of tools on your own time…you can register as many people from your bank as you’d like…there is no cost. And if you’re worried that someone will begin calling you and hassling you because you registered…put your mind at ease…I’m already doing that so it won’t be any worse than it is now!

The 4^th quarter has begun and we are ready to help you tackle the issues ahead. Call me if you have any questions or if there is anything I can be doing for you.

Steve Scaramastro, SVP

800-311-0707

Market Update _ Is everything better?

 

 

The Data

 

Today’s economic data show that both initial and continuing jobless claims remain a huge drag on the economy.  The survey expectation for Initial Claims was 405k…we posted 404k.  The expectation for Continuing Claims was 3.710 million…the actual release was a bit lower at 3.67 million.

 

Are the problems in Europe fixed?

 

With yields rising in the Treasury market it might be tempting to believe that everything is getting better…that the sun is coming out and the rain is going away and that the Europeans are going to find a bunch of money and Germany won’t have to pay for other countries’ ability to retire early and that the flight to quality that hammered our Treasury rates is going to reverse, and that higher rates are just around the corner.  It’s a feel-good story that’s easy to believe when rates improve as much as they have in the last two weeks.  But is it true?

 

How much risk is there?  The Credit Default Swap market (CDS) offers us a way to gauge market sentiment on risk.  Credit Default Swaps are essentially a form of insurance.  They are a contract you enter with a counter-party whereby you pay them some fees up front and an annual premium measured in basis points, and in the event of default you get your par value back.  Most investors are not familiar with these instruments because they buy high quality bonds and rarely feel the need to buy “insurance” against default.  The nice thing about the CDS market is that we can use levels from this arena to get a feel for risk. 

 

A quick look at credit default swaps shows that the market is still pricing in a lot of default risk in Europe…specifically on Greek debt.  As a benchmark we can look at sovereign debt from the UK…which has a CDS spread of 84 basis points.  This means that market participants are willing to pay 84 bps annually to get “insurance” against default on UK bonds.  If you want to buy a CDS on UK debt it would cost you roughly $8,400 per million dollars insured…not much.  Germany’s CDS spread is 89 basis points...or $8,900 per million insured.  These aren’t shocking numbers…there isn’t much of a premium because there isn’t much perceived risk from these issuers. 

 

What does the market tell us about the “troubled” countries in Europe?   Here is a quick list of CDS spreads on some other countries in the region:

 

-         Spain cost 356 bps

-         Italy cost 425 bps

-         Ireland cost 705 bps

-         Portugal cost 1097 bps

-         Greece costs 5,197 bps

 

At a cost of 5,197 basis points this means that to get “default insurance” in the form of a credit default swap on Greek debt…it would cost you $519,700 in premiums PER YEAR to insure $1,000,000 worth of Greek debt.  That is what you need to know to get a feel for how the market feels about the situation.  Given that the market is still pricing in this much risk…it’s difficult for me to believe that Treasury yields are moving appreciably higher from here with this much risk still being priced into the system.  For the last few months every little hiccup out of Europe has caused a big flight to safety that drove our Treasury rates lower…I see no reason why that won’t continue. 

 

Buying opportunity

 

Two weeks of pullbacks in the Treasury market created a wonderful buying opportunity.  The 10 year Treasury yield had gotten as high as a 2.26% for a brief moment.  This morning we have a rally pushing prices higher and taking away some of the value that has been created recently.  The 10-year is currently trading at a 2.13%.  At the moment we can still get bonds a lot cheaper than we could two weeks ago…but the market seems to be recognizing that some of this selloff is a bit premature.

 

If you’ve been waiting on the sidelines for a better time to buy…this is the “better time” that you’ve been waiting for.  There is a lot uncertainty in the markets, rates are at the high end of the recent range, and if you have cash you have an opportunity to buy at better levels than we’ve seen in weeks.  

 

If you have any questions on this material just let me know.

 

Thanks,

 

Steve Scaramastro, SVP

800-311-0707

Market Update 10/6/11 _ Two Years

Market Update _ Two Years

Recently I was asked (told) not to write anything derogatory about politicians in these Market Update pieces anymore…at a minimum I need to not call out anyone by name for doing something stupid (like Barney _____ or Maxine ______) .  Given the current level of fiscal incompetence that is being displayed by our elected officials I’ve found this to be a difficult constraint to live with.  But since I like my job more than I like pointing out the incompetence of our elected officials I think I’ll try hard to live up to this challenge (order). 

Recent Fed activity

Bernanke spoke to the Joint Economic Committee of Congress this week.  This meeting is now one where a Fed Chairman who has no hope of fixing our problems, outlines what he is doing to a group of people who have no hope of understanding our problems.  As far as I can tell the only constructive thing that comes out of this meeting is that the rest of us get to hear what is on the mind of the Fed Chairman. 

For the first nine months of the year the Fed told us “all is well, growth is on the way in the second half, this slowness is transitory”.  We are now deep into the second half of the year and the Fed is realizing that the cavalry ain’t on the way.  Many of us didn’t believe that our troubles were transitory and now, two years into the “recovery” the Fed no longer believes it either. 

Two years into the “recovery” unemployment is still running at 9.00%

Two years into the “recovery” housing is still in the dumps.

Two years into “recovery” Initial Jobless Claims are still above 400,000 per week.

Two years in the recover the Fed is still searching for the Holy Grail of monetary policy that will jump-start the economy.

There is nothing ground-breaking in Bernanke’s speech this week…we’ve heard all of it before.  The general theme of the speech is that “we thought things would be better by now, clearly they are not.”  Growth is low, inflation is low, job growth is slow and likely to remain that way for the foreseeable future, and the government sector (state and local) continues to shrink which exerts a drag on the economy as they reduce the work force and curtail activities and spending.  There is no bright light at the end of the tunnel.

Tellin’ congress what to do

From there Bernanke moves on to beat the dead horse of fiscal responsibility.  He lists four points for policymakers to consider as they create tax and spending policies…he told Congress to:

1 –Achieve long-run fiscal sustainability (I hope he could say this with a straight face)

2 - Avoid fiscal actions that could impede economic recovery (i.e. don’t do anything stupid)

3 – Promote long-term growth and economic opportunity

4 – Improve process for making long term budget decisions, create greater predictability and clarity, while avoiding disruptions in the financial markets and the economy (sounds like a fairy tale)

He summed up with:

“In sum, the nation faces difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed.”

That is a nice way of saying “we are about to have the stagnation of Japan coupled with the violence of Greece if you don’t get a handle on this situation.”

His summary was good but I think it will be largely ignored by the electorate. 

The FOMC members are making their rounds on the speaking circuit and we’ll be hearing more from them as the month progresses.  As we hear from them I’ll be sure to decipher the Fed speak and send out a summary. 

If you have any questions or if there is anything I can be doing for you just let me know.

Steve Scaramastro, SVP

800-311-0707

 

Market Update _ Time to pay attention

 

 

Is it time to pay attention?

It has been a long time since we sat around in this office talking about what the Fed might do at the next meeting.  It’s not been uncommon in recent months for us to realize only after the fact that the Fed was meeting at all.  Monetary policy has been very well telegraphed as of late so there hasn’t been much reason to pay attention on the FOMC announcement date.  There has been no need to pick up the phone after recent FOMC meetings and frantically call all of your customers to let them know that the Fed did nothing, just like they’ve been saying they would do for the last two months.

That has begun to change.  The buzz on the street lately is the concept of “Operation Twist”.  Interestingly the Fed hasn’t really been talking down the plan in public…which leads to speculation that it might actually be in the works.  What this plan entails is the Fed pushing their Treasury purchases further out along the yield curve to push interest rates lower.  You heard that correctly…the Fed is widely seen as contemplating a plan that would push rates even lower than today’s levels.

I don’t know about the rest of you, but from where I sit I don’t see our number one economic issue as being that interest rates are too high.  It’s not like we’ve got truck-loads of growth that could be unleashed if only rates were a little lower. 

We know that the powers that be would love to ignite a refi wave, and that interest rates need to drop for the refi math to work…but rates aren’t the only factor involved.  It’s important to remember that while interest rates have fallen… so have home prices and FICO scores. 

If the Fed is successful in lowering the 10-year Treasury rate to 1.50% (or even 1.25% as some are calling for) it is still difficult for me to see that it will help borrowers who are upside down on their current home loan or who have poor credit to begin with.  It strikes me as one more ill-conceived program that might help around the edges but won’t have a material impact on our economic outlook.

What does the twist mean to me?

If you are a fixed income investor then the twist is not good news for you.  If they conduct this exercise the Fed will put their own money to work on 7 to 30 year part of the Treasury curve, push those rates lower, and push the people that were already there out of Treasuries and into something else.  As those investors migrate out of the Treasury curve they will be going go MBS, CMO’s, Agencies, SBA’s, stocks, commodities and many other asset classes in an attempt to generate returns.  This means that prices will go up and yields will go down in those arena’s. 

I don’t have a lot of people telling me currently that they are overwhelmed by the amount of yield they can get on their investments.  Yields are low, and will likely be lower still if the twist plan goes into effect.

Got Savings?

As we’ve gone through this cycle I’ve kept a close eye on a metric that the Bureau of Labor Statistics produces titled “Personal Savings as a Percentage of Disposable Income”.  In a nation where consumers drive 2/3’s of GDP this strikes me as an important figure.  Econ 101 tells us that there are only two things you can do with money: 1 – Save it, or 2 – Spend it.

For many years we spent it, and spend it, and spent it.  Then that wasn’t enough so we borrowed and spent that too.  This continued until America as a nation was saving less than 1.00% of their disposable income. 

At that point we had a highly leveraged consumer with very little in the way of a cash cushion.  Then the Great Recession hit and a large swath of consumers who had relied on plastic for all of their needs suddenly found themselves jobless, cashless, and creditless.  This is the type of shock that changes behavior for generations. 

13.8 million of these consumers are now out of work (9.2% of a 150 million person work force).  A total of 24.3 million people are in the “Under-Employed” column.  This includes both the unemployed and those who have had their normal hours cut back due to economic factors.   The “Under-Employed” rate was reportedly 16.2% in August.

Why do I care?

If we are waiting on an American consumer to start generating 2/3’s of our GDP again then we need to get a good look at where that consumer is right now.  With 16.2% of your work force not making enough money to support their normal lifestyle, how much can you realistically expect them to contribute in terms of consumption?  Their credit cards are gone, what little cash they had is gone, and the bills are still there but their jobs aren’t.  This is not the crowd that’s going to generate enough demand to put 13 million people back to work.

The remaining 125.7 million workers still have their jobs, but they too have been shocked.  Many of them were also highly leveraged…but they were lucky enough to keep their jobs through this storm.   Many of these people are now what we call “savers”.  They are de-leveraging, they are paying down credit cards, and loans, and they are building up a cash reserve.  At some point these consumers will become comfortable that they are in a good spot and will begin to spend again…but this will take time.  It’s not a transformation that the government can make happen with just a wave of the fiscal wand.  This is consumer psychology at work…and it has its own pace. 

The chart below shows consumer saving as a percentage of disposable income.

 

 

The Personal Savings chart jumps out at me as two distinct time periods.  The first is the 1960 to 1985 period which saw an average savings rate of 9.2%.  The second period is the 1985 to present which has a 4.2% savings rate. 

The low water mark for Personal Savings was 0.90% in 2001 (if measured on a month over month basis we actually saw some negative savings rates).  In July of 2007 this rate was 2.00%.  Then we began to get hammered by bad news and the savings rate jumped up to a high of 8.3% in April of 2008 and since has settled down in the 5.00% range. 

When looking at the 1985 to current environment keep in mind that our current level of interest rates is historically low, yet we have a savings rate that is above the average for the period.  With rates this low consumers should be spending like drunken sailors using a stolen credit card, right?  Right…but they aren’t.

Ask yourself this question…with rates at historic lows, why would anyone in their right mind ramp up their savings?  It doesn’t pay to save…the Fed is absolutely punishing savers with near zero rates on the short end…yet consumer savings rates are up. 

 They aren’t saving because they enjoy the dismal returns they are getting…they are saving because they are scared and deleveraging. 

Everyone knows someone who has lost a job.  Many know someone who has lost their home too.  Nobody wants to find themselves in that position with no way to defend themselves so they save.  The game is now about staying power. 

The solution to our problems lies not with government programs, but with those who remain employed.  They will eventually deleverage to the point where they are comfortable spending again.  Once that happens producers will respond to the sustained increase in demand by increasing output, which will lead to hiring, which in turn will lead to a drop in the number of under-employed.  Good things follow from there to the housing market and every other corner of our economy…but it will take time. 

Any attempt to rush this process with fiscal or monetary policy tricks is simply a game that creates the illusion of demand creation when in reality all it does is shuffle demand around a bit.

As I watch all of the programs we have created over the last three years it reminds me of the old saying “Oh what a tangled web we weave, When first we practise to deceive!”  In my view the more we manipulate our markets the harder it will be to ever set them straight again. 

That’s my rant for the day…now it’s time to sit back and wait to hear from the Fed.  They release their statement at 2:15 PM Eastern.  I’ll be in touch after we hear their thoughts.  If you have any questions or if there is anything I can be doing for you just let me know.

Steve Scaramastro, SVP

800-311-0707