Hong Kong to U.S: Please Don’t Blow our Bubbles

The head of the Hong Kong Monetary Authority challenged San Francisco Federal Reserve President Janet Yellen on U.S. monetary policy, suggesting that low interest rates and quantitative easing are creating big headaches for Asian economies.

“The question one really has to ask is to what extent quantitative easing is necessary. Is the dosage right, because $2 trillion is a lot of money in the banking system, it’s high power money,” said Norman Chan, monetary authority chief executive. He and Ms. Yellen were at a forum sponsored by the Institute of Regulation & Risk. Ms. Yellen gave a speech that touched on how policymakers should address future asset bubbles.

“In Asian economies, Hong Kong included, we have seen a very massive inflow of funds that is explainable by the very low global interest rates and coupled with this huge amount of quantitative easing,” Mr. Chan said. “This question of potential risk of asset bubbles forming if this is to continue for a long period of time is a big challenge for us,” he said to Ms. Yellen.

Ms. Yellen responded that the measures the Fed took were necessary to avoid a “black hole of deflation,” and that the economy seems to be on the mend. But moving too quickly could endanger the recovery.

“I am well aware of the concern you have here, and that many Asian economies have, about the capital inflows and agree that low interest rates are triggering capital outflows,” she said. “Asia has recovered more quickly than the U.S. has, and it’s logical you’d see more impact on your asset prices.”

She promised that “we need to at a minimum monitor developments in asset markets much more carefully than we did going into the crisis.”

But she denied that quantitative easing made things worse in terms of asset bubbles than simply lowering interest rates to zero. “The impact on Asia and on capital flows will be identical,” she said, with or without the Fed purchases of long-term mortgage and government debt.

Mr. Chan was so insistent he asked Ms. Yellen about the topic twice, and later called the issue “very contentious.”

Hong Kong has seen property and stock prices rebound sharply over the past six months, worrying some that new dangerous price bubbles are forming even at the early stages of the economic recovery.

“I’d feel a more comfortable at the present price levels if U.S. interest rates were at 2% or 3% for depositors,” Mr. Chan said. “I don’t have a very vigorous model to justify that kind of thinking. I just have a gut feeling,” he said.

Hong Kong’s currency has long been pegged to the U.S. dollar, which means Mr. Chan has effectively no control over interest rates here. The Hong Kong Monetary Authority’s chief task is simply to maintain its peg to the U.S. dollar.

“It doesn’t help us in Hong Kong where we have no independent interest rate policy instruments. Our hands are tied,” he said. The HKMA has tightened mortgage loan requirements to cool the housing market. Mr. Chan said those efforts have been successful.

But he says the bubbly situation isn’t much better in Asian countries that can adjust target interest rates. That’s because raising rates will attract even more money from international investors seeking higher yields than offered in the U.S., driving asset prices higher still. That’s already happening in Australia, which has raised rates twice in recent months.

An audience member who identified himself as from Morgan Stanley asked Mr. Chan how Hong Kong could justify the peg to the U.S. dollar given that Hong Kong’s economy is so much closely tied to China’s. There was applause at the question.

“One has to be very careful,” Mr. Chan said. “Monetary stability is like your personal health, you don’t appreciate it until you lose it.” He also said that Hong Kong’s stock market has risen the same amount as other Asian markets including Singapore’s, South Korea’s and Malaysia’s which have more flexible currency regimes. Thus it’s not the peg that’s to blame for possible bubbles.

Mr. Chan took over for the long-serving Joseph Yam in September. Mr. Chan hosted meetings today with Ms. Yellen and her Fed colleague Kevin Warsh.

Oxford Word of the Year 2009: Unfriend

verb – To remove someone as a ‘friend’ on a social networking site such as Facebook.

Ex. “I decided to unfriend my roommate on Facebook after we had a fight.”

A list of new words:

Technology

hashtag – a # [hash] sign added to a word or phrase that enables Twitter users to search for tweets (postings on the Twitter site) that contain similarly tagged items and view thematic sets

intexticated – distracted because texting on a cellphone while driving a vehicle

netbook – a small, very portable laptop computer with limited memory

paywall – a way of blocking access to a part of a website which is only available to paying subscribers

sexting – the sending of sexually explicit texts and pictures by cellphone

Economy

freemium – a business model in which some basic services are provided for free, with the aim of enticing users to pay for additional, premium features or content

funemployed – taking advantage of one’s newly unemployed status to have fun or pursue other interests

zombie bank – a financial institution whose liabilities are greater than its assets, but which continues to operate because of government support

Politics and Current Affairs

Ardi – (Ardipithecus ramidus) oldest known hominid, discovered in Ethiopia during the 1990s and announced to the public in 2009

birther – a conspiracy theorist who challenges President Obama’s birth certificate

choice mom – a person who chooses to be a single mother

death panel – a theoretical body that determines which patients deserve to live, when care is rationed

teabagger -a person, who protests President Obama’s tax policies and stimulus package, often through local demonstrations known as “Tea Party” protests (in allusion to the Boston Tea Party of 1773)

Environment

brown state – a US state that does not have strict environmental regulations

green state – a US state that has strict environmental regulations

ecotown - a town built and run on eco-friendly principles

Novelty Words

deleb – a dead celebrity

tramp stamp – a tattoo on the lower back, usually on a woman

Notable Word Clusters for 2009:

Twitter related: Tweeps Tweetup Twitt Twitterati Twitterature Twitterverse/sphere Retweet Twibe Sweeple Tweepish Tweetaholic Twittermob Twitterhea

Obamaisms: Obamanomics Obamarama Obamasty Obamacons Obamanos Obamanation Obamafication Obamamessiah Obamamama Obamaeur Obamanator Obamaland Obamalicious Obamacles Obamania Obamacracy Obamanon Obamalypse

Go Hawks

Atlanta Hawks won Portland Blazers and moved to #1 in the conference for the first time in years~~

Hilarious!!

Long standing readers of TBP know I like to try to slip in a lesson or two. The humor and money making market commentary is used as a device to keep you coming back and learning, despite yourself.

Today, I require no pretense for the edumacation. Instead, I will demonstrate one of my favorite peeves, the folly of Confusing Correlation with Causation, and I wll use but a single chart.

Courtesy of Overthinking It, those of you unfamiliar with the Correlation/Causation distinction will learn one of 2 things: Either the lack of really good modern rock songs recently is causing oil production to falter, or conversely, why peak oil has given us Boy Bands, Madonna, and Clearchannel Radio.

Those of you who understand causation can merely smile . . .

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Why We’re All Out of Good Songs

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You can see Crude Oil Production really took a dive after Dark Side of the Moon . . .

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Source:
The Hubbert Peak Theory of Rock, or, Why We’re All Out of Good Songs
Overthinking It, September 23rd, 2008
http://www.overthinkingit.com/2008/09/23/the-hubbert-peak-theory-of-rock-or-why-were-all-out-of-good-songs/

Why TARP lose money?

“We need to temper or be realistic about our expectations, a dollar-for-dollar return is just highly unrealistic. It’s almost certainly going to be a loss.”

-Neil Barofsky, TARP Watchdog

Anyone surprised at all about this?

“Neil Barofsky, the federal watchdog for the $700 billion financial industry bailout, said the program will “almost certainly” result in a loss to U.S. taxpayers.

Barofsky, the special inspector general charged by Congress with policing the Troubled Asset Relief Program, also said he’s conducting 65 investigations of possible fraud. The former federal prosecutor has pressed the Treasury Department to be more open about the rescue of companies including insurer American International Group Inc. and automakers General Motors Co. and Chrysler LLC.

“Tens of billions of dollars are likely to be lost on the automotive bailout,” Barofsky said. In addition, some banks that received TARP money are failing, so the aid they received will be wiped out.

Barofsky also said he is working on a review of how the government exercises its rights as a shareholder in the auto companies, Citigroup Inc. and other firms in which it holds large stakes.

Your mileage losses may vary . . .

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Source:
Barofsky Says TARP ‘Almost Certainly’ Will Bring Loss
Robert Schmidt
Bloomberg, Nov. 12 2009
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a44MGDYGcZHk

http://www.ritholtz.com/blog

How asset or wealth managers make money?

Banking has become very competitive and clients with money, especially in the area of asset management, are very important. Clients tend to be more loyal to a representative than to a bank or corporation. So, banks need good RMs to bring in clients with money so that the bank can make money on that money. A bank makes money by investing money. If they invest your money for you, they can earn fees of about 1% of the total invested. For example, a private wealth manager who has clients with total wealth of about $60 million that is invested in the guys firm/bank. The company earns about 1% on this (about $600,000) and he is paid an annual salary of about 40% of this amount (i.e., about $240,000). His main job is to keep his clients happy so that they don't take their accounts elsewhere. And if he wants to make even more money, he needs to find new clients (even if that means, which it often does, stealing them from other banks).

Let's start with a joke

Friend of mine tried to cancel something on her web, here comes a pop-up.

Pop-up: Do you want to cancel? [ok] [cancel]

Friend of mine: [cancel]

Pop-up: Do you want to cancel? [ok] [cancel]

Friend of mine: [cancel]

it keeps popping up....

Me: why don't you click [ok]!!??!@##$@#$