Yoga with Brad and Larry

In a timely and somewhat interesting paper, economists Brad DeLong and Larry Summers argue that fiscal policy has an important role to play when monetary policy is constrained by the zero bound on interest rates. From the abstract:

“This paper examines logic and evidence bearing on the efficacy of fiscal policy in severely depressed economies. In normal times central banks offset the effects of fiscal policy. This keeps the policy-relevant multiplier near zero. It leaves no space for expansionary fiscal policy as a stabilization policy tool. But when interest rates are constrained by the zero nominal lower bound, discretionary fiscal policy can be highly efficacious as a stabilization policy tool. Indeed, under what we defend as plausible assumptions of temporary expansionary fiscal policies may well reduce long-run debt-financing burdens. These conclusions derive from even modest assumptions about impact multiplier, hysteresis effects, the negative impact of expansionary fiscal policy on real interest rates, and from recognition of the impact of interest rates below growth rates on the evolution of debt-GDP ratios. While our analysis underscores the importance of governments pursuing sustainable long run fiscal policies, it suggests the need for considerable caution regarding the pace of fiscal consolidation in depressed economies where interest rates are constrained by a zero lower bound.”

Of course, it’s too large of a paradigm shift for them to admit, for example, that (1) fiscal and monetary approaches are largely interchangeable insofar as additions to and subtractions from the stock of net financial assets go, or (2) that Clinton-era Rubinomics “succeeded” thanks to ongoing and demographically supported credit expansion in the private sector (and was an utter disaster for U.S. dollar-dependent entities such as Argentina, Mexico, Russia, and Asian Flu countries).

Their paper extends earlier work done by sympathetic economists on fiscal policy in low interest-rate environments. While it offers the right policy prescription, it’s also an effort to preserve and protect some prevailing but defective macro models.

One particular point of interest is that DeLong and Summers cite MMT stalwart Randy Wray on page three, however briefly. Fortunately, fellow MMT economist Bill Mitchell posted a critique of the zero-bound or ‘liquidity trap’ argument just yesterday, concluding:

The reason the mainstream promoted monetary policy to the fore was because they were really advocating smaller government and more free market space. Hence they had to undermine the case for fiscal policy. In doing so, they have created three or more decades of persistent underutilisation of labour resources in most nations; virtually zero growth in per capita incomes in the poorest nations; and set the World up for the current crisis.

By continuing to see quantitative easing as the solution, the more progressive mainstream economists have also caused the current crisis to be extended.

Fiscal policy expansion is always indicated when there is a spending gap. It is a direct policy tool ($s enter the economy immediately) and can be calibrated and targetted with more certain time lags. Liquidity trap or not, fiscal policy is the best counter-stabilisation tool available to any government.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. SCM is not affiliated with or related to Symmetry Partners, LLC. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment. We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice.

Like Diet & Exercise for Pneumonia

An important post at FT Alphaville from Izabella Kaminski regarding looming capital tightening at European banks this summer (bold passages are Kaminski quoting economist Richard Koo):

As a practical matter, the only way banks can satisfy the new capital requirements if raising capital is difficult is by reducing the denominator in the capital ratio: total assets. If all banks try to do that at the same time, the result will be a destructive credit crunch.

So, no new capital = need to sell-off assets = brand new credit crunch.

Hardly constructive.

And that, Koo says, is exactly what happened when stricter capital rules from the BIS were introduced in 1997 in Japan:

Although Japan’s bubble burst in 1990, it was not until October 1997 that the economy experienced a serious credit contraction. The decision by the Ministry of Finance’s Banking Bureau to unveil the details of new BIS-based capital rules on 1 October that year—a time when most Japanese banks were struggling under the weight of bad debts—triggered a destructive credit crunch. Discussions about the new BIS standards had been ongoing for a number of years, but it was the announcement of the specifics on new rules in October 1997, when the bubble’s collapse had left Japanese banks in an extremely weakened state, that prompted a major credit contraction.

It’s perhaps no coincidence then that the first mention of the [stricter capital rules for European banks] coincided with a marked deterioration of the crisis in the summer of 2011. Also, coincidentally, the moment when Italy became fully ensconced in the quagmire too.

It’s surprising in that context, says Koo, that no-one has yet called for a revision of the rule and/or government-led capital injections into the banking system ahead of the June 2012 deadline to discourage further asset sell-offs.

…not scrapping the [stricter capital rules], says Koo, could be the equivalent of telling a patient with pneumonia to do some exercise and to go on a diet.

While it’s possible that Europe can limp through the twin shoals of tighter capital requirements and the risk of private-sector haircuts on much greater swaths of troubled government debt, both of which will lead to renewed financial crisis and contagion, it seems just as possible that it will threaten to smash itself between the two.

As a result, we decided today to take off clients’ long positions in European equity funds for the time being, booking very small gains in the European Equity Fund (EEA) and the SPDR Euro STOXX 50 ETF (FEZ) since late January. While it may be premature, Europe still looks to us like a classic case of risk  outweighing potential reward.

Investors must also keep in mind that the European Central Bank’s Long-Term Refinancing Operation (LTRO) offered loans to eligible banks for no longer than three years. The LTRO, largely a life-support measure for bank and government balance sheets, will need to be extended, probably more than once, for European financial markets and economies to remain stable.

If the ECB issued sufficient net financial assets, and/or national governments were permitted to run large enough deficits, financial stability and economic growth would both be possible. But the current situation in Europe (as well as the United Kingdom) is eerily reminiscent of the lead-up to the Great Depression, when a nominal gold price target that was probably half of what is should have been—or said another way, a chronic and substantial shortage of net financial assets—forced national economies and their central banks into a game of musical chairs that eventually came unhinged.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. SCM is not affiliated with or related to Symmetry Partners, LLC. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment. We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice. Both EEA and FEZ positions were liquidated today in the accounts of clients holding them. Neither the firm nor its principals currently own EEA or FEZ.

Near-Term Looking Rosy, Longer-Term Not So Clear

One of our firm’s recession models, based on the Philadelphia Federal Reserve’s State Leading Indices, is now putting a near-zero percent probability on a U.S. recession in the next six to 18 months given the January 2012 readings. This is a sharp turnaround from the recession warning triggered in August 2011:

Exhibit 1 – Symmetry Capital Recession Model

While that probability is sure to fluctuate in the months ahead, there are some interesting facets to the underlying data, and some caveats for the longer term outlook.

  • The current outlook for all 50 states is positive, an event that has only occurred in 11% of the monthly observations since January 1982.
  • At 2.29, the median state outlook is in the top quintile of monthly observations since 1982.
  • The median is higher than its last peak in the second half of 2003 and its prior high of late 1999 (Exhibit 2).
  • Historically, U.S. GDP has almost always been positive when the median outlook is at current levels.

Exhibit 2 – Median State Leading Index and U.S. GDP

This report continues a string of economic surprises that have unfolded since late 2011:

  • In late summer 2011, the U.S. Congress abandoned (however temporarily) its hellbent intent to welch on existing financial commitments, and U.S. budget deficits have remained high.
  • In the fourth quarter of 2011, The European Central Bank (ECB) forcefully (but quietly, given the Continent’s morbid fears of waking the ghosts of Weimar) committed to ring fencing the government debt of Italy and Spain for at least the next three years through its Long-Term Refinancing Operations (LTRO).
  • Japan’s economy and Asia-based supply chain linkages have recovered following the natural and nuclear disasters in Japan.

All in all, the immediate economic outlook looks fairly upbeat. There are some caveats though:

  • The post-2008 recovery (as well as the strongest GDP readings during President George W. Bush’s administration) have been accompanied by significant federal deficits. A resurgence of irrational deficit/debt phobias and policy prescriptions poses a significant risk to markets. Given that 2012 is an election year, perhaps Congress will take a more constructive (or at least less dramatic) approach to fiscal affairs than it did in 2011.
  • It’s speculative at this point, but given recent income improvements, the current tax season may take a bite out of those currently large net budget deficits, leading to an economic soft patch at around the same time that equity markets typically start their ’summer break.’
  • As economist Diane Macunovich has demonstrated, demographic shifts in the U.S. do not augur well for domestic GDP in the rest of this decade (see Exhibit 3). The proportion of young adults of household-formation age is set to begin dropping sharply. Thanks to the large current crop of ‘boomerangers,’ there may be significant pent-up demand for household formation that would be unleashed if employment and incomes continue to improve. But such a possibility remains highly dependent on a continuation of easy fiscal policy in our view, and is unlikely to completely offset the negative effects of a sharp contraction in this age group.
  • A widely under-appreciated risk (hat tip to Warren Mosler) is the threat of more private-sector haircuts for holders of troubled European government debt. However one might feel about the fairness of such an approach, it would impose a severe shock on the asset side of banks’  balance sheets, leading to a replay—and perhaps an intensification—of the global market turbulence and stress caused by Greece’s debt travails. If unmanaged, it has the potential to threaten the global payments system as badly as the collapse of Lehman Brothers and near-collapse of AIG did in 2008. That would completely undo the benefits realized thus far from the ECB’s LTRO, which already suffers from the extreme policy conservatism of the European Union.
  • It’s also important to realize that Europe is still wearing the fiscal straitjacket rather tightly, which limits the ultimate effectiveness of the ECB. As long as this continues, it will pose a risk to the EU economy. It’s important to note that the UK government is making similar mistakes, with similar effects.
  • China’s economic growth rate will continue to slow. The extent to which this impacts global financial markets and the world economy remains to be seen.
  • And of course, there are always the ‘unknown unknowns.’ Japan in 2011 and the attacks of September 11, 2001 are good examples.

Exhibit 3

Source: Diane Macunovich

Our Current Asset Class Views

In terms of investment assets, we think it’s worth weighing in on the recent back up in U.S. Treasury yields, given the loud told-ya-so’s from the Death-of-the-U.S.-dollar-and-American-way-of-life Cassandra Chorus. While we have defended long-term Treasury yields in the past, they are much less attractive (at least at this point in time, but if policymakers lead us the way of Japan, that would change) at sub-2% on the 10-year and circa 3% on the 30-year. Furthermore, the recent string of upside economic surprises strongly argues for higher yields. However, this is not the beginning of some fancifully imagined “end,” and we would be likely to add significantly to long bonds once again for the appropriate clients if 30-year yields were to re-approach the 4% level or higher.

In the current environment, non-sovereign corporate credit looks interesting to us, although spreads have come in dramatically since the second half of 2011, and a strengthening dollar could present a meaningful risk to riskier credits (high-yield to some extent, but externally denominated emerging-market debt especially). And as attractive as the world of preferred stocks has been since the last forceful hiccup in Europe, the risk of more private sector haircuts could cause renewed turmoil in that asset class due to intensifying concerns over banks’ balance sheets (financial companies are a significant proportion of preferred issuers). Such an event might present an opportunity judging by policymakers’ and regulators’ behaviors since 2008, but for current preferred holdings, attention to risk seems warranted.

Among equities, we continue to believe that Japan presents a rare opportunity. Although its overall population growth is nothing to write home about, its internal age structure should be in the years ahead (Exhibit 4). And after twenty bitterly disappointing years for Japanese equity investors, its stock markets are ridiculously cheap. One must always be attentive to exchange rate risks and the risks associated with exposure to a single country—the 2011 disasters are instructive in this regard—but the current risk-reward calculus makes Japan a no-brainer in our view.

Exhibit 4

Source: Diane Macunovich

This leads us to one prediction that I have total confidence in—if Japan’s economy improves as expected over the coming decade, the Japanese Government Bond zombie-vigilantes will shout victory from the rooftops as domestic interest rates rise in Japan. However, if they do so while ignoring an improving economy and equity markets and the fact that their predictions of inflationary collapse aren’t materializing, then they’re being completely disingenuous. Take their words with a grain-of-salt chaser, or better yet, ignore them.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. SCM is not affiliated with or related to Symmetry Partners, LLC. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment. We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice. Neither the firm, its principals, or its clients (in accounts which SCM manages) own shares of Lehman Brothers, AIG, or any other issuer or specific security mentioned. Some clients of the firm own long-term U.S. Treasuries and/or Japanese equity investments.

A Disturbance in the Force

A Jerry-Maguire like shot emanated from Goldman Sachs yesterday. Greg Smith, an executive director and longtime employee of the firm, published a stinging resignation letter in the New York Times:

I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.

The rest of the letter is heavy on drama, but also passion and emotion—Smith clearly cares about the firm and its direction. We can only assume that during his successful decade-plus stint at Goldman, he has put away a large enough financial cushion (and/or has a big enough book deal in the works!) to absorb both the resulting legal fees and the possibility that he just committed career seppuku.

Far more important to the rest of the galaxy was this eerily similar and closely timed resignation: http://www.thedailymash.co.uk/news/society/why-i-am-leaving-the-empire%252c-by-darth-vader-201203145007/

Neither the firm nor its clients (in accounts that the firm manages) presently hold or intend to hold positions related to Goldman Sachs.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. SCM is not affiliated with or related to Symmetry Partners, LLC. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment. We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice.

The Three True Interview Questions

Good, interesting post by George Bradt at Forbes, who argues that all interview exchanges answer one of three questions:

The only three true job interview questions are:

1.  Can you do the job? [Strengths]
2.  Will you love the job? [Motivation]
3.  Can we tolerate working with you? [Fit]

…every question, however it is phrased, is just a variation on one of these topics: Strengths, Motivation, and Fit.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. SCM is not affiliated with or related to Symmetry Partners, LLC. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice.

The UK Has Run Out of Money

File under preposterous utterances—UK Chancellor of the Exchequer, George Osborne, believes his government, the monopoly producer of Great British Pounds, which are essentially created out of thin air, has somehow managed to run out of them (hat tip to Warren Mosler). According to UK newspaper The Telegraph (emphasis added, bold):

The Government ‘has run out of money’ and cannot afford debt-fuelled tax cuts or extra spending, George Osborne has admitted.

In a stark warning ahead of next month’s Budget, the Chancellor said there was little the Coalition could do to stimulate the economy.

Mr Osborne made it clear that due to the parlous state of the public finances the best hope for economic growth was to encourage businesses to flourish and hire more workers.

“The British Government has run out of money because all the money was spent in the good years,” the Chancellor said. “The money and the investment and the jobs need to come from the private sector.”

This statement is so astoundingly wrong that a well-informed and daring-enough media outlet should be able to quickly rip it to shreds, along with Osborne’s credibility. Unfortunately, most of the media is just as ill-informed on the subject as he is, as evidenced by the use of ”admitted” in the quote above, as well as the following poll question which excluded any choice that reflects the actual realities of Britain’s fiscal and monetary operations (e.g., ”The UK government cannot run out of the money that is is the monopoly and near-zero cost supplier of”).

What should George Osborne do to provide a tax cut?

Tax the rich more to allow the income tax rate to be lifted to £10,000

Borrow more and worry about reducing national debt in future years

We can’t afford any tax cuts 

Meanwhile, the latest economic data out of the UK have been welcomed with subtitles like:

“Least downbeat outlook since April 2010″ for household finances, even though the Index has remained stuck between the low 30’s and low 40’s since the global recession ended (a positive outlook has a value of more than 50).

Business Expectations Index recorded single biggest monthly rise in survey history,” while the level remains rangebound about 10% below its level of the prior decade.

Meanwhile, the UK labor market continues to look stagnant despite a slight improvement in January, remaining at the lower end of a decline that began around the same time as the passage of concerted austerity measures (fortunately, at least one UK media outlet has been able to discern that connection).

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. SCM is not affiliated with or related to Symmetry Partners, LLC. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice.

Huebscher: Misreading Reinhart & Rogoff

Bravo, Bob Huebscher of AdvisorPerspectives.com!

Bob has provided a sober and sorely-needed critique of the popular misapplication of economists Carmen Reinhart and Kenneth Rogoff’s (R&R) recent empirical studies on government debt.  

If the rallying cry for deficit reduction rests on an intellectual framework, it would be the work of Carmen Reinhart and Ken Rogoff, whose book, This Time is Different, has been hailed for its exhaustive historical study of financial crises.  A key finding of those scholars – that economic growth slows once the ratio of debt-to-GDP exceeds 90% – has been widely cited by those calling for decreased government spending. 

But those calling for deficit reduction have largely ignored a number of caveats that Reinhart and Rogoff gave with respect to their 90% threshold, and as a result many warn that the US faces the imminent danger of a Greek-like sovereign-debt crisis.

He also makes the critical point that people should not infer causation—i.e., high government debt leads to slower economic growth—from R&R’s work. In fact, the association between high government-debt levels and slow GDP growth could run the other way, or they could both be driven by other variables that R&R didn’t look at. (As we’ve pointed out many times, the role of population age structure has been largely overlooked in macroeconomic analysis.)

These kinds of critiques of R&R and popular interpretations of their work are long overdue, but still very relevant. (Martin Wolf took a nice stab at it, registration required, in September 2011.) We would add a few additional criticisms:

  • R&R did not distinguish between sovereign (debt issued in domestic, inconvertible currency) and non-sovereign (debt issued in, or pegged to, external or other forms of hard currency) governments.
  • Prevailing macroeconomic models still do not account explicitly for the fact that under a soft currency system, government deficit spending and debt constitute private sector saving and net financial assets.
  • Finally, although Bob obtained much of his ammunition from an interview with Rogoff, R&R haven’t been completely innocent of letting the “90%” and similarly bad memes spin out of control.

You can read our prior R&R critiques and related posts here:

http://symmetrycapital.net/index.php/blog/2011/09/a-cechetti-craptacular/

http://symmetrycapital.net/index.php/blog/2011/08/sp-called-on-the-carpet/

http://symmetrycapital.net/index.php/blog/2011/01/what-pimcos-angle/

http://symmetrycapital.net/index.php/blog/2011/08/el-erian-policy-dithering-will-fuel-crisis/

http://symmetrycapital.net/index.php/blog/2011/06/help-help-im-being-repressed/

http://symmetrycapital.net/index.php/blog/2010/07/when-smart-people-are-wrong/

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice.

EU Agreement: Bad for Germany, Bad for the World

Summary version—full article available at Seeking Alpha: http://seekingalpha.com/article/312904-eurozone-agreement-bad-for-germany-bad-for-the-world

At this week’s European Union summit, the 17 nations of the euro currency bloc, along with a few hopeful entrants, agreed to Germany’s condition of tighter, integrated fiscal oversight of national budgets.

The problem with the planned arrangement is that, like all previous attempts to resolve the eurozone’s government debt crisis (sovereign debt is is a misnomer for eurozone), it is doomed to fail.

The German government has become a riskier credit as a result of this week’s agreements. And that indicates that while Germany got what it wanted, what Germany wants is wrong for Germany, wrong for Europe, and wrong for the world.

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice.

Do Something Good Day

Today is the birthday of a close friend from my Villanova b-school days, Jaron Taaffe, who passed away unexpectedly at the age of 28 in 2007, shortly after becoming engaged. He had been instrumental in developing the concept of Symmetry Capital, and was almost a founding co-partner. At Jaron’s memorial service, his older brother Damon asked us all to make December seventh ‘do something good day’ (an article that Damon wrote about his brother in 2009 is available here). To honor Jaron, we try to do some good today and every day, and encourage others to do the same.

Wherever there is a human being, there is an opportunity for a kindness. 

Seneca, Roman Philosopher

RIP, friend.

Treasury Debt Ceiling Looming Large

According to the Treasury’s daily statement for the last day of November, total public debt subject to the Congressional debt limit of $15.194 trillion is now $15.067 trillion—only $127 billion (less than 1%) away. At the current monthly run rate of around $90 billion, the ceiling is likely to be reached early in 2012.

The debt agreement from August of this year empowers President Obama to raise the limit by another $1.2 trillion. However, that only buys about an additional 13 months, depending upon how economic and financial variables shake out in the quarters ahead, and the sequestration feature of the law is designed to offset every dollar of that increase beginning in 2013.

In other words, unless federal politicians can do some slick backstepping in the next 13 months—which the prospect of an election year makes all the more challenging, I think—then the enlarged federal deficits that have made our economy the envy of the austerity-smitten world of late will rapidly contract, with severe financial and economic consequences to follow, including even higher debt-to-GDP levels (unless, of course, the private sector makes an unexpectedly swift return to health and takes the credit baton in hand once again—an outcome we don’t advise holding one’s breath for).

IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (SCM) is a Pennsylvania registered investment advisor that offers discretionary investment management to individuals and institutions. This publication is for informational, educational, and entertainment purposes only. It is not an offer to sell or a solicitation to buy securities, or to engage in any investment strategy. Past performance is not indicative of future results. This material does not take into account your personal investment objectives, your personal financial situation and needs, or your personal tolerance for risk. Thus, any investment strategies or securities discussed may not be suitable for you. You should be aware of the real risk of loss that accompanies any investment strategy or security. It is strongly recommended that you consider seeking advice from your own investment advisor(s) when considering any particular strategy or investment.  We do not guarantee any specific outcome or profit from any strategy or security discussed herein. The opinions expressed are based on information believed to be reliable, but SCM does not warrant its completeness or accuracy, and you should not rely on it as such. All views and positions are subject to change without notice.