Category Archives: Consulting

FOMCGPT Is Better Than FEDERAL RESERVE

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Federal Open Market Committee (FOMC) sets policy for the Federal Reserve.

Data to Monitor Once A Month \\ 50 Plus Year Average \\ Acceptable Range

  1. Consumer Price Index YOY (CPY) Avg 3.8% Range 3%-5%
  2. Case Shiller Home Price Index YOY (HPY) Avg 5.29% Range 3.5%-7%
  3. Unemployment Rate (UR) Avg 5.73% Range 4.5%-7%

Tools Available

  1. Raise/lower Federal Funds Rate if CPY is too high/too low
  2. Raise/lower Federal Mortgage Rates if HPY is too high/too low
  3. Raise/lower Quantitative Easing if UR is too low/too high
  4. Auction Off Troubled Financial Institutions

Financial Institution Tests

  1. Uninsured deposits / domestic deposits < 50%
  2. Loans and held-to-maturity securities / total deposits  < 50%
  3. Financial Institutions that fail both tests for two consecutive quarters are auctioned off.

RESULT: No peer pressure, no human error, no recessions!

FOMCGPT(tm) To The Rescue!

A ChatGPT bot (FOMCGPT) has been designed to generate Federal Reserve policy once a month incorporating the algorithm above using easily modifiable configuration files. It is being tested using Federal Reserve FRED data from April 2021 to April 2023.

The Federal Reserve is Topsy Turvy [Yes I am old] But Can Be Improved

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The Federal Reserve has been slow to act for fear of market reaction. Here is proof.

  1. Kept balance sheet high for too long. Quantitative Easing (QE) has gone on too long.
  2. Drank the unemployment Kool-Aid and ignored other signals.
  3. Looked at CPI as temporary and ignored Wage Inflation.
  4. Did not increase frequency of meetings to once a month during tumultuous time.
  5. Reacted rather than be proactive.
  6. Targeted inflation at 2% when the previous 50 years averaged 2.5% inflation.

The Federal Reserve can take these steps to fix some things.

  1. Meet monthly.
  2. Reduce Balance sheet aka stop QE.
  3. Increase interest rates 0.25 each month and avoid 0.50 increases.
  4. Assume recession is coming and be prepared to stop tightening.
  5. Set inflation target at 3%.
  6. Add non-voting younger University Economics Professors to board.

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#FederalReserve aka #Fed Discovers Gold – Fools Gold

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No.  I am NOT talking about the movie, Fool’s Gold.

foolsgold

I am talking about the Fed finding wealth and a strong economy where there is none.

Like the little boy who cried “Wolf!”,  the Fed keeps saying “The Economy is good!”

Here is the fool’s gold the Fed uses to keep saying :The Economy is good!”

1. Auto sales are up.  Well they were up until the recently released May report showed a drop of 6%.  The recent auto sales were propped up by easy credit but now they have run out of buyers.  Here are details.

http://www.reuters.com/article/us-usa-autos-idUSKCN0YN4K0

2. Home sales are up.  Well they were up until the June 1, 2016 report.  Again home sales have been boosted by easy credit and low interest rates until now. Here are details.

http://www.cnbc.com/2016/06/01/mortgage-applications-drop-because-of-rate-uncertainty.html

3. Unemployment is down.  Well unemployment has dropped to 4.7% but the recent jobs report announced June 3, 2016 showed a shocking one fifth the average number of jobs created.  Unemployment went down because more people have given up or are retired. Here are details.

http://money.cnn.com/2016/06/03/news/economy/us-economy-may-jobs-report/

=============

Here are the real concerns the Fed should be looking at.

1. Freddie Mac and Fannie Mae.  These firms have been using derivatives to hedge against interest rate changes and lost $475 million last year. Here are details.

http://www.marketwatch.com/story/freddie-mac-may-need-another-taxpayer-bailout-next-week-2016-04-29

2. US Productivity.  The statistics show it went down 1% in the first quarter and now one of the Fed members says it may go down again this month. Here are details.

http://www.reuters.com/article/usa-fed-evans-productivity-idUSU8N16O051

3. Corporate Bond Sales.  These are still high and may match last year’s record in order to finance other mergers. Here are details.

http://www.bloomberg.com/news/articles/2016-04-28/get-ready-for-a-big-wave-of-u-s-corporate-bond-sales-in-may

In summary, the 2008 bailout involved lower interest rates.  But the Fed should have raised interest rates in 2011 instead of maintaining the ridiculous 2% inflation target.  Here is how:

https://michaelekelley.com/2015/03/27/the-kelley-monetary-policy-rule/

Or if you want more information on whether a recession is coming or not, read this.

https://michaelekelley.com/2015/03/02/why-another-recession-is-coming/

==================

The Fed is chartered with controlling inflation and encouraging job growth.  One Fed member recently said they are too busy to add a third task aka improving the economy.  Well they have dropped the ball on job growth which would have improved the economy.  Here is what the Fed could have and still can do for job growth.

https://michaelekelley.com/2014/03/28/federal-reserve-can-create-jobs/

Good luck out there.

#Revenge Knows No #Religion Even In #Syria

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People that are so angry that they seek revenge are in a hate zone.

vader

REVENGE

Examples of haters that sought revenge include Adolf Hitler and Star Wars’ Darth Vader both of whom sought to eliminate an entire race and were not religious.

But why do so many terrorists seek revenge and appear to have religion?

RELIGION

First the religion part of the question.  Muslims will admit that the terrorists say they have a religion but in fact the beliefs of terrorists do not resemble Islam.

Secondly many terrorists are from Syria or are Syrian supporters.  Why?

SYRIA AND WISCONSIN

Syria is about the size of Wisconsin.  Imagine the Governor of Wisconsin decided he did NOT want to step down and really wanted to keep his power.  First he started bombing his adversaries and then started bombing everyone.  Next he started using chemical weapons against his citizens.  Finally outside parties started bombing its citizens.  What do you think the people in Wisconsin would do?

Wisconsinites would migrate to another state.  That is exactly what is happening with Syrians in Europe.

Meanwhile a small percentage of Syrians decided to take revenge for the people that bombed their cities for several years and destroyed their lifestyle.  This could be people that supported President Bashar al-Assad or people that did not support him.

Thus you have terrorists trying to get revenge against several countries.

SOLUTION

So how do we solve this crisis?  We stop bombing Syria and start rebuilding it.  Shouldn’t there be money in the Defense budgets to fix returning soldiers as well as rebuild the cities we destroyed?  Some will say that is going too far.  But can we agree to at least stop the bombing?

Can I have an Amen, Ameen or Shalom?

 

SQL Question – Use Case Statement or Cursors?

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Are you split over whether to use a CASE statement or CURSORS in your SQL code?

torn_photo

This article will help clarify your dilemma.

First of all let’s agree that both methodologies are useful for performing actions on a database table based on processing one SQL data row at a time.

Now let’s look at the main characteristics of each methodology.

CURSORS

Looks more complicated. Support costs are higher.

Best when working with multiple tables and complicated algorithms.

Here is an example of inserting into a second table using the first table.

This rudimentary example processed 25,000 rows in 45 seconds.

cursor_sql

CASE STATEMENT

Looks simpler.  Easier to maintain.

Best with select and where clauses used on a single table.

Here is an example of inserting into a second table using the first table.

This rudimentary example processed 25,000 rows in 137 seconds.

case_sql

CONCLUSION

Each methodology has its advantages and each can help you get where you are going.

Good SQL, good night.

Leveraged Loans Predict 2015 Crash

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Multiple charts exist which predict another recession soon!

us_overleveraged_201501

 

Normally I am a very positive person.   But recently I found not one but two charts which show we could have a repeat of the recent Great Recession.

The first chart above shows how the Federal Reserve and Quantitative Easing have allowed financial institutions to run wild again.  In summary, leveraged lending is out of control.   For two years, leveraged loans have risen as fast and to a greater level than 2007, the year before the Great Recession.

The New York Times reports that leveraged lending is greater and the associated rules more lax than in 2007.  Here is a portion of a news report.

What can’t be denied, however, is that standards in the leveraged loan market have become much looser in recent years. The companies that have taken out the loans are on average much more indebted than in recent years. Companies that have done deals this year have debt that is 4.9 times as large as their annual cash flows, measured using earnings before subtracting expenses like interest, taxes and depreciation, according to data from Standard & Poor’s Capital IQ. That multiple is up from 3.9 times in 2011 — and it is the same as the number for 2007, when the last boom in leveraged loans peaked.

This time around, however, one aspect of leveraged lending is much more aggressive. The special provisions within loan agreements that were once thought crucial for protecting creditors are fast disappearing. So far this year, 63 percent of leveraged loan deals lack such provisions, far higher than 25 percent in 2007, according to data from S.&P. Capital IQ. “Contractually, things are really at their weakest,” said Christina Padgett of Moody’s Investors Service.

You can read more details at one of these websites:

http://dealbook.nytimes.com/2014/11/04/a-recent-surge-of-leveraged-loans-rattles-regulators/?_r=0

http://www.zerohedge.com/news/2015-04-09/oil-hedges#comment-5977321

http://www.bloomberg.com/news/2015-01-06/private-equity-deals-spur-leveraged-loan-surge.html

~~~~o~~~~

A second chart shows that recent Dow Jones record increases also occurred in 2008.

http://en.wikipedia.org/wiki/List_of_largest_daily_changes_in_the_Dow_Jones_Industrial_Average

Unfortunately 10 out of 20 increases of 400 or more of the Dow occurred in 2008, the year of the last recession

~~~~o~~~~

Can another Great Recession be stopped?  No.  Apparently the Federal Reserve did not act fast enough nor aggressive enough in 2014 to stop the out of control leveraged loans.

To protect yourself, read this website:

https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

Thanks for reading this.

First Google Cars Will Be Free

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That’s right!  How about a free car?  But how is that possible?

google_car2

Remember when newspaper websites were free in the beginning?

That is because of all the advertisements.

With the Google Car you will have lots of time to see – ads.  And these ads will be displayed non-stop in the virtual reality space right in front of you.

The good news is this means the end of all those ugly billboards! You know like the 300 foot high ones between Atlanta and Macon, Georgia.

Finally our civilization has moved beyond billboards!

8 Things To Do When Recession Happens

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Yeah it is not a matter of IF but WHEN the next recession will happen.  Sorry.  You could go ride a roller coaster to get your mind off of it.  Or you could do these things.

rollercoaster

Recessions occur every 4 to 8 years in a society with capitalism and little regulation.  And since the last one was in 2008….

Here’s what you should do.

1. DON’T PANIC – Stay calm.  Most people will be doing one thing – panicking. You won’t.

2. THINK, THINK, THINK – Be smarter than the rest. Know when to sell, when to buy and, like Kenny Rogers, when to hold.

3. SET UP ALERTS – Get an E*Trade or other brokerage account and set up messages when Dow (DJIA) goes up 3% or goes down 3% in a day.

4. RECALIBRATE AT NOON EASTERN TIME – If you have time, think about your next sell or buy of what and for how much before the market closes.

5. IF UP, SELL – When there is a jump up in stocks, sell your stock and funds 25-35% at a time.  You may have to wait to use the money.   Time is on your side.

6. IF UP AND GOLD IS DOWN, BUY GOLD – Gold usually moves opposite of stocks, so buy gold or gold mining funds such as NEM which will move up when stocks crash.

7. IF UP, BUY SHORTS – Shorts are stock buys that you expect to go down.  Pick losers on purpose.  Also choose bearish ETFs such as PILS and TECS that rise if the stock price of pharmaceutical or tech companies goes down.

8. IF DOWN, WAIT – Remember we agreed to not panic.

There will be four 400+ gains or losses of the DOW before a recession happens.  Anybody can take advantage of them. And I know you will. (There have been 4 days in August and September 2015 with over 400 point ups and downs.)

Or you can go ride a roller coaster to get your mind off of the market’s ups and downs.

P.S. I care about you, but can’t be held responsible for your results.

Revised: 04/10/2016 DUG is volatile since oil producers are considering fixing output quantities.

Warren Buffett Is Completely Wrong About Clinton

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Warren may make great stock picks but he is not a politico.

buffettand hillary

Buffett has announced that Hillary Clinton will win the 2016 Presidential Election.

Not gonna happen and here is why.

 

His prediction is based on the list of divisive Republican Presidential candidates which has no standout candidate.  That much is obviously correct.

But his prize candidate, Hillary Clinton, has tons of baggage which will eliminate her.

First off she is too closely aligned with Obama who picked her as his Secretary of State.  Second, she has a black eye for messing up Benghazi as she left the State department.  Third, she is not known as a champion of the working class.  And fourth, she is aligned with old politics and business as usual.

What does this mean?  Americans are ready for change and the new majority of millennials and generation-x folk are looking for a new hero/heroine to lead the United States to the next level of hope and greatness.

Who can rise to the occasion?  Elizabeth Warren can.

elizabethwarrenShe fought harder than anybody for regulation of out of control banks. Elizabeth is not considered establishment.  She has a proven Congressional record of making progress not suppressing it.  Elizabeth fights for working class people.  And she is not aligned with Obama.

So Elizabeth Warren will be the next President of the United States.

Warren Buffett is not exactly winning when it comes to politics.  He picked Hillary in 2008.