What Is The Really Big Problem Facing The US?

Is it Big Banks or Big Government?

the_biggest_problem

Can you decide?

Can you do anything about either?

Yes you can.

You can vote for a constitutional amendment to reestablish campaign financing limits.  No one should be able to buy Congressional votes.  Then we will have our democracy back.

Then we the People, not the Rich, can control the size of Government and the size of Banks.

Don’t you want control?  Sure you do.

PS  Citigroup just moved its headquarters into the Capitol building with offices next to Congress.  Thus the drawing above is more accurate than we thought.  Oops.

Would You Pay 39% More Than The Asking Price?

Of course you wouldn’t pay 39% more.  But Pfizer recently did.

gold_coins

New York-based Pfizer (PFE) agreed to acquire Hospira (HSP).  Pfizer will pay $90 per share in cash, which represents a 39% premium to HSP’s closing price from the day before.  The companies put the deal’s enterprise value at about $17 billion.

This is a new definition for insane.

I wonder how much the executives of each company got to approve this deal.  I also wonder who will pay for this.  Hmmm

Here is another similar deal.

Richard Baker, chief executive, along with his investment firm, NRDC Equity Partners, relied heavily on borrowed money when it bought out another company recently.

Of the $1.2 billion that it paid for Lord & Taylor, only $25 million came in the form of equity [2%], with the remainder made up of debt financing, secured by the department store estate. [The New York Times]

When was the last time you bought something with only a 2% down payment?

For more information on the leveraged loan bubble, see this

https://michaelekelley.com/2014/12/20/leveraged-loans-predict-crash

Thanks

Pick the Exploding Kitten Caption

Can you name the correct caption?

exploding_kitten

Here are the choices.  Please pick your favorite.

1. Ay, caramba!

2. This world sucks!  I need to find a new one.

3. I’ve fallen and I can’t get up.

4. I guess I shouldn’t have put those fireworks in my back pocket and sat on the stove.

5. Springsteen, I’m on fire!

6. I’m burnin’ for you!  No, not you. You.

Hope you enjoyed this.  Thanks to Elan Lee and crew.

 

Pick The Funny Oscar Caption

The Academy Awards were great. Here is Oprah’s big moment.

oprah_lego_oscar

Now can you pick the funniest caption for her big moment.

1. I finally won my own Oscar!

2. What?  The Lego Movie song, Everything is Awesome, didn’t win?

3. Hey, this is yellow, not gold!

4. So this is not a real Oscar?

5. This is just the temporary one right?

6. Awesome!  They want me for the Lego Movie 2!

7. Get outta here!  No I mean get out of here!

Thanks for participating.

Can You Name The Office Caption?

Take a closer look at this picture.  Can you name the correct caption?

bat_caption

Here are the choices.  Please pick your favorite.

1. Pinata time!

2. Ring around the rosie!

3. Just the fax, man.

4. This is the last time this printer/fax machine jams.

5. To the moon, Alice!

6. Thank goodness we have 20 other 30 year-old printers.

7. I love my job. I love my job.

Hope you enjoyed this.  Thanks to MarketWatch.com and Office Space.

Fed Warns of Two Bubbles

Hidden in recent Fed remarks by Yellen, are fears that CDM and CRE are bubbles.

comm_real_estate_2015

CRE stands for Commercial Real Estate. In terms of CRE prices and change, the above chart from Gerdau shows investments across the country are soaring.

For example the General Motors building just sold for an amount that values it at $3.4 billion, the most expensive office building in the United States.

Also William Ackman and other investors purchased a penthouse apartment at One57 in Manhattan for over $90 million, the highest price ever paid in New York City, as an investment to flip for a profit.

The CRE bubble did not burst in 2008, but evidently is bigger now.

corp_debt_mkt_2015

CDM stands for Corporate Debt Markets also known as Debt Capital Markets. In terms of CDM, the above chart by Dealogic, dated February 5th, 2015, shows a 30% increase in the spread for the year.

Specifically, the average spread to benchmark on 30-year global debt issuance peaked at 193bps in January 2015, a 30% increase on January 2014 (148bps), marking the highest monthly average benchmark spread since October 2009 (206bps).

Here is exactly what the Fed minutes said on 2/19/2015.

“However, the staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets (CDMs), despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector.”

At least the Fed is aware of the bubbles and not totally focused on interest rates.

 

Burnt Toast

His Mom served burnt toast , but he was shocked when his Dad told this story.

toast
“When I was about eight or nine, my Mom burnt some toast .  One night what stood out in my mind was when she had made dinner for us after a very long and rough day at work. She placed a plate of jam and extremely burned toast in front of my Dad.  Not slightly burnt but completely blackened toast.  I was just waiting to see if anyone noticed the burnt toast and would say anything. But Dad just ate his toast and asked me if I did my homework and how my day was. I don’t remember what I told him that night, but I do remember hearing my Mom apologizing to Dad for burning the toast. And I’ll never forget what he said:

‘Sweetie, I love burnt toast.’

Later that night, I went to tell my Dad good night and ask him if he really liked his toast burned. He put his arm on my shoulder and said, ‘Your Mom put in a very long day at work today and she was very tired. And besides, a burnt toast never hurt anyone.  But you know what does? Harsh words!’


Then he continued to say ‘You know, life is full of imperfect things and imperfect people I’m not the best at hardly anything, and I forget birthdays and anniversaries just like every other human. What I’ve learned over the years, is that learning to accept each others faults and choosing to celebrate each other’s differences, is one of the most important keys for creating a healthy, growing, and lasting relationship. Life is too short to wake up with regrets. Love the people who treat you right and have compassion for the ones who don’t.’ “

Enjoy Life Now. 

Thanks to Victoria Potter and Tes Gold for sharing.

Can You Name The Water Caption?

Take a closer look at this picture.  Can you name the correct caption?

water_contest

Here are the choices.  Please pick your favorite.

1. City decided they needed more waterfalls.

2. City trying to be the Niagara Falls of California.

3. City wanted more surfing downtown close to shops.

4. City wanted to create 6 more jobs and lower unemployment rate.

5. City did not want new Pavillion flooded after record rain.

6. Pavillion removes water after ice rink melts.

7. Toilets backup after Chris Christie visits Pavillion.

8. Squeegee company demonstrates newest model.

Hope you enjoyed this.  Thanks to LA Times.

Fifty Shades of Stress

Are you stretched to the max like this dog?  You might be stressed.

stretch_dog

Maybe you need some me time or some alone time or some quiet time.

Or maybe some noise cancelling headphones.

No, better yet, you need to do some yoga like this dog is performing.

yoga_dog

Relax!  It is not the end of the world yet.

Thanks

 

Fed Inflation Target of 2% Is Abnormal

The Fed Fund Rate is at a historic low of 0.25, practically zero.  Why?

abnormal

Because the Fed has an Inflation Target of 2%.  Same as the World’s Central Bankers.

HISTORY

But that is totally abnormal when you look at the historical values of Inflation and the Federal Reserve (Fed) Fund Rate in the United States.

inflation_vs_fedfundrate

The 52 year average for the Fed Fund Rate is 5.45% and for Inflation is 4.01%.

That is a difference of 1.44%.  Notice the Fed Fund Rate is usually above the Inflation Rate.

If the Fed wanted the Inflation Target to be 2%, then the Fed Fund Rate should be 2% plus 1.44% or 3.44%.

Instead the Fed Fund Rate is 0.25% which should drive an Inflation Rate of 0.25% minus 1.44% or negative 1.19%.  That means deflation!  Oops!

For another opinion, look at this:

http://www.marketwatch.com/story/fed-sharpshooters-cant-hit-2-inflation-target-much-less-4-2016-02-18

UPDATE 2023/01/12

The Fed currently targets inflation of 2% over the longer run as measured by the annual change in the price index for personal consumption expenditures.

But Wall Street increasingly sees this goal as unrealistic in a post-pandemic world and that 3% is more realistic.

TROUBLE

Hold onto your hats, Ladies and Gentlemen.

FYI: The Fed Funds Rate is the rate charged banks to borrow money.  The banks in turn charge us 16% to 23% on credit cards for the use of that money.  Ouch!

If you want a better deal involving 6% and no banks, see my website.

https://michaelekelley.com/tag/crowdfunding/

SOLUTION

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

[Thanks to Tyler Durden for the abnormal idea.  Data courtesy of Federal Reserve Economic Data, FRED]

Updated 01/12/2023