CLSA’s Christopher Wood in an extra edition of his weekly Greed & Fear newsletter highlights a timely criticism of the US approach to fixing the financial system by David Stockman, Ronald Reagan’s former director of the Office of Management and Budget.
In a harsh comment article originally published in the International Herald Tribune last week, Stockman lashes out at bankers, regulators – particularly the Fed – and just about everyone outside of the Reagan administration.
To be sure, says Stockman, “the most direct way to cure the banking system’s ills would be to return to a rational monetary policy based on sensible interest rates, an end to frantic monetisation of federal debt and a stable exchange value for the dollar”. He concludes:
But Ben Bernanke, the Fed chairman, and his posse are not likely to go there, believing as they do that central banking is about micromanaging aggregate demand — asset bubbles and a flagging dollar be damned. Still, there can be no doubt that taxing big bank liabilities will cause there to be less of them. And that’s a start.
Wood agrees with Stockman’s every word but quotes just two sentences.
“The US economy desperately needs less of our bloated, unproductive and increasingly parasitic banking system … The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class.”
As for the market consequences of Obama’s new policy initiative to curb banks’ size and activities:
“It has clearly increased the risk that the Wall Street correction begins before the S&P500 reaches the 1200 level”, notes Wood. Still, investors who want to hedge their long Asian and emerging market exposure should continue to remain underweight or short the large Western financial stocks, he adds.
While noting that some famous investors are long these stocks because of the easy profits now being generated by the significant steepening of yield curves, Wood remains bearish on these stocks in the medium term. He explains:
This is, first, because the yield curve is likely to flatten in due course when investors realise the recovery in the West is not normal and government bond yields, as a consequence, decline.
Second, he says, bulls on big bank stocks in America and Europe have been underestimating the regulatory reaction which is coming – “which at a very minimum is likely to mean structurally lower returns on equity. This is because they are experts on finance, not politics”.
Finally, just to show he is in crackingly cynical form, Wood concludes:
Remember that if something is too big to fail it is too big to exist. That is something Joe Sixpack can understand even it remains a point hard to grasp for the sophisticates in New York and Washington and the rest of the Davos Crowd.
Related links:
The background to the Volcker rule – FT Alphaville
‘Volcker rule’ takes bankers by surprise – FT
Obama and Wall Street in depth – FT
沒有留言:
張貼留言