"It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions."
Joseph J. Cassano, a former A.I.G. executive back in August 2007
Tuesday, September 30, 2008
Wednesday, September 24, 2008
Ben's testimony before the U.S. Senate
Testimony
Chairman Ben S. Bernanke
U.S. financial markets
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
September 23, 2008
Chairman Bernanke presented identical testimony before the Committee on Financial Services, U.S. House of Representatives, on September 24, 2008
Chairman Dodd, Senator Shelby, and members of the Committee, I appreciate this opportunity to discuss recent developments in financial markets and the economy. As you know, the U.S. economy continues to confront substantial challenges, including a weakening labor market and elevated inflation. Notably, stresses in financial markets have been high and have recently intensified significantly. If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse.
The downturn in the housing market has been a key factor underlying both the strained condition of financial markets and the slowdown of the broader economy. In the financial sphere, falling home prices and rising mortgage delinquencies have led to major losses at many financial institutions, losses only partially replaced by the raising of new capital. Investor concerns about financial institutions increased over the summer, as mortgage-related assets deteriorated further and economic activity weakened. Among the firms under the greatest pressure were Fannie Mae and Freddie Mac, Lehman Brothers, and, more recently, American International Group (AIG). As investors lost confidence in them, these companies saw their access to liquidity and capital markets increasingly impaired and their stock prices drop sharply.
The Federal Reserve believes that, whenever possible, such difficulties should be addressed through private-sector arrangements--for example, by raising new equity capital, by negotiations leading to a merger or acquisition, or by an orderly wind-down. Government assistance should be given with the greatest of reluctance and only when the stability of the financial system, and, consequently, the health of the broader economy, is at risk. In the cases of Fannie Mae and Freddie Mac, however, capital raises of sufficient size appeared infeasible and the size and government-sponsored status of the two companies precluded a merger with or acquisition by another company. To avoid unacceptably large dislocations in the financial sector, the housing market, and the economy as a whole, the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship, and the Treasury used its authority, granted by the Congress in July, to make available financial support to the two firms. The Federal Reserve, with which FHFA consulted on the conservatorship decision as specified in the July legislation, supported these steps as necessary and appropriate. We have seen benefits of this action in the form of lower mortgage rates, which should help the housing market.
The Federal Reserve and the Treasury attempted to identify private-sector approaches to avoid the imminent failures of AIG and Lehman Brothers, but none was forthcoming. In the case of AIG, the Federal Reserve, with the support of the Treasury, provided an emergency credit line to facilitate an orderly resolution. The Federal Reserve took this action because it judged that, in light of the prevailing market conditions and the size and composition of AIG's obligations, a disorderly failure of AIG would have severely threatened global financial stability and, consequently, the performance of the U.S. economy. To mitigate concerns that this action would exacerbate moral hazard and encourage inappropriate risk-taking in the future, the Federal Reserve ensured that the terms of the credit extended to AIG imposed significant costs and constraints on the firm's owners, managers, and creditors. The chief executive officer has been replaced. The collateral for the loan is the company itself, together with its subsidiaries.1 (Insurance policyholders and holders of AIG investment products are, however, fully protected.) Interest will accrue on the outstanding balance of the loan at a rate of three-month Libor plus 850 basis points, implying a current interest rate over 11 percent. In addition, the U.S. government will receive equity participation rights corresponding to a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders, among other things.
In the case of Lehman Brothers, a major investment bank, the Federal Reserve and the Treasury declined to commit public funds to support the institution. The failure of Lehman posed risks. But the troubles at Lehman had been well known for some time, and investors clearly recognized--as evidenced, for example, by the high cost of insuring Lehman's debt in the market for credit default swaps--that the failure of the firm was a significant possibility. Thus, we judged that investors and counterparties had had time to take precautionary measures.
While perhaps manageable in itself, Lehman's default was combined with the unexpectedly rapid collapse of AIG, which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets. These conditions caused equity prices to fall sharply, the cost of short-term credit--where available--to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds. A marked increase in the demand for safe assets--a flight to quality--sent the yield on Treasury bills down to a few hundredths of a percent. By further reducing asset values and potentially restricting the flow of credit to households and businesses, these developments pose a direct threat to economic growth.
The Federal Reserve took a number of actions to increase liquidity and stabilize markets. Notably, to address dollar funding pressures worldwide, we announced a significant expansion of reciprocal currency arrangements with foreign central banks, including an approximate doubling of the existing swap lines with the European Central Bank and the Swiss National Bank and the authorization of new swap facilities with the Bank of Japan, the Bank of England, and the Bank of Canada. We will continue to work closely with colleagues at other central banks to address ongoing liquidity pressures. The Federal Reserve also announced initiatives to assist money market mutual funds facing heavy redemptions and to increase liquidity in short-term credit markets.
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy. In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions’ balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.
At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand. Certainly, the shortcomings and weaknesses of our financial markets and regulatory system must be addressed if we are to avoid a repetition of what has transpired in our financial markets over the past year. However, the development of a comprehensive proposal for reform would require careful and extensive analysis that would be difficult to compress into a short legislative timeframe now available. Looking forward, the Federal Reserve is committed to working closely with the Congress, the Administration, other federal regulators, and other stakeholders in developing a stronger, more resilient, and better regulated financial system.
Footnotes
1. Specifically, the loan is collateralized by all of the assets of the company and its primary non-regulated subsidiaries. These assets include the equity of substantially all of AIG's regulated subsidiaries.
Chairman Ben S. Bernanke
U.S. financial markets
Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
September 23, 2008
Chairman Bernanke presented identical testimony before the Committee on Financial Services, U.S. House of Representatives, on September 24, 2008
Chairman Dodd, Senator Shelby, and members of the Committee, I appreciate this opportunity to discuss recent developments in financial markets and the economy. As you know, the U.S. economy continues to confront substantial challenges, including a weakening labor market and elevated inflation. Notably, stresses in financial markets have been high and have recently intensified significantly. If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse.
The downturn in the housing market has been a key factor underlying both the strained condition of financial markets and the slowdown of the broader economy. In the financial sphere, falling home prices and rising mortgage delinquencies have led to major losses at many financial institutions, losses only partially replaced by the raising of new capital. Investor concerns about financial institutions increased over the summer, as mortgage-related assets deteriorated further and economic activity weakened. Among the firms under the greatest pressure were Fannie Mae and Freddie Mac, Lehman Brothers, and, more recently, American International Group (AIG). As investors lost confidence in them, these companies saw their access to liquidity and capital markets increasingly impaired and their stock prices drop sharply.
The Federal Reserve believes that, whenever possible, such difficulties should be addressed through private-sector arrangements--for example, by raising new equity capital, by negotiations leading to a merger or acquisition, or by an orderly wind-down. Government assistance should be given with the greatest of reluctance and only when the stability of the financial system, and, consequently, the health of the broader economy, is at risk. In the cases of Fannie Mae and Freddie Mac, however, capital raises of sufficient size appeared infeasible and the size and government-sponsored status of the two companies precluded a merger with or acquisition by another company. To avoid unacceptably large dislocations in the financial sector, the housing market, and the economy as a whole, the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship, and the Treasury used its authority, granted by the Congress in July, to make available financial support to the two firms. The Federal Reserve, with which FHFA consulted on the conservatorship decision as specified in the July legislation, supported these steps as necessary and appropriate. We have seen benefits of this action in the form of lower mortgage rates, which should help the housing market.
The Federal Reserve and the Treasury attempted to identify private-sector approaches to avoid the imminent failures of AIG and Lehman Brothers, but none was forthcoming. In the case of AIG, the Federal Reserve, with the support of the Treasury, provided an emergency credit line to facilitate an orderly resolution. The Federal Reserve took this action because it judged that, in light of the prevailing market conditions and the size and composition of AIG's obligations, a disorderly failure of AIG would have severely threatened global financial stability and, consequently, the performance of the U.S. economy. To mitigate concerns that this action would exacerbate moral hazard and encourage inappropriate risk-taking in the future, the Federal Reserve ensured that the terms of the credit extended to AIG imposed significant costs and constraints on the firm's owners, managers, and creditors. The chief executive officer has been replaced. The collateral for the loan is the company itself, together with its subsidiaries.1 (Insurance policyholders and holders of AIG investment products are, however, fully protected.) Interest will accrue on the outstanding balance of the loan at a rate of three-month Libor plus 850 basis points, implying a current interest rate over 11 percent. In addition, the U.S. government will receive equity participation rights corresponding to a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders, among other things.
In the case of Lehman Brothers, a major investment bank, the Federal Reserve and the Treasury declined to commit public funds to support the institution. The failure of Lehman posed risks. But the troubles at Lehman had been well known for some time, and investors clearly recognized--as evidenced, for example, by the high cost of insuring Lehman's debt in the market for credit default swaps--that the failure of the firm was a significant possibility. Thus, we judged that investors and counterparties had had time to take precautionary measures.
While perhaps manageable in itself, Lehman's default was combined with the unexpectedly rapid collapse of AIG, which together contributed to the development last week of extraordinarily turbulent conditions in global financial markets. These conditions caused equity prices to fall sharply, the cost of short-term credit--where available--to spike upward, and liquidity to dry up in many markets. Losses at a large money market mutual fund sparked extensive withdrawals from a number of such funds. A marked increase in the demand for safe assets--a flight to quality--sent the yield on Treasury bills down to a few hundredths of a percent. By further reducing asset values and potentially restricting the flow of credit to households and businesses, these developments pose a direct threat to economic growth.
The Federal Reserve took a number of actions to increase liquidity and stabilize markets. Notably, to address dollar funding pressures worldwide, we announced a significant expansion of reciprocal currency arrangements with foreign central banks, including an approximate doubling of the existing swap lines with the European Central Bank and the Swiss National Bank and the authorization of new swap facilities with the Bank of Japan, the Bank of England, and the Bank of Canada. We will continue to work closely with colleagues at other central banks to address ongoing liquidity pressures. The Federal Reserve also announced initiatives to assist money market mutual funds facing heavy redemptions and to increase liquidity in short-term credit markets.
Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress. Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy. In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions’ balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.
At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand. Certainly, the shortcomings and weaknesses of our financial markets and regulatory system must be addressed if we are to avoid a repetition of what has transpired in our financial markets over the past year. However, the development of a comprehensive proposal for reform would require careful and extensive analysis that would be difficult to compress into a short legislative timeframe now available. Looking forward, the Federal Reserve is committed to working closely with the Congress, the Administration, other federal regulators, and other stakeholders in developing a stronger, more resilient, and better regulated financial system.
Footnotes
1. Specifically, the loan is collateralized by all of the assets of the company and its primary non-regulated subsidiaries. These assets include the equity of substantially all of AIG's regulated subsidiaries.
Tuesday, September 16, 2008
To Our Clients
Dear Clients,
In view of the tumultuous developments in the U.S. and foreign financial markets, we felt it appropriate to give you our overview of the current situation and an explanation of what we think will be the ultimate outcome.
While the Federal Reserve has taken significant steps to provide liquidity to the financial institutions (commercial banks, investment banks, insurance companies, etc.) which hold mortgage-backed assets of questionable value, there is a high degree of unwillingness for investors to make capital commitments to these institutions. This has resulted in a crisis of confidence which, in turn, has wreaked havoc on the prices of the equities of those financial institutions.
Before the financial markets begin to recover, the weaker participants--who had contributed to the excess lending capacity in the mortgage market--will be either absorbed or eliminated. This process will require sacrifice, ingenuity, patience and perseverance. Then, at some point in the not-too-distant future, expectations of a return to financial stability will take hold and markets should recover.
At the foundation of our belief in the ultimate resolution of the financial market problems are the facts that central banks are taking the correct steps and that the economies of the world will continue to grow, albeit at a slower rate than had been experienced in recent years. The recent decline in energy and related commodity prices, as well as the stabilization of the Dollar, coupled with reduced inflationary expectations, afford the opportunity to correct the malaise.
Finally, we want to assure you that we continue to monitor the developments impacting the markets, as well as the securities in your portfolio(s) and will be certain to make any adjustments deemed necessary as conditions continue to evolve. Please feel free to contact us with any questions.
Very truly yours,
Gofen and Glossberg, LLC
In view of the tumultuous developments in the U.S. and foreign financial markets, we felt it appropriate to give you our overview of the current situation and an explanation of what we think will be the ultimate outcome.
While the Federal Reserve has taken significant steps to provide liquidity to the financial institutions (commercial banks, investment banks, insurance companies, etc.) which hold mortgage-backed assets of questionable value, there is a high degree of unwillingness for investors to make capital commitments to these institutions. This has resulted in a crisis of confidence which, in turn, has wreaked havoc on the prices of the equities of those financial institutions.
Before the financial markets begin to recover, the weaker participants--who had contributed to the excess lending capacity in the mortgage market--will be either absorbed or eliminated. This process will require sacrifice, ingenuity, patience and perseverance. Then, at some point in the not-too-distant future, expectations of a return to financial stability will take hold and markets should recover.
At the foundation of our belief in the ultimate resolution of the financial market problems are the facts that central banks are taking the correct steps and that the economies of the world will continue to grow, albeit at a slower rate than had been experienced in recent years. The recent decline in energy and related commodity prices, as well as the stabilization of the Dollar, coupled with reduced inflationary expectations, afford the opportunity to correct the malaise.
Finally, we want to assure you that we continue to monitor the developments impacting the markets, as well as the securities in your portfolio(s) and will be certain to make any adjustments deemed necessary as conditions continue to evolve. Please feel free to contact us with any questions.
Very truly yours,
Gofen and Glossberg, LLC
Monday, September 1, 2008
How bad is the bank crises?
If you read the common buzz concerning the current financial crisis you would get the impression that this is the worst crisis ever to hit the economy. Yet, on Friday the FDIC announced only the 10th bank failure for 2008. With over 8,000 banking institutions in the U.S., 10 failures seem a long ways away from a crisis. Here is some of the data to see how “big” the banking crisis has become. Here are a few points of interest:
- The 10 banks taken over by the FDIC had just under $40 billion of assets in total.
- The total assets of the 10 largest banks in the U.S. is a combined $6 trillion.
- Total assets of all 8,451 FDIC insured institutions is $13.3 trillion.
- Percentage of failed assets, year to date, of total: 0.3%. Or written as a decimal: 0.003 of all banking assets were in failed banks so far this year.
In comparison, during the Savings and Loan debacle of the 1980s and early 1990s there were over 1,000 federally insured S&L’s dissolved. The Resolution Trust Corp. took down 747 institutions over 6 years, or a rate of 125 per year. The current situation is showing no signs of getting anywhere near those levels.
The current situation has most banks taking severe write downs on any asset that has any chance of being impaired. If these assets under-perform less than anticipated, many banks could be recouping the write downs as outsized profits in the next few years.
Many believe we are just at the beginning of a major financial crisis in the U.S. This is a financial system where home prices peaked almost 3 years ago and the mortgage meltdown started in earnest over a year ago and we still have only 10 bank failures and less than 1/3 of 1% of banking assets taken over by the feds. Bank failures are not accelerating this late in the game as the economy starts to recover and the housing market is showing signs of a pending bottom.
Is this a glass half full or half empty? Do we include Fannie and Fredie in this collection of "banks?" And what about Bear Stearns? Is there fear out there...rescuing Fannie and Freddie will put the bail-out numbers into the trillions. Just a thought.
- The 10 banks taken over by the FDIC had just under $40 billion of assets in total.
- The total assets of the 10 largest banks in the U.S. is a combined $6 trillion.
- Total assets of all 8,451 FDIC insured institutions is $13.3 trillion.
- Percentage of failed assets, year to date, of total: 0.3%. Or written as a decimal: 0.003 of all banking assets were in failed banks so far this year.
In comparison, during the Savings and Loan debacle of the 1980s and early 1990s there were over 1,000 federally insured S&L’s dissolved. The Resolution Trust Corp. took down 747 institutions over 6 years, or a rate of 125 per year. The current situation is showing no signs of getting anywhere near those levels.
The current situation has most banks taking severe write downs on any asset that has any chance of being impaired. If these assets under-perform less than anticipated, many banks could be recouping the write downs as outsized profits in the next few years.
Many believe we are just at the beginning of a major financial crisis in the U.S. This is a financial system where home prices peaked almost 3 years ago and the mortgage meltdown started in earnest over a year ago and we still have only 10 bank failures and less than 1/3 of 1% of banking assets taken over by the feds. Bank failures are not accelerating this late in the game as the economy starts to recover and the housing market is showing signs of a pending bottom.
Is this a glass half full or half empty? Do we include Fannie and Fredie in this collection of "banks?" And what about Bear Stearns? Is there fear out there...rescuing Fannie and Freddie will put the bail-out numbers into the trillions. Just a thought.
Tuesday, August 19, 2008
Wall Street Troubles - The Spiral
Downfall is a terrific movie about the end of Hitler's reign in 1945. There have been countless spoofs done with the movie. Here are three that tell the current Wall Street woes.
Part I - Those Vultures
Part II - Managing Directors Everywhere
Part III - On Stag
Part I - Those Vultures
Part II - Managing Directors Everywhere
Part III - On Stag
Friday, July 11, 2008
Hmmmm...What would Warren say?
There is an alleged ancient Chinese curse, “May you live in interesting times.”
While there is no historical proof of the origin of that curse, there is ample current proof in the securities markets that we are living in interesting times. It’s simply nasty out there — or at least it feels that way.
That made us think about advice from Warren Buffet for difficult times. Here are some of his comments that may be relevant as investors watch wilting portfolios:
Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.
Our favorite holding period is forever.
If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time.
We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.
The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’
Clearly, Warren Buffet did not mean that if you hold a poorly designed portfolio you should hold forever. He means that if you used good judgement and had conviction when you invested, you should not be troubled by storms, which are always followed by sunshine.
While there is no historical proof of the origin of that curse, there is ample current proof in the securities markets that we are living in interesting times. It’s simply nasty out there — or at least it feels that way.
That made us think about advice from Warren Buffet for difficult times. Here are some of his comments that may be relevant as investors watch wilting portfolios:
Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.
Our favorite holding period is forever.
If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time.
We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.
The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’
Clearly, Warren Buffet did not mean that if you hold a poorly designed portfolio you should hold forever. He means that if you used good judgement and had conviction when you invested, you should not be troubled by storms, which are always followed by sunshine.
Tuesday, June 17, 2008
The Coming Charity Crisis
The economy is tumbling. Will philanthropic donations follow?
The latest victims of the sagging economy: charities. In May, the annual gala of the Robin Hood Foundation, an event at which a few thousand hedge-fund magnates and leveraged buyout titans conspicuously display their wealth and commitment to social justice while rocking out to A-list musical guests (Shakira, John Legend, Sheryl Crow), raised $56.5 million, down 21.5 percent from $72 million the year before. No surprise here. Many of the regulars have seen their net worths crushed in the past year.
But it's not just the charities of the swank that are suffering. The Salvation Army caters to a somewhat different crowd, tens of millions of middle-class Americans. And while it had a good Christmas—"since the first of the year, we've seen some slippage," said Major George Hood, a Salvation Army spokesman—overall donations are down compared with 2007, and donations of used clothing and furniture to thrift shops have fallen by 20 percent. While natural disasters typically inspire a spike in donations, Hood says the earthquakes in China, the cyclones in Burma, and the floods in the Midwest have yet to generate such an outpouring.
It would be unfair to say that Americans—whether they are accountants in Kansas City, Mo., or bond traders in Greenwich, Conn.—are becoming stingier. Rather, philanthropy is a pretty large industry. Charitable giving in 2006 was $295.2 billion, according to Giving USA 2006, about 2.2 percent of gross domestic product. For comparison's sake, Wal-Mart has annual sales of about $350 billion. And like every other industry, philanthropy is tethered directly to the health of the overall economy, and in particular to the health of the upper-middle-class consumer. If the past is any guide, it's likely to be a lean year for nonprofits.
The latest victims of the sagging economy: charities. In May, the annual gala of the Robin Hood Foundation, an event at which a few thousand hedge-fund magnates and leveraged buyout titans conspicuously display their wealth and commitment to social justice while rocking out to A-list musical guests (Shakira, John Legend, Sheryl Crow), raised $56.5 million, down 21.5 percent from $72 million the year before. No surprise here. Many of the regulars have seen their net worths crushed in the past year.
But it's not just the charities of the swank that are suffering. The Salvation Army caters to a somewhat different crowd, tens of millions of middle-class Americans. And while it had a good Christmas—"since the first of the year, we've seen some slippage," said Major George Hood, a Salvation Army spokesman—overall donations are down compared with 2007, and donations of used clothing and furniture to thrift shops have fallen by 20 percent. While natural disasters typically inspire a spike in donations, Hood says the earthquakes in China, the cyclones in Burma, and the floods in the Midwest have yet to generate such an outpouring.
It would be unfair to say that Americans—whether they are accountants in Kansas City, Mo., or bond traders in Greenwich, Conn.—are becoming stingier. Rather, philanthropy is a pretty large industry. Charitable giving in 2006 was $295.2 billion, according to Giving USA 2006, about 2.2 percent of gross domestic product. For comparison's sake, Wal-Mart has annual sales of about $350 billion. And like every other industry, philanthropy is tethered directly to the health of the overall economy, and in particular to the health of the upper-middle-class consumer. If the past is any guide, it's likely to be a lean year for nonprofits.
Monday, June 16, 2008
Happy Father's Day
Finally, this weekend is father's day and I want to take a moment to wish all of the fathers out there a happy weekend.
So, whether you're a father, son, or daughter - enjoy the weekend and relish the time you share with each as much as you can. Life is short and, in the end, that is all that truly matters. Happy Father's Day!
Thursday, June 5, 2008
Need some inspiration?
KID CAN DO IT ALL ON ONE LEG
Baseball, football, soccer -- nothing slows him down
Adam Bender slips a chest protector over his Astros jersey, buckles a shinguard to his right leg, positions a mask atop his head, grabs his catcher's mitt and hops out of the dugout.
Adam has his game face on. Or at least what passes as a game face for an 8-year-old. His eyes are serious. His freckled nose is crinkled with determination.
It is a cool, breezy Saturday morning at Veterans Park, which is already buzzing with activity. Baseball games are being played on three diamonds within a pop-up of each other. Parents are clustered in and around the stands, chatting and cheering. Players of all ages, wearing uniforms or team T-shirts, swarm the place.
Hardly anybody gives a second glance to the catcher in the Southeastern rookie league deftly playing on one leg.
Adam Bender is just another kid playing ball, which is exactly how his parents, Michelle and Chris, want it.
"I was a little hesitant when we first brought him up here for baseball," Michelle said. "I thought his spirit might be crushed if he got out every time. Then I thought, who am I to micromanage his feelings? He's going to have to learn how to deal with this stuff.
"The more I shelter him, the more he'll think, 'I'm fragile.' I don't think I'll ever tell him he can't do something."
Adam is amazing to watch. He takes his position behind the plate, resting on his right knee.
When a runner rounds third looking to score, Adam jumps up and holds his ground.
He suffered a mild concussion on one collision and missed a practice or two. But he recovered and was ready for action in the next game. At one point this season he led the rookie league in put-outs at home.
At bat, his athletic skill and balance allow him to take a full swing, and he usually makes contact. He hops to first base as quickly as he can. If he's safe, he uses crutches to run the bases. When he gets thrown out, he hops dejectedly back to the dugout.
He's a competitor, and not just in baseball.
Adam, who lost his left leg to cancer when he was 1, has played soccer for a couple of years. He uses crutches, and is a whirlwind on the field in Centenary United Methodist's "I Am Third" league.
He played YMCA flag football last fall for Bruce Rector, who has coached against Adam's baseball team.
At first, Rector wasn't sure if Adam could play football. "Then I slept on it. Having seen him play baseball, I knew he'd find a way to make it work," Rector said. "Sure enough, we put him at quarterback (using no crutches) and used a shotgun snap. He threw a lot of touchdown passes."
Adam lobbied to line up at receiver at least once so he could have a chance to score. On a conversion play, Adam hopped 5 yards down the field and made a diving catch in the end zone despite being double-covered.
"That's what I mean when I say if you turn him loose, he'll find a way," Rector said.
Adam shyly deflects question about himself. He admits that he "loves baseball" and "loves catching," but he doesn't think he's doing anything out of the ordinary.
Astros coach Dan Wyse said he went out of his way to get Adam on his team "because he's a good kid, a good catcher, and what he brings attitude-wise, he's an inspiration to everybody."
Michelle Bender appreciates the effect her son has on people young and old.
"Adam has helped other kids see that a person with a disability can be fun to hang out with, and play with, and they can still be a part of a community or part of a team. It's developed the kids' compassion.
"And if he can inspire even one family to allow their kid to try something they normally might not try, that's great."
Adam tried using a prosthesis but didn't like it because he felt it slowed him down. He is adamant about not using a wheelchair.
"He wants to play ball like everybody else," Michelle said. "He's always had that 'nobody's going to stop me' attitude."
Chris Bender thinks his son's "attitude and energy" channel naturally into sports. "He pops out of bed at 60 miles an hour and doesn't quit until he collapses at the end of the day. He's always wanted to do everything."
Doing everything that his older brother Steven and younger sister Morgan do is what pleases Adam's dad the most.
"The best thing about it is the normalcy," Chris said. "There will come a day when Adam will no longer be able to keep up. But he's had some measure of childhood where he's just like everybody else.
"He doesn't have to sit and watch his brother and sister play. He's out there playing with them."
And teaching a life lesson to everybody who's watching.
Rector does motivational speaking and leadership training, and he regularly relates Adam's inspirational story to adults.
"The lesson he teaches is that you need to let talented people with great heart get out there and do their thing," Rector said. "There's no such thing as an insurmountable obstacle for Adam. He's a winner."See video of Adam hitting and playing catcher in a baseball game.
Five Things You Need to Know About the U.S. Dollar
The greenback just can't catch a break.
Despite recent positive comments (or, at least, less negative comments) from George Soros and a reasonable rebound off the March lows, the dollar is still doomed, according to conventional wisdom.
So what's really going on with the dollar? And why do we care whether it goes up or down in value? Isn't the dollar I'm holding today the same as it was yesterday? Why can't the Fed just print more of them? Let's take these questions one by one and see if we can reach an investment thesis that runs contrary to conventional wisdom.
1. Q: What is a dollar anyway? What does it mean?
A: The dollar is simply a banknote issued by the U.S. government that is mandated by law to be used as legal tender for all transactions. Although the dollar was once backed by gold, today it is backed simply by the government's promise that it will be convertible in an exchange. Got faith? Good, you'll need it, because faith is the only thing that separates a blank sheet of paper from a dollar bill that is exchangeable for, say, a banana.
2. Q: OK, I've got faith aplenty. So where do all our dollars come from, and why can't the Federal Reserve just print more?
A: The Fed can print money. And it does quite often. But every dollar created dilutes the value of a dollar already in circulation, causing it to weaken. Of course, we don't notice this dilution immediately unless we travel outside the country, and if everything we consumed was produced in America, we probably wouldn't even notice a weak dollar at all. But the reality is we still buy many goods from overseas producers and spend more dollars on those goods than we receive for goods produced in the U.S. That's called a trade deficit.
3. Q: So, we're spending more than we're making, and the Fed is printing money to make up the difference. How does the Fed do it?
A: The Fed "prints" money through three mechanisms. The easiest way is through the Fed's open market operations, through which the Fed literally buys and sells Treasurys that are trading in the "open market." If the Fed buys Treasurys, then the dollars it uses to buy them become available to banks to lend. If it sells Treasurys, the dollars get taken back.
The second mechanism is lowering the percent of deposits banks are required to have on hand, thereby increasing the pool of available money to lend.
The third is through its "discount policy." The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility. The Fed can grow money by reducing the discount rate.
Dollars are literally printed by the Bureau of Engraving and Printing.
4. Q: Trade deficit, weaker dollar -- I kind of get it -- the Fed has to print more money. But the more money it prints, the weaker the dollar gets, right? So who is paying for all of this and what's the connection with foreign central banks?
A: As a group, we Americans spend more than we save, both individually and collectively as a government, so that money has to come from somewhere. This raises a serious question. Because the more money the Fed creates, the weaker the dollar gets, how do we get all these dollars to spend without collapsing the currency?
One way is through the purchases by central banks of countries like China and Japan. We have to "sell" our Treasury bonds to countries willing to buy our debt, paying them interest for financing our spending. Foreign governments all over the world also use the dollar as a foreign exchange reserve, allowing them to control their own currency, increasing or decreasing it compared to other currencies, and to maintain the stability of their currency in the event of an economic shock.
Because the dollar is perceived as the most stable currency in the world (note: the key word here is "perceived"), countries are willing to finance our spending by purchasing dollars and bonds. But, if they begin to perceive they are not being adequately compensated for the risk of holding our debt, or if their dollars are depreciating faster than they like, these countries will demand a higher interest rate to buy our bonds. So, a weak dollar can actually lead to higher interest rates! That affects you, Mr. or Ms. Homeowner-Credit Card Spender-Business Professional-Student!
5. Q: Here's the bottom line: In the simplest terms, what are the advantages or disadvantages of a stronger or weaker dollar, and how do I play it?
A: Here's a summary:
Weak Dollar: Advantages
It's easier for U.S. companies to export goods because foreign currencies can buy "more" against the weaker dollar.
Tourism increases because foreign visitors find it less expensive to visit.
To an extent, foreigners will view U.S. investment opportunities more favorably because they can buy more for their yuan/yen/euro/pound, etc.
Weak Dollar: Disadvantages
Consumers see higher prices. We don't notice this because the Chinese yuan is tied to the dollar in a tight range. And most of our imports come from China.
There are higher interest rates, i.e., higher cost of money to consumers.
It's more expensive to travel abroad.
Strong Dollar: Advantages
The prices for imported goods are lower.
U.S. investors can buy foreign assets and investments at lower prices.
Strong Dollar: Disadvantages
It's harder for U.S. companies to compete abroad.
It's more expensive for foreigners to visit the U.S.
So how do you play a strengthening dollar? It used to be that unless you were a currency speculator, dollar strength and weakness involved an indirect play via companies with strong international sales.
Now there are many more alternatives. Two exchange-traded funds that allow investors to make short-term bets on the dollar's direction are available through PowerShares. The DB U.S. Dollar Bullish Fund (UUP) , as the name suggests, allows you to bet on the dollar appreciating, while the DB U.S. Dollar Bearish Fund (UDN) allows you to bet against the dollar.
Despite recent positive comments (or, at least, less negative comments) from George Soros and a reasonable rebound off the March lows, the dollar is still doomed, according to conventional wisdom.
So what's really going on with the dollar? And why do we care whether it goes up or down in value? Isn't the dollar I'm holding today the same as it was yesterday? Why can't the Fed just print more of them? Let's take these questions one by one and see if we can reach an investment thesis that runs contrary to conventional wisdom.
1. Q: What is a dollar anyway? What does it mean?
A: The dollar is simply a banknote issued by the U.S. government that is mandated by law to be used as legal tender for all transactions. Although the dollar was once backed by gold, today it is backed simply by the government's promise that it will be convertible in an exchange. Got faith? Good, you'll need it, because faith is the only thing that separates a blank sheet of paper from a dollar bill that is exchangeable for, say, a banana.
2. Q: OK, I've got faith aplenty. So where do all our dollars come from, and why can't the Federal Reserve just print more?
A: The Fed can print money. And it does quite often. But every dollar created dilutes the value of a dollar already in circulation, causing it to weaken. Of course, we don't notice this dilution immediately unless we travel outside the country, and if everything we consumed was produced in America, we probably wouldn't even notice a weak dollar at all. But the reality is we still buy many goods from overseas producers and spend more dollars on those goods than we receive for goods produced in the U.S. That's called a trade deficit.
3. Q: So, we're spending more than we're making, and the Fed is printing money to make up the difference. How does the Fed do it?
A: The Fed "prints" money through three mechanisms. The easiest way is through the Fed's open market operations, through which the Fed literally buys and sells Treasurys that are trading in the "open market." If the Fed buys Treasurys, then the dollars it uses to buy them become available to banks to lend. If it sells Treasurys, the dollars get taken back.
The second mechanism is lowering the percent of deposits banks are required to have on hand, thereby increasing the pool of available money to lend.
The third is through its "discount policy." The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility. The Fed can grow money by reducing the discount rate.
Dollars are literally printed by the Bureau of Engraving and Printing.
4. Q: Trade deficit, weaker dollar -- I kind of get it -- the Fed has to print more money. But the more money it prints, the weaker the dollar gets, right? So who is paying for all of this and what's the connection with foreign central banks?
A: As a group, we Americans spend more than we save, both individually and collectively as a government, so that money has to come from somewhere. This raises a serious question. Because the more money the Fed creates, the weaker the dollar gets, how do we get all these dollars to spend without collapsing the currency?
One way is through the purchases by central banks of countries like China and Japan. We have to "sell" our Treasury bonds to countries willing to buy our debt, paying them interest for financing our spending. Foreign governments all over the world also use the dollar as a foreign exchange reserve, allowing them to control their own currency, increasing or decreasing it compared to other currencies, and to maintain the stability of their currency in the event of an economic shock.
Because the dollar is perceived as the most stable currency in the world (note: the key word here is "perceived"), countries are willing to finance our spending by purchasing dollars and bonds. But, if they begin to perceive they are not being adequately compensated for the risk of holding our debt, or if their dollars are depreciating faster than they like, these countries will demand a higher interest rate to buy our bonds. So, a weak dollar can actually lead to higher interest rates! That affects you, Mr. or Ms. Homeowner-Credit Card Spender-Business Professional-Student!
5. Q: Here's the bottom line: In the simplest terms, what are the advantages or disadvantages of a stronger or weaker dollar, and how do I play it?
A: Here's a summary:
Weak Dollar: Advantages
It's easier for U.S. companies to export goods because foreign currencies can buy "more" against the weaker dollar.
Tourism increases because foreign visitors find it less expensive to visit.
To an extent, foreigners will view U.S. investment opportunities more favorably because they can buy more for their yuan/yen/euro/pound, etc.
Weak Dollar: Disadvantages
Consumers see higher prices. We don't notice this because the Chinese yuan is tied to the dollar in a tight range. And most of our imports come from China.
There are higher interest rates, i.e., higher cost of money to consumers.
It's more expensive to travel abroad.
Strong Dollar: Advantages
The prices for imported goods are lower.
U.S. investors can buy foreign assets and investments at lower prices.
Strong Dollar: Disadvantages
It's harder for U.S. companies to compete abroad.
It's more expensive for foreigners to visit the U.S.
So how do you play a strengthening dollar? It used to be that unless you were a currency speculator, dollar strength and weakness involved an indirect play via companies with strong international sales.
Now there are many more alternatives. Two exchange-traded funds that allow investors to make short-term bets on the dollar's direction are available through PowerShares. The DB U.S. Dollar Bullish Fund (UUP) , as the name suggests, allows you to bet on the dollar appreciating, while the DB U.S. Dollar Bearish Fund (UDN) allows you to bet against the dollar.
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