Daily Archives: 14 January 2015

Leave It To A Broker

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Robert Greifeld, CEO of Nasdaq OMX Group Inc, had an op-ed in The Wall Street Journal earlier this week that was subtitled, tellingly,

Moving too quickly amid signs of global economic trouble could damage growth and send stock and bond markets into turmoil.

December’s Fed Open Market Committee meeting minutes indicated, he said,

that the Fed believes US economic growth, which continues its long climb back, could trigger a change in monetary policy [toward raising interest rates off their near-zero levels].

This is problematic, Greifeld said:

Moving too quickly, amid persistent signs of global economic trouble, could have a damaging effect on economic growth and investors by sending stock and bond markets into turmoil.

These are two separate questions, though. The thing is, the stock markets only anticipate the underlying economy; they are not at all the underlying economy. What’s good for the markets is not at all the proper metric for assessing economic policy.

The concern about the impact of central banks raising interest rates on economies is one worth exploring in depth. The concern about the impact on the stock and bond markets (and yes, these markets have been good to me) is fluff, and should be put aside.

It’s certainly true that, aside from pure investors, the markets also are where companies get capital for expansion, R&D, and the like, whether by selling new ownership shares or by borrowing. “Turmoiled” markets can interfere with that. But with a sound economy, which consists of us ordinary citizens getting about our daily business, that turmoil resolves quickly.

The current artificially low and suppressed interest rates are future inflation waiting to explode, to the detriment of all of us. They are current suppression of income for all of us—in particular, the retired of us—who depend on fixed income instruments (read: interest paying bonds). They are an impediment to increased hiring for expansion that otherwise seems ready to start because businesses can’t borrow to fund their expansion—not because interest rates are too low for the businesses to pay, but because interest rates are too low for lenders to lend—whether those lenders be banks or company bond buyers.

It’s time to start raising interest rates to normal levels. The economy will benefit. Investors like me will take our lumps, but we’ll also do well in the longer run from that growing economy.

Keystone and Vetoes

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All the pundits are looking to the Senate for an override of President Barack Obama’s pending veto of the pending Keystone XL Pipeline legislation. The Senate, it seems, has 63 votes for passage (which implies a cloture vote won’t be a problem), but the focus is on the Senate’s lack of four more votes to produce a “veto-proof” bill.

All the pundits are skipping over two key factors.

One is that a Senate passage with 67 Senators voting “aye” is not at all veto proof. That’s just for passage. The veto override is an entirely separate vote that comes after the President has, in fact, said “No” to his Senators and to the legislation. To override in the Senate, all 13 Senators voting for passage would then have to vote against their president to override. Every single one of them.

Also lost in the “veto-proof” blather, though, is a larger hurdle. Obama’s “No” would have to be overridden in the House, too: 290 Representatives would have to vote to override. That means that 44 of Nancy Pelosi’s (D, CA) Democrats would have to vote to override their President.

Good luck with that. Good luck with either of those.

Pass the bill, anyway, with a roll call vote in each House. Then do roll call votes in each House to override. Use Obama’s veto and those Democrats’ votes to shape the ’16 elections.