Understanding the Fed

A VERY nice, but brief, piece of work over on the Trading Goddess' blog about how the Federal Reserve of the US works. A must read!

I Call B.S.!!!!

Why do people insist that Goldman Sachs and Morgan Stanley will fall under the "tougher regulatory scrutiny" of the Federal Reserve when the Fed hasn't been tough or shown evidence of having a spine since Volcker was the chairman? I just don't get the unbridled inanity of these remarks. Is it only professional journalists that say such stupid things?

That is all.

PE Liquidations among Endowments

I'm wondering if any non-Ivy schools are taking advantage of this opportunity to acquire stakes in private equity funds on the secondary market. This isn't the first that we've heard of this story, and it likely won't be the last. However, if any endowments were sitting on some liquidity, this is sounds like a decent entry point with some well respected PE names.

*cough* Howard U.? *cough*

Of course, what is more likely is that these non-Ivy or non-first tier endowments are probably trying to liquidate their portfolios too. So sad.

These first tier endowments are getting hit by MTM accounting rules too? If smaller endowments can't get at least 50% off, then something is terribly wrong! At 50% or greater discounts, some of the LBOs of the last few years sound fairly reasonable. But its going to take even greater discounting to squeeze $120B in assets into $40B of investable capital.

When I originally started writing this post, Harvard had not yet reported their latest results. Down 22% (WSJ.com sub req'd) since the start of the fiscal year. Wow!

I contend that there is plenty of alpha out there to be gained, but it will take creativity, negotiation skills, and iron will to earn it. The days of easy alpha (more accurately, alternative beta) are over for the near future. Is this one way some of the second tier endowments can catapult their results into the stratosphere? Hell if I know! But I can fell the abundance of opportunity, and it gets more pronounced with every leg down. The question is who will take advantage of it?

Inflation FTW!

I don't know why so many people think the Fed actually cares about preventing/stopping inflation when the Fed's primary role over the course of the last 95 years has been to manufacture inflation. I mean, come on, what would have you think the Fed is seeking to fight inflation? It can't be the last 26 or more years of credit creation led by the Fed (mostly on Greenspan's watch). With the dollar worth 5% of its value in 1913, the year of the Fed's founding, it can't be that either.

Am I missing something? Why do people still think the Fed has a mandate to fight inflation? If they did, they are horribly incompetent and inept at that job and thus should be taken out and shot. I am a firm believer in Hanlon's Razor, but even this level of stupidity doesn't make sense. I can't see how 95 years worth of ineptitude can be justified unless...its not ineptitude at work but intention.