Yellen wins! Ed’s Daily Notes for October 9th   3 comments

CNBC: Janet Yellen to be named Fed chair on Wednesday

This is bigger news than the government “slimdown”:

After months of speculation, it’s official: Janet Yellen will be the next chair of the Federal Reserve, succeeding Ben Bernanke, the White House said late Tuesday.

President Obama will make the announcement on Wednesday at 3pm ET, the White House said. Both Janet Yellen and current Fed chair Ben Bernanke are expected to attend. That announcement will be right after the Fed releases the minutes from its last meeting, due out at 2pm ET.

Dow and S&P futures shot higher following the announcement, pointing to a higher open on Wall Street Wednesday.

…Yellen is seen as a dove on monetary policy, favoring strategies that bring down unemployment even at the risk of driving inflation higher. She has said she does not believe there is often conflict between the two Fed goals.

“When the goals conflict and it comes to calling for tough trade-offs, to me, a wise and humane policy is occasionally to let inflation rise even when inflation is running above target,” she said in 1995.

Remember how well that worked in the 1970’s?

Seriously, I think the Federal Reserve needs a Paul Volcker-type more than a Janet Yellen, who is like a more dovish version of Bernanke. Unfortunately, the Keynesians have taken over, which explains the state of the world economy…

That said, this will be good for the markets. QE-forever!

Speaking of bubbles:

Washington Free Beacon: General Motors Executive Warns of Impending Auto Bubble

General Motors of Canada President Kevin Williams is warning that subprime loans could doom the auto industry just as it did the housing industry in 2007.

Williams told the editorial board of Canada’s Globe and Mail newspaper on Monday that record Canadian auto sales could be attributed to cheap credit loans.

“The real question is, are you going to run the business the way you ran it in the past in order to drive market share exclusively. The answer is that’s not our intent because it [led to] a failed company,” Williams said.

Using subprime loans and easy credit to move cars off the lot may not be GM Canada’s goal, but its parent company, bailed-out, Detroit-based General Motors, has been moving in that direction, as the Washington Free Beacon reported in February. Nearly 90 percent of loans issued by GM Financial were subprime.

GMF has the riskiest lending portfolio of any major car company: 96 percent of its customers have credit scores below 660. GM’s lending habits parallel those in the housing market leading up to the 2008 crash…GM finished the year with 8.5 percent of loans in delinquency, the highest rate since 2010 and larger than the delinquency rates at Ford, Toyota, and Honda combined.

GM Financial isn’t the only entity at risk. The company has been packaging the loans and selling them off to Wall Street banks—just as many mortgage lenders did with housing loans.

The company issued nearly $60 billion in asset-backed securities (ABS) between 1994 and 2010. The bailed out automaker issued $5.6 billion in securities in 2012, a 50 percent jump from the average ABS issuance between 1994 and 2010 and $1 billion more than 2011, according to GM Financial spokeswoman Chrissy Heinke.

GM Canada has also used subprime loans to drive sales, but Williams told the paper that the company would like to use less risky leasing options to recover from slumping market share.

We have our first nominee for the “next Lehman Brothers”…

New York Times: Gates’s Future Fuels Speculation as Microsoft Seeks New Chief

The above article discusses the rumor that Bill Gates will return as Microsoft’s CEO. Considering Gates turns 58 later this month, he is still young enough to do the job. From my position as a Microsoft shareholder, Gates is one of the few people I would prefer over Alan Mulally. Gates has the “Steve Jobs” factor in his favor: A brilliant founding CEO who has a legacy to ensure. His motivation is unquestionable, and we know he is brilliant. I would be tempted to buy more shares of MSFT on that news.

And Gates will have his work cut out for him:

Bloomberg: Microsoft’s $7.2 Billion Nokia Bet Not Luring Apps

Microsoft Corp. (MSFT)’s $7.2 billion pairing with Nokia Oyj (NOK)’s handset business is failing to win over the software developers who are crucial to its success.

…While Microsoft has struggled to lure developers since Windows Phone debuted in 2010, the plight has taken on new urgency since Chief Executive Officer Steve Ballmer announced the acquisition of Nokia’s handset unit last month. Microsoft, which had close ties with Nokia through a 2011 partnership, is counting on the deal to boost its share of the $280 billion smartphone market and to lure makers of games, productivity tools and other apps, who view the company’s mobile software as an afterthought compared with Apple Inc. (AAPL)’s iOS and Google Inc. (GOOG)’s Android.

Yet interviews with more than a dozen developers show that the odds remain stacked against Microsoft — even with the Nokia deal, which is set to close in the first quarter of 2014. Developers said that while Nokia’s handset business gives Microsoft a ready pipeline of Windows Phone devices, it isn’t enough to overcome a lack of users, or the cost and confusion related to the technical specifications of writing for the company’s phone and tablet devices.

These problems can be overcome. Whether they will be remains to be seen, but Microsoft knows the playbook. They just have to execute it.


3 responses to “Yellen wins! Ed’s Daily Notes for October 9th

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  1. The “crisis” in sub prime auto loans is just stupid to me. In no way are loans for houses comparable to cars. If a person is delinquent in paying auto loan, you simply re-possess the car. Much easier than foreclosing on a house. Also car prices/values are not subject to a speculative bubble like real estate was.

    • Marshall, actually the problem is worse with cars, since most new car owners are underwater on their loan as soon as they drive the car off the lot. While the car company or bank can repo the car, they will end up losing money after they re-sell it. If we have another economic downturn, and too many of these subprime auto loans go belly up, the car companies and/or banks will have far too many used cars to try and sell on the market, which will mean sitting on cars (which will be a maintenance cost) or sell them for even less (which means they will lose even more money on the deal).

      Admittedly, each car doesn’t create as big a loss as a single housing foreclosure would. But add up enough of them, and you can easily bankrupt a GM with it.

  2. I’m with Marshall on this and know something about the vehicle leasing biz. Autos are a completely different animal.

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