Monday, January 11th, 2010
The Financial Accounting Standards Board is considering changes in bank’s accounting that will require them to show loans on balance sheets at “fair market value” instead of original value. This would immediately impact the way a bank is viewed by investors and regulators alike. The rule, if instituted could reduce shareholders equity and regulatory capital to levels that could potentially eliminate some banks Tier I capital (equity).
The new changes will ultimately affect how a bank is valued by investors and also how much capital a bank will be required to have to do business. More news to come on the troubled asset front and how to solve this ballooning problem.
Monday, January 11th, 2010
A 0% -25% fed-funds rate, combined with massive central bank purchases of bonds, has inflated the prices of fixed income securities and depressed yields to levels that do not adequately compensate investors for the risks of inflation and the inevitability of higher rates in the future.
When investors are able to borrow at these generous levels, and the Fed has signaled that free money will continue “for an extended period,” there is conceivably room for longer term interest rates and spreads to fall further. But over a time horizon measured in years rather than months, interest rates have nowhere to go but up. A battered and bruised dollar tells us that foreign investors may balk at continuing to support our “free money policy” through their waning appetite for U.S. treasury bonds. So, what to do?
Bond investors should adopt a defensive posture in anticipation of a rising rate environment, and concentrate their holdings in high quality, non-Treasury securities with maturities under five years. With this strategy in mind, it is of my opinion that institutions should also have an ample cash position on hand to take advantage of any sudden upward movement in interest rates and not get caught fully invested.
The inflection point when rates head higher is impossible to predict, but be prepared for rates to move significantly higher in 2010, based on the phase-out of Fed purchase programs, increasing inflation pressures, and a heavy supply of new bond issuance, primarily from the public sector.
In addition, in the months ahead, the Fed will find it increasingly hard to justify its misguided zero-percent interest rate policy, which punishes savers, distorts markets, weakens the dollar, and has no demonstrable positive effect on real economic growth or employment.
Current bond market yields may be unappetizing, but they look downright generous compared to miniscule money market yields. Bill Gross of PIMCO just wrote a piece on this topic, which was aptly titled “Anything But 0.01%.” Through our FIDP (Federally Insured Deposit Program) we offer cash liquidity with a government guarantee on overnight money at 0.51%! That is a five fold greater return than most federal guarantee overnight rates offered. Our program gives investors full FDIC insurance coverage on a 12 million investment through 250K disbursements to over 50 financially sound banks.
Please call me to discuss the numerous benefits of investing in our FIDP program. Safety & liquidity, with excess returns, is an investment that is hard to beat.
Monday, January 11th, 2010
The Federal Reserve Chairman Ben Bernake has reaffirmed his previous comments again by stating the he plans to keep interest rates near zero for an “extended period.” A period which could last at least 6 more months and maybe more…
According to key indicators like unemployment figures and inflationary fears- things seem to be improving. However in the wake of some good news the rapidly developing dollar still causes worry of inflation along with recently rising commodities…
The beginning of a recovery may be brewing but we are still side stepping the debris caused by the real estate disaster. Keeping rates low or near zero will buy time to allow some confidence levels to increase and also gradually exit or move away from some emergency programs to policies that were put in place to avoid a major disruption of the financial markets. Short term programs that have been extended are sure to expire this go around, like the Temporary Liquidity Guarantee Program (TLGP), slated to disappear in June of next year.
Keeping all of the above in mind, bankers are still under pressure to lend but have not recovered from credit losses nor will they soon. So banks and other financial institutions are looking to increase income in some other way….outsourcing programs such as our commercial and portfolio residential programs add fees to the bank without staffing expense expected in a mortgage origination channel. AmVest’s Federally Insured Deposit Program is adding additional revenue to the banks income statement by taking advantage of almost triple the yields of federal funds.
Our programs are all government sponsored on both the asset and liability side of the balance sheet… outsourcing is making a comeback but only with the safety and security of our government sponsored programs which insure proper execution.