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In the Financial Times today, D.E. Shaw’s Managing Director, Larry Summers, wrote one of the more impressive and well rounded treatises on the US economy. The article was called “The Big Freeze”, and it’s definitely on the macro required reading list.

On most mornings when my alarm goes off at 4am, I have no idea what I am going to write my “Early Look” about. I am data dependent, and that’s just the way that it is. Summers, however, looks to have had plenty of time to coagulate a lot of the thoughts that I have alluded to in my 2008 missives.

I’m an aspiring Yale economist, of sorts – at least that’s what the B.A. on my resume says. Summers is an established Scribe, and the former head of both the US Treasury and Harvard University. If you think I am too negative on the “Trend”, read his take.

Summers correlates today with the central banking credibility issues associated with the 1970’s, but he points consistently to the 1930’s in the US and the 1990’s in Japan. “Just as the bottom was called a number of times in Japan in the early 1990’s and in the US in the early 1930’s, we have seen and no doubt will see moments of sunlight that create hope that the worst is past”, he wrote.

Other quotes by Larry Summer’s that I wanted to highlight:

• “Then there is the problematic situation of the banking system. Where traditional non-mark to market accounting is in use, banks have not yet revised estimates of their capital to reflect likely future losses… they have instead assumed that the market’s valuation of their assets reflects transient liquidity factors rather than underlying problems.”

• “We do not have a framework in place in which authorities can do what is necessary to counter systemic risk”

• “Government involvement in recapitalizing financial institutions is like devaluation: a very unattractive last resort”

KM
Article at (http://www.ft.com/cms/s/0/794801a8-63e8-11dd-844f-0000779fd18c.html)