Tom Lydon (ETF Trends) submits:

For any country to grow or at least remain stable, there needs to be significant investment in infrastructure. That means it’s good news for infrastructure exchange traded funds (ETFs) that financing for such projects could stabilize or grow this year.

According to Fitch Ratings, global infrastructure and project finance rating outlooks in 2010 for most sectors are stabilizing and improving, writes Brian Bertsch for RiskCenter. The outlook is dependent on the anticipated gradual global economic recovery through the year.

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March 13, 2010

We are about to enter the great debate on financial reform. Unlike other stymied political initiatives, this one is likely to pass. The final form is still unknown but the details are being shaped up, and there is where the devil will emerge. The Obama administration will not cure the issues involving housing finance by proposing a fix to Fannie and Freddie. Thus, the GSEs will remain in need of change. Although they constitute the largest examples of the troubled financial enterprises needing radical surgical reform, they will not get it. So much for the so-called comprehensive reform.

What we will get is a major alteration of the role of our Federal Reserve. That is a certainty. Herein we see the great debate. Should a central bank keep its role narrow and focused on monetary policy? Or should the role be broad and include oversight, regulation, consumer protection, and supervision? Are these roles better if they are separated among parties, or combined under one roof?

When the political dust settles the outcome will likely be the one-roof version, and our central bank will be quite different than we are used to. Sure, it will still set the nation’s policy-making interest rates, and sure it will still talk about monetary policy and inflation or deflation, but the direction of the Fed and the composition of the Board will have changed.

After almost four years, the new Board of Governors will finally get a full complement of seven members, given the probable three new additions. Experienced, predictable, and accomplished San Francisco Fed president Janet Yellen will join chairman Bernanke as vice-chair. Yellen is her own person and an exceptionally skilled monetary economist. She also realizes the importance of a consistent policy and a clear message. It is hard to see any controversy arising from the paired chair and vice-chair.

The rest of the board will present a different picture than we are used to. After Kohn retires, the remaining present governors are Warsh (knowledgeable of financial markets but not a trained monetary economist), Duke (an experienced banker but not a trained monetary economist), and Tarullo (a lawyer regulator but not a trained monetary economist). According to some press reports, the two likely new governors are “Sarah Bloom Raskin, Maryland’s commissioner of financial regulation, and Peter Diamond, an economics professor at the Massachusetts Institute of Technology. Raskin would presumably focus on regulatory issues. Diamond’s research has been focused in public finance, pensions, and Social Security and does not provide much guidance on what his monetary policy leanings are likely to be.” Source: Barclays Capital

We know that other skilled monetary economists were considered for these positions. That leads us to the conclusion that the bias of the Obama administration is toward the regulatory and supervisory role.

Let’s speculate about the future of monetary policy.

Consider the 12-voter structure of the Federal Open Market Committee (FOMC) in the post-Kohn format. We will see the seven Governors plus NY Fed president Bill Dudley, who holds a permanent seat on the FOMC. Dudley is a skilled monetary economist and also a team player. It is highly unlikely he would ever dissent from the chair/vice-chair nexus.

The other four voting seats rotate among the other eleven regional bank presidents. Some are “hawks.” Others are mildly dovish, but most are centrist. Conclusion: there may one or two dissenting voters, but the policy of the Bernanke-Yellen axis will prevail on all monetary issues. Since the chair and vice-chair have knowledge and argumentative power, it is not likely that any other governor will oppose their combined and coalesced view of policy.

We expect the monetary policy of our central bank to continue as it has been for some time. We believe they will continue the use of the term “extended period” to describe the ongoing very low interest rate policy. Discussion and testing of various “exit strategies” will continue, but the implementation of them is still in the distant future. To change policy the Fed needs to see the economic recovery on a more sustainable path. It needs to see the employment situation in the United States improving, and not because of the temporary hiring of census workers. And it needs to see how the housing and commercial real estate markets stabilize after the present stimulus stops and attempts are made to normalize those sectors.

We expect to see continued very low short-term interest rates for the rest of this year. They will anchor the longer end of the bond market, and they will provide impetus for cash to move into stocks and bonds from the present very large and fear-driven multi-trillion-dollar hoard.

Readers are advised to review the recent reports about the Lehman mess. The NY Times has accomplished terrific journalism in the last few days on this subject. The 2200 pages of the court-appointed examiner’s report are a lot to read and digest, but the revelations are already sufficient to impugn the integrity of many. And one has to wonder about the role of the NY Fed, given that Mr. Fuld was a member of its board of directors and our present Treasury Secretary, Tim Geithner, was the NY Fed president during this critical time. We still have not learned the full inside story of what occurred in and around the NY Fed during the period between the Bear Stearns merger and the Lehman failure.

We are told by those powerful decision makers at Treasury, Congress, and the Fed that they saved us from a worse disaster. Geithner repeats that constantly. Maybe so. It is easy to say that, since there is no way to prove otherwise. But we haven’t seen any evidence that the very same people who will now be asked to operate and manage the newly reformed supervisory structure in the United States will be able to do it any better in its new form than they did in the old one.

In America, history shows, every major financial reform that followed a crisis and was offered to us as the way to avoid the next one. Each of those efforts failed. As for this newest one, the burden of proof is on the politicians in the Congress and the Obama administration. Time will tell.

We are presently scheduled to discuss the financial reform initiative on CNBC at 11 AM on Monday, March 15.

David R. Kotok, Chairman and Chief Investment Officer

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This is an unofficial list of Problem Banks compiled only from public sources. Changes and comments from surferdude808:

There were several additions and removals during the week that left the Unofficial Problem Bank List totals almost unchanged. This week there are 640 institutions with assets of $325.6 billion compared to 641 institutions and $325.5 billion of assets last week.

Removals include the four failures — The Park Avenue Bank ($520 million), Old Southern Bank ($336 million), Statewide Bank ($243 million), and LibertyPointe Bank ($217 million), and one action termination — Union Federal Savings Bank ($192 million).

Additions include Heritage Oaks Bank, Paso Robles, CA ($942 million); Idaho Banking Company, Boise, ID ($228 million); Albina Community Bank, Portland, OR ($199 million); and Ravalli County Bank, Hamilton, MT ($191 million).

Other changes include for institutions already on the list are Prompt Corrective Action Orders issued against Maritime Savings Bank ($379 million), Horizon Bank ($199 million), and Ideal Federal Savings Bank ($6 million). We anticipate for the OCC to issue their enforcement actions for February 2010 next week.

The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide – use scroll bars to see all information!

NOTE: Columns are sortable – click on column header (Assets, State, Bank Name, Date, etc.)

Class: from FDIC

The FDIC assigns classification codes indicating an institution’s charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system “will provide the last demographic and financial data filed by the selected institution”.

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To be sure, the U.S. government deficit is shocking; but it’s not anymore shocking than the recession through which we have all lived. Tax receipts plummeted (see the second chart from this post) and spending on cyclical social programs (like unemployment benefits) is surging. This adds up to an exponentially rising budget deficit, and thus an increasing debt burden.

The resulting hysteria leads to headlines like that from Reuters on March 11, 2010: “Fed’s Dudley: Waiting to fix fiscal problems risky“.

Be very careful when reading these articles, as the title implies that William Dudley, president of the New York Federal Reserve Bank, is advocating “fixing fiscal problems” right now – cutting spending and/or raising taxes now – while that is not the case at all. According to Reuters, Dudley says:

The issue, Dudley said, is not fiscal stimulus, which he noted had been necessary in the United States to stabilize the economy, even though it drove up the deficit. That spending is temporary, he added. The bigger long-term problem for the United States and other advanced economies is structural deficits — those likely to persist absent changes in tax and spending policies.

A link to Dudley’s speech. He does refer to structural deficits that may result from recent countercyclical policy. However, these long-term structural deficits have essentially nothing to do with the current downturn, in my view. In fact the effects of the current deficits are simply a speed bump on the road to structural indebtedness.

Just look at the CBO’s extended-baseline projection for the long-term budget published in June 2009.

This above scenario projects the spending share on social security, Medicare and Medicaid, and Other Federal Noninterest Spending through the medium and long term under current law. Notice the blip that is 2009 and 2010?

What is key to this outlook is the assumption on economic growth and productivity trends (among others, of course!). GDP is assumed to grow an average 2.2% per year. I didn’t delve into this full report and conduct a full alternative scenario test. But it is pretty clear that GDP growth of anything less than 2.2% (on average) – holding all else equal, of course – would have a deleterious impact on the outlook for government financing.

Japan provides a perfect case study of what not to do when the economy is recovering from a financial crisis: raise taxes too soon. You do that, and the probability of a “lost decade” rises quickly. You suffer a lost decade, and the outlook on the structural budget looks a lot worse than that illustrated above.

Marshall Auerback has argued time and time again that the government should run deficits until private saving adjusts so that the economy can stand on its own two feet, i.e., grow. As long as the currency floats and is fully convertible, the government’s debt burden will not become a solvency issue. Hence, his interview titled fighting deficit hysteria.

I would say, rather, that the deficit hysteria is appropriate, but very much misallocated intertemporally toward the short-term outlook.

Part II coming to a post near you!

This article is crossposted with News N Economics

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(This one sounded bogus from the start… – Ed.)

Like Richard Heene, father of the now-infamous “balloon boy,” Jim Sikes, the financially-strapped runaway Prius driver, stepped eagerly into the spotlight after his bout of “unintended acceleration.” What similar consequences await Sikes if this turns out to be a hoax?

Technically, if it does turn out to be a hoax, Jim Sikes would be more like Richard Heene, the father of the “Balloon Boy,” but whatever, the argument and the outcome still ring true. What Sikes’ll find, just as they quickly discovered, public attention easily turns into public scrutiny. The big tip that the Heene family was perpetrating a hoax occurred after the Balloon Boy himself said “We did it for the show” on a Larry King Live appearance the family booked.

Sikes hasn’t appeared on Larry King’s show — yet, but he did hold a press conference where he asked for a new car. That’s not the only place he’s looking at showing up on the air. A document obtained by Jalopnik reveals that representatives for Sikes have actually been in contact with producers for Larry King Live, The Ellen Degeneres Show and other media outlets (us included!).

In the end, the Heenes were charged with making false reports and trying to influence a public servant, a felony and a misdemeanor, respectively. They plead guilty and there was limited jail time — 90 days for Richard Heene and 20 days for his wife — with both receiving eight years of probation. The judge in the case also barred them from making any money off the incident during their probation.

It could have been worse for them. We contacted David Lane, the attorney who represented the Hennes, who told us “Making false statements to the feds is a crime punishable by up to 5 years in prison under 18 U.S.C. Section 1001.”

Criminal issues aren’t the only concerns here for Sikes if it’s discovered he committed fraud. Should anyone fake such an incident, there are numerous people who could seek damages from the perpetrator of the fraud including dealership or the manufacturer. Even fellow owners of the vehicle could sue for lowering resale value of the Prius.

CBS’s infamous “60 Minutes” piece on the Audi 5000 and reports of sudden acceleration, which later turned out to be rigged, encouraged a lawsuit from owners against Audi claiming the controversy hurt their resale value.

As of yesterday, representatives of the National Highway Traffic Safety Administration were still evaluating the car and CHP told us today they’re just happy everyone is safe. If the car is discovered to have malfunctioned we know Sikes has the number for Larry King, and should something else happen we know he’s retained legal counsel to act as his press representatives.

Hat tip to TTAC for making the balloon boy connection in our minds!

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See Also:

• A Deep Dive Into Toyota Sudden Acceleration Accident Stats
• TOYOTAS GONE WILD: Prius Driver’s Panicked 911 Call… ‘My Car Can’t Slow Down!!’
• Toyotas Gone Wild: Cops Forced To Intervene To Slow Down Runaway Prius

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Invest With An Edge submits:

By Patrick Watson

On Thursday (3/11/2010) Direxion added six new funds to its menu, giving investors leveraged and inverse opportunities in the BRIC countries, India, and the semiconductor sector. This was Direxion’s second batch of new ETFs this year. Back in February they launched two leveraged and inverse short-term Treasury ETFs.

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$$$ Cheap cigars, politics and the Volcker Rule [Reuters]

$$$ Why Did Lehman Behave So Idiotically? [HuffPo]

$$$ Tudor Tensor’s überquant, Steve Evans, was a video gamer kingpin in his youth [CTNews]

$$$ “It is estimated that some 50% of all traders have a subconscious desire to lose.” [CNBC]

$$$ So, a winner has been picked for the poker tournament give-away. If it wasn’t you, I still think you should go!

$$$ DON’T FORGET: Tomorrow is Jamie Dimon’s birthday. He’s turning 54. The wording on your cards better be perfect.

Read the whole story on Dealbreaker

Yoseph West submits:

While oil prices have recovered significantly, a few companies in the oil & gas industry are still undervalued. CE Franklin Ltd. (CFK) is one of them.

CFK is a leading distributor of general oilfield supplies to the oil and gas industry in Canada. It operates 49 branches situated in towns and cities that serve particular oil and gas fields of the western Canadian sedimentary basin.

Complete Story »

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According to the CFTC data for the week ended Tuesday, net shorts again went to a record high in the euro after last week’s modest drop. Net shorts in the pound fell a touch from last week’s record high. In contrast, net longs in the Canadian $ rose by 60% to the most since Nov ‘07 and net longs in the Australian $ rose 26% to a 7 week high. Net longs in gold rose for a 4th week, up slightly. Net longs in crude rose to a 7 week high.

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Bair’s troops march South, East
Two gulf banks, engulfed by fail
Will they rise again?
by Soylent Green is People
From the FDIC: Centennial Bank, Conway, Arkansas, Assumes All of the Deposits of Old Southern Bank, Orlando, Florida

Old Southern Bank, Orlando, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. …

As of December 31, 2009, Old Southern Bank had approximately $315.6 million in total assets and $319.7 million in total deposits. …

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $94.6 million. … Old Southern Bank is the 29th FDIC-insured institution to fail in the nation this year, and the fourth in Florida. The last FDIC-insured institution closed in the state was Marco Community Bank, Marco Island, February 19, 2010.

From the FDIC: Home Bank, Lafayette, Louisiana, Assumes All of the Deposits of Statewide Bank, Covington, Louisiana

Statewide Bank, Covington, Louisiana, was closed today by the Louisiana Office of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. …

As of December 31, 2009, Statewide Bank had approximately $243.2 million in total assets and $208.8 million in total deposits. …

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $38.1 million. … Statewide Bank is the 30th FDIC-insured institution to fail in the nation this year, and the first in Louisiana. The last FDIC-insured institution closed in the state was The Farmers Bank & Trust of Cheneyville, Cheneyville, December 17, 2002.

Louisiana makes an appearance …

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