Paul Tucker interview on central banking and “Unelected Power”…

The Center for Financial Stability (CFS) thanks Sir Paul Tucker – Former Deputy Governor, Bank of England and Chair, Systemic Risk Council, and Harvard Fellow – for “Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State.”  “Unelected Power” is broad and deep.  It is a joy to read – with priceless quotes and footnotes.

We are grateful to Paul for sitting down with CFS to discuss:

– Governance and central banking,
– A “Money – Credit Constitution” with emphasis on “inside” and “outside” money,
– Division between fiscal and monetary activities,
– Examples of central banking excellence,
– Prospect for normalizing monetary policy,
– Regulatory policy – ten years after the crisis,
– Surprises and motivation for writing “Unelected Power.”

The following are excerpts from the conversation.
http://centerforfinancialstability.org/research/Tucker_Unelected_Power.pdf

Global Markets into 2018

The Center for Financial Stability (CFS) hosted a small private workshop for leaders in finance to delve into issues that will shape the future of asset values and investment management on December 6.

CFS Special Counselor Jack Malvey set the stage with an essay “Toward the Mid-21 st Century Global Financial System” –
www.CenterforFinancialStability.org/research/MalveyGlobal_Dec_2017.pdf

Workshop topics included:

– Geopolitics and Big Picture Challenges through 2020 – AI, cyber, etc;
– Global Macro, Quantitative Tightening, and Financial Stability;
– Financial Industry Transitions – Active versus Passive Management, etc; and
– Opportunities and Risks (a selection follows).

OPPORTUNITIES

– Buy cash today – the rate of return will be extraordinarily high.
– Central banks will more actively incorporate financial stability into actions and mandates.
– Emerging markets will outperform.
– The Fed desires to move further away from the zero lower bound.
– NPLs in China are overstated / bank earnings mitigate and neutralize risks.
– Global macro investment opportunities via uneven tightening.

RISKS

– I will buy cash – but tomorrow.
– Bitcoin correction.
– Limited attractive equity names based on valuation / similar to Tokyo in 1989.
– Geopolitical tensions will increase with North Korea, China, Russia, and Saudi Arabia.
– Inflation surprise / data may be misread.
– Artificial intelligence channeled for ill.

Best wishes into the Holiday Season and 2018!

Congrats Randal Quarles on Fed Appointment…

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Congratulations to Randy Quarles for his appointment and confirmation to serve as the Vice Chairman of the Federal Reserve Board.

CFS is thankful for Randy’s early and constant support of our organization. As an Advisory Board Member and Trustee, he has been a source of wisdom on a wide range of topics. In particular, his involvement in “Bretton Woods: The Founders and Future” was especially productive and meaningful. The inspiration and encouragement from Randy will continue to guide CFS especially as we plan to honor the 75th anniversary of the birth of the international financial system and think strategically about the future.

See “Summary and Next Steps  – Bretton Woods: The Founders and Future.”

Randy is uniquely experienced, remarkably learned, and thoughtful on virtually any monetary, regulatory, or related legal topic. Likewise, few to none are more honorable in character.

We wish him the best at the Fed.

Index Investing and Active Management…

The asset management industry has been disrupted by the trend toward increased index investing.  Over the years, CFS has explored this phenomenon.  As we look to dig deeper, we encourage members and friends to share insights, papers, or studies.

Although it is rare for us to distribute company research, BlackRock’s “Index Investing Supports Vibrant Capital Markets” is well worth a read.  The piece addresses many elements in the active versus passive debate as well as establishes useful concepts from a practitioners’ point of view.

Key themes include:

  • Index investing is still small or less than 20% of global equities,
  • Asset owners and managers sport different strategies and interests,
  • The balance between active and index management may ultimately be self regulating,
  • Passive owner corporate voting records are mixed between favoring both management versus activist investors.

As the trend will influence the future of the industry, many have raised questions regarding the impact of the move toward index investing in financial stability more broadly.

CFS welcomes and encourages view points and research on all sides of the discussion.  Please email any papers to Lauren Cooper, manager of communications (lcooper@the-cfs.org) or me.

“Index Investing Supports Vibrant Capital Markets” can be found at:
https://www.blackrock.com/corporate/en-us/literature/whitepaper/viewpoint-index-investing-supports-vibrant-capital-markets-oct-2017.pdf

From China / Market Implications from Unconventional Monetary Policies…

The Shanghai Development Research Foundation (SDRF) recently hosted a superb dialog on issues stretching from China, the international monetary system, re-thinking the nature of money, among others.  I had the pleasure of presenting on “Market Implications from Unconventional Monetary Policies.”

My remarks centered on:

The need to assess the normalization of monetary policies through the lens of major macro shifts over the last 10 years.

Specifically, three “never befores” need to be resolved.  For instance, “never before” has there been such 1) large scale intervention by central banks and governments; 2) growth in the financial regulatory apparatus and labyrinth of rules governing markets; and 3) distortions across a wide range of financial markets.

Here, CFS monetary and financial data illustrate why goods price inflation has remained subdued and – in contrast – asset price inflation has not.

Evaluation of long-term stock and bond market valuations reveal market distortions.

Speculative positioning has been actively influenced by the patterns of rise and restraint in balance sheet operations in recent years.

Going forward, officials would benefit by seeking balance among these three “never before” forces.

For slides accompanying the presentation:  http://www.centerforfinancialstability.org/speeches/ShanghaiDRF_090517.pdf

On a parenthetical note, I left China excited with advances in mobile pay.  It will redefine the nature of money.

Barbara Novick Joins the Advisory Board of the Center for Financial Stability

New York, September 25, 2017/ The Center for Financial Stability (CFS) is honored to announce that Ms. Barbara G. Novick joins its Advisory Board.

Ms. Novick is the Vice Chairman of BlackRock, and a member of BlackRock’s Global Executive Committee, Corporate Risk Committee and Global Operating Committee. From the inception of the firm in 1988 to 2008, Ms. Novick headed the Global Client Group and oversaw global business development, marketing and client service across equity, fixed income, liquidity, alternative investment and real estate products for institutional and individual investors and their intermediaries worldwide. In her current role, Ms. Novick heads the firm’s efforts globally on government relations and public policy. In addition, she serves as a board member to the BlackRock Equity-Liquidity and BlackRock Closed End fund families, and is a member of the Executive Committee of the Investment Company Institute.

Prior to founding BlackRock in 1988, Ms. Novick was a Vice President in the Mortgage Products Group at The First Boston Corporation. Ms. Novick joined First Boston in 1985 where she became head of the Portfolio Products Team. From 1982 to 1985, Ms. Novick was with Morgan Stanley.

Ms. Novick has authored numerous articles on asset management and public policy issues. Ms. Novick is a member of CFA Institute’s Future of Finance Advisory Council and MSCI’s Editorial Advisory Board. She currently serves as a Trustee of Cornell University and the HCM Foundation. Ms. Novick previously served on the boards of Robert Toigo Foundation (2007 – 2010), UJA-Federation (2009 – 2015) and Westchester Day School (2000 – 2005), served as both Treasurer and Trustee of Westchester Jewish Center (1994 – 2012) and coached in the Westchester Youth Soccer League (1999 – 2015). Ms. Novick earned a BA degree, cum laude, in economics from Cornell University.

Ms. Novick joins the 11 distinguished members of the CFS Advisory Board: Eduardo Aninat, Ph.D; Senator Bill Bradley; The Honorable Carole L. Brookins; Peter Flocos, Esq.; Charles Goodhart, CBE, FBA; Henry Kaufman, Ph.D.; Guillermo Ortiz, Ph.D.; Judge Richard A. Posner; The Honorable Randal K. Quarles; Richard L. Sandor, Ph.D., Dr. Sc.h.c.; and Nobel Laureate Myron Scholes, Ph.D.

It is a great joy to welcome Barbara to our Board.

 

Bondi on 10 Points for SEC Reform

The new leadership of the Securities and Exchange Commission (“SEC”) should seize the opportunity to review and improve the agency’s enforcement program.

CFS senior fellow Bradley J. Bondi offers a ten-point blueprint for the program.  Brad’s recommended measures would allocate resources more efficiently, strike a better balance between regulation and enforcement, and promote a closer adherence to the SEC’s mission.

The full report is available at
http://www.centerforfinancialstability.org/research/Bondi_8_17_17.pdf

As always, CFS welcomes opinion.

CFS Special Counselor Steve H. Hanke Honored by the University of Liechtenstein…

CFS congratulates Steve H. Hanke, CFS Special Counselor and Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore, on receiving a Doctorate Honoris Causa from the University of Liechtenstein.

At the University of Leichtenstein, located in Vaduz, Hanke was conferred the Doctorate by Rector Jürgen Brücker during a University Day ceremony. The ceremony concluded with a dinner hosted by H.S.H. Prince Phillip von und zu Leichtenstein and H.S.H. Prince Michael von und zu Leichtenstein.

Professor Hanke’s honor was in recognition of his standing as “one of the world’s leading authorities on currencies and alternative currency regimes” and as “the world’s authority on measuring and stopping hyperinflations.” This is Professor Hanke’s sixth Doctorate Honoris Causa.

For further detail: https://www.uni.li/en/news/a-festive-atmosphere-at-the-open-day

Fiscal Times: The National Debt is a Bigger Problem Than You Think…

Today, The Fiscal Times published my opinion piece on U.S. Treasury debt.  Key ideas include:

– The debt situation is worse than commonly realized – when evaluated back to 1946.
– Fortunately, a few debt management policy tweaks can yield great benefit with limited costs.
– It’s our debt.  It’s our problem.  Let’s fix it.

To view the full article:
http://www.thefiscaltimes.com/Columns/2017/06/07/National-Debt-Bigger-Problem-You-Think