Fed’s got work to do… For the week, two-year Treasury yields surged 16 bps to 5.16%, the highest level since December 2000. Five-year yields jumped 16 bps to 5.10%, and bellwether 10-year yields rose 15 bps to 5.13%. Long-bond yields increased 15 bps to 5.17%. The 2yr/10yr spread ended the week inverted 3 bps. Benchmark Fannie Mae MBS yields rose 15 bps to 6.34%, this week performing in line with Treasuries. The spread on Fannie’s 4 5/8% 2014 note ended the week two wider at 30, and the spread on Freddie’s 5% 2014 note two wider at 31. The 10-year dollar swap spread increased 1.5 to 57.5. Corporate bond spreads were little changed to wider. The implied yield on 3-month December ’06 Eurodollars jumped 16.5 bps to 5.59%.
Investment grade issuers included Bank of America $2.0 billion, HSBC $2.0 billion, Washington Mutual $1.0 billion, Viacom $1.0 billion, St. Paul Companies $800 million, Whirlpool $750 million, Oil Insurance $600 million, Con Edison of NY $400 million, Smith International $275 million, Hospitality Properties $275 million, and Piedmont Natural Gas $200 million.
Junk issuers included Fairway Energy $1.4 billion, Pokagon Gaming $305 million, Mystic RE $200 million, and Williams Partners $150 million.
Convert issuers included Symantec $2.0 billion.
Foreign dollar debt issuers included Banque Cred Mutuel $3.5 billion, Rentenbank $1.5 billion, Banco Santander $1.5 billion, Glitnir Bank $500 million, and Banco de Chile $200 million.
Japanese 10-year “JGB” yields dipped 3 bps this week to 1.805%. The Nikkei 225 index rallied 1% (down 7.6% y-t-d). German 10-year bund yields were unchanged at 3.93%. Emerging debt and equity markets were mixed. Curiously outperforming U.S. Treasuries, Brazil’s benchmark dollar bond yield rose only 8 bps to 7.15%. Brazil’s Bovespa equity index declined 2.9%, reducing 2006 gains to 2.8%. The Mexican Bolsa rallied 1.7% this week (up 1.3% y-t-d). Mexico’s 10-year $ yields rose 9 bps to 6.44%. Russian 10-year dollar Eurobond yields jumped about 7 bps to 6.95%. The Russian RTS equities index fell 2.3%, reducing 2006 gains to 18% and 52-week gains to 96%. India’s hyper-volatile Sensex equities index rallied 0.8% (up 5.2% y-t-d).
June 12 – Bloomberg (Harris Rubinroit): “Companies with credit ratings below investment grade accounted for a record share of global syndicated loans in the first quarter, according to the Bank for International Settlements. Leveraged loans made up 25 percent of all syndicated transactions, up from about 20 percent in the first quarter of 2005… The total amount of syndicated loans fell 3 percent to $418 billion in the period…”
June 15 – Financial Times (Christopher Brown-Humes and Joanna Chung ): “Global equity issuance is on track this year to surpass the record levels of 2000… according to Morgan Stanley. Its forecast assumes a weaker second half for initial public offerings - due to current volatility - and reflects extremely strong figures in the first six months. The US investment bank predicts issuance will reach $231bn in the first six months, compared with $361bn for the whole of last year and the record $367bn of 2000.”
Freddie Mac posted 30-year fixed mortgage rates added one basis point to 6.63%, up 100 basis points from one year ago. Fifteen-year fixed mortgage rates gained 2 bps to 6.25%, 103 bps higher than a year earlier. One-year adjustable rates rose 3 bps to 5.66%, an increase of 141 bps over the past year. The Mortgage Bankers Association Purchase Applications Index was up 4.8% this week. Purchase Applications were down 21.1% from one year ago, with dollar volume down 21.5%. Refi applications jumped 10.6% last week. The average new Purchase mortgage was little changed at $226,800, while the average ARM rose moderately to $341,100.
Bank Credit declined $25.1 billion last week to $7.926 Trillion, with a y-t-d gain of $420 billion, or 12.7% annualized. Bank Credit inflated $709 billion, or 9.8% over 52 weeks. For the week, Securities Credit declined $16.8 billion. Loans & Leases dipped $8.4 billion for the week, with a y-t-d gain of $274 billion (11.3% annualized). Commercial & Industrial (C&I) Loans have expanded at a 16.5% rate y-t-d and 14.4% over the past year. For the week, C&I loans jumped $8.8 billion, and Real Estate loans gained $6.3 billion. Real Estate loans have expanded at a 12.5% rate y-t-d and were up 13.0% during the past 52 weeks. For the week, Consumer loans slipped $1.5 billion, and Securities loans sank $25.2 billion. Other loans gained $3.3 billion. On the liability side, (previous M3 component) Large Time Deposits dipped $1.2 billion.
M2 (narrow) “money” supply slipped $2.3 billion to $6.807 Trillion (week of June 5). Year-to-date, narrow “money” has expanded $117 billion, or 4.0% annualized. Over 52 weeks, M2 has inflated $310 billion, or 4.8%. For the week, Currency dipped $1.4 billion. Demand & Checkable Deposits fell $20.4 billion. Savings Deposits gained $13.9 billion, and Small Denominated Deposits declined $3.9 billion. Retail Money Fund assets added $1.6 billion.
Total Money Market Fund Assets, as reported by the Investment Company Institute, jumped $11.4 billion last week to $2.106 Trillion. Money Fund Assets have increased $49 billion y-t-d, with a one-year gain of $215 billion (11.3%).
June 14 – Bloomberg (Sree Vidya Bhaktavatsalam): “U.S. money-fund assets rose to a three-year high as investors sought refuge from tumbling stock markets… Investors moved $5.9 billion into taxable money-market funds in the past week, bringing total assets to $2.08 trillion, the most since October 2003…”
Total Commercial Paper declined $19.7 billion last week to $1.777 Trillion. Total CP is up $128 billion y-t-d, or 16.8% annualized, while having expanded $238 billion over the past 52 weeks (15.5%).
Asset-backed Securities (ABS) issuance slowed to $13 billion this week. Year-to-date total ABS issuance of $333 billion (tallied by JPMorgan) is running about 2% below 2005’s record pace, with y-t-d Home Equity Loan ABS sales of $234 billion 8% above last year.
Fed Foreign Holdings of Treasury, Agency Debt (“US marketable securities held by the NY Fed in custody for foreign official and international accounts”) rose $6.9 billion to a record $1.633 Trillion for the week ended June 14th. “Custody” holdings are up $114 billion y-t-d, or 16.2% annualized, and $196 billion (13.7%) over the past 52 weeks. Federal Reserve Credit dropped $4.7 billion to $824.7 billion. Fed Credit has declined $1.7 billion y-t-d, or 0.4% annualized. Fed Credit is up 4.7% ($36.8bn) during the past year.
International reserve assets (excluding gold) - as accumulated by Bloomberg’s Alex Tanzi – are up $409 billion y-t-d (22% annualized) and $606 billion (16%) in the past year to $4.4 Trillion.
June 15 – Bloomberg (Alison Fitzgerald): “International investors slowed purchases of U.S. securities in April after comments from the Group of Seven and Federal Reserve Chairman Ben S. Bernanke weakened the dollar. Net holdings of Treasury notes, corporate bonds, stocks and other financial assets increased by $46.7 billion, less than March’s revised $70.4 billion and the lowest since March last year…”
June 13 – Bloomberg (Svenja O’Donnell): “The Russian ruble may become a reserve currency as demand for the money grows, said Dmitry Medvedev, the country’s first deputy prime minister... ‘The world today is in dire need of a more stable financial system where there is no single dominant reserve currency,’ Medvedev, who is also chairman of OAO Gazprom, the world’s largest natural gas company, told the International Economic Forum in St. Petersburg today.”
June 15 – Bloomberg (Chris Cooper and Bernard Lo): “Eisuke Sakakibara, former currency-policy chief at Japan’s Ministry of Finance, said the yen may reach a more than one-decade high against the dollar this year as local growth accelerates and the U.S. economy cools.”
The dollar index ended the week with a slight gain. On the upside, the Indonesian rupiah gained 1.1%, the Malaysian ringgit 0.7%, the Brazilian real 0.6%, and the Israeli shekel 0.6%. On the downside, the Hungarian forint declined 3.3%, the Turkish lira 2.8%, the Polish zloty 2.5%, the New Zealand dollar 2.5%, and the South African rand 1.8%.
June 16 – Bloomberg (Bruce Blythe): “U.S. ethanol prices reached record highs above $3.60 a gallon this week, extending a three-month surge as U.S. refiners and fuel blenders boost use of the grain-based fuel in gasoline.”
A volatile week in commodities markets saw Gold hit 4.5% to $580 and Silver drop 9.6% to $10.13. Copper rallied to end the week about unchanged. July crude declined $1.75 to $69.88. July Unleaded Gasoline fell 5.3%, while July Natural Gas surged 16.4%. For the week, the CRB index slipped 0.3% (y-t-d up 2.2%). The Goldman Sachs Commodities Index (GSCI) declined 1.0%, reducing y-t-d gains to 8.8%.
June 12 – Bloomberg (Lily Nonomiya and Mayumi Otsuma): “Japan’s economy grew at an annual 3.1 percent pace in the first quarter, buoyed by the second-biggest increase in corporate spending since 1990.”
June 14 – MarketNewsInt.: “China’s M2 rose 19.1% year-on-year at the end of May to 31.67 trln yuan… Chinese banks extended 209.4 bln yuan in new loans in May, nearly double that for the same month last year… ‘Money supply and credit continued their rapid growth,’ the central bank said. Loans extended in the first five months of this year have already eaten into 71.4% of the [People’s Bank of China] full-year target at 2.5 trln yuan.”
June 15 – Bloomberg (Nerys Avery): “Investment in China’s real estate, factories and other fixed assets unexpectedly accelerated in May, putting more pressure on the government to curb bank lending. Fixed-asset investment in towns and cities climbed 30.3 percent to 2.54 trillion yuan ($318 billion) through May…”
June 13 – Bloomberg (Yanping Li): “Spending on residential property development in Beijing rose 33 percent to 25.1 billion yuan ($3.2 billion) in the five months to May from a year earlier, Beijing Daily reported…”
June 12 – Bloomberg (Matthew Benjamin and Nerys Avery): “Rising production costs in China might soon turn the smiley-faced Wal-Mart logo on that rack of $7 cardigan sweaters into a frown. Increasing wages and new environmental regulations, along with higher raw-materials prices, are pushing up the cost of manufacturing in China…’Companies are telling us they just can't keep going much longer without passing on these higher costs,’ says Richard Ellert, a Hong Kong-based director of consulting firm Alvarez & Marsal…”
June 14 – Bloomberg (Nerys Avery): “China’s industrial production rose the most in two years in May, reinforcing expectations the central bank will further restrict lending in the world’s fastest-growing major economy. Output at factories, mines and power plants climbed 17.9 percent after rising 16.6 percent in April…”
June 12 – Bloomberg (Ying Lou): “China imported 19 percent more crude oil in May than a year earlier because of higher demand from the nation’s refiners as they anticipated an increase in fuel prices.”
June 12 – Bloomberg (Nerys Avery and Nipa Piboontanasawat): “China posted a record monthly trade surplus in May, adding pressure on the government to allow the yuan to rise… Imports rose 21.7 percent from a year earlier and exports jumped 25.1 percent…”
Asia Boom Watch:
June 12 – Bloomberg (Kartik Goyal): “India’s industrial production grew at the fastest pace in six months in April, buoyed by rising housing demand and government plans to increase spending on roads, bridges and ports. Production at factories, utilities and mines rose 9.5 percent from a year earlier…”
June 13 – Bloomberg (Ashok Bhattacharjee): “Indian factories are expected to double their annual exports to $100 billion in the next four years, replicating the success of a remote-office industry that has made the South Asian nation a services hub.”
June 14 – Bloomberg (Ashok Bhattacharjee): “India today urged Japan to fund a part of the $500 billion the country needs to build roads, ports and factories, extending its hunt for capital beyond the U.S. and Europe to East Asia. ‘Japan’s capital and technology, combined with India’s human resources and business prospects are the best possible combination, trade minister Kamal Nath told delegates at the India-Japan Business Summit in Tokyo…”
June 14 – Bloomberg (Seyoon Kim): “South Korea’s unemployment rate fell to 3.4 percent in May, matching a three-year low, as retailers, finance companies and builders hired workers to meet rising consumer demand in Asia’s third-largest economy.”
Unbalanced Global Economy Watch:
June 16 – Bloomberg (Gregory Viscusi): “World Cup fever is priceless, MasterCard Inc. says in ads tied to the 2006 tournament. The amount it took to boot MasterCard out of the next World Cup is easier to measure: $200 million. That’s how much Visa International Inc. paid soccer's governing body to become the official financial-services company of international tournaments starting next year. MasterCard… Sponsors will pay 900 million euros ($1.14 billion) for the 2010 World Cup, up 40 percent from this year…”
June 14 – Bloomberg (Greg Quinn): “Canadian existing home sales rose 2.4 percent last month and the average price surpassed C$300,000 for the first time, buoyed by consumers experiencing the lowest jobless rate in three decades… Sales rose 22 percent in Edmonton, Alberta, and 2.4 percent in Toronto… The average resale price rose 13 percent in May from a year earlier to C$303,836 ($273,258), a fourth straight monthly record… Calgary home prices jumped 44 percent to C$358,214.”
June 12 – Bloomberg (Jonas Bergman): “Swedish unemployment in May fell for a fourth month as the government increased spending on jobs programs and companies sought more workers to meet rising demand… The non-seasonally adjusted jobless rate fell to 4.2 percent…”
June 16 – Bloomberg (Svenja O’Donnell and James M. Gomez): “Russia’s economy grew at the slowest pace in a year in the first quarter as the ruble’s strength slowed exports, inflation choked investment and the government failed to encourage non-oil industries. Gross domestic product growth slowed to an annual 5.5 percent from 7.9 percent in the final quarter of 2005…”
June 13 – Bloomberg (Jonas Bergman): “Iceland’s economic growth, the fastest in the Nordic region, accelerated in the first quarter as consumer spending and investments picked up. Gross domestic product rose a seasonally-adjusted 4.1 percent from a year earlier, after adding 3.6 percent in the fourth quarter…”
June 14 – Bloomberg (Hans van Leeuwen): “Australian consumer confidence dropped to an eight-month low in June as record gasoline prices and higher interest rates sapped household budgets.”
Latin America Watch:
June 15 – Dow Jones: “Argentina continued to see robust growth during the first quarter as the nation heads into a fourth straight year of expansion. The national statistics agency…said…that gross domestic product rose 8.6% on year in the first quarter…”
June 15 – Bloomberg (Matthew Walter): “Chile, the world’s biggest copper producer, is creating jobs at its fastest pace ever, bolstered by record investment, Finance Minister Andres Velasco said.”
Central Bank Watch:
June 15 – Bloomberg (Seyoon Kim): “Interest rate cuts by global central banks in previous years caused side effects including rising South Korean property prices, and those gains are becoming a ‘burden’ on policy, Bank of Korea Governor Lee Seong Tae said. ‘In the case of Korea, during the protracted period of low interest rates, real estate prices rose sharply with the large increase in household sector borrowings… This now imposes a burden on the Bank of Korea in its conduct of monetary policy.’”
June 15 – Bloomberg (Jacob Greber): “The Swiss central bank raised its benchmark interest rate for the third time in six months to prevent faster economic growth from stoking inflation. The Swiss National Bank lifted its three-month Libor target by a quarter point to 1.5 percent, the highest since December 2001…”
June 13 – Bloomberg (Craig Torres and Scott Lanman): “Household finances are in good shape even as the greater availability of credit has led to higher levels of debt, Federal Reserve Chairman Ben S. Bernanke said. ‘U.S. households overall have been managing their personal finances well,’ Bernanke said. ‘Debt burdens appear to be at manageable levels, and delinquency rates on consumer loans and home mortgages have been low.’”
Bubble Economy Watch:
The May Consumer Price Index was up 4.2% from one year ago, and May Producer Prices were up 4.5% y-o-y. May Retail Sales were up 9.4% from May 2005. By category, Furniture sales were up 9.1%, Electronics 7.2%, Building Materials 14.4%, Food & Beverage 6.1%, Health & Personal Care 7.6%, Gasoline Stations 23.6%, Clothing 6.7%, Sporting Goods 9.3%, General Merchandise 8.5%, and Eating & Drinking Establishments 7.9%.
June Univ. of Michigan consumer confidence was stronger-than-expected, the June Philly Fed index was stronger-than-expected, the NY Manufacturing Index much stronger-than-expected, and Initial Jobless Claims much less-than-expected.
June 15 – Bloomberg (Mary Schlangenstein): “The five largest U.S. airlines raised some fares $50 each way, renewing their effort to offset record spending on jet fuel and return the industry to profit.”
June 16 – Bloomberg (Greg Bensinger): “In New York, the capital of world finance, the hottest investment isn’t stocks, bonds, commodities or even Manhattan apartments. It’s taxi medallions, the metal plates affixed to the hoods of the city’s 12,779 yellow cabs. The value of the taxi licenses has soared as much as 40 percent since the city sold 300 of them in October 2004.”
Real Estate Bubble Watch:
June 16 – EconoPlay.com (Gary Rosenberger): “The nation’s housing market was mostly down in May – enough so that a slew of publicly traded builders raced to lower their outlooks for 2006 – but a number of small, private builders say conditions really are better than advertised. Cancellations for some major builders were almost double what they were last year, inflamed by speculators fleeing real estate and homebuyers delaying purchases… Discounting of as much as 10% to 25% was reported in once-hot Northern California, while price drops of lesser magnitude or slower appreciation was the rule elsewhere. Florida’s retiree and vacation home markets were slammed by hurricane fears that compound the investor-driven slowdown. California, Arizona and other states where speculators famously ran up housing prices are now suffering “dismal” comparisons to 2005 and 2004. Yet there are important markets that saw very good activity in May, like Texas and the Carolinas – while portions of the Northeast, Midwest and Mid-Atlantic either held up or saw early signs of recovery.”
Mortgage Finance Bubble Watch:
June 14 – Bloomberg (Kathleen M. Howley): “Almost a third of U.S. homebuyers chose risky ‘interest-only’ mortgages in 2005…according to a Harvard University study. The average mortgage payment in 2005 rose to 24 percent of the U.S. median income after taxes, the highest since it was 25 percent in 1984…. Home prices rose 9.4 percent in 2005, the biggest annual gain in more than 40 years… Thirty percent of new mortgages last year were products that allow buyers to skip paying money toward principal, and some allowed deferred interest payments that could result in people owing more than they borrowed, the report said.”
Energy and Crude Liquidity Watch:
June 16 – Bloomberg (Joe Carroll): “Royal Dutch Shell Plc, the world’s third-biggest oil company, may postpone some new projects because of soaring costs for drilling rigs, steel and workers, said John Hofmeister, president of the company’s U.S. business. ‘We may be forced to re-phase some projects because of the inflationary impacts we’re seeing on human and material resources… Too much inflationary pressure is going to jeopardize the returns on these investments.’”
After eight months of the fiscal year, federal government receipts are running 12.9% ahead of 2005 to $1.369 Trillion. Individual Income Tax Receipts are 13.6% ahead ($605bn), with Corporate Income Tax up 30.1% ($141bn). Total Spending is running 8.0% above year ago levels at $1.642 Trillion. By major department, National Defense spending is running up 7%, Medicare 15.4%, Education 15.4%, Health 0.5%, Income Security 1.6%, and Interest Income 19.6%.
June 15 – Bloomberg (Tony Capaccio): “The cost of the war in Iraq reached at least $319 billion with Congress’s approval today of more money for military operations there and in Afghanistan, the Congressional Research Service said. Spending in Iraq in fiscal 2006 will total about $100.4 billion, or more than $8 billion per month, up from $6.4 billion a month in fiscal 2005…”
June 12 – Bloomberg (Darrell Hassler): “The amount of financial derivatives traded on exchanges rose 28 percent in the first quarter, driven by bets on interest rates in Japan and the U.S., the Bank for International Settlements said. Global trading in futures and options contracts on lending rates, currencies and stock indexes increased to $429 trillion from $334 trillion a year ago… Trading in interest-rate contracts rose 25 percent to $381 trillion…”
June 15 – Dow Jones (Alistair Barr): “The volume of private-equity-backed mergers and acquisitions in the U.S. so far this year has reached record levels, research firm Dealogic said Thursday. More than 500 deals worth $157.4 billion and backed by private equity have been announced in 2006, according to data Dealogic compiled through Wednesday. That’s a record and almost double the volume during the same period of 2005… Private-equity firms have raised record amounts in recent years and now are looking to put that money to work. While interest rates have been rising, buyout firms are still able to borrow relatively easily to finance their deals.”
Wall Street Earnings Bubble Watch:
Goldman Sachs reported second-quarter Net Total Revenues of $10.1 billion, up 110% from the year ago period, with earnings of $2.29 billion (vs. $865 million). “Net Revenues in Investment Banking were $1.53 billion (second best quarter and the best quarterly performance in six years), 87% higher than the second quarter of 2005, reflecting growth across all regions… Net revenues in Trading and Principal Investments were $6.96 billion, up from $2.81 billion in the second quarter of 2005 (Net revenues in Fixed Income, Currency, and Commodities (FICC) were $4.32 billion - 15% higher than the previous record - compared with $1.52 billion, reflecting significantly higher net revenues in commodities, credit products, and interest rate products…) Equities produced quarterly net revenues of $2.35 billion, its second best quarter. Asset Management generated net revenues of $954 million, it second best quarter and 38% higher than the second quarter of 2005. Securities Services produced record quarterly net revenues of $656 million, 34% higher than the previous record... Compensation and benefits expenses were $5.09 billion compared with $2.40 billion in the second quarter of 2005…” Goldman repurchased 6.5 million shares during the quarter.
Lehman Brothers reported second quarter Net Income of $1.00 billion, up 47% from the year ago period. Net Revenues were up 35% to $4.411 billion. “Investment Banking net revenues increased 28% to $741 million (y-o-y)… Capital Markets reported record net revenues of $3.1 billion…a 38% increase… Equities Capital Markets net revenues increased 85% to $878 million… Fixed Income Capital Markets reported record net revenues of $2.2 billion in the second quarter…an increase of 25%...” Total Assets increased $15.2 billion, or 14% annualized, to $455 billion (up 23% y-o-y).
Bear Stearns’ second-quarter Net Income was up 81% from a year earlier to $539 million. “We are very pleased to report our third consecutive quarter of record setting results. The first half of 2006 has proven to be our best ever,” said CEO James Cayne. For the quarter, “Institutional Equities net revenues were a record $554 million, up 42%... Fixed Income Net Revenues were a record $1.2 billion, up 45%... [Mortgage] securitization and trading remained high… Interest rate derivatives and foreign exchange produced record net revenues… Robust customer activity levels led to record net revenues in both the distressed debt and leverage finance areas driving record net revenues in the credit businesses this quarter… Investment Banking Net Revenues were $278 million, up 20%..." Compensation expense for the quarter was up 32.2% y-o-y to $1.22 billion.
Mr. Douglas R. Gillespie, Sr.
I lost a dear friend and colleague this week. Doug Gillespie was such a good man, and where I come from praise doesn’t come any higher. Our mutual friend Kate Welling, as she tends to do, said it best: “Doug was a true rarity, a gentleman and a scholar on Wall Street. I already miss him a lot.”
I always considered Doug one of the best kept secrets on Wall Street. But the strength and depth of his analysis, experience and insight were becoming better known and appreciated. It was just a couple of weeks back that he was mentioned in The Economist magazine. We at David Tice & Associates have been a client for almost 10 years. Doug’s always in-depth analysis and keen market insights would arrive – neatly handwritten – regularly via the fax machine. And while he may have been a little tardy to the technology revolution, once he acquired his PC and AOL membership there was absolutely no holding Doug back. His endearing enthusiasm for “going digital” was matched by his seasoned/disciplined “old school” approach to analyzing the economy and markets.
I will always hold the utmost respect for Doug as an exceptionally diligent analyst, astute and clear thinker, and hard worker. He was the veritable human encyclopedia when it came to markets and policymaking. Doug was as smart as he was humble and unassuming – as well as invariably caring and compassionate. His relentless efforts paid dividends with a top-notch research product and website, and I can confidently write that he was admired by all with the good fortune to have worked with him. And, not uncharacteristically, his table-pounding warnings this past April that the stock market was heading for an imminent spill were spot on. His instincts for foretelling the ever shifting winds of Washington and national politics were something to behold. Doug’s passing could not have been more untimely.
Like Kate Welling, I already miss Doug a lot. I so regret not telling him how much I appreciated his tireless support and encouragement. Back in the late nineties - when friendships didn’t seem as easy to come by as they do these days - Doug went out of his way to embrace me as a close pal. At the time, I was attempting to convince others of the importance of the burgeoning boom in non-bank Credit – the GSEs, money market funds, securitizations, derivatives, and “Wall Street Finance,” generally. Almost without exception, I was told – too often disparagingly - my analysis was thoroughly flawed. Doug was the gratifying exception. He listened attentively and became convinced I was on to something. Doug offered unyielding encouragement at a juncture in my life and career when it was especially appreciated. I am forever grateful. He also advised that if I were going to pursue this line of analysis to its fullest I had better get a firm handle on the Fed’s “flow of funds” data. I took Doug’s suggestion to heart and will think of my pal every quarter of every year in my ongoing pursuit of comprehending the amazing creation and flow of U.S. finance.
Doug was the consummate loyal friend. He would be more than willing to listen on the phone for hours and there was no doubt he could talk insightfully and entertainingly for even longer. I can’t think of anyone in the industry that possesses such a capacity (and willingness) to do both. He was also a gifted writer with an enviable command of the English language. Doug had such a great sense of humor and a laugh I wish I could savor just one more time. Mr. Gillespie was also deeply concerned about the direction of our country. We shared the similar disdain for the state of contemporary central banking, as well as concerns with regard to the future prospects of our currency and the hardship this will entail for our citizens and economy. But Doug was a determined analyst and certainly no pessimist. There was never any time for “doom and gloom” when you were chatting with Doug. He was always excited about a new development or some analysis he was wrapping up or about to dive into.
Doug was a passionate man – an honorable man. And, now that I think about it, not once do I ever remember him talking about material things. I know he loved classical music, politics, economic analysis and the financial markets. Yet the quintessential enthusiasm in his voice would always ratchet up a notch when the discussion turned to his family (he is survived by his wife Patricia and his children Blythe and Douglas Jr.). I can imagine that he was the greatest father. Our deepest condolences go out to the Gillespie family in this most difficult time. The thought of losing my father or spouse is just too painful to even contemplate.
A final email from Doug:
“Last Sunday evening, as the likely result of some spoiled shellfish, I became ill -- I mean violently ill! By Wednesday, however, I felt improved enough to make the classic mistake often committed in such situations -- I behaved as if I were 100% well. This indeed was a giant mistake, to which sizable additional bedtime on Thursday and yesterday will attest.
So there is lots to catch up on. With any luck, the weekend will prove helpful with this mission, and I heartily apologize for any inconvenience or problems this situation may have caused.
There are two items docketed for immediate attention: (1) Later today, I will post on the GRA website the latest installment -- #25 -- in Ned Schmidt’s ‘Moneyization’ series…
Also later today, or by first thing tomorrow, I want to get out something of a ‘potpourri’ missive. As the name suggests, it will address some research areas I think need some relatively immediate attention. The recent trade data will be included, since colleague, John Williams, has turned up some serious hanky-panky regarding these numbers.”
As much as Doug’s tragic passing is a reminder to live each day as if it could be our last, for me right now it is more a heart-wrenching lesson that if you have a friend that has taken ill – you had better pick up the damn phone… Rest in peace my friend. I’m so deeply sorry.