Financial Arbitrage of Economic Policy, Rising Equities and Recovery

 

Financial Arbitrage of Economic Policy, Rising Equities and Recovery

Carlos M. Pelaez

Long-term yields may fall and rise again with arbitrage opportunities resulting from more purchases of long-term securities by the Fed and a pause in legislative restructuring/regulation after November that can also result in higher equity valuations together with higher growth and employment. The subpar recovery and job stress is discussed in (I), Basel capital requirements in (II), arbitrage of monetary policy in (III), financial turbulence in (IV), interest rates in (V) and the conclusion in (VI). If you have difficulty in viewing the tables and illustrations go to: http://cmpassocregulationblog.blogspot.com/

I Subpar Recovery and Job Stress. The critical historical perspective is that average quarterly rates of growth in the expansions after a severe recession were incomparably higher than during the current expansion: 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975, 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter in 1983 and only 3 percent in the first four quarters and 2.9 percent forecast in the first 12 quarters after the trough in the third quarter of 2009 (Michael Boskin, http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html ). Short-term indicators do not show signs of recurring recession but rather present mixed symptoms of subpar growth accompanied by lower number of people with jobs and over 26 million persons in job stress. The estimate of household net worth, or difference between the value of assets and liabilities, is estimated by the Fed at $53.5 billion at the end of the second quarter, which is lower by $1.5 trillion relative to the previous quarter. Household debt fell at an annual rate of 2.25 percent in the second quarter, which is lower than the decline at 4.25 percent in the earlier quarter. State and local government debt fell at the annual rate of 1.25 percent but federal debt rose at 24 percent or 4 percentage points more than in the earlier quarter (http://www.federalreserve.gov/releases/z1/Current/z1.pdf ). The ninth consecutive decline in household debt was mostly due to defaults of mortgages and credit-card debt. The decline in debt of $77 billion is close to the mortgage debt and credit-card debt wrote off by banks and other investors after default by borrowers. Household debt is at 119 percent of annual disposable income, which is high but much lower than 130 percent at the peak in Sep 2007 (http://professional.wsj.com/article/SB10001424052748703904304575497783824078838.html?mod=wsjproe_hps_TopMiddleNews ). Second quarter 2007 seasonally unadjusted (SUA) after tax profits of manufacturing corporations reached $134.5 billion and sales $1546.3 billion (http://www2.census.gov/econ/qfr/press/qfr072mg.pdf ). SUA second quarter 2010 after tax profits of manufacturing corporations reached $127.5 billion and sales $1459.1 billion (http://www2.census.gov/econ/qfr/current/qfr_mg.pdf ). Thus, profits are 5.2 percent below 2007 and sales 5.6 lower than in 2007. The inflation adjusted decline is much higher because the SUA producer price index of finished goods rose from 165.8 in Aug 2007 to 179.6 in Aug 2010 or by 8.3 percent such that inflation-adjusted profits dropped 12.5 percent and sales fell 12.9 percent (http://www.bls.gov/ppi/ppi_dr.htm ). Total retail and food services sales rose 0.4 percent in Aug 2010 and 3.6 percent relative to a year earlier and sales excluding motor vehicles and parts rose 0.6 percent in Aug relative to Jul and 3.7 percent relative to a year earlier. In the first eight months of 2010 total SUA retail sales rose 6.0 percent relative to the same period in 2009 and 5.6 percent when excluding motor vehicles and parts (http://www.census.gov/retail/marts/www/marts_current.pdf ). Seasonally adjusted (SA) inventories of manufacturers, retailers and merchant wholesalers rose 1.0 percent in Jul 2010 relative to Jun after increasing by 0.5 percent in Jun relative to May and are higher by 2.4 percent relative to Jul 2009. The percentage increases of SA inventories in Jul were in all segments: 1.0 for manufacturers, 0.7 for retailers and 1.3 for merchant wholesalers. There were lower percentage increases in sales than in inventories in Jul in all segments: 0.7 total, 1.1 manufacturers, 0.3 retailers and 0.6 wholesalers (http://www.census.gov/mtis/www/data/pdf/mtis_current.pdf ). Total industrial production in Aug rose 0.2 percent relative to Jul after increasing by 0.6 percent in Jul while manufacturing rose 0.2 percent in Aug after increasing 0.7 percent in Jul and 6.3 percent relative to Aug 2009. Total industry capacity utilization reached 74.7 percent in Aug, which is higher by 4.7 percentage points than in Aug 2009 but still 5.9 percentage points below the average from 1972 to 2009 (http://www.federalreserve.gov/releases/g17/Current/default.htm ). The Sep index of general business conditions of the Empire State Manufacturing Survey of the New York Fed fell 3 points from 7.1 to 4 suggesting that “business activity was little changed over the month” (http://www.newyorkfed.org/survey/empire/september2010.pdf ). This was compensated by an increase in the new orders index from -2.71 to 4.33, of shipments from -11.5 to -0.27 and unfilled orders from -10.00 to -5.97. In contrast, the business outlook survey of the Philadelphia Fed was worrisome: general index -0.7, new orders -8.1, shipments -7.1, unfilled orders -8.5, inventories -16.7, prices received -13.9 and average employee workweek -21.6. The conclusion about the future is that: “the survey’s broad indicators of future activity continue to suggest that the region’s manufacturing executives expect growth in business over the next six months, but optimism remains below levels earlier in the year” (http://www.phil.frb.org/research-and-data/regional-economy/business-outlook-survey/2010/bos0910.pdf ). The deficit of the current account of the US worsened from $109.2 billion in the first quarter of 2010 to $123.3 billion in the second quarter of 2010. The deficit in trade of goods and services worsened from $114.5 billion to $131.6 billion in the same period. The current account has deteriorated in four consecutive quarters after the deficit of $84.4 billion in the second quarter of 2009, which was the lowest since the third quarter of 2009 (http://bea.gov/newsreleases/international/transactions/transnewsrelease.htm ). The US has now again increasing fiscal deficits and current account deficits that may constrain policy and growth. The SA producer price index rose 0.4 percent in Aug after increasing 0.2 percent in Jul and declining 0.5 percent in Jun. The SUA index rose 3.1 percent in the 12 months ending in Aug. Excluding energy and food the index rose 0.1 percent in Aug for a tenth consecutive monthly increase (http://www.bls.gov/news.release/pdf/ppi.pdf ). The SA consumer price index rose 0.3 percent in Aug but was flat excluding food and energy. The SUA index rose 1.1 percent in the 12 months ending in Aug and 0.9 percent excluding food and energy (http://www.bls.gov/news.release/pdf/cpi.pdf ). Initial claims for unemployment insurance SA fell to 450,000 in the week of Sep 11 or by 3000 from the revised estimate for the earlier week. Claims were 547,000 a year earlier. The four-week moving average fell to 464.750 or by 13,500 from the earlier week. SUA claims fell to 339,838 in the week of Sep 11 or by 38,145 relative to the earlier week and much lower than 411,126 a year earlier (http://www.dol.gov/opa/media/press/eta/ui/current.htm ). While unemployment claims fell through large part of 2009, they have fluctuated above 450,000 in 2010. The number of employed persons in Aug 2009 was 139.433 million, declining to 139.250 million in Aug 10 or 183 thousand less people employed (http://www.bls.gov/news.release/pdf/empsit.pdf ). In Aug 2010, there were 26.090 million people in job stress composed of 14.860 million unemployed, 8.860 million working part time because they could not find another occupation and 2.370 million marginally attached to the labor force. SA industrial production was stable in the 16 countries composing the euro area after falling 0.2 percent in Jun and was stable in Jul in the 27 countries composing the European Union (EU27) after increasing 0.1 percent in Jun. In the 12 months ending in Jul 2010, industrial production rose 7.1 percent in the euro area and 6.8 percent in the EU27 (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-14092010-AP/EN/4-14092010-AP-EN.PDF ). Exports of the euro area rose 18 percent in the 12 months ending in Jul 2010 while imports increased by 24 percent. SA exports of the euro area fell 0.6 percent in Jul and imports declined by 1.5 percent. The trade balance surplus of the euro area with the rest of the world was EUR6.7 billion in Jul down from EUR 11.9 billion in Jul 2009 (http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/6-16092010-AP/EN/6-16092010-AP-EN.PDF ).

II Basel Capital Requirements and the Dodd-Frank Act. Soft law consists of nonbinding declarations of intentions of international conduct that are much easier to negotiate and adopt than international treaties (Pelaez and Pelaez, Globalization and the State, Vol. II, 123-5, Government Intervention in Globalization, 145-150). Treaties require constitutional and legislative actions while soft law may be processed through smoother regulatory action. International standards and codes of conduct are important vehicles of reaching international cooperation to promote stability of institutions required for growth. There are multiple international standards and codes that were enhanced during efforts of improving international financial architecture of which one of the most influential is the Basel capital accord (Pelaez and Pelaez, International Financial Architecture, 239-300, Globalization and the State, Vol. II, 114-48, Government Intervention in Globalization, 150-4, Financial Regulation after the Global Recession, 54-6, Regulation of Banks and Finance, 69-70, 229-33). The doctrine of shared responsibility for common international policies to address external imbalances through the International Monetary Fund (IMF) was another attempt to solve international issues through cooperation not requiring legislative action by treaties (Pelaez and Pelaez, The Global Recession Risk, 9, 11, 18, 214, 227, 229).

Banking theory considers functions of banks of which one of the most important is converting loans for illiquid projects with gestation in the future into immediately available liquidity such as demand deposits. Securitization can also convert loans for buying houses or any other physical assets into a bond that can be financed in short-term sale and repurchase agreements (SRP) to provide instant liquidity. Because of this transformation function of illiquid physical assets into immediate liquidity banks and financial entities may have a fragile structure that requires sufficient capital to face runs in the form of withdrawal of deposits, as it happened to certain banks in 2008. There is also fragility in the liquidity transformation of securitization that is the foundation of most credit. There were also failures to refinance SRPs, with fire sales of securities increasing haircuts and margins, spreading through various segments of the financial sector in 2008 notoriously initially by structured investment vehicles (SIV) and other types of asset-backed commercial paper (Pelaez and Pelaez, Financial Regulation after the Global Recession, 48-52, Regulation of Banks and Finance, 58-66). Banks and financial institutions operate with leverage or borrowing money by issue of deposits as does most of the financial system to meet large demand for loans or financing of positions and securitization with SRPs to meet credit demand. Thus, capital is only a fraction of total assets and must be sufficient in absorbing losses that could prevent the failure of the bank under conditions of stress of its assets. Similarly, capital must be sufficiently high to avoid fire sales of securities that may spread to all segments. Regulation of banks has relied on imposing capital requirements of which the Basel Capital Accord of 1988 was the gold standard followed by Basel II in 2005 and now the ongoing efforts in Basel III. A key effort in the Basel accords is to maintain a “level playing field” by which banks are not deprived of competitiveness in international markets, which means that the accord should not bias capital requirements to benefit banks of some jurisdictions at the expense of others originating in different jurisdictions. The process of the Basel agreements involves consultations of the major monetary authorities of the world, academics, financial industry and so on, which enriches knowledge on finance and central banking. Technical issues tend to dominate politics with more adequate policy proposals and implementation.

Capital requirements under the Basel accords are divided into Tier 1 capital and Tier 2 capital. The Basel Committee on Banking Supervision (BCBS) has emphasized equity capital and disclosed reserves for three reasons: (1) common use in all banking systems; (2) transparency in published statements and use in market evaluation of capital adequacy; and (3) critically importance in profit margins and banks’ competitiveness. The BCBS finds Tier 1 capital critical in determining quality of banks’ capital position. Equity capital is defined as “issued and fully paid ordinary shares/common stock and non-cumulative perpetual preferred stock (but excluding cumulative preferred stock)” (http://www.bis.org/publ/bcbs128.pdf?noframes=1 14). Basel II required two capital tiers: Tier 1 capital consisting of equity capital and “published reserves from post-tax retained earnings” to be at least 50 percent of total required capital; and Tier 2 capital of not more than 100 percent of Tier 1 capital, consisting of “supplementary capital elements” such as undisclosed reserves, revaluation reserves, general provisions and general loss loan reserves, hybrid capital instruments with equity and debt characteristics and subordinated term debt (Ibid, 14-8). The total capital ratio “must be no lower than 8%” of risk-weighted assets (RWA). Total RWAs are obtained “by multiplying the capital requirements for market risk and operational risk by 12.5 (i.e. the reciprocal of the minimum capital ratio of 8%) and adding the resulting figures to the sum of risk-weighted assets for credit risk” (Ibid, 12). The use of common equity as core capital of banks can be justified by three related arguments: (1) it is immediately loss absorbing and evident in valuation of shares in stock markets; (2) equity is a residual after payment of debt such that a company defaults when the value of debt is equal to or exceeds the market value of assets; and (3) shareholders may create incentives for management to avoid total loss of shareholder value. Share prices declining toward zero were relatively accurate in predicting the demise of financial entities in 2008.

The Group of Governors and Heads of Supervision of 27 countries, acting in oversight capacity of the BCBS, reached an agreement on Sep 12 to strengthen existing capital requirements, which together with definitions of capital, leverage requirements and a global liquidity standard will be introduced to the Seoul G20 Leaders summit in Nov plus higher leverage requirements for trading, derivatives and securitization that will be completed at the end of 2011 (http://www.bis.org/press/p100912.htm ) The minimum common equity requirement is raised from 2 to 4.5 percent together with an additional “conservation buffer” of 2.5 percent composed of common equity, resulting in total common equity requirements of 7 percent. The objective of the conservation buffer is “to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress” (Ibid). There is a window of eight years for implementation of the new requirements or “phase-in arrangements” (http://www.bis.org/press/p100912b.pdf ). The increase of common equity to 4.5 percent of capital and of Tier 1 to 6 percent will be effective as of Jan 1, 2015. The agreement also includes a voluntary “countercyclical buffer” of 0 to 2.5 percent of common equity or other loss absorbing capital determined by national authorities. Minimum capital plus conservation buffer will eventually be 7 percent in common equity, 8.5 percent in Tier 1 capital and 10.5 percent in total capital plus the nationally-determined countercyclical buffer of 0 to 2.5 percent that could raise total capital to 13 percent (http://www.bis.org/press/p100912a.pdf ). In addition, the agreement includes a Tier 1 capital leverage ratio of 3 percent that is general and not based on risk, which will be tested during the phase-in period with the objective of incorporating it in Pillar 1 after review and calibration by Jan 1, 2018. The Financial Stability Board (FSB) and the BCBS “are developing a well-integrated approach to systemically important financial institutions which could include combinations of capital surcharges, contingent capital and bail-in debt” (http://www.bis.org/press/p100912.htm ). The FSB will finish by Oct 2010 “a policy framework of concrete recommendations for measures to address the moral hazard risks associated with systemically important financial institutions (SIFIs)” proceeding on three directions: (1) reduction of the likelihood and effects of SIFIs failure; (2) effective resolution for firms in trouble; and (3) enhancement of financial markets to avoid “interconnectedness and contagion risks” of SIFIs (http://www.financialstabilityboard.org/publications/r_100627c.pdf 4).

The intent of H.R. 4173 or “Dodd-Frank Wall Street Reform and Consumer Protection Act” is “to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes” (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4173enr.txt.pdf ). The 848 pages of the Dodd-Frank act generate multiple regulatory rules and studies with nil probability of accomplishing the intents. While the law was being negotiated, Fannie and Freddie were given unlimited bailout resources, became the largest realtor in the country and acquired the new distinction of “too politically important to fail.” The same government institutions that designed and implemented the bailouts were given the suspect power of taking over companies not to allow bailouts again. The result may simply be exemptions with new definitions of what is too big to fail for whatever reason. Consumers will have the same fate with the consumer protection agency as they had with the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD) (http://www.whitehouse.gov/the_press_office/Fact-Sheet-Reforms-to-Protect-American-Credit-Card-Holders ). CARD was signed into law on May 22, 2009, and entered into effect on Feb 22, 2010. CARD harmed the credit card industry and its users who are nearly everybody with lower volumes of credit at higher interest rates. Taxpayers will involuntarily contribute to the unending bailout of Fannie and Freddie, which are “too politically important to fail.” According to a European Parliament view, naked short sales, hedge funds, derivates and credit default swaps were not the causes of the financial crisis such that attention must be focused on the adequacy of bank capital requirements (http://www.ft.com/cms/s/0/ff935886-bdad-11df-9417-00144feab7de.html ). The Dodd-Frank act unbalanced the playing field against US banks by imposing onerous regulation that will make them less competitive worldwide. Proprietary trading was not a factor of the banking crisis but it has been banned in banks, forcing a loss of revenue and a change in banking business models for no valid reason (http://noir.bloomberg.com/apps/news?pid=20601087&sid=auLsSZ1C0O7E&pos=5

). The legislative restructurings and regulation replace existing business models with government decisions and allocations, causing the inertia of investment and consumption that result in subpar growth and job stress. The Dodd-Frank act has created less stable banking and financial markets with lower capacity for providing the credit required for employment and job creation resulting from a rush to legislate and urgency to implement compared to the careful phase-in process of Basel III.

III Arbitrage of Monetary Policy. An important feature of the Fed flow of funds report for the second quarter of 2010 is that households and nonprofit organizations acquired $798 billion of financial assets in the second quarter of 2010 while decreasing net liabilities by $203 billion (http://www.federalreserve.gov/releases/z1/Current/z1.pdf 18). Corporations have $2 to $3 trillion in cash. Market turnover in global foreign exchange markets rose by 20 percent between Apr 2007 and Apr 2010 to reach $4.0 trillion per day (http://www.bis.org/publ/rpfx10.pdf?noframes=1 ). Since the Plaza Accord of 1985 to the present, intervention by governments of the G7 to turn around trends in foreign exchange rates have not been successful. Monetary policy may drive short-term rates to zero for significant periods, as it is the case of the fed funds rate of 0 to 0.25 percent fixed since Dec 16, 2008 (http://www.federalreserve.gov/monetarypolicy/openmarket.htm ). Research by the Wall Street Journal finds that the average expected return of the 15 largest public pension systems is 7.8 percent and that the National Association of State Retirement Administrators surveyed 100 US public pension plans finding that the median expected investment return is 8 percent (http://professional.wsj.com/article/SB10001424052748704358904575477731696162858.html?mod=wsjproe_hps_LEFTWhatsNews ). In contrast, the WSJ finds that: (1) the Dow Jones Industrial Average (DJIA) is at 10,607, 85 close to the 10,000 level that was first punctured in 1999; (2) the yield of the 10-year Treasury is 2.743 percent; and (3) the SUA consumer price index rose 1.1 percent in the 12 months ending in Aug and 0.9 percent excluding food and energy It is far more difficult for quantitative easing, or purchase of trillions of dollars of long-term securities by the Fed, to fix the risks spreads between short and long-term securities and among risk categories. The expectation of more purchases of long-term securities, probable interruption of legislative restructurings/regulation after November and increasing taxation from trillion-dollar deficits are already causing a hunt for yields, initially in fixed income markets but later likely also in equities. The arbitrage of more unconventional or exotic monetary policy may consist of two phases. In the first phase, the trade is to take highly leveraged long positions in fixed income securities, actually not as much in Treasuries as in other higher-yielding corporate debt, securitized bonds and junk bonds. The initial-phase trade will benefit from the property of duration that the percentage increase in price, other things constant, is higher for bonds with low coupons and low yields (see the earlier post of this blog The Duration Trap of Monetary Policy, Sep 12, 2010). Bloomberg has already reported that investors are taking positions in bonds backed with consumers having poor credit scores because of all-time yield lows (http://noir.bloomberg.com/apps/news?pid=20601087&sid=anxz2cT1MYqU&pos=6 ). Another symptom is the marketing of $319 billion of leveraged loans in the US in 2010 compared with only $173 billion a year earlier as reported by Dealogic and quoted by the WSJ (http://professional.wsj.com/article/SB10001424052748704394704575496242084611612.html?mod=wsjproe_hps_LEFTWhatsNews ). The sharp shocks of the credit crisis and global recession have created profitable opportunities for M&As. In the second phase, the interruption of legislative restructuring, less cautious attitude by investors and consumers and M&As may channel the hunt for yield from fixed income to equities. Investors may benefit from shorting fixed income securities in the expectation of rising yields of Treasuries because of financing higher debt by the federal government and because of the flight of funds back into equities. Repressed yields by quantitative easing may unleash the same risk taking that accompanied the earlier combination of near zero interest rates, suspension of the issue of 30-year Treasuries, housing subsidy of $221 billion per year and purchase or guarantee of $1.6 trillion of nonprime mortgages by Fannie and Freddie with leverage of 75:1 that caused the credit crisis and global recession (Pelaez and Pelaez, Financial Regulation after the Global Recession, 157-66, Regulation of Banks, and Finance, 217-27, International Financial Architecture, 15-18, The Global Recession Risk, 221-5, Globalization and the State Vol. II, 197-213, Government Intervention in Globalization, 182-4). There must be consideration in the Federal Open Market Committee (FOMC) as to whether it can use exotic policy to control risk/return decisions of the entire economy, including risk spreads over all financial markets, maturities and segments without causing yield hunts and adverse repercussions in production, investment and consumption. Another round of trillion dollar purchases of Treasuries or other securities by the Fed could seriously affect growth and employment in different direction than intended by policy.

IV Financial Turbulence. A much better investment mood has returned to US equities, as shown in Table 1. Recent gains have reduced the losses to the trough hit during the sovereign risk difficulties in Europe to almost one half for all three indexes on Sep 17 and gains on the week: DJIA from -13.6 to -5.3 percent and a gain in the week of 1.4 percent, S&P 500 from -16.0 to -7.5 percent and a gain in the week of 1.4 percent and NYSE Financial from -20.3 to -11.5 percent and a gain in the week of 1.2 percent. US indexes are more sensitive to a pause in restructuring after November and an eventual flight from fixed-income into equities after the full effects of a potential purchase of one trillion dollars of long-term securities by the Fed. Risk taking, investment and consumption could return with higher returns on financial investment and a livelier rate of economic growth and employment. This scenario depends critically on a change or interruption in restructuring and regulation.

 

Table 1, Stocks, Commodities, Dollar and 10-Year Treasury

	Peak	Trough	% Trough	%9/17	Week 9/17
DJIA	4/26/10	7/2/10	-13.6	-5.3	1.4
S&P 500	4/23/10	7/2/10	-16.0	-7.5	1.4
NYSE Financial	4/15/10	7/2/10	-20.3	-11.5	1.2
Dow Global	4/15/10	7/12/10	-18.4	-8.7	1.8
Asia Pacific	4/15/10	7/2/10	-12.5	-2.6	2.1
Shanghai	4/15/10	7/2/10	-24.7	-17.8	-2.4
STOXX Europe	4/15/10	7/2/10	-15.3	-6.4	-1.4
Dollar	11/25/10	6/25/10	22.3	16.0	-2.8
USB Com	1/6/10	7/2/10	-14.5	-4.6	2.1
10-Y Tr	4/5/10	86/10	3.986	2.743

Source: http://online.wsj.com/mdc/page/marketsdata.html 

 

V Interest Rates. The 10-year Treasury fell to 2.74 percent from 2.80 percent a week earlier but rose from 2.58 percent a month earlier (http://markets.ft.com/markets/bonds.asp?ftauth=1284915921732 ). The 10-year government bond of Germany stood at 2.44 percent for a negative spread of 31 basis points relative to the 10-year Treasury. The US Treasury maturing on 08/20 with coupon of 2.63 was traded on Sep 17 at a price of 98.95 for equivalent yield of 2.75 (http://markets.ft.com/ft/markets/reports/FTReport.asp?dockey=GOV-170910 ). If the yield were to backup to the recent peak of 3.986 percent on Apr 2, 2010, the bond would settle on 09/20 at a price of 88.9135 for a loss of principal of 10.1 percent. Raising or lowering long-term yields when duration is high because of low coupons and yields can result in strong fluctuations of prices of fixed-income securities.

VI Conclusion. The combination of quantitative easing in the form of long-term purchase of treasuries or other securities by the Fed with a pause in legislative restructuring/regulation could cause an initial decline in yields of long-term fixed income securities followed by an increase in yields and a flow out of fixed income positions into equities reinforced by much higher M&A deals. The legislative pause of aggressive restructuring/regulation could cause higher growth and reduction of job stress. (Go to http://cmpassocregulationblog.blogspot.com/ http://sites.google.com/site/economicregulation/carlos-m-pelaez)

http://www.amazon.com/Carlos-Manuel-Pel%C3%A1ez/e/B001HCUT10 )