David Kotok's Contributions

The choice of Paul Ryan was skillful, courageous, a gamble, or a mistake, depending on who is characterizing it. Democrats see it as opportunistic; Republicans see it as an advantage. Critics see it as a repeat of the Sarah Palin debacle.

Europe appears to be dismembering. We see Spanish yields breaking well above 7%. The Spanish government bond market is essentially closed to private investors. The only funding for Spain, and many of its political subdivisions, is now institutional and governmental from elsewhere in the eurozone.

We believe the Libor scandal is systemic and worldwide. It is not idiosyncratic to Barclays. The UK has seven other firms under investigation right now. Barclays was the first to reveal a settlement. The nature of the settlement itself indicates that the scandal is huge.

Somehow, the insanity of the present unsupervised system involving the Federal Reserve’s primary dealers continues. The Fed had “surveillance” in place during the Drexel Burnham failure and the Salomon Brothers affair.

When we get to the other side of July 4th, we expect to see the evolution of the Persian Gulf threat from Iran. We take it seriously. It is going to be a hot summer.

European leaders have finally determined something that was apparent to everyone for years. Now comes the difficult part: how to implement a euro zone-wide banking system. Will sovereign countries give up their sovereignty and submit to a euro zone-wide authority? We shall see.

This weekend, leaders of 20 of the world’s largest economies headed to Mexico for a G-20 meeting, at which the outcome of the elections in Greece and the implications for Europe and global financial markets are a central topic, along with the future course of actions by the countries of the eurozone to address the current crisis.

There is no question we are in extraordinary and bizarre times. There are no modern historical references for these interest rates. In the United States, one has to look at the four-year period in which the Federal Reserve assisted the US government in financing World War II.

The drachma, the Greek currency name, is over 3000 years old. It was the most widely circulated coin in the world prior to the time of Alexander the Great. Since reintroduction in 1832, all modern Grecian drachma forms have ended badly. The single exception WAS the exchange of the drachma for the euro in 2001. That chapter of Greek history is being re-written now.

Greece is and has been bleeding. Its banking system would completely collapse were it not for the Emergency Liquidity Assistance (ELA). The Greek National Bank publishes these numbers with a considerable lag and with obscuring text.

An historical analysis of the similarities and contrasts between the U.S. and the Roman Empire and the five ways the U.S. could disintegrate.

In my view, our American political system is failing us. In my view, we are joining the list of declining world powers. The framework to support that argument follows.

The global financial crisis has ushered in a new way of thinking that will most likely never reverse. Previously, when crises erupted, the government would step in temporarily and then let the private sector resume course.

Take out the hurricanes and all the oil-price shocks have a common theme. There is a strongman. There is a shooting war or a threat of a shooting war. Diplomacy and sanctions and negotiation have failed.

CAC is a new sort of moral hazard. It has the potential for damage to sovereign debt financing of all types. Essentially, the structure coming out of Europe is something like this: there will be one type of debt in which the Greek government says, “We will pay and there will be no alteration or exception; we promise to pay, therefore you can accept that promise on the new terms of the instruments.” That type of debt is going to be held by the European Central Bank (ECB) and perhaps other institutions who are involved in this restructuring settlement of Greek debt. The other type of Greek debt will have a legal provision saying that the terms of the debt can be changed retroactively under certain circumstances.

Stocks continue to rally in the face of the ongoing Greek tragedy, while rating agencies downgrade sovereigns and warn the banks, and while Congress fiddles as Washington burns. What does the market know that others cannot see?

There is big and good news from the employment report today. All last year we stayed with our “no recession, slow recovery” view. Today’s report validates it continues. We remain fully invested in the US stock portfolios. The S&P 500 has reached a “golden cross.” Stocks could potentially “melt up.”

If you can take your eyes off the primary election coverage, watch Geithner. The US is engaged in a love trapezoid. The four corners are Beijing, Teheran, Tokyo, and Washington. Treasury Secretary Geithner is the Obama Administration’s front person. Track the news for the names of the other agents.

The one central bank balance sheet that did not grow is that of the United States’ central bank, the Federal Reserve. Notice what happened in the last few weeks when the others expanded and the FED did not. The US dollar actually started to strengthen against other currencies, particularly the euro.

We have elected not to utilize credit default swaps (CDS) as the vehicle to price default risk and contagion risk in Europe. The historical pricing of CDS is meaningless on European sovereign debt. It was established during a period in which CDS users believed they had protection on payments, which they subsequently learned did not exist.