His mini-bio follows the jump.
A Commentary by Harley Bassman September24, 2019
“The Opposite of Bad is Worse”
—Unconfirmed attribution to Winston Churchill
The kids are out of the house and I am back in Laguna Beach; thus I have no interest in mimicking the pundits pretending to be Howard Beale in “Network” who scream: “I’m mad as hell, and I’m not going to take it anymore.”....MUCH MORE (8 page PDF)
As an aside, I will note that if there is any shouting to be offered, it should be that locking up Bryan Cranston in last season’s Broadway version of this dated show likely precluded him from reprising his stellar performance as LBJ in the Tony award winning play “All the Way” in the new production “The Great Society”. While Brian Cox will certainly be terrific, Cranston’s performance created one of the best shows ever (and I have seen quite a few).
Notwithstanding the above, a generous serving of opprobrium has been earned by the Western Central Bankers (CB) who continue to believe that negative interest rates have a place in a civilized society. I will not call this policy madness,but expecting a different result from a repeated failure is Einstein’s definition of insanity
This is not to say that negative interest rates can never be justified, in fact, there are many times when they are rational:
1) At times of great domestic distress where a negative rate effectively includes the price of insuring your assets. Negative Treasury bill rates occurred in both the 1930’s and at the outset of the Great Financial Crisis (GFC) when for a time banks were no longer deemed a safe haven.This final point is an interesting concept that should be more fully explored, especially in Europe. As a public policy parlor game, consider that if the 1935 Social Security Act was adjusted to reflect our current life span, the legal retirement age would advance to near 84 years.Financial planning for nearly two decades of retirement is one of the key reasons that demographics is a significant driver of interest rates and why I continue to opine that the Treasury ten-year rate cannot exceed 3.5% until past 2023.
2) Similar to the above, Gold can be considered an alternate currency (See “Rumpelstiltskin at the Fed”–April 19, 2016) which sports a negative interest rate once one includes the cost of storage.Using listed futures contracts as a reference, Gold presently has a yield of negative 2.00% from December 2019 to December 2020.
3) There is actual deflation where the real cost of living (not the Government manipulated CPI) declines over time;thus,the time value of money is negative, and a dollar today is worth less than a dollar in the future.
4) There is a demographic preference to delay consumption, perhaps because one desires to retire well in advance of their expected demise.
But none of the above is presently relevant. The U.S. financial system is in terrific shape, in no small part because the To-Big-To-Fail (TBTF) banks are effectively Government regulated public utilities. (I am almost surprised the name Consolidated Edison National Bank has not been trademarked.)
Moreover, despite the fact that inflation may be running below CB targets, top line U.S. inflation (CPI) is expected to be 1.8% in 2019 and 2.0% in 2020; respectively 1.5% and 1.6% in Europe; 0.7% and 1.0% in Japan; and 2.4% and 2.3% in China. (Source -Bloomberg)....
From May 30's "The Convexity Maven, Commentary May 30: 'Can't You Hear Me Knocking?'":
Mr. Bassman's thinking is one of the reasons you have not seen a lot of bleating about the yield curve on the blog. It was too early.
But time passes and the herd thunders on.
First, our boilerplate introduction to Mr. Bassman:
...Wall Street loves to make convexity sound complex (I suppose it’s so they can charge higher fees?). We speak Greek (calling it “gamma”), employ physics as a metaphor (analogizing to it “acceleration”), and use mathematical definitions (since it is the second derivative of the asset’s price change)."Pish. Posh." is a technical term only used by market professionals for those situations where one has decided to go full Alinsky rule #5:
Pish, posh. An investment is convex if the payoff is unbalanced for equally opposite outcomes. So if there’s the potential to earn a profit of two on a bet versus a maximum loss of one, the bet is positively convex. If you can lose three versus making two, it is negatively convex. That’s it. The rocket scientists are called upon to help (fairly) price the cost (value) of such possible outcomes. This is why the expansion of derivative trading in the 1990’s resulted in a hiring spree of physics PhD’s....
#5 Ridicule is man’s most potent weapon. It’s hard to counterattack ridicule, and it infuriates the opposition, which then reacts to your advantage...The Convexity Maven is nothing if not a professional. Here is part of his mini-bio at MacroVoices:
Harley S. Bassman
Harley Bassman created, marketed and traded a wide variety of derivative and structured products during his twenty-six-year career at Merrill Lynch. In 1985 he created the OPOSSMS mortgage options product that facilitated risk transmission between MBS originators and financial institutions. In 1988, he assumed responsibility for trading and marketing IO/PO and other levered prepayment securities. Soon after this, he started purchasing RTC auctioned MBS Servicing rights and repackaged them for the securities market as BIGS - Beneficial Interests in GNMA Servicing. Later, he started a GNMA servicing conduit becoming one of the Top 20 originators in 1992. As managing and hedging prepayment risk became a priority focus for the financial markets, Mr. Bassman created PRESERV, Merrill's trademarked Prepayment Cap product. Merrill was a leader in this product category writing protection that covered the risk on tens of billions of notional mortgage servicing rights. Later, Mr. Bassman managed Merrill's initial venture into off-balance sheet mortgage trading.
In 1994, Mr. Bassman assumed responsibility for OTC bond options.
Within a year, Merrill was the leader in this product sector. A wide variety of products were offered including vanilla and complex options on MBS spreads and the Treasury yield curve.
To help clients more fully appreciate Volatility as a primary risk vector, he created the MOVE Index. Similar in form to the VIX Index, it is now the recognized standard measure of Interest Rate Volatility.
From 1995 to 2000 he focused on creating hedge strategies for MBS servicers and portfolio optimization techniques for Total Return and Index investors.
Mr. Bassman became the manager of North American MBS and Structured Finance trading in 2001. During his tenure, he created SURF, (Specialty Underwriting and Residential Finance), a self-contained Sub-Prime mortgage conduit. He supervised the issuance of Merrill’s first Sub-Prime securities. He also transitioned the structuring business to a new technology platform.
In 2006 he built the RateLab, a full spectrum US Rates Trading Desk Strategy Group. Here he worked with investors to advise and optimize their risk exposure. As a key member of the client trading business, he facilitated activity by providing liquidity to both the firm’s clients and market makers.
After a (too) brief sabbatical, in 2011 Mr. Bassman joined Credit Suisse's Global Rates business where he identified and integrated investment and hedging opportunities for sophisticated investors.
Most recently, Mr. Bassman was an Executive Vice President and Portfolio Manager at PIMCO - a leading global investment management firm. Here he managed investments for the Liquid Alternative products group as well as advised on portfolio strategy across asset classes for the firm's franchise businesses.Also from Mr. Bassman via CI:
Mr. Bassman splits his time between Laguna Beach, California and New York City. He has a B.A. in management science from the University of California, San Diego and an MBA in finance and marketing from the University of Chicago....
Convexity Maven: "Wall Street Jenga"
And one we missed, "Lost Horizon", May 1 (eight page PDF)
