This is Part 2 of a guest contribution by David Kotok* and Bob Eisenbeis** of Cumberland Advisors. (Click here for Part 1.)

Note to Readers:  This is the second of our two-part commentary on the Fed’s exit strategy and the role the Fed has played in complicating its own operating strategies and ability to conduct monetary policy.

In their Wall St. Journal op-ed entitled “The BLOB That Ate Monetary Policy” (September 27, 2009), the Dallas Fed’s Fisher and Rosenblum use the movie metaphor of the BLOB to describe the “too big to fail” banks.  They argue that these BLOBs stood in the way of the Fed’s monetary policy’s low interest rates and thereby “gummed up” the “monetary policy channel,” which would otherwise be able to stimulate economic activity.

The op-ed doesn’t name names.  But we will.  If you examine the list of the Fed’s primary

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This is Part 1 of a guest contribution by David Kotok* and Bob Eisenbeis** of Cumberland Advisors. (Part 2 follows tomorrow.)

Note to Readers:  This is the first of a two-part commentary motivated by speeches and editorials from Federal Reserve officials about possible exit strategies from its current quantitative easing policies.  We comment on some problems that the strategies may pose.  We also identify subsidies in the Fed’s current policies.  In part two we comment on the Fed’s own operating policies that may have played an important role in creating the too-big-to-fail problem.  This last issue was overlooked by the Dallas Fed’s Fisher and Rosenblum in their WSJ op-ed piece of September 27, 2009.  They lamented the bottleneck that the concentration of banking resources now creates as the Fed attempts to exit its QE strategy.  They fail to mention how the Fed’s determination of primary-dealer status has

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The first few days of the week have been characterized by a fresh wave of risk aversion as uncertainty over the global economic outlook took its toll on stock markets and investors favored safe-haven assets such as government bonds, the US dollar and Japanese yen. However, yesterday brought some relief for risky assets - now in corrective mode - and it remains to be seen whether the S&P 500 Index will close down for a fourth consecutive week as the US earnings season gets on the way.

The usual debate on the outlook for the economy and financial markets dominated the video channels over the past few days, but interesting snippets on the IMF’s improved forecast for the global economy, the viability of the Public-Private Investment Program (PPIP), the US dollar’s role as reserve currency, the prospects for the earnings-reporting season and President Obama’s visit to Russia were also

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I've gotten a few questions from readers and colleagues about what sources I turn to for information about the markets, exchange-traded funds and related topics.

The list is long and varied, and ebbs and flows over time. But here are some of the sources (public, private and otherwise) that I turn to in my day-to-day reading. I'm sure I'm leaving out quite a few sites, but this at least is a partial list.

NATIONAL PUBLICATIONS

IndexUniverse.com and IndexUniverse.eu: It goes without saying that IndexUniverse.com and IndexUniverse.eu are the best sites on the Web for information about ETFs and how they are used in portfolios.

IndexUniverse.com

IndexUniverse.eu

Slate/The Big Money: Those two Web sites aside, I start my day at Slate.com, and its sister finance site The Big Money. I find the daily news summary (and weekly magazine summaries) the best meta-journalism on the Web. They offer

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The following are some thought-provoking articles I have read over the past few days that readers may also find of interest:

• David Kotok (Cumberland Advisors): Does the stock market rally have legs? April 11, 2009.

• George Magnus (Times Online): Political courage is vital for a real recovery, April 13, 2009.

• John Hussman (Hussman Funds): Green shoots over thin ice, April 13, 2009.

• Financial Times: Britons turn to religion over debt worries, April 12, 2009. The growing demand for financial and legal advice from places of worship is prompting many to launch a new type of service in the downturn

• John Sylvia (Wachovia): Economics as strategic input to business decision-making, April 13, 2009. Often the biggest misses in bank strategy have little to do with the day-to-day management

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While Jim Cramer and others are wringing their hands, the people I respect most are turning bullish.

At least, over the long term.

Let's start with John Bogle. (Doesn't it always start with John Bogle?)

Judging by the series of interviews he's been giving lately, Bogle is very worried about the U.S. economy. As he said in an interview with Forbes today (highlighted by Murray Coleman in our invaluable new daily news roundup), "it will be a year-and-a-half to two years before [the U.S. economy] turns upward."

That doesn't mean investors should be sitting on the sidelines. Far from it. Bogle says the market may be undervalued by about $7.5 trillion right now, and thinks that the market has likely over-discounted the impending recession.

Bogle's not alone. In the forthcoming January/February issue of the Journal of Indexes, Rick Ferri (a great financial advisor) calls this "the greatest opportunity in our lifetime" for

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After a weekend in which the deepening U.S credit crisis sent one top investment bank to bankruptcy court and a second into the arms of a “White Knight” suitor, U.S. stocks yesterday (Monday) recorded their worst day since the 9/11 terrorists attacks seven years ago. Indeed, the Dow Jones Industrial Average plunged more than 504 points, its biggest one-day point decline since Sept. 17, 2001 – the day the markets reopened for trading after the attacks on New York and Washington. Wall Street entered last weekend anticipating a government bailout of Lehman Brothers Holdings Inc. (LEH), but exited with Merrill Lynch & Co. Inc. (MER) agreeing to sell itself to Bank of America Corp. (BAC) for nearly $50 billion – and with Lehman announcing it will seek bankruptcy in a bid to avoid a total ...