Linsanity’s Economic Clout

Businesses capitalize New York Knicks point guard Jeremy Lin’s phenomenal success

The Linsanity  started in February 2012 when Jeremy Lin unexpectedly led a winning streak by New York Knicks while being promoted to the starting lineup. The Linsanity influence resonates beyond basketball court. It penetrates stock market, sales, and marketing, according to SmartInMoney.com.

Jeremy Lin is a Harvard-educated, undrafted point guard for the New York Knicks who seemingly emerged from nowhere to become an international phenomenon. He is also the first N.B.A. player to have at least 20 points and 7 assists in each of his first four starts. New York Knicks had a 7–0 record after Lin started receiving major playing time, 6–0 with him starting.

Since Linsanity breakout game through Friday, Madison Square Garden Co., parent of the Knicks, had seen its shares advance 13% since early February, compared with a 4.4% increase of the S&P over the same period.

Nike's short-term investment in Jeremy Lin is ready to pay some long-term dividends. Like a futures bet on a Wall Street stock, the athletic giant had the foresight to sign Lin to a minor deal when he entered the NBA in 2010. Nike extended its endorsement pact with Lin in late February to stop him from being stolen by rival athletic sponsors. Nike then launched “Linsanity” T-shirts for sale at its own stores and at Foot Locker Inc. locations. Nike hopes to double its sales in China to $4 billion annually by 2015.

15 banks passed Fed’s stress tests

15 of 19 banks passed stress tests, but Citigroup, Suntrust Banks, Ally and Metlife failed!

The Federal Reserve said 15 of the 19 largest U.S. banks pass stress tests, or Comprehensive Capital and Analysis Review (CCAR), as they could maintain adequate capital levels even in a recession scenario in which they continue paying dividends and buy back stock. Four banks, including Citigroup, have more work to do and need more capital.

Under the stress scenario, unemployment rate of 13 percent, a 50 percent drop in stock prices and a 21 percent decline in prices would produce aggregate losses of $534 billion over nine quarters. Even with that blow, the 19 banks would see their tier one common capital ratio fall to 6.3 percent in the fourth quarter of 2013 in the hypothetical scenario, above the 5 percent minimum the Fed required. The ratio was 10.1 percent in the third quarter of last year.

It was the first time the Fed had released a thorough test of the banks' financial health since the early days of the financial crisis. The Fed has conducted the stress tests each year since 2009. The Fed did not publicize the results of its tests in 2010 or 2011. After the first round of tests, in 2009, the Fed ordered 10 banks to raise a total of $75 billion. Bank of America Corp. alone was told to raise $34 billion.

Fed considers Sterilized Bond Buying to boost economy

The Federal Reserve is considering a new type of bond-buying program designed boost the economy in the months ahead while curbing future inflation, according the Wall Street Journal.

Federal Reserve officials have used different types of bond-buying programs since 2008. All of them are aimed to drive down long-term interest rates to spur investment and spending by businesses and households. Now they're exploring three different approaches, which are:

1. The Fed could use the method they used aggressively from 2008 into 2011, in which the Fed effectively printed money and used it to purchase Treasury securities and mortgage debt. The Fed has already acquired more than $2.3 trillion of securities in several rounds of purchases using this approach, widely known as "quantitative easing," or QE.
2. They could reprise a program launched last year in which it is selling short-term Treasury securities and using the proceeds to buy long-term bonds. This $400 billion program, known as "Operation Twist," allows the Fed to buy bonds without creating new money.
3. In the new novel approach, the Fed could print money to buy long-term bonds, but restrict how investors and banks use that money by employing new market tools they have designed to better manage cash sloshing around in the financial system. This is known as "sterilized" QE.