Friday, October 31, 2008

Features of the week

Many fascinating articles to share in our, "Features of the week".

1. Halloween anniversary of a global stock market peak.

2. Approaching zero: Fed cuts to 1%, and may do more.

3. Chart Chatter: a look at the major US share indices.

4. Commodities head for worst month in 52 years.

5. Controlled Greed on John Maynard Keynes: the money manger.

6. Do we need more of Keynes now? - Frank Shostak.

7. Intervention doesn't work: Jim Rogers' quarrel with CNBC.

8. Marc Faber: "Bernanke is a disaster".

9. Short sellers aren't jackals, they're bears, Fleckenstein says.

10. Money worries should be telling (and teaching) you something.

11. Why thugs must not be allowed to prevail - Luke Johnson.

12. Peak oil: are oil prices destined to rise again?

13. Farm credit squeeze may cut crop output, spur food crisis.

14. Many US homebuyers underwater; Hamptons home prices plunge.

15. Steve Forbes: How capitalism will save us.

16. Strongest link in an unbroken chain: How Wojciech Kruk defended his family jewelry business from a competitor's hostile takeover.

17. It's the Great Pumpkin, Charlie Brown!

Thanks for reading Finance Trends Matter. Visit often, and if you'd like to keep up with our posts in a feed reader, subscribe to our free site feed.

Thursday, October 30, 2008

Marc Faber: "Bernanke is a disaster"

Market strategist and investor Marc Faber joined Bloomberg yesterday to talk about the Fed rate cut and its affect on the markets.

As those who are familiar with Faber's views have probably guessed, Marc was none too impressed with the Federal Reserve's latest action, or any of the recent efforts to "pump liquidity" into the markets and the economy.

When asked about the job Ben Bernanke is doing as Fed Chairman, Faber responded by saying "Bernanke is a disaster".

He also pointed out that the recent Treasury and Fed interventions and rule changes have actually created more volatility in the markets, citing the recent ban on short-selling as a primary example.

Plenty more to hear in this interview clip, including a discussion of the current "inflation or deflation" debate. Click the link above to watch.

You can also check our related posts section for previous Faber interviews to see how this Fed-driven boom-bust cycle has come full circle.

Related articles and posts:

1. Marc Faber speaks with Bloomberg.

2. Marc Faber on markets, Fed intervention.

Tuesday, October 28, 2008

Seasoned investors search for values

Welcome to our new readers, many of whom are joining us this week via links from Investment Postcards and The Kirk Report.

If you would like to view our most recent posts, please visit our home page. You can also browse through our "Favorite Posts" section to get a taste for our site, or try our custom search bar to find more articles and posts on your favorite topics.

Thanks for visiting Finance Trends Matter. Enjoy the posts!

As we mentioned yesterday in, "Are we too bearish?", today's post focuses on areas of investment that are starting to look attractive to seasoned investors.

Some of the well-regarded market veterans you'll hear from on this topic are: Julian Robertson, Jeremy Grantham, Jim Rogers, and John Paulson.

Whether you're currently bullish or bearish on stocks and other asset markets, we think you'll find some interesting points of views expressed here. Let's jump right in...

A Tiger's Eye View of the Market

Famed Tiger Management founder, Julian Robertson recently joined CNBC to talk about the economy and his view of the markets.

While he offered up a rather dour long-term view of the country's economic prospects, saying the US faces a "doozy of a recession" that could last more than a decade, he also claimed to be currently buying US shares.

Some of the stocks he favors are Microsoft (MSFT), Baidu (BIDU), Apple (AAPL), Mastercard (MA), and Visa (V).

Robertson also spoke of his position in a "curve steepener" trade, a derivative which allows one to speculate on (and hopefully profit from) the difference in yield between two-year Treasury notes and longer-term, ten-year Treasury bonds.

Rogers Seeks Sound Fundamentals

Jim Rogers is not too keen on US shares, given the fundamentals and the level of recent government interventions in the economy and the markets.

However, Rogers said that he recently covered some of his short positions in shares and he continues to buy shares in China and Taiwan. He has also been putting money in the Japanese Yen, the Swiss Franc, and in agricultural commodities.

One of the main points Rogers has been stressing lately is his desire to find assets with what he calls "unimpaired fundamentals".

He notes that we are currently going through a period of forced liquidations. When this stage passes, the assets in which the fundamentals are sound will lead the next bull market. Rogers continues to see commodities meeting this test, arguing that a secular bull market is still intact based on supply and demand fundamentals.

John Paulson: Beting on Finance Turnarounds

Hedge fund manager, John Paulson is doing quite well for his investors. The three main funds managed by his firm, Paulson & Co., are reported to be up between 15 and 25 percent this year. The firm's outperformance comes at a time when hedge funds as a whole are facing their worst losses on record.

Interestingly, Paulson, a man who made a name (and fortune) for himself by shorting subprime-mortgage related securities and banking shares, has recently organized a fund to invest in distressed financial companies. The Paulson Recovery fund is up and running, but its investment team is reported to be sitting tight for now and waiting for the expected bargains to appear.

Grantham on the Danger of Buying Too Soon

And finally, we come to well-known investment manager, Jeremy Grantham.

In a recent interview with Barron's magazine, Grantham said that his firm, GMO, would start to look for "cheap pockets of global equities" which they would begin buying over the next several months. Still, he notes that the danger this time around is in buying too early.

As Grantham said in his recent letter to GMO clients:

"At under 1000 on the S&P 500, U.S. stocks are very reasonable buys for brave value managers willing to be early. The same applies to EAFE and emerging equities at October 10th prices, but even more so. History warns, though, that new lows are more likely than not."

For a professional investor/money manager such as Grantham, the risk in buying shares at seemingly depressed levels is that shares continue to head lower for a time, becoming more depressed. You might call this danger, "the curse of the value manager".

Do You See Values?

So now that you've heard some ideas from a few well-known investors talking their books, do you find any items of interest in this current market environment?

Are you staying on the sidelines, or are there some areas of value open to you?

How do you view the markets at this time, and have the long ideas quoted above offered any possible insights? We'd love to hear your thoughts.

Related articles and posts:

1. "Risk Management and Hooke's Law" - John Hussman.

2. Jeremy Grantham's 3Q 2008 letter to GMO clients.

3. Baron, Grantham, Arnott spot bargains - Bloomberg.

4. CNBC interview with Whitman, Royce, Eveillard - Can Turtles Fly?

Monday, October 27, 2008

Are we too bearish?

I've noticed a definite trend while looking over our last few "Features of the week" posts, and that is a recent preponderance of bad news.

Whether we're talking about the direction of global financial markets (mostly down this year) or the fate of the global economy, it seems that most of the news we are talking about here is of the "gloomy" variety.

In a way, this makes sense. When we look at the news related to the markets and the economy in recent months, we see that most of it is bad. In fact, one of the defining features of this recent downturn, or "economic crisis", is its ability to continually surprise to the downside.

In fact, I think it's safe to say that most people have been caught off guard by how quickly and how far certain problems could spread throughout our well-linked global financial system.

Yes, there's been an avalanche of news regarding falling markets and never-ending bailouts over the past several months, and it seems only natural that we cover those stories and trends here.

At the same time, we've also tried to stay open to the possibility of stock market rebounds following sharp declines, while focusing on some of the bright spots and outperformers in this market environment.

Besides, not everyone is convinced that we are headed for a next Great Depression; just ask Irving Kahn.

So in keeping with the promise made in our "Themes for October" post, we will continue to try and balance the sentiment by tracking some of the more positive trends in the financial markets.

Tomorrow we'll have a new post highlighting possible investment opportunities as seen by some well-regarded investors, including Julian Robertson, John Hussman, Jim Rogers, and Jeremy Grantham.

Join us for that, and as always, feel free to add your thoughts to the discussion!

Sunday, October 26, 2008

Jukebox

Welcome to this week's Almost Famous edition of the jukebox.

1. Simon & Garfunkel - America.

2. The Who - Sparks.

3. Joni Mitchell - River.

4. Rod Stewart - Every Picture Tells a Story.

5. Little Feat - Easy to Slip.

6. Led Zeppelin - That's the Way.

7. Neil Young - Everybody Knows This Is Nowhere.

8. Fleetwood Mac - Future Games.

9. Elton John - Tiny Dancer.

10. Led Zeppelin - Tangerine.

11. Beach Boys - Feel Flows.

Friday, October 24, 2008

Features of the week

Keeping up with the global economy in our, "Features of the week".

1. World markets slide on global recession, earnings fears.

2. Emerging markets at risk: John Authers on emerging market sell-offs.

3. New Zealand's record rate cut aims to ease pain of global recession.

4. Icelanders see Icarus-like fall of greed.

5. Chart: Shipping costs index is "biggest bubble of them all".

6. Argentina's government tries to take over private pension funds as the country faces its second debt default this decade.

7. Mish uncovers the flawed logic in Greenspan's "flawed" model.

8. Bear Stearns assets lose $2.7 billion; taxpayers on the hook.

9. Do our rulers know enough to avoid a 1930s replay?

10. George Reisman on, "The Myth that Laissez Faire is Responsible for Our Present Crisis".

11. GLG's Roman, Roubini predict hedge fund failures, regulation.

12. Roubini sees crisis worsening: Video.

13. Art sales boom may be over, but profits go on amid crisis.

14. Where are the real journalists and Hunter S. Thompsons of today?

15. Interview: "The Greatest Deficit of All".

If you've enjoyed this week's posts and would like to see more, just bookmark Finance Trends to your favorites folder and social bookmarking sites (click the "Bookmark" button near the top of our home page), or subscribe to our free RSS site feed and keep up with all our new stuff in the feed reader of your choice.

Thanks for reading Finance Trends Matter. Enjoy your weekend!

Thursday, October 23, 2008

Jim Bianco: Fed acts are 'hyperinflationary'

Jim Bianco joined Bloomberg TV today to discuss the Fed's latest backstop of the financial markets, a plan to provide $540 billion in loans to money market funds.

More details on the plan from Bloomberg:

"The Federal Reserve will provide up to $540 billion in loans to help relieve pressure on money-market mutual funds beset by redemptions.

``Short-term debt markets have been under considerable strain in recent weeks'' as it got tougher for funds to meet withdrawal requests, the Fed said today in a statement in Washington. A Fed official said that about $500 billion has flowed since August out of prime money-market funds, which with other money-market mutual funds control $3.45 trillion.

The initiative is the third government effort to aid the funds, which usually provide a key source of financing for banks and companies. The exodus of investors, sparked by losses following the bankruptcy of Lehman Brothers Holdings Inc., contributed to the freezing of credit that threatens to tip the economy into a prolonged recession.

``The problem was much worse than we thought,'' Jim Bianco, president of Chicago-based Bianco Research LLC, said in a Bloomberg Television interview. Policy makers are trying to prevent ``Great Depression II'' by stemming the financial industry's contraction, he said."

Lots more to hear in the interview clip above. A quick overview:

Bianco addresses the likely effects of future stimulus packages (historically used to improve economic statistics and a "short-term fix"), the current state of mortgage lending and availability of credit in a recession, and the problem of trying to force additional lending into an economy facing problems from an earlier bout of overlending.

Jim also talks about the hyperinflationary consequences of central banks inflating their balance sheets (through bailouts and lending facilities) and expanding the global money supply. He places this problem in the context of an ongoing battle between the forces of deflation and future inflation or hyperinflation.

Despite this scary concept, Bianco says he is looking for stock and commodity markets to turnaround once things get better. At that point, says Bianco, prices could "go straight up".

Nevertheless, Jim says he is currently staying defensive (in cash) and would rather be a little late than early to the party.

Tuesday, October 21, 2008

Marc Faber on Bloomberg TV

Marc Faber joined Bloomberg TV yesterday for an extended guest interview segment.

While the emphasis of Bloomberg's story was on Marc's view of the stock market, there were far weightier issues discussed in this interview.

Within the first several minutes of this clip, you'll hear Faber's views on government stimulus and interventions, the needed workings of the market, the reality of a current US recession, and the very economic survival of this country and other sovereign nations.

Here are some quotes pulled from Bloomberg's print article:

"``The governments in this world have no other option but to print money. That will lead down the road to inflation,'' Faber said. ``You don't need to be an economist graduated from Harvard to know we're already in a recession. They will just put white paint on a crumbling building...''

...The U.S. economy slipped into recession a year ago, Faber said, and it won't recover until consumers and the government reduce spending and borrowing. Economists project U.S. gross domestic product fell 0.1 percent in the third quarter, according to data compiled by Bloomberg.

``To rebuild economic health in the United States, you need a serious recession that will last several years,'' he said. ``The patient that got drunk on credit growth needs to go into rehabilitation. To give him more alcohol, the way the Fed and the Treasury propose to do, is the wrong medicine.'' "

Serious stuff. And in my view, very right on.

As we've said here before, the problems we are currently facing are rooted in the excesses arising from artificially cheap money and credit.

It's extremely unfortunate that we have allowed the government and the Fed to appoint themselves problem-solvers for an enormous set of problems they helped create.

Related articles and posts:

1. "US faces recession, Bernanke's stimulus" - Finance Trends Matter.

2. "Jim Rogers speaks with Bloomberg TV" - Finance Trends Matter.

3. "Marc Faber speaks with Bloomberg" - Finance Trends Matter.

4. "Understanding the Crisis" - Mises.org.

Irving Kahn on the BBC

There have been quite a few mentions of value investor Irving Kahn in the business press lately.

Whether it's due to his relatively optimistic view of the economy and the stock market, or the experience which comes from having lived and worked through the Great Depression, the 102-year-old investor is currently in demand for his views on the economy and investing.

Kahn was recently mentioned in posts at Controlled Greed, and also in Lucy Kellaway's recent FT column, where I learned that Mr. Kahn was recently a guest on a BBC radio podcast.

You can listen to his brief interview by clicking the podcast link and downloading an MP3 file to your media player of choice. In it, Irving Kahn shares his memories of the 1929 market crash and the Great Depression, along with some personal insights on today's market and economy.

Enjoy the interview! Further reading on Irving Kahn follows below.

Related articles and posts:

1. "...And then there's Irving Kahn" - Financial Week.

2. Irving Kahn profile and stock holdings - Guru Focus.

3. "Still going strong" - 2005 Barron's profile via SmartMoney.

Monday, October 20, 2008

US faces recession, Bernanke's stimulus

I don't want to start off this week's posts with the usual comparisons of our current economic climate to the Great Depression, but we do have some news out acknowledging the onset of a notable US recession.

From FT, "US faces worst recession in 26 years":

"The US economy appears to be plunging into what many experts believe will be its worst recession since 1982.

Senior officials at the Treasury and Federal Reserve are confident that the rescue plan for US banks will succeed in preventing a financial system meltdown and ensure there will not be a repeat of the Great Depression. But they know that a sharp economic downturn is already baked in the cake. They do not,however, know how deep or protracted it will be.

The focus of concern is shifting from the markets – although these remain dangerously stressed – to the wider economy, where the consumer finally appears to be cracking.

The Fed and Treasury were expecting the economy to weaken but not as rapidly as it has, with collapsing consumer confidence, falling home starts, slumping retail sales and falling industrial production."

There are worries of an upcoming jump in the unemployment rate (which makes sense when you read about all the recent job cuts and firings from New York to Silicon Valley), and this in turn has led to worries over (gasp!) decreased spending and increased saving by ordinary Americans (now known as "consumers").

Of course, this spells doom for our consumption and debt-driven economy. Bloomberg has the details in, "Turmoil may make Americans savers, worsening 'nasty' recession":

"The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not.

With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending.

That is bad news for companies catering to them, which will have to retrench as well. Detroit automakers may need to slash costs and merge as Americans hold onto their cars longer. Shopping malls might be forced to shut as retail traffic trails off. Hotels may have to shelve expansion plans as vacationers become stingier with their dollars.

The big concern is that households, spooked by the turmoil in financial markets, will cut back rapidly and sharply, plunging companies into bankruptcy and deepening a recession that many economists say has already begun."

It seems all the bailouts and government stimulus packages (paid for by current and future generations of Americans, along with help from our foreign creditors) that have been conjured up to date were not enough to prevent our having to face economic reality.

But wait! What if we come up with another new "stimulus package" to spur the economy? Maybe this one will really do the trick to get us out this "protracted slowdown" Ben Bernanke is talking about.

But don't worry; despite the job losses, slowing economy, and falling asset prices across the board, technically this isn't even a recession:

"...Bernanke, who with Treasury Secretary Henry Paulson has led the government's extraordinary efforts in recent weeks to stem the financial crisis, was asked by Rep. Rosa DeLauro, D-Conn., whether the economy is in a recession.

"We are in a serious slowdown," Bernanke said, refusing to give the yes-or-no answer DeLauro said she wanted.

He said "recession" is a technical description of economic conditions. "Whether it's called a recession or not is of no consequence," Bernanke said."

So there you go. The government spends hundreds of billions of dollars to ward off what they can not or will not define.

Sunday, October 19, 2008

Jukebox


Hits from the Jukebox. Just press play.

1. Oasis - Cigarettes and Alcohol.

2. Radiohead - Creep.

3. Japan - Methods of Dance.

4. Depeche Mode - See You.

5. Kate Bush - Hounds of Love.

6. New Order - The Perfect Kiss.

Friday, October 17, 2008

Features of the week

A plunge in the Baltic Dry index may herald a global slowdown, while financial markets grow expectant of an endless parade of bailouts.

Meanwhile, Warren Buffett is cheerfully buying US shares for his personal portfolio. Why?

All this and more in our, "Features of the week".

1. Baltic Dry index at lowest since 2002, global recession fears grow.

2. Hedge funds in grip of vicious redemptions, selling cycle.

3. Buffett says "Buy American. I Am."; call gets lukewarm reception.

4. Switzerland pumps billions into UBS bank rescue plan; bank bailout angers Swiss public.

5. Markets get addicted to bailouts.

6. Taleb's "black swan" investors post gains as markets dive.

7. Financial websites see record spikes in visitors.

8. Putin may use credit squeeze to destroy oligarchs.

9. Maoxian points to interviews with stock trader Nicolas Darvas.

10. An ABC Lateline interview with investor Marc Faber.

11. Junk bonds signalling a deep recession.

12. Art: "I feel safer with Warhol than with US Treasury bonds".

13. Satyajit Das on the likelihood of a US debt default.

14. Lahde quits hedge funds, thanks "idiots" for his success.

Thanks for reading Finance Trends Matter. Enjoy your weekend.

Wednesday, October 15, 2008

Treasury bank plan: not so "voluntary"

That latest Paulson/Treasury plan to buy equity stakes in "healthy" banks is now a done deal, with nine banks having signed on to accept money from the government in exchange for ownership stakes.

In exchange for $250 billion in funds from the government, the banks are required to issue preferred shares paying a 5 percent dividend to the government, along with warrants on common stock.

Despite earlier assurances by Hank Paulson that the ownership proposal would be a "voluntary" arrangement between the government and banks, it seems there was actually a strong element of coercion in all of this.

Consider the following description of this "voluntary" plan as it took shape:

"Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at ``healthy'' firms.

``We are designing a standardized program to purchase equity in a broad array of financial institutions,'' Kashkari, who heads the department's Troubled Asset Relief Program, said in a speech in Washington. ``The equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions.'' "

This was how the plan was presented in news reports Monday. Now that the bankers have signed on to the deal, a rather different story is emerging:

"...Analysts say the United States was forced to shift policy in part because Britain and other European countries announced plans to recapitalize their banks and backstop bank lending. But unlike in Britain, the Treasury secretary presented his plan as an offer the banks could not refuse.

“It was a take it or take it offer,” said one person who was briefed on the meeting, speaking on condition of anonymity because the discussions were private. “Everyone knew there was only one answer.” "

And consider these revealing article snippets from, respectively, USA Today and Fox Business:

"...Participation will be voluntary, though the nine major banks that agreed to participate did so under pressure."

"...Although the program is voluntary, Treasury essentially forced nine major U.S. banks, including JPMorgan, to take a total $125 bn investment from the federal government."

Let me check the dictionary, because I think some people are having a hard time defining the word "voluntary". A brief refresher, courtesy of Merriam-Webster:

Main Entry: vol·un·tary


1 : proceeding from the will or from one's own choice or consent

2 : unconstrained by interference : self-determining

There seems to be no shame in spreading the doublespeak around these days. But are the people buying into this nonsense? Survey says: "no".

Related articles and posts:

1. "Jamie Dimon unbound" - Elizabeth MacDonald @ Fox Business.

2. "Compelling banks to lend at bazooka point" - Mish.

3. "Drama behind a $250 billion banking deal" - NY Times.

4. "Explaining Uncle Sam's bet on US banks" - Deal Journal.

Monday, October 13, 2008

Record point rally for Dow & market views

After suffering one of the worst down weeks in US share trading history (last week's stock market decline was one of the worst on record), the Dow Industrials and S&P 500 both staged magnificent one-day rallies Monday.

More on this from Bloomberg:

"U.S. stocks staged the biggest rally in seven decades on a government plan to buy stakes in banks and a Federal Reserve-led push to flood the global financial system with dollars.

The Standard & Poor's 500 Index rebounded from its worst week in 75 years with an 11.6 percent advance, its steepest since 1939, and the Dow Jones Industrial Average climbed more than 936 points. Morgan Stanley soared 87 percent after sealing a $9 billion investment from Japan's Mitsubishi UFJ Financial Group Inc. Alcoa Inc., General Motors Corp. and Chevron Corp. climbed more than 20 percent each as all 10 industries in the S&P 500 added more than 7 percent.

The S&P 500 rose 104.13 points to 1,003.35. The Dow increased 936.42, or 11 percent, to 9,387.61, eclipsing its previous record 499-point gain in March 2000 and posting its best percentage advance since March 1933. The Nasdaq Composite Index increased 194.74, or 12 percent, to 1,844.25. Thirteen stocks gained for each that fell on the New York Stock Exchange."

Guess the markets really liked the recently discussed Treasury plans to buy ownership stakes in banks.

Still, as Bear Mountain Bull points out, we'll need a bit more upside action during the rest of the week to make up for recent losses in the Dow.

More on today's market action, and plenty else in our related articles and posts section below.

Related articles & posts:

1. "Market Wrap - 10/13/2008" - Bear Mountain Bull.

2. " 'Ridiculous' estimates persist amid perception of US recession" - Bloomberg.

3. "Marc Faber says global economic slump is 'unavoidable' (Video)" - Bloomberg.

4. "Chanos shorting fewest financial stocks in four years (with Video)" - Bloomberg.

Treasury to buy stakes in 'healthy' banks

As mentioned in our weekend "Features" post, the US Treasury recently announced its intention to buy direct equity ownership stakes in US banks.

Those plans come into clearer focus Monday, as Treasury official Neel Kashkari, speaking in Washington, offered a few details on this latest feature of the government's $700 billion bailout plan.

Bloomberg reports, "Treasury to invest in 'healthy' banks, Kashkari says":

"Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at ``healthy'' firms.

``We are designing a standardized program to purchase equity in a broad array of financial institutions,'' Kashkari, who heads the department's Troubled Asset Relief Program, said in a speech in Washington. ``The equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions.''

U.S. officials are hurrying to address frozen credit markets that led France, Germany and Spain to agree yesterday to commit $1.3 trillion to guarantee interbank loans and take equity stakes in banks. Buying shares of financial institutions has become the latest focus of Treasury Secretary Henry Paulson's rescue plan.

``While the U.S. tends to shy away from nationalizing or even partially nationalizing its financial institutions, it would appear that it has no choice but to follow suit,'' Win Thin, a senior currency analyst with Brown Brothers Harriman & Co. in New York, said in a research note today."

More commentary on the evolving state of the bailout bill is offered in this accessible piece from CNN Money, "The bailout takes new form":

"Though it was not part of the initial proposal, the Treasury is using its authority from the bailout bill in order to buy up shares in banks on a voluntary basis. Though the Bush administration did not initially want the government to take equity stakes in private financial institutions, the Treasury determined that the deepening credit crisis necessitated more direct government intervention.

By buying up banks' stock, the government would directly inject much-needed capital into banks. The Treasury will only buy up shares of "healthy institutions," and will encourage participation by offering "attractive terms," according to Kashkari. The government hopes that the move will inspire banks to raise private capital as well, inspiring new confidence in the credit markets, so normal lending can resume.

But few details were offered, including criteria for a participating bank, what the bank will be offered in turn for participation and for how long the government will hold onto the equity stakes."

Reading all this, the question that quickly comes to mind is, "why would healthy banks even need such a rescue from the government?". Would any truly sound bank ever find itself in need of a government-directed (and taxpayer-funded) recapitalization?

With this latest move to take ownership stakes in the banks, it seems the US Treasury is stepping in to take the place of the Sovereign Wealth Funds (SWFs), many of whom have taken big hits on their recently soured investments in Western banks.

Now that the SWFs are smarting from those earlier investments, it seems the US and European governments think they will succeed where the others have failed. We'll see about that one...

Saturday, October 11, 2008

Features of the week

A picture of the week just ended, an extraordinary one for US and global markets. After many consecutive days of stock market declines, are we about due for a rebound?

Let's take a look around and see if we can't make sense of these markets and our world in our, "Features of the week".

1. Market crash shakes the world - FT in depth look at the crisis.

2. Putting the stock market decline in perspective.

3. What is going on? An explanation for the non-financial person.

4. "I'm Miss World; somebody kill me...". Will gloomy sentiment and falling markets set the stage for a grunge revival?

5. Capitulation watch: "Are we there yet?", asks Chris Puplava.

6. US Treasury may buy stakes in banks within weeks.

7. Banks to lend you your own money - Daily Mash.

8. Vix exceeds 75, as volatility hedge funds thrive in this market.

9. Yen gains most in decade as investors abandon carry trade.

10. G-7 vows "all necessary steps" to monkey with the markets.

11. Is California too big to fail? Governator wants a federal loan.

12. Jim Rogers speaks out against bailouts, market intervention.

13. As the economy sags, Barack Obama's electoral prospects soar.

14. Commodites crash: commodity performance year to date.

15. The art world is no longer a safe haven.

16. Oil closes under $78 a barrel, more than a one-year low.

17. Confidence is leaving the fiat money system; is a death spiral for paper currencies next?

18. "The party is over". Time for economic reality, says Peter Schiff.

Thanks for reading Finance Trends Matter. If like what you see and you're hip to what we're doing, check out our free RSS subscriber feed and keep up with all our latest posts.

Nevermind the gloom/bullocks. Enjoy your weekend.

Friday, October 10, 2008

Jim Rogers speaks with Bloomberg TV

Famed investor Jim Rogers joined Bloomberg television for a couple of interview segments amidst Friday's worldwide market rout.

In the first interview segment with Bloomberg's Betty Liu, Rogers offers his view of the current market panic, which he calls "an old fashioned selling climax", and goes down the list of his current market positions.

· Rogers says he is still buying assets that he feels have unimpaired fundamentals, and is still short long-term Treasuries, calling US Treasury bonds "the last bubble left" in America.

· When asked about various calls for bailouts and capital market suspensions, Jim responded by noting the idiocy of these measures. Rogers reminds Bloomberg that historically, these market interventions have never worked, and have only made things worse over time.

· Excesses built up in the previous boom/bubble period must be cleaned out with failures and private-market bankruptcies in order for the system to reorganize itself and move forward successfully.

Rogers re-empasized these points in a segment with Bloomberg's Mark Burton. He feels that calls for a bottom in the markets are probably too early, and that a true capitulation is likely somewhere ahead.

· Jim reminded Bloomberg that the policies implemented by central bankers and government officials are "hugely inflationary" and that markets are collapsing due to a lack of confidence in these measures.

· Sadly, the very people who have been wrong again and again (the "clowns" in Washington) are now in charge of "fixing" the very problems they denied all along.

· Jim reiterates his points on the inevitable disaster that these policies will help bring about, citing the case of Japan's "lost decade", a time when "zombie banks" and failing corporations were continually propped up by government intervention.

· Rogers also notes that we have likely been in a recession for some time, despite the media's persistent denial, and only now are people waking up to this reality.

· In turn, he feels that central banks will probably cut rates again, as that (and printing money) is all they know how to do.

That's the summary view; click the links to hear Jim's thoughts in full.

After that, head on over to the Finance Trends home page to see our most recent posts.

Wednesday, October 08, 2008

Marc Faber: rate cuts no help

Marc Faber spoke with Bloomberg News (audio) in Manila today to address the question of whether today's historic global rate cuts will help the financial markets, particularly global equities.

Bloomberg - "Faber says rate cuts will fail to stem equities rout":

"Investor Marc Faber said a series of coordinated interest-rate cuts by central banks including the Federal Reserve to ease the economic effects of the global financial crisis won't halt a worldwide slide in equities.

``Artificially low interest rates'' that encouraged consumers and banks to take on more debt were the main cause of the credit-market turmoil that caused the failure of Bear Stearns Cos. and Lehman Brothers Holdings Inc., according to Faber, who predicted the 1987 stock-market crash.

``The slashing of interest rates will not help very much,'' Faber, who manages $300 million, said in an interview in Manila. `They may cushion somewhat the decline but make matters worse.''"

In fact, not only will this coordinated easing of monetary policy not help, it is likely to make the economic problems worse. As Faber points out, the root of our current problems lie in the previous cycle of overly accomadative monetary policy (artificially cheap money).

Would you attempt to solve a crisis with more of what brought it on in the first place? Central bankers would, and did today.

"...The Fed cut its key rate to 1.5 percent, a level last seen in September 2004. Low interest rates on deposits have pushed consumers to speculate on higher yields in other assets including stocks, real estate and commodities, Faber said.

``Had central banks around the world kept interest rates that encourage saving we won't have these problems today,'' the investor said. ""

For an opposing view, see almost any cable news channel anytime tonight. I'm sure the usual panoply of government/Wall Street shills will be praising these moves to the sky.

Related posts:

1. "Global rate cuts have arrived" - Finance Trends Matter.

2. "Coordinated central bank action fails to relieve money markets" - Naked Capitalism.

3. "Timeline: Fed actions to boost liquidity" - Reuters.

4. "How's that bailout bill working out?" - Bear Mountain Bull.

5. "Faber believes market is oversold" - Stock Market Advantage.

Global rate cuts have arrived

Those globally coordinated rate cuts that so many people were looking for have arrived.

More on that from the New York Times:

"Central banks around the world cut short-term interest rates by up to half a percent on Wednesday after investors across Asia and Europe unleashed waves of sell orders onto already depressed stock exchanges.

The Federal Reserve, the European Central Bank and other central banks from Britain and Switzerland to Canada and China announced rate reductions within seconds of one another. The British government separately announced a plan to pump billions of pounds into the country’s leading banks as part of a plan that would result in considerably greater government influence over the financial sector there.

The Fed said in a statement that, because of weakening economic activity, it had cut the Federal funds target rate by half a percentage point, to 1.5 percent. It also cut its discount rate by the same amount. The vote was unanimous.

The European Central Bank cuts its benchmark rate to 3.75 percent, from 4.25 percent."

The Dow is up about 114 points now (1:10 pm CST), although it was down earlier in the day following the rate cut announcements.

Worth noting: Bloomberg reports that the VIX hit an intraday record high of 58.36 as the combined rate cuts "failed to reassure investors".

Question A): Does anyone think that this will provide more than a possible short-term stock market rally? Question B): Is your faith in the strength of the global economy bolstered by this latest coordinated move?

Monday, October 06, 2008

A week of global rate cuts?

"Don't appoint the people to get you out of a problem that got you into it in the first place" - John Loeffler, Financial Sense Newshour.

So do the markets love this recently passed bailout plan or what? I mean, it's 1:00 pm (CST) and the Dow is only down around 541 points. Success! Update: make that 800 points...

And the global stock markets are loving it too (sarcasm alert). The FTSE 100 just had its biggest ever one-day point decline and its third largest decline in percentage terms, as global markets plummeted on fears of a spreading credit crisis.

More from Bloomberg:

"Stocks tumbled around the world, the euro fell the most against the yen since its debut and oil dropped below $90 a barrel as the yearlong credit market seizure caused bank bailouts to spread. Government bonds rallied.

The Standard & Poor's 500 Index retreated 5.9 percent, extending the worst weekly slump since 2001, as concern slower global growth will curb demand for commodities sent Alcoa Inc. and U.S. Steel Corp. down more than 7 percent. The MSCI Emerging Markets Index headed for its biggest loss in at least two decades and exchanges in Russia and Brazil halted trading. Europe's Dow Jones Stoxx 600 Index had its steepest decline since 1987.

Today's plunge erased about $2.5 trillion from global equities after the German government was forced to bail out Hypo Real Estate Holding AG, overshadowing the $700 billion U.S. Treasury plan to revive credit markets. The euro weakened 6 percent against the yen, the most since 1999."

Last week's 777 point drop in the Dow Industrials helped scare the US House of Representatives into passing a quickly revised, and grossly enlarged, version of the $700 billion bailout bill they had previously rejected.

Now that a new week is upon us, it seems the world is waking up to the idea that this bailout and all the "liquidity injections" in the world may not work to solve the US' current financial mess. The problem is too large and the proposed government solutions fail to address (let alone acknowledge) its root causes.

Here's how Kevin Depew put it:

"Meanwhile, there is only one thing necessary to understanding what is happening and it is this: no one at U.S. Banks, no one at the Federal Reserve and no one in politics can accept the reality that real estate assets in this country remain oversupplied, overpriced and overleveraged.

It is that simple.

TAF, TSLF, SuperSIV, TARP, none of that matters. No matter what acronym is created to disguise the fact that assets are overpriced, or what government intervention is created to prop up those asset prices, the market will inevitably overpower it. This time is not different."

So, as Edward Chancellor concurs in his latest FT comment piece, big bailouts are unlikely to stop the rot.

Still, reasoning and historical arguments proving this point are probably not enough to keep politicians and central bank officials from tampering with the workings of the market.

Regulators in many of the world's leading financial markets have recently enacted bans on short selling in a blatant attempt to shoot the messenger (short sellers) and keep stock prices elevated.

Now that the global share markets continue to head lower, many traders are expecting a large rate cut from the Fed and the possibility of coordinated rate cuts from leading central banks.

We'll see what the week has in store for us. As always, your comments and thoughts are a welcome addition.

Friday, October 03, 2008

Outrage is here + themes for October

Back in July, as the fallout from the 2007 credit crisis deepened, Jim Grant wondered about the lack of popular anger over Wall Street malfeasance in a Wall Street Journal piece entitled, "Why No Outrage?".

Today, as the "Main Street" economy worsens and the House gets set to revote on a revised and enlarged bailout bill, that outrage is here, and it's growing.

So while Goldman Sachs may be getting the best of the credit crisis (and Warren Buffett too), the average American is not really enjoying the current environment.

It's bad enough to be suffering through declining real wages, rising inflation, and an unacknowledged recession; throwing on endless financial industry bailouts to the pile (and thereby saddling Americans with even more debt and inflation) is really adding insult to injury.

Looking over the last month's posts, it's clear to see that we've spent a lot of time talking about these very issues. And that's natural, given the weight of these problems and the much-discussed changes in Wall Street's landscape. We'll continue to follow these issues here in the weeks and months to come.

But I think we're also going to try and spend more time this month examining the shape of the markets and tracking future investment and trading themes.

The last few months have shaken out a lot of market participants, and even some of the most respected traders and fund managers have been humbled by the markets this year.

It will be interesting to see how experienced traders and investors respond to these market conditions. Will sudden rule changes and the increased volatility brought on by frequent government intervention in the markets lead traders to abandon the markets in disgust? Or will savvy investors stay defensive and bide their time waiting for future opportunities?

It's shaping up to be some kind of October. Stay tuned to this channel as we continue to take the pulse of the financial markets and the American cultural scene.