Wednesday, December 31, 2008
For those still keeping an eye on the markets on this last trading day of the year, Bear Mountain Bull has today's Market Wrap, as well as a look at the action in the S&P 500 for you.
Meanwhile, Bloomberg summarizes the financial events of 2008 in, "Journal of a Plague Year: Faith in Markets Crack Under Losses".
It seems the scope of economic events (bankruptcies, bailouts, and record-breaking Ponzi schemes) was a bit overwhelming this year, especially given the constant stream of economic cheerleading from media and government/central bank officials ("everything's fine!") during most of 2008.
Now that the tide has gone out, we see who's been swimming naked.
We'll be back on Friday to wrap up 2008 and look to the investment trends and cultural themes for 2009. Until then, please enjoy our most recent posts and have a great New Year's holiday.
Monday, December 29, 2008
Templeton fund exec, Mark Mobius told Bloomberg that he is happily buying emerging market shares, as 2008's sliding global share markets have uncovered "tremendous bargains" in a variety of emerging market sectors.
Although money outflows from mutual funds have been pronounced this year, Mobius feels that attractive dividend yields and valuations for emerging market shares will compel investors to put their sidelined money (currently in Treasuries and the like) back to work here in 2009.
Interestingly, Mobius is rather bullish on commodities and resource-based economies longer-term, noting that stock markets will lead and signal any future economic recoveries in BRIC countries. He feels that commodity supply stocks are currently being run down, and user inventories will eventually fall short, leading to rising commodity prices over time.
Speaking of commodities, Jim Rogers also spoke with Bloomberg TV for their "First Word 2009" program where he, like Mobius, offered his views on the world economy and important investment themes for the coming years.
Rogers is still long-term bullish on commodity prices, echoing Mobius' points on the coming supply shortfalls for much-needed resources.
Even when factoring in the gloomy economic forecasts for 2009 on, he feels that commodities can easily hold their own in times of inflation or depression, pointing to the 1930s and 1970s as two such periods of commodity strength.
Enjoy the interviews, and tell us what you see for 2009.
Related articles and posts:
1. Mark Mobius Q&A: Emerging Markets (2007) - Finance Trends.
2. Jim Rogers on Bloomberg "Night Talk" - Finance Trends.
Sunday, December 28, 2008
"Nobody was prepared [for this financial crisis]" - Robert Rubin.
You know, I doubt that anyone reading this blog would ever fall for such a line. But just in case you know someone who is susceptible to this type of blatant, self-serving lie, go ahead and point them to the following resources.
This weekend, the Financial Sense Newshour is rebroadcasting some past interviews with guests who made some prescient calls on the markets and the economy. Even if you know the score, you may want to go back and listen to some of these fascinating interviews to get an insight into financial events that have since unfolded.
Whether we're talking about the rise in tangible assets and commodities (Jim Rogers and Barry Bannister in 2005), historical patterns of bear markets (Donald Coxe and Russell Napier in 2004 and 2006), or the emergence of the credit bubble and the ensuing real estate bust/credit crisis (John Rubino, Doug Noland, and Bill Fleckenstein in 2004 - 2008), it's all here in one great financial broadcasting retrospective.
Very timely, and quite the coincidence, as I was just remarking to a friend (the day before I saw this rebroadcast special) that some of these FSN interviews were terribly overlooked and unnoticed by mainstream financial observers at the time of their original airing.
Friday, December 26, 2008
Here are the online book versions of Wall Street Stories, a collection of short stories written by Edwin Lefevre in 1901. Click the link and choose your preferred reading format: a scanned flip book copy, PDF, or text file ebook.
Edwin Lefevre was a writer and frequent chronicler of Wall Street, probably best known for his 1923 book, Reminiscences of a Stock Operator, a thinly-veiled biographical account of the life of trader Jesse Livermore.
Before writing Reminiscences, Lefevre had previously authored numerous articles, stories, and books, with investment and finance being a key theme in his work. As the following editorial summary to McGraw Hill's recent reprint edition notes, Wall Street Stories is filled with classic vignettes and character studies of early 20th century Wall Street investors.
"The book that launched Edwin Lefèvre's literary career, Wall Street Stories is considered by many to be his most memorable work, second only to Reminiscences of a Stock Operator, his classic fictionalization of the life of Jesse Livermore.
Published to great critical acclaim in 1901, Wall Street Stories is a literary romp through the habits and customs of Wall Street. Like all of Lefèvre's fiction it is firmly rooted in the facts as he knew them both as a top financial journalist and a successful investor, and, as was his style, many of the fictional characters in the stories are thinly-veiled portraits of well-known Wall Street personalities such as James R. Keene, Elverton R. Chapman, Roswell Pettibone Flower, and Daniel Drew-names as familiar to the public in their day as Warren Buffet, George Soros, and Julian Robertson are today..."
There you have it. Enjoy Wall Street Stories and the classic stories contained within. If you'd like to read more of Edwin Lefevre's e-books, try the author search at the Internet Archive.
You can also find more writings on his most famous subject, trader Jesse Livermore, in our post, "Jesse Livermore: How to Trade in Stocks" (1940 edition ebook).
New readers can visit the Finance Trends Matter home page to find our most recent posts and links, and to bookmark/subscribe to our site feed.
Wednesday, December 24, 2008
Tuesday, December 23, 2008
1. Reuters and Bear Mountain Bull summarize the day's trading.
2. US home prices collapse at near-Depression rate.
Barry Ritholtz reviews the housing data and the NAR spin.
3. Merrill Lynch economist David Rosenberg thinks US commercial real estate is "the next bailout".
Washington Post has the details on commercial real estate investors seeking government aid.
4. "Sneaky ways you're lured to shop" - Forbes on Christmas sales.
5. Iceland boils over 'like Chernobyl' in civil unrest over economy.
6. Buffeted quants are still in demand.
7. James Grant: Fed's money printing carries dire consequences.
8. Financial Crisis: The Greatest Gift in a Generation.
Merry Christmas, Happy Chanukah, and a great holiday to all of our readers.
Check back in with us over the Christmas holiday. Markets will be closed, but we may have a few fun holiday items to share with you, and a little gift for fans of stock market lore. Until then, enjoy the holidays!
Monday, December 22, 2008
According to Faber, "we are faced with a global recession that will last a very long time", and 2009 will be catastrophic for the global economy.
Faber also uses this opportunity to once again remind viewers that the problems we face are a direct result of previous government and central bank interventions into the economy.
As Marc points out, loose US monetary policy and a series of bailouts led to a marked increase in leverage and risk taking in the financial world. Had the policy makers not intervened to bailout failed hedge funds (LTCM) and countries (Mexico), market participants would have been much more careful, knowing that poor decision making and failure have consequences.
Plenty more to hear, as Marc offers his views on investment valuations, corporate earnings, commodities, Asian stock markets, mining shares, and Ponzi schemes. Enjoy the interview.
Related articles and posts:
1. Marc Faber sees "trading opportunity" for stocks - Bloomberg.
2. The great bear market rally post - Finance Trends Matter.
Friday, December 19, 2008
You may remember John Paulson from such posts as, "John Paulson buys mortgage securities", and, "Seasoned investors search for values".
But today, he'll be starring in Bloomberg Markets' latest feature, "The Richest Hedge Funds: John Paulson Strikes Again". Here's an excerpt:
"There's not a lot of light in Paulson & Co.'s 28th- floor headquarters on a drizzly November afternoon. The Alexander Calder sculpture and multicolored prints have been shipped to the firm's new offices six blocks south. Darkness envelops the New York skyline.
The Dow Industrials have lost a total of 929 points over two days, and the jobless rate is poised to hit 6.5 percent. And John Paulson, who oversees $36 billion in hedge fund assets, isn't exactly Mr. Sunshine either.
"You have deterioration in almost every asset class," Paulson says. "You're looking at declines in housing prices, the health of manufacturers and the earnings of various companies. There are rising delinquencies in auto loans and commercial real estate."
Paulson, 52, peers over his tortoiseshell glasses. "There's more to come," he warns.
Paulson doesn't smile as he says this, even though with each new calamity his bottom line grows. Paulson & Co. funds generated profits of more than $3 billion for the firm in 2007, mostly by betting the housing bubble, swollen with subprime mortgages, would burst."
Read on for more about Paulson & Co.'s successful investment strategies, and see how their 2008 performance stacked up against other big name hedge funds, and the industry as a whole.
Given the current spotlight of publicity shining on hedge funds and hedge fund managers, along with the fact that Chanos is one of the few fund managers actually making money this year, this piece should make for interesting reading.
Here's an excerpt from NY Mag's, "The Catastrophe Capitalist":
"It might be fun to share in a little Goldman-bashing with Chanos, until you realize that you and he are in very different circumstances. Your 401(k) has been plunging at the rate his fund is rising.
Chanos is arguably the most successful hedge-fund manager on Wall Street right now. As hedge-fund all-stars bleed red—SAC Capital’s Steve Cohen is said to be off 18 percent this year, Citadel’s Ken Griffin as much as 44 percent, and even David Einhorn, who presciently called Lehman’s implosion, has seen his fund, Greenlight Capital, slide a reported 26 percent—Chanos’s short positions have earned him a return of a reported 50 percent.
He now manages some $7 billion. Trader Monthly estimated his paycheck in 2007 at over $300 million, and he’s on track to earn a similar payout this December. While many Wall Street refugees are liquidating their art collections and listing their trophy houses on the market, Chanos is buying. This summer, he closed on a new $20 million triplex on 75th Street, off Fifth Avenue.
As a short-seller, Chanos earns a living by borrowing and then selling shares of a company he thinks will experience trouble. When the stock tumbles, he buys back the depressed shares and returns them to the lender, pocketing the difference. In other words, Chanos is a financial undertaker. He makes a profit when companies die. And when there’s an epidemic, he gets richer still."
Enjoy the article, and stop back in at the Finance Trends home page for our next hedgie profile (John Paulson) and more new posts.
Related articles and posts:
1. Hedge fund chief Chanos warns on wrongdoing - FT.com
2. Hedge funds: regulations and redemptions - Finance Trends.
Thursday, December 18, 2008
Excerpt from the Barron's profile, "Forecast: A Long, Cold Winter":
"Barron's: How bad has the macro economy gotten?
Pomboy: It is certainly the toughest one any of us has lived through. My fear is that it's actually just in the early stages and that it is going to get substantially worse on the economic side, although all the government measures that have taken place so far might help to insulate some of the damage on the financial side.
What about the short-term outlook?
Having been bearish, for me the real challenge is to identify the turn. One thing at work right now is what I call the cattle prod -- essentially the Fed poking people to take risk. They are taxing cash by having negative real returns on cash.
At the same time, yields on investment-grade and junk bonds are incredibly alluring. You can pick up 15 percentage points over cash buying junk bonds. Or you can pick up 8.5 percentage points on investment-grade paper. At some point, the cattle prod will get people moving, as it did in March of '03 when the market turned."
As far as investment & trading opportunities go, Stephanie has pointed to the possibilities for higher returns in the junk and investment-grade corporate bond market.
You may recall that James Grant and Marc Faber have recently made similar observations on the opportunities available within the credit markets. Still, Pomboy views these areas as more of a short term trade, with risky assets benefitting for a time from the Fed's risk inducing "cattle prod".
Enjoy the interview, and be sure to stop in on Friday for another great set of investor profiles. We'll be posting interviews with two of this year's most successful (and high profile) hedge fund managers. See you then.
Wednesday, December 17, 2008
Hear why Grant feels the SEC is an "irrelevant" institution, and why the latest Fed actions will lead to a further debasement in the US dollar and slow any economic recovery.
A quick update to Monday's post (see the comments section) posted the results of the Tuesday Fed meeting, and some analysis on their latest statements from Bloomberg and The Big Picture.
The consensus seemed to be that Fed funds rate are not longer the prime driver of Fed policy, and that unconventional lending programs and "quantitative easing" are the new watchwords of the day.
Today we're going to share one very relevant section from yesterday's Bloomberg article on that subject, "Fed cuts rate to low as zero, shifts policy focus". Here it is:
"“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said...
...“The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,” William Poole, former president of the St. Louis Fed and now a senior fellow at the Cato Institute in Washington, said in an interview with Bloomberg Television. Poole is also a contributor to Bloomberg News."...
So, I think the above paragraphs speak for themselves. The Fed obviously has no regrets over the recent swelling of its balance sheet, and it will continue to use these very unconventional measures to "support the markets" in the future.
Also, as we can see from William Poole's comments, the Fed is totally unconcerned about any inflationary effects that will take hold due to their "money printing". It's kind of stunning to hear a former regional Federal Reserve bank president deliver this verdict, no?
Related articles and posts:
1. Around the corner - Bear Mountain Bull.
2. Quantitative easing American style: free money - Mish.
3. Dollar falls most against Euro since 1999 debut - Bloomberg.
4. Stocks rally, then fall in wake of Fed moves - Bloomberg.
Monday, December 15, 2008
MarketWatch has more on the upcoming Fed rate cuts:
"The Federal Reserve is likely to cut the federal funds rate as low as it can go at this week's meeting, and to begin shifting its focus to nontraditional policies.
"It would make the most sense for this meeting to be the last rate cut rather than dragging it out to the January meeting," wrote Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi, adding that a "hallmark of the Bernanke Fed has been to move quickly and aggressively."
Rupkey's forecast calls for the Fed to cut rates by three-quarters of a percentage point to 0.25%. Most Wall Street firms expect a rate cut of a half point to .50%..."
Here are a few more details on the upcoming Fed meetings:
"...The two-day Fed meeting starts Monday afternoon. A statement on policy is expected at 2:15 p.m. Eastern time Tuesday.
Since the last Fed meeting, economic conditions have deteriorated, and many economic indicators have been setting multiyear lows.
The recession has turned into a global downturn, with similar weakness in Europe and Japan and many emerging economies.
The Fed meeting was originally set to last just one day, but an extra day was added to discuss various options for "quantitative easing" operations."
There's that term again: "quantitative easing". What exactly does this entail?
Regular readers of this blog may recall mention of this central bank policy in our "$6 trillion Fed balance sheet" post, as well as the December 5th, "Features of the Week". Please see these posts, and our related articles below, for more.
Related articles and posts:
1. Fed to cut rates again, maybe to zero - MarketWatch.
2. Fed to press rates toward zero - Reuters.
3. Zero rate world may lie ahead - Bloomberg.
4. Marc Faber: "Bernanke is a disaster" - Finance Trends.
Sunday, December 14, 2008
1. The Hollies - Carrie Anne.
2. The Byrds - I'll Feel A Whole Lot Better.
3. Them - It's All Over Now, Baby Blue.
4. The Beatles - No Reply.
5. Cat Stevens - The First Cut Is the Deepest.
6. Love - Always See Your Face.
Friday, December 12, 2008
1. Hedge funds face big losses in Madoff fraud case (WSJ).
"A number of prominent funds of hedge funds are believed to have invested money in portfolios established by Bernard Madoff, a securities trader and investment adviser who was arrested yesterday before appearing at a Manhattan court charged with securities fraud.
U.S. authorities claimed Mr. Madoff told employees at Madoff Investment Securities earlier this month that the investment advisory activities of his business had been "a giant Ponzi scheme." "
2. Dow/Gold ratio: looking at market performance in terms of gold.
3. Russians buy jewelry, hoard dollars as ruble plunges.
4.Fed refuses to disclose recipients of $2 trillion loans (Bloomberg).
"The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.
Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression."
5. Swiss franc's safe haven currency status hit by the storm.
6. The dollar index is topping, as the Euro halts its decline and moves higher.
7. Bloomberg speaks with Jim Rogers about the Detroit auto bailouts.
8. End of the dollar rally: John Authers on reasons for dollar weakness.
9. Has America jumped the shark? James Quinn on our need to reverse course as a nation:
"Over time, trust in our government, financial leaders and corporate leaders has declined to the point where Americans cannot and should not trust anything they are told. It is essential that every citizen do their duty and skeptically assess everything they are told by politicians, bureaucrats and corporate CEOs.
They will continue to speak authoritatively like they know exactly what will happen in the future. They are lying. None of these experts can even predict what will happen next week, let alone next year."
10. Deflation says buy bonds; supply flood says sell (Mark Gilbert).
11. Credit rating on a benevolent counterfeiter's debt? (Paul Kasriel).
"In today’s Wall Street Journal a trial balloon was floated with regard to the Fed issuing its own debt. This is akin to a counterfeiter issuing her own debt. There could never be a default.
All the counterfeiter would have to do is print up some new currency to pay the interest on or redeem her debt. The Fed also possesses the power of the printing press, so it would never default on its debt. Of course, there is no guarantee what the future purchasing power of the payments would be to the Fed’s creditors, but that is a different issue."
12. Bear market bounty: uncovering cash rich stocks.
13. Record corporate bond spreads: a buying opportunity?
14. The matress race: bonds, equities, and saving (The Economist).
15. Lehman's last days (Bloomberg Markets Magazine).
16. Stock picker Bill Miller's defeat (WSJ).
"Such all-or-nothing bets would come to define Mr. Miller's style. He usually holds about three dozen stocks at a time, compared with a hundred or so in a typical mutual-fund portfolio.
He has welcomed negative sentiment about companies, which has let him buy stocks as their prices fall, "averaging down" the per-share price he pays. The strategy can net him big stakes in companies -- an enviable position if shares rally and a sticky one if he needs to sell.
When asked how he would know he made a mistake in buying a falling stock, Mr. Miller once retorted: "When we can no longer get a quote." In other words, the only price at which he was unwilling to buy more was zero."
17. "Things are not as bad as most perceive them to be" - The Financial Philosopher.
18. Ron Paul chooses Ludwig von Mises as "Person of the Year".
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Thanks for reading Finance Trends Matter. Enjoy the weekend!
Thursday, December 11, 2008
Let's get right to it with a lead-in from Prieur's recent, "Credit Crisis Watch":
"In order to gauge the progress being made to unclog credit markets and restore confidence in the world’s financial system, I monitor a range of financial spreads and other measures. By perusing these, as summarised in this “Credit Crisis Watch” review, one can ascertain to what extent the various central bank liquidity facilities and capital injections are having the desired effect.
First up is the LIBOR rate. This is the interest rate that banks charge each other for one-month, three-month, six-month and one-year loans. LIBOR is an acronym for “London InterBank Offered Rate” and is the rate charged by London banks, and which is then published and used as the benchmark for banks’ rates around the world... "
Head on over to Investment Postcards to find out more about what the credit markets are telling us.
There you'll find charts and analysis of the movements in Libor, US three-monthTreasury bills, the TED spread, Barron's confidence index, CDX and iTraxx credit indices, and more.
We hope Prieur's insightful post will prove helpful to readers who want to learn more about the action in the credit markets, and what they may tell us about the state of the financial markets and the economy.
Wednesday, December 10, 2008
Let's hear what John has to say about this controversial segment of the credit derivative world.
"For several years, I have been among those calling for thoughtful, prudent, moderate steps for the reform of the credit default swaps market. They should be put on exchanges, put through central clearing houses, settlement backlogs reduced and then eliminated . . . etc.
I was wrong. The global credit default swaps market should just be liquidated, the contracts allowed to expire and the booby traps defused. Where they can't be defused, they will explode, and we will have to deal with the loss of capital and litigation.
Essentially, while the back office messes of the CDS market are being cleaned up, that leaves the question of why we need these things. We don't. The outstanding credit default swaps should be offset against each other, where possible, and the rest allowed to run off or be paid out as defaults occur."
Pretty strong stuff, there. Any CDS market participants or seasoned observers/readers want to weigh in?
Speaking of credit, be sure join us tomorrow for links to a thorough overview of the current state of the credit markets (charts and graphs included). All courtesy of one of the very fine bloggers listed in our blogroll (see our righthand sidebar "Blogs" listing for more). See you then!
Related articles and posts:
1. Barron's on Credit Default Swaps - Finance Trends Matter.
2. Derivative clearing: make it the law? - WSJ.com.
Tuesday, December 09, 2008
I think the post title says it all, but let's include some actual news coverage of these events, just to make sure we're all up to speed.
Would it be strange to start off with coverage on the governor's arrest from the very paper (Chicago Tribune) whose editorial board was quietly threatened by said governor due to critical coverage of his term in office? It would? Well, let's do it anyway.
From the Chicago Tribune:
"Gov. Rod Blagojevich and his chief of staff, John Harris, were arrested today by FBI agents for what U.S. Atty. Patrick Fitzgerald called a "staggering" level of corruption involving pay-to-play politics in Illinois' top office.
Blagojevich is accused of a wide-ranging criminal conspiracy, including alleged attempts by the governor to try to sell or trade the U.S. Senate seat left vacant by President-elect Barack Obama in exchange for financial benefits for the governor and his wife. Blagojevich also is accused of obtaining campaign contributions in exchange for other official actions."
I'm sure the nation will be shocked, shocked!, by this latest turn in Illinois politics. Remember, when it comes to politics, this is just the stuff that actually makes it into the newspapers...
Back to the newspaper company in question: the Tribune Company, publishers of the Chicago Tribune. Tribune has filed for bankruptcy after struggling under the weight of too much debt and a dying industry business model.
Will a Tribune Co. bankruptcy/restructuring lead a refocusing of the newspaper industry? Mark Trumbull at CSMonitor has some thoughts on the industry's future:
"...Few expect newspapers, any more than cars, to suddenly disappear. But an already difficult industry transition now looks harder. More bankruptcies seem likely, and some papers will simply shut their doors.
"This perfect storm of events has sucked in every player in the industry with astonishing speed," says Paul Gillin, a Boston-area media analyst and consultant. Yet he predicts that out of the chaos "will emerge a new kind of media, a new kind of journalism." "
Personal take: I grew up reading the Chicago Tribune. I stopped reading it, for the most part, several years ago. When I see the paper now, it looks and reads like a cheap tabloid news rag. I wonder if the layout redesigns and news staff cutbacks helped hasten the company's decline.
Back in 2007, I thought if anyone could pull off a vanity investment in a big city newspaper company, it would be canny old Sam Zell. He was ready for a challenge and flush with success from the then recent $39 billion sale of EOP to private equity Blackstone.
Unfortunately, since then, the Tribune newspaper offices and Wrigley Field have not been as easy to sell.
Monday, December 08, 2008
As the nation heads into the twelfth month of a recession (only officially announced last week), Obama is proposing huge government spending on infrastructure and works projects, programs that could cost $700 billion or more according to his own advisers.
Deficits be damned.
From, "Obama to focus on stimulus, not deficit" (Financial Times):
"Barack Obama on Sunday spelled out his plans for the biggest infrastructure investment in the US for half a century. The president-elect argued that with the economy reeling, his incoming administration could not afford to worry about a spiralling budget deficit.
Mr Obama’s proposals for government works on roads, bridges, internet broadband and school buildings, together with energy efficiency measures and health spending, are far more detailed than the normal announcements during a time of transition...
...Things are going to get worse before they get better,” Mr Obama said on Sunday on NBC’s Meet The Press. He emphasised that his plans represented the largest US infrastructure programme since the federal highway system in the 1950s.
“The key is making sure we jump-start the economy in a way that doesn’t just deal with the short term, doesn’t just create jobs immediately, but also puts us on a glide path for long-term sustainable economic growth.”
Noting the US budget deficit might surpass $1,000bn (€785bn) before his spending plans are factored in, Mr Obama added: “We understand that we’ve got to provide a blood infusion to the patient right now to make sure that the patient is stabilised. And that means that we can’t worry short term about the deficit. We’ve got to make sure that the economic stimulus plan is large enough to get the economy moving.”"
Looking over the news coverage of this latest announcement, it seems there is a common thread running through the Obama team's promotion of this "bold economic recovery plan".
Newly anointed Obama administration staff, from Lawrence Summers to future chief of staff Rahm Emanuel, all seem eager to use this "crisis" as an opportunity to implement some kind of social or structural economic change.
Few people seem to question the Obama administration's supposed authority over matters concerning the nation's economy. There are no powers enumerated in the Constitution which grant the federal government or the president the ability to approve industry bailouts or to act as the country's economic czar.
Sadly, ever since FDR's 1930s New Deal programs were enacted, the precedent and template for our current boom/bust cycle and the inevitable, accompanying "government solutions" has been set.
Will these policies help or hurt our economy in the long run? What do you think?
Related articles and posts:
1. "Impatient Obama fills Bush vacuum" - Financial Times.
2. "Stocks rally worldwide on Obama plan" - Bloomberg.
3. "Obama bonds offer taste of Japan's lost decade" - Bloomberg.
4. "Obama's "New" New Deal" - United Liberty.
5. "Government intervention fuels the crisis" - Finance Trends.
Friday, December 05, 2008
1. Stocks drop after weak jobs report (NY Times).
"...stocks fell sharply on news that the American economy had shed 533,000 jobs in November, its worst monthly losses in 34 years. The unemployment rate rose to 6.7 percent from 6.5 percent, and economists said the number of Americans without work would continue to swell as the recession spreads like an oil spill."
2. iTraxx Crossover index points to high risk of corporate default.
"The Markit iTraxx Crossover index rose above 1,000 basis points for the first time since it was created in 2004, implying a record number of companies are on the verge of default because of deepening financial problems...
...The index, which measures the cost of protecting junk-grade companies against default, has risen sharply in the past month as sentiment has worsened because of gloomy numbers on the global economy and worries over whether companies will be able to refinance their debt."
3. Treasuries in bubble phase, Merrill's Rosenberg says (Bloomberg).
"Demand for Treasuries has reached the ‘bubble” phase seen among technology stocks in 2000 and real estate six years later, according to David Rosenberg, chief North American economist at Merrill Lynch & Co.
“The 10-year note yield is now firmly below the 3 percent threshold and this next leg down in yield will undoubtedly represent the classic mania-turn-to-bubble phase that quite plausibly sees an overshoot to or even through the April 1954 lows of 2.3 percent,” New York-based Rosenberg said in a research note today."
4. The CRB commodities index falls to a 6 year low, reflecting plunging oil, corn, and copper prices. Excerpt from Bloomberg:
"The CRB lost as much as 3.3 percent today to 210.78, the lowest since Aug. 9, 2002. Traders sold commodities after U.S. companies slashed payrolls last month at the fastest pace in 34 years. Crude oil fell to the lowest price in four years, copper dropped to its lowest since May 2005 and corn was the cheapest since October 2006."
5. Report: negative outlook for all shipping sectors.
"A new report by Moody’s says that the global economic downturn, tightening bank credit, increased volatility in currencies and financial markets have aggravated the already surplus shipping capacity amid a sharp drop-off in demand for shipments of containerised goods, oil, and bulk commodities."
6. In Dubai, lending drought bursts desert bubble.
"The property bubble in the desert emirate, home to the world’s tallest building, most expensive hotel suite and largest manmade islands, is bursting as scarce credit and slumping oil prices have international investors scurrying to dump assets.
That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbor Abu Dhabi for financing."
7. Quantitative easing: printing money like mad to ward off deflation.
"In economic circles, there has been a lot of buzz about Quantitative Easing of late.
Basically, the U.S. Federal Reserve has lowered interest rates to near zero percent and the fear is that these cuts will not have enough effect on the willingness to lend in order to reflate the U.S. economy. Therefore, the Fed has decided to take more draconian measures, one of which is Quantitative Easing, flooding the economy with money."
8. Howard Lindzon and Luke Johnson on why failure and bankruptcy are needed elements of a working capitalist system.
Excerpt from Luke Johnson's FT piece:
"Unfortunately, state rescue is not available for smaller companies. It seems they do not cause enough trouble when they go bankrupt. This is a shame for the owners, but exactly as it should be.
The cold heart of capitalism is the principle of the survival of the fittest: the private sector can be efficient because it eliminates those businesses that cannot cope with the rigours of the market. You need to lose money in companies that sink, as I have on too many occasions, to understand equity risk. Only by such mistakes do you get better, and do you learn."
9. Michael Lewis on "The End of Wall Street's Boom":
"When I sat down to write my account of the experience in 1989—Liar’s Poker, it was called—it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.
Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.
I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind."
10. John Rubino compiles the "Best Quotes of November 2008". Economic and investing commentary from Richard Russell, Nouriel Roubini, Kevin Depew, Ron Paul, and many more.
11. Friedrich von Hayek on "Meet the Press" in 1975. A very interesting and highly relevant audio clip in which Hayek fields questions and challenges from reporters on economic policy in America and the United Kingdom.
Know of an interesting article or blog post that should be included in our Features post? Email us, or add your favorite items to the comments section.
Thanks for reading Finance Trends Matter. Enjoy your weekend.
Thursday, December 04, 2008
Let me say up front that I have no idea whether or not the greatly expected bear market rally will materialize anytime soon.
Having said that, let's hear from some gentlemen who have recently expressed their views on this topic publicly: investors Barton Biggs and Marc Faber.
Hedge fund manager and author, Barton Biggs recently offered his opinion in a Financial Times comment piece entitled, "The mother of bear market rallies is on the horizon".
Noting at the outset that he had misjudged the "severity and duration of this panic", Biggs goes on to say that stock valuations are cheap and that global markets have been battered and "are deeply oversold". When combining these factors with the pervasive negative sentiment, he finds that we may soon see the setup for a significant bear market rally.
Here's an excerpt from Biggs' piece:
"The systematic work that we do on measuring sentiment (and we monitor about 20 indicators for the US and a dozen or so for other equity markets) show very extreme and in many cases record levels of bearishness. Obviously not every indicator is at an all-time high, and in some the history is short - but the message is powerful.
Furthermore, there is compelling evidence that investors, hedge funds, pension and mutual funds, and the public are not just talking bearish, they have raised astounding amounts of cash. I am chastened by the fact that all the data we look at are from the past 40 years, which was really just one great magnificent secular bull market of wealth creation marked by periodic bears that were opportunities to buy. No one knows what levels of pessimism were necessary to spawn the 40 per cent 1929 rally during a massive secular bear market.
Nevertheless, I've never seen capitulation and despair like this. We must be pretty close to maximum bearishness."
Don't get too excited by Biggs' optimism; he notes that he is still hesitant to commit himself until he sees further signs of a bottom. However, for those waiting in the wings, looking for a more optimistic view for the stock markets, Biggs' note might provide some food for thought.
Onto our second guest forecaster, Marc Faber. Whereas Biggs is rather optimistic that the worst case scenarios for the global economy will not pan out, on this point Faber does not shy away from this reputation as "Dr. Doom".
He says that the global economy is going into a severe recession, with emerging market economies being hit the hardest. In fact, during a recent Bloomberg TV interview, Marc said that the global economy "is imploding". He expanded upon these points in a seperate Bloomberg radio interview.
In spite of this gloomy outlook, Faber says that a near-term rally is quite possible for shares, given their recent sharp declines. However, he cautions that traders will probably have to be alert and exit their positions in stocks and index futures by early next year.
In fact, Faber's view of the next few months may also turn out to be a preview of the next decade for traders and investors. Marc recently told CNBC that we are now in "a traders' market", and that Warren Buffett's buy-and-hold approach to investing is dead for the next 10 years.
What lessons have you learned from this latest bear market in shares? Are you taking the view of a trader, or that of a long-term investor in shares?
Maybe this market will require or reward some synthesis of the two disciplines (trading/speculating vs. investing). What do you think?
Related articles and posts:
1. Responding to bear market conditions - Finance Trends Matter.
2. "Faber: Buffett buy-and-hold method dead" - MoneyNews.
3. Bear market rallies since October 2007 - Big Picture.
4. "Where have all your savings gone?" - The Economist.
Wednesday, December 03, 2008
The first, by Jack Willoughby, explains that the Fed's recent lending spree has swollen its balance sheet in recent months, increasing the risk of future inflation in the process.
An excerpt from, "Has the Fed Mortgaged Its Future?":
"IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed's current capital ratio, or capital as a percentage of assets, is 1.9%.
The Fed has provided so many loans and emergency credits -- to banks, brokers, money funds and foreign countries -- that its balance sheet, viewed one way, is as leveraged as any hedge fund's: Its consolidated assets amount to 53 times capital. Only 11 months ago, its leverage on this basis was a more modest 25 times, and its capital ratio 4%. A caveat: Many of the loans are self-liquidating facilities that will disappear in a few months if the financial crisis eases.
Although the Fed's role as a central bank is much different from the role of a private-sector operation, the drastic changes in the size and shape of its balance sheet worry even some long-time Fed officials. Its consolidated assets have swelled to $2.2 trillion from $915 billion in about 11 months, and contain at least a half-dozen items that weren't there before. Some, like a loan to backstop the purchase of a brokerage, Bear Stearns, are unprecedented. (See table for highlights.)
Critics say this action could hinder the Fed in achieving its No. 1 priority: keeping inflation in check. To try to get in front of the crisis, many decisions have had to be made on the fly.
"If the Fed had been [a savings-and-loan] ballooning its balance sheet so fast, the supervisors would have been all over it," says Ed Kane, a Boston College finance professor." "
Willoughby's article goes on to point out that despite the recent alphabet soup of Federal Reserve and Treasury enacted lending facilities/bailout programs, banks remain reluctant to lend. Why? Simply, "because no one's sure who's solvent".
Meanwhile, an article from Jonathan Laing in the latest issue of Barron's argues that the Fed is not doing enough, and should take "far bolder steps to stem this crisis". In fact, Laing feels the Fed's balance sheet should increase to "$6 trillion or more" in order to stop asset prices from tanking.
Excerpts from, "Shopping Season for Uncle Sam":
"THE GOVERNMENT'S LATEST INTERVENTION IN financial markets -- the $800 billion plan unveiled last week to boost lending to consumers and trim mortgage rates -- hasn't been much more successful than its earlier efforts.
While rates on home mortgages dipped by a half-percentage point, that was about it. The Dow rose only fitfully after the initiative was announced Tuesday, following a torrid 12% rally in the previous two trading sessions. And most credit trading, including that done in the all-important corporate-bond market, remains in a deep freeze. The spread of corporate-debt yields over those of Treasuries barely budged from near-Great Depression highs. Businesses with non-investment-grade debt are paying a stunning 20% or more to borrow.
Little wonder, then, that a growing number of credit-market participants and Fed watchers maintain that far bolder steps are needed to stem the damage to both Wall Street and Main Street.
THE FED WILL HAVE TO LEAD the charge, they say. They recommend that the central bank purchase or guarantee massive amounts of all sorts of credit instruments to unclog the markets and push interest rates down from their punishing levels.
While the Fed has more than doubled its balance sheet in less than four months, with assets now totaling $2.2 trillion, much more may be needed. The central bank's holdings may have to swell to $6 trillion or more to stem the destruction of capital. The Fed, under the emergency powers in its charter, wouldn't even have to ask permission from Congress to grow like that."
In other words (as Laing's article seems to argue), the Fed should continue to intervene in the market by speeding up its printing press and buying all manner of paper assets in an attempt to "alter negative market psychology". I'm told the kids call this "quantitative easing".
But aren't these actions likely to produce highly inflationary results? That's what we're trying to figure out. And that's why I've linked to Axel Merk's latest article on this subject called, "Monetizing the Debt".
You've read the articles posted here, and probably a lot more on this issue besides. What do you feel the likely outcome will be?
Monday, December 01, 2008
Bloomberg, "Recession started in December 2007, NBER says":
"The U.S. economy entered a recession a year ago this month, the panel that dates American business expansions said today.
The declaration was made by the cycle-dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to NBER.
“The committee determined that the decline in economic activity in 2008 met the standard for a recession,” the group said in a statement on its Web site. The 1.2 million drop in payroll employment so far this year was the biggest factor in determining that start of the contraction, the group said.
Federal Reserve policy makers at their last meeting predicted the economy will contract through the middle of 2009, in line with private economists’ forecasts. If correct, the recession would be the longest since the Great Depression."
Thanks for telling us, guys. We honestly had no idea...
Despite early warnings from many private economists and noted market participants, it seems some people were hoping reality would continue to be ignored, if we could only keep from uttering the dreaded "r-word" in public.
Oh, and you might want to take the NBER's official durations of previous recessions with a grain of salt, as well.
For example: the early 1990s recession. I was in junior high at the time, and not really much of an economic observer, but I seem to remember the economic downturn as lasting well beyond the NBER's July 1990-March 1991 timeframe.
Here's a little trip down memory lane to the early '90s:
US job losses were affecting much of the white collar and blue collar workforce, many American households were facing financial problems, the rise of Nirvana and the "Seattle sound"/grunge coincided with the country's dark mood and its youth culture's angst from 1991-1993, SNL was still lampooning George Bush and the recession well into the latter part of his presidential term, and Ross Perot made the nation's economic problems the focus of his independent presidential campaign in 1992.
This time around (2007-2008), we had frequent denials and pooh-poohing of the dreaded "recession" label by many of the country's officials and the media's talking heads and high priests of spin. We can probably expect another spike in recession-related articles and media stories, now that the economic reality of the past twelve months has been officially recognized.
So, I guess this leaves us with one question. Where are you getting your information from on topics such as these?
Do you trust the tv and cable news to tell you that the sun is shining or that the clouds are covering the sky? Internet, blogs, newspapers? A mixture of some or all of these media sources? Maybe you trust your native common sense, and take these proclamations and news stories for what they are worth (not much, if anything).
At any rate, especially during times like this, I find it interesting to know what people are really thinking, and where they choose to get their information from. Tell us what you know, share your thoughts with us here.
Related articles and posts:
1. "US faces recession, Bernanke's stimulus" - Finance Trends.
2. "Congratulations, it's officially a recession" - Big Picture.
3. "Recession began a year ago, economists say" - MarketWatch.
4. "Recession in real terms" - Finance Trends.
5. "Marc Faber on Bloomberg TV" - Finance Trends.
6. "Roubini: US in recession" - Finance Trends.