Tuesday, March 31, 2009

The Detroit quagmire & Treasury's absolute power

Latest news on the Detroit automakers and the proposed "resolution authority" for the Treasury. Let's get right to it...

Starting with the whole automaker bailout/bankruptcy quagmire theme - Deal Journal says, "Mr. Obama, don't let Detroit be your Vietnam":

"Congratulations. It took a couple of months in office, but you finally got something right. GM and Chrysler are bankrupt, after all.

Not that it took any particular genius to see it. But it did take some gumption for you to come out and say it. Now prepare yourself for your next feat, the reinvention of Detroit.

And here are some words of advice: Do not let Detroit destroy your Presidency. It will, if you let it."

Meanwhile, Bloomberg reports President Obama has concluded that bankruptcy is the best option for GM and Chrysler. Here's an intro from that piece:

"President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.

Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, said members of Congress who have been briefed on the subject and two other people familiar with the administration’s deliberations..."

Does anyone know why (aside from obvious political considerations) the US auto makers are still hanging around in this limbo state?

The government has taken billions of dollars in taxpayer funds and allocated it to the dying US automakers, preventing earlier bankruptcy filings or restructurings, even as the companies race to cut costs and stay afloat for the next few months.

Which brings me to our next subject: Deal Journal's evening reading centers on the question of absolute power at the Treasury.

The proposed legislation for "resolution authority" may give Geithner and the Treasury a "nuclear option" to seize any financial company whose failure might pose a systemic risk.

More on this from Real Time Economics:

"The Obama administration last week proposed draft legislation for a “resolution authority” that would effectively permit the government to liquidate or restructure large systemic financial institutions. If passed by Congress, these powers would allow the governments to treat nonbank financial institutions more like regulated deposit-taking banks.

This authority offers a clear path to recapitalize institutions without using taxpayer money and therefore avoiding some dimensions of moral hazard but, if implemented poorly, the existence of this “nuclear option” can cause panic in financial markets and substantially delay recovery..."

The US government is now heavily involved in the domestic auto industry and the non-bank financial industry. Is this a positive or a negative? Your insights and comments are appreciated.

Bill Fleckenstein on PPIP, inflation

MSN Money's resident contrarian, Bill Fleckenstein, has some thoughts on inflation and the Treasury's trillion-dollar toxic assets plan (aka, "PPIP") in his most recent MSN columns.

In his latest piece, "Bank plan a cure-all? Don't bet on it", Fleckenstein notes that the Treasury plan to rid banks of their most troubled assets may prove feasible if the government can convince them to start shedding a certain percentage of their "impaired" assets.

However, the very well-known problems of the financial sector may soon be overshadowed by problems in the larger economy:

"But I believe that as bad as the financial problem is, the economic problem is worse. I don't see how the Treasury's program and other facilities would alleviate the economic problem.

None of these maneuvers to plug the holes in the dike of the United States' and the world's financial systems will necessarily do all that much for the overall economy. Thus, as the pure financial crisis recedes from center stage, the economic crisis lies front and center."

Fleck also has some thoughts on the dollar, inflation, and the ultimate fate of fiat money. Here's an excerpt from, "Got gold? You're right on the money":

"I'd like to take a few moments to talk about the Federal Reserve's latest act of irresponsibility in a continuing series of irresponsible actions (i.e., buying $300 billion in longer-term Treasurys, an additional $750 billion in mortgage-backed securities and -- just for grins -- $100 billion of government-sponsored-enterprise debt).

As a friend noted, Wednesday was the functional equivalent of Pearl Harbor for the U.S. dollar and fiat currencies in general. He said -- referencing that people might pay less for their mortgages -- that they'll pay much, much more for everything else. I would certainly agree..."

Check out the full piece for Fleck's summary of how we got into this mess, and why quantitative easing won't solve our problems.

Related articles and posts:

1. Interview w/ Bill Fleckenstein - FSN via Finance Trends.

2. On PPIP and Geitner's amazing power grab - Finance Trends.

Monday, March 30, 2009

Market news: Monday's reading list

Here are some of the news items and blog posts that I'm checking out today.

We've got: political drama and executive defections at GM, AIG gifts profitable trades to the major banks, a look at the recent stock market rally, and more. Have a look.

1. Obama says GM, Chrysler have last chance to survive - Bloomberg.

See also: Obama gives GM, Chrysler ultimatums; GM's Wagoner to resign - Greentech Media.

2. Bear Market Rally - Carl Swenlin.

3. Market bottom? "Follow the Money" - Janice Dorn, Trading Doctor.

4. AIG was responsible for banks' profitable months - Zero Hedge.

See also: AIG funnels taxpayer funds to counterparties - Finance Trends.

5. Bankruptcy is economic stimulus - Ron Paul.

6. Revisiting the global savings glut thesis - Doug Noland.

7. The Dangers of Printing Money (photo essay) - Time.

8. Giving in on mark-to-market accounting rules - Bear Mountain Bull.

9. Taken for the ride of our life - Best Minds Inc.

In addition to the above articles and posts, you may also want to check out our weekend posts (Dambisa Moyo on Charlie Rose and "Speaking Truth to Power") if you haven't already. Cheers.

Sunday, March 29, 2009

Dambisa Moyo on Charlie Rose



Dambisa Moyo sat down with Charlie Rose last week to discuss her views on African aid programs and her new book, Dead Aid.

Thanks to John at Controlled Greed for recently highlighting this Charlie Rose appearance, as well as the recent Wall Street Journal piece by Moyo entitled, "Why Foreign Aid is Hurting Africa".

We first mentioned Moyo here last month in a "Features of the week" item highlighting a recent New York Times interview about the "Anti-Bono".

As you can probably tell from the article titles mentioned above (and you will know from the video interview), Dambisa Moyo takes a very skeptical view of the conventional foreign aid money drops which dominate the Western world's playbook of "assistance" to the African continent and its people, or rather, its corrupt politicians who tend to benefit most from these monies.

I have not read her book, so it is difficult for me to say much about the proposed solutions she offers in place of conventional aid money. But for now, it's good to hear another clear, intelligent voice offering up a much-needed counterargument in this debate.

Friday, March 27, 2009

J.R. Nyquist: "Speaking Truth to Power"

Excellent commentary from J.R. Nyquist on the true crisis of our time, "the crisis of intellectual integrity", in this Financial Sense article entitled, "Speaking Truth to Power".

"Diogenes the cynic was a Greek philosopher of the fourth century B.C. who walked the streets of Athens carrying a lamp in broad daylight. People asked what he was doing. He said, “I am just looking for a human being.” After Plato offered Socrates’ definition of humanity as “featherless bipeds,” Diogenes brought a plucked chicken to Plato’s Academy, saying, “Behold! I have brought you a human being.”

When captured by pirates and sold into slavery his new master asked what his trade was. “Governing men,” he replied, adding that he wished to belong to someone who needed a master. One morning, when Diogenes was basking in the sun, Alexander the Great came to see him. Wishing to do the philosopher a kindness, Alexander asked if there was any favor he could bestow. “Yes,” replied Diogenes. “Stand out of my sunlight.”

The integrity of Diogenes has much to do with his independence. He was not interested in advancing his career, winning the favor of princes, or making money. He didn’t flatter his teachers or the public. When he spoke, there was no reason to distrust what he said. He had nothing to sell, so he had no motive to flatter or manipulate. In today’s world we have become very comfortable buying and selling things. It is also our habit to say what is pleasing to our superiors. More and more, our culture emphasizes the necessity of having a career, of promoting oneself, of making money and impressing other people.

To be wise, to love wisdom, requires a different emphasis than that of today’s culture. It requires an emphasis on truth and clarity. To be successful today, to advance your career, truth and clarity aren’t always appreciated..."

Please take a moment to read the full piece and absorb this lesson on the importance of truth as a real priority in our daily lives. I could not have said this better myself had I tried.

Given all that's happening in our society today, it is vitally important for us to determine whether we will rediscover the value of truth over deception and false comforts, or continue on the same path which brought us where we are today.

Thursday, March 26, 2009

On PPIP and Geithner's amazing power grab

Well, where do we start?

On the subjects of the toxic-assets plan/public-private investment partnership ("PPIP") and Treasury Secretary Tim Geithner's latest power grab, it's difficult to organize my thoughts and decide where to begin. There is almost too much information to absorb here.

Trying to catch up with all the latest news on not only the government's toxic-assets plan, but Geithner's proposal for sweeping regulatory changes over the financial industry, may seem like an overwhelming task.

Thankfully, there are a few people out there (bloggers, journalists) who seem up to the task of covering these events. I've organized a collection of some of the best articles and blog posts that I have found on these interrelated subjects. Select and read as you like.

Before we begin, I will say one thing about the ongoing financial crisis and government's response to it: the officials (many of whom are unelected) at the helm have, rather predictably, decided to increase regulation and consolidate their power in response to a crisis that, in many respects, they helped create. Now, on with the show:

1. "Geithner proposes vast expansion of US oversight of financial system" - Washington Post.

2. "Geithner proposes to reinvent how the financial world is regulated" - US News & World Report.

3. "Geithner to seek power over hedge funds, derivatives" - Bloomberg.

4. "Geithner 'power grab' could worry creditors" - FT.com.

5. "Geithner testifies about new market rules (video)" - Bloomberg.

6. "Roubini says Geithner plan won't prevent bank nationalizations (w/ video)" - Bloomberg.

7. "Geithner's desperate power grab" - Economics Junkie.

8. "Geithner calls for power to blackmail companies" - Rossputin.com.

9. "Willem Buiter on toxic-assets plan/PPIP" - FT.com.

10. "It looks like Citi and Bank of America are already gaming the system" - Clusterstock.

11. "Geithner's five big misconceptions" - Business Insider.

12. "Ignoring the Austrians got us into this mess" - Barron's.

13. "Overview of the Public-Private Investment Program" & "Overview of PPIP, Part II" - Reggie Middleton.

14. "PPIP for Dummies" - Dr. Housing Bubble.

If you found this reading list useful, feel free to bookmark this post to your favorite social bookmarking site (Facebook, Delicious, StumbleUpon), or forward it to your friends and colleagues with the help of our "email post" button found in the post footer.

For more insight into the causes of the financial crisis and the build up towards increased regulation of the financial industry, read on at the related articles and posts below.

Related articles and posts:

1. The Fed leviathan grows - Finance Trends.

2. Hedge funds: regulations and redemptions - Finance Trends.

3. Jim Rogers: Geithner clueless (Bloomberg TV) - Finance Trends.

4. Jim Rogers doesn't mince words about crisis - BusinessWeek.

5. Adding up all government interventions - NicolasRapp.com.

Wednesday, March 25, 2009

Ray Dalio - Fortune interview

Ray Dalio was recently interviewed for a Fortune magazine profile of Bridgewater Associates, the "world's biggest hedge fund".

You may know Dalio as founder and chief of said hedge fund; his views on the markets and the economy (see our related articles and posts below) are already a popular draw with traders and investors across the globe, as well as Finance Trends readers. So, let's get to the new stuff...

Here's the lead in from Fortune's piece:

"Is the current downturn merely a severe slump, or are we facing a second coming of the Great Depression? That's the question everyone is asking these days. But Ray Dalio, founder of Bridgewater Associates and manager of what is now the world's biggest hedge fund, has been preparing to answer it for eight years.

In 2001 he had his investment team build a "depression gauge" into the firm's computer system, line by line in the code, to adjust the portfolio's strategy and risk profile if the economy ever entered a massive deleveraging period - the kind of multiyear process that ricocheted through the world economy in the 1930s and that has eviscerated markets periodically through the ages.

On Sept. 30 of last year, just a couple of weeks after the failure of Lehman Brothers, Dalio logged into his system and saw that the computer had flipped the switch. Bridgewater's black box is now operating on high alert.

Yet even as he is preparing his clients to hunker down for something different and more challenging than a typical recession, Dalio still expects his fund to thrive. Because his approach doesn't depend on the direction of any particular market, he explains matter-of-factly, there is no reason that he shouldn't continue to find as many good investment opportunities as he always has. Considering what he sees coming, that's a pretty bold statement."

Check out the full article at the link above. With Bridgewater's Ray Dalio as the focus, it should prove enlightening.

Sidenote: Ray Dalio also appears in the latest Alpha magazine list of top hedge fund earners.

As Barry Ritholtz points out, at least these hedge fund chiefs have earned their pay by performing for their investors (unlike some of the "bailout banksters" on the taxpayer dole).

Update: Caveat to that last part about hedge fund chiefs earning their pay; I will be taking back that comment if private equity investors and hedge funds like Bridgewater end up raping the taxpayers via the toxic-assets plan/PPIP. More on that tomorrow.

Related articles and posts:

1. Ray Dalio in Barron's: it's a "D-process" - Finance Trends.

2. Ray Dalio Financial Times profile - Finance Trends.

Q&A with Charles Kirk (The Kirk Report)

Trading Edge magazine recently interviewed stock trader and blogger, Charles Kirk, of The Kirk Report for an upcoming print feature.

Of course, The Kirk Report is one of our regular reads here at Finance Trends (see our sidebar blogroll for more), and a popular destination for many traders and blog readers.

For those who'd like to know more about Charles and his thoughts on trading and blogging, check out this excerpt from the Trading Edge Q&A:

"Q: What would you say are the most important considerations for those thinking of going full-time?

A: First of all, don't do it for the money or because you don't like to work hard. Because of my website, I come into contact with many people who see trading as a way to get rich without doing a lot of work. That's simply not possible no matter how smart or skilled you may be or what trading strategy you discover and/or develop. Trading successfully requires diligence, dedication and determination and it is not a career for the lazy or get-rich easy crowd.

Second, the key is whether you really enjoy the trading process and challenging yourself on a daily basis. This is not a career for those who don't enjoy research, statistics, objective critical thinking, and testing/evaluation..."

Read on for more trading wisdom from Charles Kirk.

Monday, March 23, 2009

Dr. Copper is in the news again

Copper prices are making news again today.

The recent runup in copper prices have made the industrial metal, nicknamed Dr. Copper for its blunt utility in guaging and forecasting economic activiy, front page news (well, at least in the Companies & Markets section of Financial Times) today.

Here are excerpts from FT's above the fold report:

"Copper stockpiling by a secretive Chinese state organisation has helped trigger an impressive rally of almost 35 per cent in the price of the metal this year.

Copper’s fortunes are closely tied to the industrial cycle so the price jump, bigger than that of gold, has grabbed attention outside the commodities market, with some questioning whether it could signal a turning point for economic growth..

...Industry reports point to buying by the Beijing’s State Reserves Bureau, which manages the country’s strategic stockpiles...

...David Wilson, metals analyst at Société Générale, said buying by the SRB has been the main driver behind rising copper prices. “Real demand has played little part in the current copper price rally and remains notably weak as global manufacturing activity continues to decline,” he said, summarising a view widely held in the copper market."

Of course, the very fact that rising copper prices are today's front page news will put many traders on alert for a corrective snapback or even a possible trend reversal. For now, the analysts quoted in the article seem to regard this as mainly a China restocking-driven event, and a "selling opportunity" for copper.

In our last detailed post on China and the commodity markets, we mentioned how the now-closely watched Baltic Dry Index has become an important guage of global economic activity.

There were also some questions (see comments in above post) about how long the recent rally in the BDI would last, and whether the bounce represented a real upturn in dry bulk shipping activity or just a periodic restocking of depressed commodity prices.

Here's a recent chart of the Baltic Dry Index versus copper prices, courtesy of Investmenttools.com:

As you can see from the chart, copper seems to be jumping higher even as the BDI starts to turn down from its recent bounce.

Will copper prices continue to move higher for a time, or will the industrial metal's latest rally soon lose steam and start to emulate the latest topping action seen in the BDI? Let's keep an eye on both of these important markers for the global economy.

Related articles and posts:

1. Commodity currencies: follow that ship! - Finance Trends.

2. Copper leads rally for commodity markets - FT.com

3. Oil climbs, copper advances on dollar - Bloomberg.

Sunday, March 22, 2009

Beijing's rock n' roll underground

File this one under "World Culture"...

Tim Swanson, my blogging pal and man-on-the-scene in China, hips us to the burgeoning underground rock n' roll scene in Beijing. You can find part one of CNN's video report on this underground music scene in the above link at Tim's blog.

Being a follower of both rock n' roll and cultural trends, I decided to head on over to the CNN website and dig up the rest of the clips from this televised report. Have a look:






Sidenote: I'll admit that I was interested to know more about lyrics in Chinese rock music, but the interviewer seemed to press this issue a little too much; it made her seem like a total outsider and a bit of a narc. Interesting to see the musicians' responses to these questions and others, they seemed very charming and thoughtful.

Cross posted (March 22nd) at Trader Rock.

Friday, March 20, 2009

Marc Faber chats with Bloomberg

Marc Faber sits down with Bloomberg TV for an extended chat about the global economy and investment markets.

Faber tells Bloomberg's Bernard Lo that the global economy is "stuffed" for some time, with economic activity (ex-government spending) is down about 15 percent from the peak (2006-2007).

This past prosperity was built on borrowed money, and although Marc expects the economy to stabilize at some point, he does not expect us to surpass these peaks in prosperity and speculation for some time.

However, Marc does see intriguing value in depressed commodities and equities in sound companies. Whenever the recovery comes, it should lift these asset prices.

Marc is also still long-term bullish on gold and all the precious metals, given the unprecedented state of global money printing and the inflation that is sure to follow.

Plenty more to hear in this engaging and entertaining interview clip; be sure to catch Marc's comments on some of the "special" crops that grow near his farm in Thailand!

Related articles and posts:

1. Marc Faber thinks markets could rally - Finance Trends.

2. Jim Rogers: US bailouts add to depression risk - Finance Trends.

Thursday, March 19, 2009

What does a trillion dollars look like?

Given all the recent talk of government stimulus packages, bailouts, quantitative easing, and spending programs that amount to trillions of dollars in expenditures, it's gotten easier to lose sight of what a trillion dollars represents.

What does one trillion dollars look like? Let's use images to visualize.

For the sake of visual comparison, here's what a million dollars in stacked $100 dollar bills (or, Federal Reserve Notes) looks like:

Here's one billion dollars in stacked C-notes:


One trillion dollars (in double stacked pallets of $100 bills) looks something like this:

If you look directly above the arrow I've placed in that graphic, you'll see the same little guy standing right next to the double stacked pallets of money.

So the next time you hear some politician or a "too big to fail" executive talking about how much they really need that trillion dollars for their can't miss plan to help save the world, just remember this: Dr. Evil only wanted $100 billion for not blowing up the world.

Wednesday, March 18, 2009

In memory: Bennet Sedacca and Thomas Dorman

"Don't fight the darkness; bring the light, and darkness will disappear" - Maharishi Mahesh Yogi.

It may seem difficult to pay tribute to someone who you've never even met, but I think it is important to honor the people who have been a force for good in this life. This post is dedicated to the lives of Bennet Sedacca (who died suddenly this week at age 50) and Thomas Dorman (who also died unexpectedly last week at age 72).

Bennet Sedacca was a professional investor and writer. His articles appeared regularly at Minyanville.com, and were often circulated throughout the web by other investors, traders, and bloggers.

In recent months, Sedacca wrote frankly about corruption in the new bailout economy and an encroaching socialism put in place through a mixture of poor judgement and undemocratic policies from above.

It was his great hope that the USA would not go too far down this terrible road, that we would somehow right ourselves as a society, and that his profession (Wall Street investor services) would reclaim its honor and refocus on serving its clients and their goals.

Thomas Dorman, MD, was a very interesting person who was (unfortunately) unknown to me until his recent passing.

Lew Rockwell has provided a very worthwhile post in memory of Dorman's life at the Mises economics blog (see above link), with an added link to a recent podcast interview he did with Dr. Dorman on "The Medical Mess".

I don't know much about Thomas Dorman's unique views on medicine, but I do know that his ideas on government intervention in healthcare are highly relevant to what is going on in the healthcare industry (think about that term for a moment) at this time.

Please listen to this articulate discussion and you'll hear why Dr. Dorman, using his professional and personal insight, was so forthright in speaking out about the changes going on in this country today.

I hope you'll take a few moments (or more) to not only learn about Bennet Sedacca and Thomas Dorman, but to also think about how you can, in your own way, work to "bring the light".

Tuesday, March 17, 2009

Jim Rogers: US bailouts add to depression risk

Jim Rogers speaks with Bloomberg TV about the economy, saying he expects the US to have a very long recession with great risks for civil unrest within the nation and across the globe.

Jim feels strongly about the ongoing bailouts in the US economy, calling them "totally outrageous" and indicative of "absurd economics and absurd morality". Unfortunately, the US government have taken it upon themselves to prop up failing companies with taxpayers' money, throwing good money after bad in the process.

Rogers also shares thoughts on the investment ideas he's optimistic about, his long and short postions, the needed foundations for a sound economic recovery, and a great deal more, so have a look!

Related articles and posts:

1. Jim Rogers talks to Bloomberg TV - Finance Trends.

2. AIG bailout provides derivatives blueprint - Finance Trends.

AIG bailout provides derivatives blueprint

Okay, at this point I think everyone is probably sick to death of hearing about AIG, and I wasn't actually planning to add anything to our recent AIG-related posts.

Nevertheless, the Financial Times has a very worthwhile article today about the effects that the US government's bailout of AIG will have on the derivatives market.

And since we're all about trends here at Finance Trends Matter, it'd be careless of us to omit such important news. So let's get into it.

Excerpt from, "Backing for AIG provides derivatives blueprint":

"The US government's decision to pay out all the money owed by AIG to its financial derivatives counterparties is widely regarded as a "blueprint" for the level of government support that can be expected in the derivatives industry.

Indeed, the list of counterparties shows that many banks benefited from the government's decision to ensure AIG's obligations were met, including some of the biggest dealers in the derivatives industry, such as Deutsche Bank, Goldman Sachs and Société Générale...

...The government's support of the derivatives industry - in effect using taxpayer funds to prevent huge losses at some of the biggest banks active in the derivatives market - is a key reason why efforts have been able to continue to reduce the risk of many of the privately traded, over-the-counter derivatives sectors."

Check out the full piece at the link above, and see our related articles and posts below for more on AIG's payments to its counterparties.

Related articles and posts:

1. AIG funnels taxpayer cash to counterparties - Finance Trends.

2. AIG: $105 billion to counterparties - Big Picture.

Monday, March 16, 2009

AIG funnels taxpayer funds to counterparties

The morning's headline at MarketWatch reads, "AIG details $105 billion in payouts", but it might as well read, "AIG funnels taxpayer funds to counterparties".

Well, at least that's the case as far as I can tell (and I'm far from an expert on the ever-growing AIG bailout story). Apparently, AIG's payouts of bailout funds to its counterparties is great news; the "blue chip penny stock" is up over 60 percent (about 30 cents) in today's trading.

Here's more from MarketWatch:

"American International Group revealed on Sunday details of $105 billion of government funds that it paid to U.S. and international banks including Goldman Sachs, Deutsche Bank and Societe Generale.

The cash paid to AIG's so-called counterparties was used to cover collateral payments, cancel derivatives contracts and meet obligations at its securities lending business.

Now majority-owned by the government, AIG (AIG) has received more than $170 billion in bailout funds to keep it in operation since mid-September, when it found itself on the verge of collapse. Most of the leading U.S. and European banks were represented on the list of recipients of AIG payouts. Goldman Sachs Group (GS) got the biggest single total, receiving $12.9 billion."

Of course, no such story would be complete without an ex-government employee to vouch for the soundness of this ongoing AIG bailout. I mean, without it we'd all be totally screwed right?

Take it away Bloomberg:

"Banks that bought credit-default swaps or traded securities with AIG got $22.4 billion in collateral, $27.1 billion in payments from a U.S. entity to retire the derivatives, and $43.7 billion tied to the securities-lending program, AIG said yesterday in a statement. States, including California and Virginia, got $12.1 billion tied to guaranteed investment contracts.

“It puts a sour taste in the American taxpayer’s mouth, but you have to look at that in terms of the bigger picture,” said Donald Powell, chairman of the Federal Deposit Insurance Corp. from 2001 until 2005. “If you’re going to have any chance of recovery you probably have to stay with it.”"

Government has delivered us from the market's evil wrath. Prosperity is just around the corner!

As you may well know, this latest disclosure comes hot on the heels of yesterday's outrage over executive bonuses (to be paid out with taxpayer funded bailout money) at AIG.

Related articles and posts:

1. Goldman Sachs wins big in secret bailout - Clusterstock.

2. AIG: is the risk systemic? - Big Picture.

3. The myth of systemic collapse - Real Clear Markets.

4. Hugh Hendry: AIG is no longer with us - Finance Trends.

Start your week with some rock n' roll

New music and music news at Trader Rock: a "rock n' roll jukebox for traders, investors, and other free spirits".

Sex Pistols, The Stooges, Bob Dylan, New Order...just a few of the names you'll find in the recent jukebox playlist. Plus, music news and info on some cool new groups, with new music being added throughout the week.

If you're into it, head on over and set your dial.

Sunday, March 15, 2009

AIG bonuses: surprised?

Bear Mountain Bull points out that the bonus babies at AIG are receiving tens of millions in new bonuses with the money coming from the firm's (to date) $170 billion taxpayer bailout.

And he's not really buying the line from AIG chairman Edward Liddy that the bonuses were agreed to in early 2008, before the firm got into "severe financial straights". Take it away, BMB:

"Right. AIG was ‘just fine’ at that time. I’m sure this trouble was all very sudden, and that none of the people receiving bonuses had anything to do with any of the decisions that got them into this mess."

Meanwhile, Larry Summers and Barney Frank are shocked and surprised (?!) at the new AIG bonus plan, calling it "outrageous". But what else would one expect in the wake of the great bailout spree of 2008-2009?

The government and the Federal Reserve have shown they will prop up all manner of failing businesses (banks, auto-makers, insurance companies, etc.) in an attempt to prevent highly visible job losses or to stave off the threat of "systemic collapse".

The firms receiving bailout money are being artificially propped up with taxpayer funds, rather than being forced into bankruptcy or restructuring (as economic logic would demand).

AIG had already shown its regard for US taxpayers by sending executives on an infamous executive spa retreat. Now the firm argues that it needs to pay out these bonuses in order to retain "top-tier talent".

I'd say more about that last one, but I think we already used up this punchline on Merrill Lynch, didn't we?

Friday, March 13, 2009

Features of the week

Some of the more notable stories and items of interest that we've clipped and saved this week:

1. Household net worth plunges 18% in 2008.

2. China expresses worry over its US assets.

3. Fitch cuts GE, Berkshire Hathaway AAA ratings status

4. Berkshire Hathaway CDS trading on par with Turkey, Peru.

5. South Sea bubble descendant has advice for fellow bankers.

6. Pimco predicts inflation joining Buffett, Faber, and Rogers.

7. Jim Rogers talks to Bloomberg about the dollar, inflation.

8. John Authers on the importance of a Swiss Franc devaluation.

9. Switzerland, Luxembourg relent on bank secrecy.

10. Financial Times examines, "The Future of Capitalism".

11. Making the numbers: "Bernie, Jack, and the rest of us".

12. Grand Illusion - life in a Fed-driven economy.

Thanks for reading Finance Trends Matter. If you'd like to keep up with our latest content, you can subscribe to our blog feed in your RSS feed reader. Enjoy your weekend!

Wednesday, March 11, 2009

Retirement on Main Street

The Rolling Stones had an Exile on Main Street while dodging out on the high-tax environment of their home country (the UK) in the early 1970s.

Their time in the South of France was (sometimes) well spent; the group's musical work at Keith Richards' villa in Nice resulted in a good deal of material for the aforementioned Exile, one of the best records the Stones ever made.

Unfortunately, for many middle-class Americans, that type of creative holiday in the sun may never come. High taxes, inflation eroding away the value of retirement benefit payments, and a negative "wealth effect" from falling house and stock prices may combine to level this facet of the American Dream.

If we can shift gears from the Côte d'Azur and back to middle America, we'll let Gary North explain why Elkhart, Indiana, the RV capital of the world, is a metaphor for the "lost lifestyle" of American retirees:

"Over the last 18 months, Americans over age 55 have suffered a reversal in their capital that has not fully registered psychologically. They will not be able to afford a comfortable retirement...

...throughout Greenspan's bubble economy, the savings rate of American households fell, going negative in 2005. The boom fooled Americans who owned stocks that they were getting richer. They weren't. They were merely benefitting from the greater fool theory of investing. That theory has brought down the real estate bubble. There will be further declines. It has ended the stock market mania. And it has just about shut down Elkhart, Indiana."

Read on to find out why Retirement on Main Street may be a difficult (or fading) proposition for many of us here in the good ole' USA.

Do you agree or disagree with North's assessment? Tell us all about it.

Related articles and posts:

1. Singing the Middle Class Blues - Finance Trends Matter.

2. All We Have to Fear is Fear Itself - Financial Philosopher.

Tuesday, March 10, 2009

Marc Faber thinks markets could rally

Marc Faber joined Bloomberg this week to discuss the economy, risks of inflation, gold and gold mining shares, and the possibility for a rally in the US stock market.

Lots of interesting thoughts here from Marc on the world stock markets and the global economy.

He notes that the world has certainly slumped into a depression, with a decline in global GDP of "at least 10 percent" ex-government spending.

At the same time, Marc points out that stock markets worldwide have dropped more than 50 percent, and that sentiment has turned extremely negative. These recent developments have given Faber a more favorable view of buying shares for the long-term.

He also thinks we could see a near-term rally in shares and asset markets as a result of government/central bank money-printing, along with a deceleration of bad news in the coming months.

Related articles and posts:

1. Marc Faber interview: Financial Sense Newshour - Finance Trends.

2. Marc Faber: more boom, less gloom and doom - Business Insider.

Jim Rogers talks to Bloomberg TV

Well, Warren Buffett is not the only one getting up early in the morning for tv interviews.

Jim Rogers sat down to chat with Bloomberg TV (parts one & two) from Singapore the other day, and he's got plenty to share on the state of the world economy and the financial markets.

As always, Jim has some colorful ways of expressing his long-term bullish outlook on commodities. He says that farmers will be the ones to drive Lamborghinis in the coming years (in place of stock brokers and other finance types), and that ex-Wall Streeters should learn to drive tractors if they want to make it in the future, as wealth shifts to producers of real things and tangible commodities.

Rogers also made a great point about the ongoing interventions into the economy, saying that America is making the very same mistakes Japan made in propping up their zombie banks and ushering in a "lost decade" of economic decline.

Here's how Jim put it: "Sometimes you can spend more money trying to prevent a recession than if you just went ahead and had the recession, cleaned out the system, and started over!".

Food for thought, it's really as simple as that. The rest is just bullshit.

Related articles and posts:

1. Jim Rogers says Fed to buy Treasuries - Bloomberg.

2. Jim Rogers: Geithner clueless - Finance Trends.

Monday, March 09, 2009

Warren Buffett Monday on CNBC

Well, there are a lot of things going on in the markets and the economy that we could talk about today, but let's not fight the whale.

Warren Buffett is front and center in the business news today, as he joined CNBC this morning for an extended "Ask Warren 2009" interview special.

Transcripts and video clips are all there in the link, and there's plenty for WB and Becky Quick to talk about, including the news of a merger between Schering Plough and Merck, which broke in the opening moments of this morning's interview.

Interesting to note that Buffett is seeing a lot of change in consumer behavior recently. He said that the American public has changed its buying habits, and that the level of fear that's taken hold among Americans is something he's never seen before. The widespread confusion and fear over the economy has led the buying public to really pull back in recent months.

And as you may have noticed in last week's coverage of Berkshire Hathaway's annual report, Buffett is not exactly holding back about the state of the economy.

When he noted this morning that the economy "has fallen off a cliff", Bloomberg picked up the story and ran the quote in their headline.

Related articles and posts:

1. Berkshire, Buffett bear brunt of bear market - Finance Trends.

2. Graham shows S&P 500 too high as Buffett loses - Bloomberg.

3. Lessons from Warren Buffett - Finance Trends.

Friday, March 06, 2009

Features of the week

A taste of what's to come in this Friday's, "Features of the week".

From BusinessWeek, Maria Bartiromo's recent interview with Jim Rogers:

"MARIA BARTIROMO

What do you think of the government's response to the economic crisis?

JIM ROGERS

Terrible. They're making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on—which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama's chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.

So what should they be doing?

What would I like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality."

Read on for more in the following "Features" links.

1. Jim Rogers doesn't mince words - BusinessWeek interview.

2. Banks that shunned subprime must pay for Wall Street's greed.

3. Can US tax authorities break Swiss bank secrecy?

4. Next in line for bailout? Life insurance companies.

5. Is spending the answer? Ron Paul on government economics.

6. Questions for Dambisa Moyo: The Anti-Bono.

7. Market due for relief? Bears call for a rally.

8. Chart: Bonds beat stocks in "earth-shattering" reversal.

9. Hedge fund destruction is the route to industry's salvation.

10. Back door bailouts for Goldman Sachs?

11. China stimulus can't pull world out of the hole: Jim Rogers.

12. US unemployment hits 8.1%, highest since 1983.

13. The $28M chair: mad hatter or new harbinger?

14. Carlos Ghosn speaks with FT.com from the Geneva auto show.

See also: (a) Photos from the 2009 Geneva motor show.

(b) Geneva motor show: best of times, worst of times.

Thanks for reading Finance Trends Matter. Have a great weekend and join us again next week!

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Wednesday, March 04, 2009

When hope is all you have - Harry Eyres

Weekend FT columnist Harry Eyres has written a wonderful piece on the importance of "radical hope" and positive thinking entitled, "When hope is all you have".

I read the article this weekend and thought it was especially appropriate in these times, when we seem to be surrounded with all sorts of gloomy news and the formation/acceleration of a number of ominous trends, economic and political/cultural.

Here's an excerpt from Eyres' piece:

"As their last great chief Plenty Coups came to manhood, the outlook for the native American Crow people was beyond bleak. It was not just that the Crow were facing hard times, with straitened economic circumstances, disease and military defeat.

The Crow, as philosopher and psychoanalyst Jonathan Lear points out in his book Radical Hope: Ethics in the Face of Cultural Devastation, were confronting the loss of their entire way of life – not just the means of living (the buffalo being exterminated from the plains) but the concepts that made that life meaningful as something beyond mere survival.

We need to pause there, so as not to miss Lear’s essential point, drawn from his study of Aristotle. Human life, however much we doubt it right now, is not just about survival; for it to be human in the full sense, our life must be about not just surviving but flourishing. We are cultural beings, not simply natural ones."

Check out the full article at the link above. I think you'll see why Harry Eyres' "Slow Lane" column is (for me) a must-read section of the Financial Times Weekend edition.

Tuesday, March 03, 2009

The next leg down for world markets

John Authers, of FT.com's "Short View" column, charts the new lows in world stock markets and emerging market currencies in this March 2 video clip.

Here's a lead in from the print version of, "The next leg down":

"World markets are taking the long-dreaded “next leg down”. A new low for this crisis by the S&P 500 last week has been followed swiftly by new lows for the FTSE-100, the FTSE- Eurofirst 300 and, in dollar terms, Japan’s Nikkei 225.

The equity markets’ loss of confidence has translated into currencies. The Korean won and the Mexican peso, representing economies exposed to US imports, are at fresh lows for the crisis. With currencies in eastern Europe, the current focus of concern, also falling, the risk of a true emerging markets crisis is back. "

Authers notes that some reasons for hope may be found in improved economic data from China (due to a recent uptick in activity coinciding with stimulus efforts there), but he remind us that we are now looking towards a command economy for signs of optimism.

Yesterday's new lows in the leading US stock indices (DJIA, S&P 500) brought us back down to price levels of 1997 and 1996, respectively.

We have now reached a point where the Dow has not only dropped 50 percent from its 2007 peak, we've also erased half of the rise in the DJIA from 1932 to 2007 in only 16 months, a fact Richard Russell and Michael Santoli recently pointed out.

Related articles and posts:

1. Back to the future: Stocks' fall may be a milestone - MarketWatch.

2. Four bad bears (updated chart) - Bear Mountain Bull.

3. Stock market roundup: Nowhere to hide - Investment Postcards.

Wiley to publish "Bailout Nation"

Hey! Good news for Big Picture blogger Barry Ritholtz and those who were looking forward to reading his upcoming book, Bailout Nation. It should be out this spring.

For those who don't know, Barry had been set to publish Bailout Nation with McGraw-Hill until a fracas erupted over passages in the book that were critical of the rating agencies, including Standard & Poor's, a unit of McGraw-Hill.

Bloomberg reports that John Wiley and Sons is now set to publish the book, and that it will be released this May.

"John Wiley & Sons Inc. will publish the book on the financial crisis that the author said was spurned by McGraw-Hill Cos. because of a dispute over passages critical of its Standard & Poor’s credit-rating service.

John Wiley said on its Web site the 320-page book, “Bailout Nation: How Easy Money Corrupted Wall Street and Shook the World Economy,” will be available in May. The author, Barry Ritholtz, said today he couldn’t discuss some specifics until he’s received a final contract.

“We have a deal in place,” said Ritholtz, chief executive officer of equity-research firm FusionIQ. “I probably should have sought out a publisher in the first place that didn’t own divisions where there might have been a conflict of interest.”

Ritholtz said last month he withdrew the manuscript from McGraw-Hill after the New York-based publisher edited a section in which he wrote that its S&P unit, Fitch Ratings and Moody’s Investors Service inflated their opinions in exchange for fees. McGraw-Hill said at the time the book had facts that needed verification before it could be printed..."

So now you know the details. Good news for Barry's readers and for good-old American freedom of expression. You gotta watch out for this corporate media, don't you know...

Monday, March 02, 2009

Hugh Hendry: AIG is "no longer with us"

BusinessWeek points us to Hugh Hendry's recent comments on AIG and the process by which supposedly "too big to fail" financial companies have become wards of the state:

"To the average U.S. taxpayer, the math may not sound right: After pumping in about $150 billion of federal money (with another $30 billion to come), American International Group posts a quarterly loss of almost $62 billion—the largest in history. And it will have access to $30 billion in new cash from Washington.

American International Group is being broken up in exchange for getting yet get another lifeline from the government. The former insurance giant posted a staggering $61.7 billion loss for the fourth quarter (about $22.95 per diluted share). Now, AIG is putting what are considered to be its most valuable insurance assets—American International Assurance (AIA) and its Asian operations—under direct government control. Once the businesses are sold, taxpayers will reap the benefits.

I was struck by what Hugh Hendry, Chief Investment Officer at Eclectica, told CNBC this morning: “AIG is really no longer with us … I think the reality is (a lot of financial companies) left the business last year.”"

As BusinessWeek writer Diane Brady noted in the final excerpted paragraph (above), Hugh Hendry made some interesting comments about AIG and the financial sector in his CNBC guest host appearance today.

In his interview with CNBC, Hendry points out that AIG is on artificial life support from the government (read: taxpayer funds) and that many other financial companies are now in the same situation.

Now that AIG is asking for (and receiving) another lifeline of funds and more lenient government bailout terms, Hugh reminds us that "AIG is no longer with us".

""We live in a very strange, twilight period where we pretend that a lot of these financial companies are still with us. I think the reality is they left the business last year," Hendry added."

Hendry also notes that the stock market is viewing many of these trouble financial firms as essentially bankrupt, and that bank nationalization would provide for an "orderly liquidation" of debts from these insolvent institutions.

Interestingly enough, Hugh's thoughts on this issue seem to mirror those offered today by CNBC host Rick Santelli, who also favors a sort of controlled bankruptcy-style process for these firms.

At the same time, Hendry noted that the endless bailout actions and the frenzied search for solutions are a waste of time and effort. Check out his thoughts on the long transition cycles that take asset prices from overvaluation to undervaluation for more on this point.