Friday, July 31, 2009

Paul Kasriel on Bernanke, bank lending

Currently sinking my teeth into this new article from Northern Trust economist Paul Kasriel, entitled, "I Have Come Neither to Praise Nor to Bury Bernanke".

Kasriel begins with the question of whether Ben Bernanke might be re-nominated for a second term as Fed chairman, but moves on to discuss the current state of bank reserves and bank lending. Here's an excerpt:

"No one is indispensable. There are plenty of well-qualified candidates to replace Ben Bernanke as chairman of the Federal Reserve Board of Governors. So, the Republic will survive whether or not Ben Bernanke is re-nominated as Fed chairman. But let us be objective in assessing the job he has done as chairman. In my opinion, Anna Schwartz was
not objective in her July 26 NYT op-ed piece arguing for the dumping of Bernanke.

Ms. Schwartz asserts that Bernanke should not be re-nominated because of his sins of commission as well as his sins of omission. It is not clear to me to what Bernanke sin of commission Ms. Schwartz is referring.

She alludes to the flooding of the financial system with Fed credit, which drove down the overnight cost of funds in the interbank market to almost zero. But was that a policy sin? Did not Ms. Schwartz co-author with Milton Friedman, a Nobel economics prize winner, a tome (
A Monetary History of the United States, 1867 to 1960) of which one of the key conclusions was that the Federal Reserve was too timid in creating credit in the early 1930s?"

Now, I'm no economist or student of banking, and some of the charts and explanations in this article (and other Northern Trust econ. commentaries) may seem daunting at first glance, but Kasriel does a great job of laying out the details in a very understandable way.

Be sure to give this piece a look, especially if you're not already familiar with Paul's work; in my humble opinion, he's an economist worth reading.

Wednesday, July 29, 2009

Paul Tudor Jones: "Trader" documentary

 

Watch legendary hedge fund manager Paul Tudor Jones at work in the 1987 documentary, Trader.

See especially PTJ's comments on the importance of focusing on risk management in trading and investing (near the 33 minute mark): 

"Where you want to be is always in control, never wishing, always trading. And always, first and foremost, protecting your ass.

...That's why most people lose money as traders or as individual investors because they're not focused on the money they have at risk. If everyone spent 90% of their time on that instead of on how much money they're going to make, they'd be incredibly successful as investors." 

Classic stuff.

Related articles and posts:

1. Paul Tudor Jones on trading macro - Finance Trends.

2. Steve Cohen opens up to Paul Tudor Jones
- Finance Trends.

3. Sebastian Mallaby interview: future of hedge funds
- Finance Trends.

Marc Faber on McAlvany podcast

Marc Faber recently appeared on the McAlvany podcast to discuss bubbles, US monetary policy, and the state of the US and world economy.

If you think the financial crisis is about over, think again; Faber says we're in for an additional government-fueled bubble which will bring further repercussions for the economy.

There's a great deal more to hear in this interview with Marc; be sure to listen to his truly big picture view on the rebalancing of global power and coming geopolitical tensions.

Here's the link to that interview. Hat tip to Marc Faber News blog.

Monday, July 27, 2009

Selling heap load US bonds

During yesterday's MacroTwits discussion on Stocktwits, Gregor Macdonald wondered aloud about the upcoming flood of US Treasury bond issuance, set for $235 billion in govt. bills and notes this week.

More on that from MarketWatch:

"
Treasury prices declined Monday, pushing yields up for the third session in four, after the government received record-high interest from investors for its first longer-term debt sale of the week.

Bonds remained in the red as traders eyed the rest of a record $235 billion in government bills and notes up for sale this week...

...The government will sell $42 billion in two-year notes on Tuesday, followed by $39 billion in five-year notes on Wednesday and $28 billion in seven-year notes on Thursday. The amount of 2-year, 5-year and 7-year notes will all be the largest-ever auctions on record.

Tuesday will also bring $27 billion in 52-week bills and $30 billion in 4-week bills ."

You might have also noticed a related clutch of articles on the Seeking Alpha home page today under the heading, "The Great Bond Sale". We'll highlight some of those stories in our related posts section below.

In the meantime, here's one more related piece from Bloomberg that we tweeted last night. China has come to Washington for talks with the US and it seems they are kind of curious about the strength of the US dollar and "the stability of US policy", especially since they are such large holders of our national debt.

Of course, the Chinese may have worries of their own to face as Edward Chancellor at GMO warns that China's economy seems "dangerously unbalanced and very likely to come unhinged in the next few quarters", but that's another story altogether.

Keep an eye on news of the China-US talks for more economic developments, and see our related posts section below for more on the US govt. bond sales.

Related articles and posts:

1. Govt. to sell $205 billion in bonds this week - Seeking Alpha.

2. Bond expert: Monday wrap - Seeking Alpha.

3. Bonds: dropping real yields indicate inflation - Seeking Alpha.

Friday, July 24, 2009

Russell: Dow Theory signals bullish market

Quick note: I was catching up with Richard Russell's Dow Theory Letters last night, and Russell made prominent mention of the fact that the Dow Transports and Dow Industrials had both moved above their previous June highs, thereby signaling a bullish confirmation under Dow Theory.

Prieur du Plessis at Investment Postcards has more to say about the Dow Theory bull market signal.

Those who've followed this blog for some time know that your author is an interested follower of Richard Russell's newsletter and a student of Dow Theory, but certainly not an expert in this area.

Excellent introductions to the subject of Dow Theory can be found in Victor Sperandeo's book, Methods of a Wall Street Master, and John Murphy's Technical Analysis. You may also wish to consult the original works of the Dow Theory pioneers (Hamilton, Rhea, etc.) listed in Russell's historical overview.

Related articles and posts:

1. New bull market? - Tim Wood at Financial Sense.

2. Charting the markets: S&P 500 - Finance Trends.

3. A rally with serious muscle (?) - Finance Trends.

Thursday, July 23, 2009

Peter Peterson interview on FT.com

Peter G. Peterson talks with FT.com about healthcare, entitlement spending, US reliance on foreign lending, and much more.

This is a 3 part video interview from FT's "View from the Top" series; just follow the text or image links to get it rolling.

I don't always agree with Peterson's views, but I do often take the time to listen to what he has to say. Enjoy the discussion.

Related articles and posts:

1. A Conversation with Pete Peterson - Charlie Rose.

2. I.O.U.S.A. (the full movie online) - Google Video.

Wednesday, July 22, 2009

A "stunning" ratings reversal for CMBS

You may have read about the sudden ratings reversals from Standard & Poors on commercial mortgage-backed securities (CMBS). I tweeted about this last night when I noticed that Bear Mountain Bull, Prudent Investor, and I were all following this story.

It seems the recently downgraded bonds, which were marked down to a BBB- rating (lowest investment grade, a notch above junk status) by S&P on July 14, have now had their AAA luster restored with a quick reappraisal of their investment potential and a "stunning reversal" of that recent downgrade.

Toni Straka at Prudent Investor shares the details:

"Rating agency Standard & Poors (S&P) appears to do all it can to further wreck its status.


According to a Bloomberg story from Tuesday S&P had downgraded three AAA-rated commercial mortgage-backed debt papers only a week ago to BBB-, the lowest investment-grade rating. Lower ratings than BBB are considered junk issues.

On Tuesday S&P reversed course and upgraded the bonds again to AAA in a move destined to downgrade its own reputation.

The move coincided with new proposed legislation sent to Congress that would require rating agencies to observe a raft of new disclosure rules and restrictions, writes the Financial Times."

We're back to AAA baby; now those CMBS are TALF-ready! Check out the links above for more info on how the ratings agencies (and government-assisted bond investors) do business these days.

Monday, July 20, 2009

Dr. Brett on breaking the social contract

Dr. Brett Steenbarger at TraderFeed sparked some interesting discussion this weekend with his post on, "Breaching the Social Contract".

Dr. Brett offers up some examples of this breach of trust here:

"
Consider the following situations that I have encountered in recent weeks:

* A young lady in college is suddenly told by her parents that they no longer have the funds for her education. She will have to go to work to come up with the tuition. She cannot find work and doesn't know how she will graduate;

* A long-time employee of a large company is downsized to a part-time job and will be losing his benefits. He doesn't know how he will afford health care for his family. He heard about the earnings possible to traders and is considering applying for a training program that will tap him of much of his savings;

* A retired couple learns that their investment adviser has put them in volatile, high load funds that were initially described as conservative. They are stunned when they see their account statement showing a large loss in their principal, and the husband is contemplating a return to the workforce...

...In each of these cases, the individuals entered situations with expectations born of an implicit social contract. With the rending of the economy, that contract is breached--and breach brings hurt, confusion, anger, and despair. Listening to each of their stories, I am reminded of spouses who experience the infidelity of a partner: with the loss of trust, nothing is ever quite the same. It is difficult to sustain optimism and confidence in the face of doubt and uncertainty..."

I'd say that this theme, one of broken social contracts, has become an accelerating trend in our country today.

What are the causes behind these developments? Have a look at the full post and judge for yourself, or add to the discussion.

Friday, July 17, 2009

John Paulson & Joseph Stiglitz: massive mispricing



Video discussion featuring John Paulson (Paulson & Co. hedge fund chief) and economist Joseph Stiglitz discussing the "massive mispricing" of mortgage backed assets during the real estate bubble. Hat tip to Street Capitalist.

Surprisingly, Paulson makes the claim that government had nothing to do with the conditions that fueled the mortgage finance & securitization bubble. He also says that the government "had to step in" to prop up the banking system due to fears of systemic collapse.

This opinion is in stark contrast to our view, and that of most other Austrian-school thinkers. Simply stated, the easy money and credit conditions which primed this real estate bubble would not have been available without government or central bank interference in the market for interest rates.

The widely held notion of this latest boom-bust cycle as a "free-market failure" is incorrect. It should instead be recognized for what it is: a failure of US monetary policy.

Related articles and posts:

1. Excellent timing: John Paulson - Finance Trends

2. John Paulson in Bloomberg Markets - Finance Trends

3. John Paulson, hedge funds move into gold - Finance Trends

Thursday, July 16, 2009

Charting the markets: the S&P 500

I've been catching up with some recent market outlook reports from some of my favorite traders/writers and market-watchers.

For those who are actively trading (or watching) this market, one of the big topics being tossed about recently is the future direction of the S&P 500. Today we'll take a quick look at some recent market commentary on the US benchmark share index, as well as some other major market indices.

Before we jump into the S&P 500 charts, let's get a quick view of the markets and the economy as a whole. Here's what Frank Barbera had to say in his July 7 market-wrap for FSO:

"At this time it appears that going forward, instead of the data simply not getting any worse, the markets will increasingly demand to see tangible improvement,
proof that things are in fact getting better. As it happens, to date there is virtually no evidence that a material change for the better is underway. As a result, markets have entered correction mode which was predictable given the huge overshoot on the upside seen in recent weeks.

In my view, the odds are high that on the corporate front, the rally of the last few months has been about “hope” for improved results, and has been largely predicated on huge cost cutting steps implemented throughout the corporate world. In the weeks ahead we may see a market that softens further as it becomes clear the tangible proof the markets want to see in both earnings and economic figures is not immediately at hand."

Frank goes on to add that this current recession is not a cyclical affair, but is "most likely a structural contraction". This carries wider implications for the strength of consumer spending, corporate revenues, and resulting stock market valuations (P/E multiples). Read on for more of Frank's overview.

Also at FSO, Carl Swenlin had recently (July 10th) pointed to a technical break of the S&P 500's neckline support, saying that a resulting decline down to 810 was likely. However, Swenlin also noted that the neckline violation could mark "the end of a correction and a bear trap", though he did not find this scenario likely.

Chris Puplava follows up this discussion of the S&P pattern in a July 15 wrap-up entitled, "A Bipolar Market". As you can see from the charts included in Puplava's article, the S&P 500 made a quick recovery move to the upside after briefly breaking the neckline support.

Which brings us to the vital question:

"The question now is which will be the final outcome, a break above resistance or a break below support?"

Brian Shannon at AlphaTrends has also been keeping a keen eye on the S&P 500 in recent days. Yesterday, Brian shared some charts of the S&P 500 and thoughts on a possible (bullish) inverted head & shoulders pattern on the weekly chart. He cautioned that we'd still have to see more positive movement on the daily charts to take this pattern seriously.

For those who'd like to hear more about Brian's technical view of the market, check out this very recent (7/15/09) stock market analysis video on Youtube.

Wednesday, July 15, 2009

Gregor Macdonald on Washington's dilemma

Another interesting article that popped up in my Twitter stream last night: this one is from Gregor Macdonald (market/energy blogger and Stocktwits' MacroTwits host) on Washington's dilemma and the potential for an "American devolution".

"Washington is bluffing that it will not bail out California, and every other state suffering from collapsed revenues and massive job losses. If cuts in police and schools don’t force DC off from its current position, then the math will. Because in many states the aggregate revenue losses and looming cuts to state payrolls will largely render the intended effects of federal stimulus as moot.

Frankly, unless Washington prints money and bails out every state that needs capital, including California, federal power will decline amidst this severe economic recession, and the process of a soft American devolution will begin. If you think this idea is outrageous, then you’ve still not come to terms with a core reality of our current situation: the structure of this financial crisis is wholly different than any in our post-war era. This isn’t a recession. This is collapse."


I'm finishing up Gregor's post as I write this. I have to say that I'm intrigued by the idea of a potential gradual decline in federal power against the backdrop of this economic downturn. Is such a trend likely to occur, or will Washington forestall any reduction of its Leviathan reach with the aid of the printing press?

Read on to find out why the internal structure of today's US economy makes this period much different from recessions past.

Monday, July 13, 2009

Investing in a post-Bhumibol Thailand

Bloomberg recently ran a lengthy and insightful article on Thailand and concerns of societal unrest in the event of long-reigning monarch King Bhumibol's death (Hat tip: Controlled Greed).

Of course, man on the scene & investor Marc Faber (a regular Bloomberg TV guest) is quoted in this article and offers his take on Thailand's share market and the opportunities present for long-term investors. Here's an excerpt from that piece:

"Amid the chaos, some investors see opportunity in Southeast Asia’s second-largest economy behind Indonesia. As of July 7, Thailand’s stock index had surged 30 percent this year compared with a 0.8 decline in the Standard & Poor’s 500 Index. During the same period, overseas investors increased their shareholdings by a net $621.4 million after being net sellers of $4.8 billion in stocks last year.

Publicly traded companies in Thailand are trading at just 11 times estimated 2009 earnings, making them the second- cheapest in Asia after Pakistan. They currently offer a dividend yield that averages 4.7 percent compared with 3 percent for U.S. stocks and as little as 1 percent for Chinese equities, according to data compiled by Bloomberg. That makes Thailand a buy, says Marc Faber, who manages $300 million in Asian shares at Hong Kong-based Marc Faber Ltd."

If you're interested in the history of Thailand, or would just like to read about global investing opportunities, have a look at the full piece above.

Related articles and posts:

1. Marc Faber on US, emerging markets - Bloomberg/Finance Trends.

2. Fiat money and hot money flows in Thailand - Financial Sense.

3. Marc Faber on Thailand, markets - Finance Trends.

Saturday, July 11, 2009

Weekend reading

Here's some of the reading/viewing material currently on my radar.

We've got news of that tricky Goldman Sachs code, warnings of a commercial real estate bust, oil speculation, John Meriwether's latest fund closure, macro views on commodities and the economy from Donald Coxe, and much more.

1. Links
on the recent Goldman Sachs code fiasco from Bear Mountain Bull and The Big Picture.

2. "Commercial real estate is a time bomb" - Big Picture.

3. "Whose line (of credit) is it anyway?" - Doug Wakefield and Ben Hill on abuses in government and the banking sector.

4. Weekend links from Upsidetrader, a key member of the Stocktwits trading community.

5. "Why there should be more oil speculation, not less". A viewpoint article from Time magazine of all places. I believe it was written by someone who understands the futures market, so it actually makes uncommon sense. Hat tip to Charles at Smoking Securities.

6. Some thoughts on monetizing real-time web (hat tip: Howard Lindzon) and video of the Techcrunch panel discussion with tech investors Ron Conway and John Borthwick.

7. "When it comes to liberty, there can be no balance. Liberty abides no compromise. Liberty is an absolute.
" - Tom Mullen, Campaign for Liberty. This is a MUST READ piece for anyone who values liberty and personal freedom.

8. Prieur at Investment Postcards hips us to the latest Donald Coxe webcast on the markets and the economy. Very interesting comments on US stimulus packages and more.

9. Five for the Weekend. An always interesting selection of links on investing, world news, and economics from Controlled Greed.

10. "The storms that swept away Meriwether's flagship fund" - Financial Times notes that JM's relative value fund strategy relied on (now withdrawn) excess leverage to succeed, and that Meriwether was slow to cut losses, added to losing positions (shades of Bill Miller).

11. Hugh Hendry talks with FT.com about bond yields, inflation vs. deflation, and more.


Enjoy the articles, videos, and webcasts we've assembled here for you. I hope they provide some helpful insights for the weeks and months ahead.

If you like what you see and would like to keep up with all our posts and news updates, you can subscribe to the Finance Trends RSS blog feed and follow us on Twitter. You're all set!

Thursday, July 09, 2009

Ron Paul: audit the Fed

I've seen some very surprising recent coverage of Ron Paul's movement to audit the Federal Reserve, via the HR 1207 and S 604 bills. Here's a quick look at what I've found in recent days via Twitter and my fellow bloggers.

Tech Ticker featured an article entitled, "Ron Paul is Right! We Should Audit the Fed", with an accompanying interview clip questioning the constitutional legality of the Federal Reserve bank's ever-growing power and the total lack of transparency in the Fed's operations and in its balance sheet.

Slate's Big Money site highlights Paul's legislation to audit the Fed in, "Ron Paul Strikes Gold". What's interesting about this piece is that it starts off with a tally of Paul-sponsored bills that failed to gain traction, and then shifts its focus to the growing support for HR 1207 and the challenge that Paul's bill represents to President Obama's plan to "make the Fed a super-regulator". Do give this Slate piece a careful read.

Finally, RonPaul.com offers up a new set of clips from Judge Andrew Napolitano's "Freedom Watch" program that discusses the grass-roots movement to audit the Fed. Follow the link to watch these clips featuring Ron Paul, Jim Demint, Rand Paul, Peter Schiff, and Tom Woods.

Related articles and posts:

1. The Fed Leviathan grows - Finance Trends.

2. Obama's plan could boost Fed's power - Finance Trends.

3. Murray Rothbard: founding of the Federal Reserve - Finance Trends.

Tuesday, July 07, 2009

Marc Faber on US & emerging markets

Marc Faber recently spoke with Bloomberg TV about the US economy, rising deficits and future stimulus efforts, future inflationary results of current global monetary policy, and the outlook for the Asian and US stock markets.

Marc also made some important points on the rise of Asia and emerging market nations at a recent investment forum in Seoul. Here are a few highlights:

"The outlook for emerging markets is “far more optimistic” than for developed economies as growth picks up, said investor
Marc Faber, who advised investors to buy gold before its eight-year rally.

“We are living through major changes in the world,” said Faber, the publisher of the Gloom, Boom and Doom report. Emerging markets such as China are becoming more significant to the global economy, and “I don’t think this will be reversed,” he said today at an AsianInvestor magazine forum in Seoul."

Check out the full Bloomberg article at the link above, or in our related articles footnotes below.

Related articles and posts:

1. Emerging markets outlook 'optimistic': Faber - Bloomberg.

2. Marc Faber Bloomberg TV interview (April '09) - Finance Trends.

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

Monday, July 06, 2009

Governments push up trade barriers

Interesting to note that a new WTO report shows governments across the world have increased barriers to trade in recent months.

FT has the details in, "WTO sees increase in barriers to trade":

"Governments around the world have continued to push up trade barriers in spite of high-profile pledges at the G20 summit and other forums to resist protectionism, according to a World Trade Organisation report to be published today.

Over the past three months, the WTO recorded 83 trade-restricting measures undertaken by 24 countries and the European Union - more than double the number of trade-liberalising measures enacted during the same period. However, the report noted that the worst abuses had largely been contained...

...The WTO warned that a surge of new anti-dumping investigations could materialise as the economic crisis dragged on. It also lowered its forecast for world trade; it is now predicting that the volume for goods and services will contract 10 per cent this year as opposed to the 9 per cent previously expected. "In the past three months there has been further slippage towards more trade restricting and distorting policies," the report concludes."

As the global economic outlook remains uncertain (despite the oft-heralded announcements of economic "green shoots" in the mainstream press), protectionism is on the rise.

For more perspective on the global economy and the workings of globalization, see our notes on Niall Ferguson's recent interview with Bloomberg TV, and (as always) feel free to add your two cents in here.

Friday, July 03, 2009

Happy Independence Day

This year's Independence Day theme (at least as I see it): getting our country back on track by rediscovering the principles which made us great.

Liberty, a spirit of independence (among individuals and the nation as a whole), commerce and trade, striving for peaceful relations with all nations & no entangling foreign alliances or policing the world. Can it be done?

There is a fantastic, recent essay from Ron Paul in The Washington Times that addresses some of these themes. While I am not a regular reader of said paper, I found this piece
entitled, "'Fight them over there vs. over here' a false choice", to be highly worthwhile and extremely informative.

I hope you'll take a moment to read this piece during the July 4th weekend. Please share it with your family and friends, be they American or interested readers living abroad.

We also posted some very worthwhile articles and audio clips about the Founding Fathers and America's fight for liberty and independence at this time last year, so please have a look and enjoy. Thanks, and have a great Independence Day!

Wednesday, July 01, 2009

Bloomberg interview with Niall Ferguson

Niall Ferguson speaks with Bloomberg TV in Aspen, CO. A few important points from Niall in this discussion:

· We're living through one of the great financial crises in history, comparable in magnitude to the Great Depression of 1930s or any of the crises of the 19th century.

· After a banking crisis such as this, government debt "has a tendency to explode". Historically, financial crises have seen a debt crisis, followed by inflation.

· Danger of overdoing the parallel with 1930s. We (USA) now have a huge structural deficit and a "mounting public debt". The bigger danger is with longer term inflation and higher interest rates due to reckless efforts to stimulate the economy.

· We still have functioning globalization, and yet this global financial crisis has been met with fragmented, national efforts to thwart the economic fallout.

· Generals are famous (historically) for fighting the last war; similarly, regulators will try to solve the last crisis. These attempts may prevent a repeat of this exact style of crisis, but will give rise to a new set of problems leading to another style crisis. You can't regulate financial crises out of existence.

Enjoy the interview, and see our related posts for more commentary and interviews with Niall.

Related articles and posts:

1. Barron's interview with Niall Ferguson - Finance Trends.

2. Niall Ferguson: "What Price Liberty?" - Finance Trends.