Friday, January 29, 2010
Here's an excerpt from, "Lessons in Manliness: Benjamin Franklin's Pursuit of the Virtuous Life":
"Benjamin Franklin is an American legend. He single handily invented the idea of the “self-made man.” Despite being born into a poor family and only receiving two years of formal schooling, Franklin became a successful printer, scientist, musician, and author. Oh, and in his spare time he helped found a country, and then serve as its diplomat.
The key to Franklin’s success was his drive to constantly improve himself and accomplish his ambitions. In 1726, at the age of 20, Ben Franklin set his loftiest goal: the attainment of moral perfection.
In order to accomplish his goal, Franklin developed and committed himself to a personal improvement program that consisted of living 13 virtues..."
Of course, no man is perfect, and (as the authors note) Ben Franklin was no exception to this rule, even with his continuous pursuit of the virtuous life.
Still, I wonder what we can learn from Franklin's quest. How would society and business function today if more of us decided to embark on a similar quest for self-improvement?
Related articles and posts:
1. Great Lessons from Great Men - Get Rich Slowly.
Wednesday, January 27, 2010
In his post on Gross' "Ring of Fire" chart, depicting deficit and dept/GDP percentages for a number of economically vulnerable countries, Ritholtz noted that the US' fiscal problems were in part due to the government enacting policies (explicit backstops for the GSEs, etc.) that were suggested by Gross and his cohorts.
As Barry put it: "Essentially, Gross is complaining that (amongst other factors) the government listened to him . . .".
There was some interesting debate in the comments section about whether or not the (government backstopped) trillions in mortgage debt on GSE balance sheets should figure into an equation on US govt. debts/liabilities.
I noticed that David Merkel weighed in on this question, and that he also has a post up at Aleph Blog discussing Gross' chart and unsustainable government debts. You might want to check that out, as David is well-versed in credit markets and able to shed some additional light on the subject.
You can find Bill Gross' latest (February 2010) investment outlook, "Ring of Fire", here.
Tuesday, January 26, 2010
Also up for discussion: the vote on Bernanke's 2nd term as Fed Chairman, and why the world would be better off without central banks. Go get 'em, Jim.
Hat tip to the gang at Business Insider.
Related articles and posts:
1. Ben Bernanke: man of the year? - Finance Trends.
2. Jim Rogers on CNBC, Tech Ticker - Finance Trends.
Saturday, January 23, 2010
When I say "glance through", I should clarify; I glance through all the parts I don't care about (comments from Abby Cohen, et. al) and carefully read the sections where Marc Faber and Felix Zulauf (and if time allows, Meryl Witmer or Fred Hickey) are talking.
Sometimes I'll stop and read Bill Gross' comments, but I think that has more to do with the fact that you never know what he is going to say these days, and it's interesting to see how his remarks line up with some of his (and PIMCO's) previous sentiments and actions.
Anyway, if you saw the 2009 roundtable report card, you'll notice that everyone's picks for last year were well in the black overall. Compare that to 2008's roundtable results (largely disastrous) and you'll see that roundtable participant greatly benefited from the broad market rally we saw during 2009.
No, I don't chalk this up to skill on (most of) their parts. In fact, the phrase that went through my head on examining this year's report card was, "they got their asses saved (by this rally) after last year's calls". Well, 2008 was pretty brutal all around.
Marc Faber seems to be the performance standout of last year's roundtable. The breadth and number of his calls in 2009 far outpaced the rest, and strong equity markets certainly helped keep his long positions positive. Still, it's amazing to look down at that 2009 report card and see every one of those picks in positive territory. The others did pretty well, too.
Enough of that. Let's see what the group have to say in the latest installment of Barron's 2010 Roundtable, shall we?
Related articles and posts:
1. Barron's Roundtable 2009 notes - Finance Trends.
2. 2008 Barron's Roundtable review - Finance Trends.
Thursday, January 21, 2010
Here's an excerpt from the administration's press release:
"“While the financial system is far stronger today than it was a year one year ago, it is still operating under the exact same rules that led to its near collapse,” said President Barack Obama.
“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout. It is exactly this kind of irresponsibility that makes clear reform is necessary.”
The proposal would:
1. Limit the Scope - The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.
2. Limit the Size - The President also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits."
It goes on to say that the President will work very closely with others (the illustrious Chris Dodd and Barney Frank, to name a few) to benefit consumers, close loopholes, and end the "Too Big to Fail" mentality.
This is tragically hilarious when you consider that these same large banks attained their TBTF status with the help of government bailouts and their ensuing moral hazard risks. So once again, government wants to "solve" the very problems they helped create in the first place.
For more insight on this proposed "Glass-Steagall II" legislation, and the rise of "too big to fail" banks, see our related articles section below.
Related articles and posts:
1. Obama gets tough on Wall Street banks - FT.com
2. Banks are bigger problem now: Niall Ferguson - Finance Trends.
3. Obama moves to restrict big banks - WSJ.com
Wednesday, January 20, 2010
Stephen Colbert: The Word - Honor Bound (via Credit Writedowns).
Clever take on the financial crisis and the morality of walking away from your mortgage. Your thoughts?
Tuesday, January 19, 2010
"Democrats were dealt a blow on Tuesday night when Republican Scott Brown won the Massachusetts Senate seat controlled by the Kennedy family for 56 years in an electrifying special election.
Mr Brown’s victory in one of the US’s most liberal states will deprive President Barack Obama’s party of its 60-seat “super majority” in the Senate and make it much more difficult for Democrats to pass healthcare reform legislation.
Analysts said it would inflict a heavy psychological blow as Mr Obama marked his first anniversary in office, and highlighted the extent to which the gloss had come off his presidency. The loss in the party stronghold also raised concerns for Democrats seeking re-election in more moderate states later this year..."
I know some people were keeping a real close eye on this special election tonight. Maybe some of you have some insights on the implications of this win for Brown and the Republicans?
FT notes that Dem candidate Martha Coakley was expected to "coast" to victory just a few weeks ago. Looks like voters in Massachusetts decided otherwise tonight.
Monday, January 18, 2010
If you would like to donate to an effective private charity that will help Haitians in the weeks and months ahead, please see trader Quint Tatro's blog for info on how you can help send needed food and medical supplies through his charity mission to Haiti.
Any recommendations you might have for other reputable private charities (in which the vast majority of donated funds & supplies are directly sent to the people in need) are very welcome. Please post the organization info and links in the comments section.
If you'd like to get a further insight into the problems that have long plagued Haiti, and the effectiveness of private charity versus government "aid", please the Mises blog post, "Helping Haiti", and the articles in our related links section below. Thank you.
Related articles and posts:
1. Countries in contrast: one land, two fates - National Post.
2. Real economic reform for a hurting Haiti - Mises.org.
Friday, January 15, 2010
This brings us to today's question: are California's fiscal problems indicative of a larger trend toward deteriorating state finances and budget shortfalls?
I'd like to start out by thanking Gregor Macdonald and the Stocktwits gang for discussing some of these issues in the last Sunday's MacroTwits hour on Stocktwits TV and for sharing some of the links I'll be posting for you here today.
For an opener on why state finances are important, let's get a quick overview from Business Insider:
"Last week we mentioned how states are still grappling with monster budget gaps, and that they'll inevitably resort to slashing spending to remain solvent.
This, of course, will be a drag on GDP, and act counter to any pro-stimulus efforts Uncle Sam will maintain."
They go on to cite (as Gregor did) the recent Rockefeller Institute report, "Recession or No Recession, State Tax Revenues Remain Negative" (PDF), which finds that the trend in state and local taxes has been "clearly downward" from its previous mid-decade highs.
An introductory paragraph from that report:
"During the third quarter of 2009, total state tax collections as well as collections from two major sources — sales tax and personal income — all declined for the fourth consecutive quarter. Overall tax collections in the July-September quarter fell by 10.9 percent from the same quarter of the previous year.
We have compiled historical data from the Census Bureau Web site going back to 1962. Both nominal and inflation adjusted figures indicate that the first three quarters of 2009 marked the largest decline in state tax collections at least since 1963."
Meanwhile, Reuters reports positive growth in sales tax collections for a group of states mostly concentrated in the Midwest. Unfortunately, they note that the numbers could change quickly for these states, as they benefited from federal bailouts of the automotive industry which, in turn, boosted local manufacturing activity.
Lastly, Mish has posted some comments and data on California and the states' finances that I found informative and would urge you all to check out. Here are some excerpted comments from Mish on state deficits and the large credit ratings agencies:
"In the United States, a fiscal crisis is hitting states like Arizona, Illinois, Kentucky, California, Virginia, and Illinois. California has a whopping 56% deficit as a percent of its General Fund Budget according to the Center on Budget and Policy Priorities...
....There is little doubt California should be rated as junk already. Dick Larkin notes they give the states a lot of rope and wonders: "Frankly I can't understood why it took S&P so long."
...The big three rating agencies get paid on the quantity of debt they rate not the quality of their ratings. The higher they rate, the more business they get. For more on the problem as well as what to do about it, please see Time To Break Up The Credit Rating Cartel."
So there is a lot of material to look over here, but I hope this post will give you a pretty comprehensive start to any research you might want to do on this subject. I will continue to read through the Rockefeller Institute report and keep an ear open to your thoughts on "the true state of state finances". Have a great weekend, everybody.
Thursday, January 14, 2010
From Reuters, "California debt rating cut as cash crunch looms":
"California's main debt rating was cut on Wednesday by Standard & Poor's, which said the government of the most populous U.S. state could nearly run out of cash in March -- and another rating cut might follow.
The state government's budget gap of nearly $20 billion over the next year and a half leaves it in a precarious situation, requiring tax increases or spending cuts, either of which may slow economic recovery, the agency said in a statement.
"If economic or revenue trends substantially falter, we could lower the state rating during the next six to 12 months," S&P said after cutting the rating on $63.9 billion of California's general obligation debt one notch to A- from A.
The new level is four notches above "junk" status, a level at which many investors refuse to buy debt."
Do Cali's debt problems and poor finances hint at trouble for other US states? We'll have more on that issue tomorrow, with a spate of new research and commentary to help us along. See you then.
Wednesday, January 13, 2010
Here's what Congressman Paul had to say about the recent backroom dealings by the Treasury and the Fed, and "Why the Fed Likes Independence":
"This claim that the Fed should have “independence” is a canard. They very much enjoy their comfortable pattern of bailing out friends and devaluing the currency with no oversight and no accountability. Geithner specifically asked officials at AIG not to disclose to the SEC or to the public particulars about this special deal for his friends. We only know these details now because AIG was eventually forthcoming when Congress demanded some answers.
We should be getting this information, and information on all such dealings, straight from the Fed. The Fed should be accountable to Congress because it is a creature of Congress. The Constitution gives Congress the authority to oversee the integrity of the monetary unit. We have unwisely and unconstitutionally delegated this authority to the Federal Reserve, which has in turn devalued our dollar by 95 percent and counting.
When the Federal Reserve engages in harmful policies, Congress is still ultimately responsible. If the Fed is not made accountable through a GAO audit at least, it will continue to be accountable to no one, and that is unacceptable."
Please see our related links section for more discussion on why the Federal Reserve should (or should not be) held accountable through government audits.
Related articles and posts:
1. Interview: Ron Paul & Steve Forbes discuss the Fed - Forbes.
2. Fed wants to keep US bailouts secret - Finance Trends.
3. Geithner wants zipped lips on AIG swaps - Finance Trends.
4. Ron Paul answers questions on C-SPAN - RonPaul.com.
Monday, January 11, 2010
Here's Bloomberg's latest on the Fed's bailout secrets:
"The Federal Reserve will ask a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history.
The U.S. Court of Appeals in Manhattan, after hearing arguments in the case today, will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc. In August, a federal judge ordered that the information be released, responding to a request by Bloomberg LP, the parent of Bloomberg News.
Bloomberg argues that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money. Banks and the Fed warn that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell-off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued. The lower court agreed with Bloomberg..."
As noted in the earlier Bloomberg piece from Dec. 2008 (also linked above), the Fed lent cash & government securities to banks in exchange for collateral including "stocks and subprime and structured securities such as collateralized debt obligations".
Obviously, many people are a bit concerned about the quality of that collateral. Having access to data on the quality of securities held on the Fed's balance sheet would give investors & the public an idea about the potential losses the government faces on those assets.
Related articles and posts:
1. Fed refuses to disclose recipients of $2 trillion - Bloomberg.
2. Ron Paul: audit the Fed - Finance Trends.
Friday, January 08, 2010
They've got the latest on Tim Geithner's troubles in this AIG swaps fiasco, plus coverage of 2009 hedge fund returns, Jim Chanos' views on China, Iceland as an indicator for sovereign defaults, and more.
All topics we're interested in here at Finance Trends, so head on over to AR and have a look at their linkfest. Have a great weekend, and we'll see you soon.
Thursday, January 07, 2010
"The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.
AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms."
In fact, this latest Bloomberg piece on the email exchanges between AIG and the New York Fed follows up earlier reports by Richard Teitelbaum and Hugh Son on the AIG swaps deal from October '09.
"Still, officials at AIG object to the secrecy that surrounded the transactions. One top AIG executive who asked not to be identified says he was pressured by New York Fed officials not to file documents with the U.S. Securities and Exchange Commission that would divulge details.
Read all about it and pass the news along.
“They’d tell us that they don’t think that this or that should be disclosed,” the executive says. “They’d say, ‘Don’t you think your counterparties will be concerned?’ It was much more about protecting the Fed.” "
Related articles and posts:
1. Fed told AIG not to disclose swap details - Dealbook.
2. Marc Faber interview: rotten apples in DC - Finance Trends.
3. Jim Rogers: "Geithner's clueless" - Finance Trends.
4. Geithner's gift to Pimco, BlackRock, et al - Finance Trends.
Wednesday, January 06, 2010
I thought back on this great little visual recently while discussing gold's role as a store of value with a friend.
We ruminated briefly on gold's utility as an inflation hedge or preserver of one's purchasing power and I offered the classic example of the more or less constant ability to purchase a fine men's suit with an ounce of gold.
Later, we resumed our discussion by looking over the Dow to gold ratio and the similar S&P 500/gold ratio mentioned in the recent Barron's interview with Kevin Duffy and Bill Laggner.
These are all fine examples of the fact that while gold's purchasing power of real goods or assets may fluctuate during certain periods, its role as a store of value remains constant over time.
Still, I happen to believe that a picture is often worth a thousand words, and this is why I am so enamored by the Gold and Cadillacs example offered by Mike's post.
In fact, if you compare (as Mike has) the Cadillac Eldorado 2-door coupe or convertible with its present day successor, the Cadillac XLR-V, with all its modern gadgetry and "improvements" (those so often touted in the BLS' hedonic indexing of prices), I'm sure you'll be similarly amazed to see how well gold's purchasing power has held up, or increased, in this particular instance (although we should point out that in 1971 gold was still artificially pegged at $35 an ounce, when a more realistic market price would have been $103 an ounce).
Monday, January 04, 2010
"PERHAPS ONE OF THE greatest failings in the run-up to the financial meltdown was a lack of perspective -- an inability by many market participants to see the big picture. Not so with Kevin Duffy and Bill Laggner, principals of the Dallas-based hedge fund Bearing Asset Management.
With the help of their proprietary credit-bubble index, developed in 2004, the managers sounded early warnings on housing and credit excesses, and capitalized handsomely on their forecasts by shorting Fannie Mae, Freddie Mac, money-center banks and brokers, builders, mortgage insurers and the like.
Students of the Austrian school of economics, which espouses a free-market philosophy that ascribes business-cycle booms and busts to government meddling with interest rates, the pair is solidly in the contrarian camp, believing that the worst for the markets may be yet to come."
If you find Duffy & Laggner's analysis insightful, or if you'd like to gauge the accuracy of some of their earlier calls, you may also want to take a look at some of the resources provided in our related articles section below. Enjoy the interviews.
Related articles and posts:
1. This Time It's Value Traps - John Rubino at Safehaven.
2. Interview w/ Kevin Duffy & Bill Laggner - VoiceAmerica.