Two must read articles to sum up the year in finance:
Three Views of Three Big Failures -- a summary plus Merkel's notes of three articles (two on WaPo and one on Vanity Fair) about AIG, the GSEs, and the meltdown in general.
and:
Another Big Bank Failure: More Likely Than Not to Occur -- Middleton explains why we still have a long way to go before things look reasonable again in the capital markets.
Wednesday, December 31, 2008
Tuesday, December 30, 2008
2009 Predictions - Saxo Bank
As reprinted on Yahoo! Finance, Saxo Bank made its annual predictions, with my comments to follow in blue.
They are:
They are:
- Iranian Revolution -- Only if the US goes into Civil War as predicted by a Russian analyst.
- Crude Oil to $25 -- Our only hope for a quick recovery.
- S&P 500 to 500 -- A necessary correction to match historical values.
- Italy could drop the euro -- Will Italy be the first? I think there is a behind-the-scenes race to exit the euro, which will intensify as the Eurozone continues to stagnate.
- Australian dollar slump versus yen -- Predicated on continued commodities plunge, but one has to wonder what the yen has to offer nevertheless, especially when Japan absolutely needs some inflation to prevent defaulting on its bonds. Oh never mind, Japan owes mostly to itself, so default is meaningless. Keep making debt, Japan! It's a small wonder they haven't increased their official debt to GDP ratio to 1000000%. That would stimulate something.
- Dollar to outstrip the euro -- How can this be when the eurozone is fighting inflation and the US will need some inflation to make Bernanke's upcoming Quantitative Easing regime work?
- Chinese GDP to 0% growth -- No way. With their weak currency, they'll just find buyers in India and Latin America.
- Eastern European forex pegs to fail -- Haven't they already failed?
- Commodities prices to plunge -- Ain't I been saying this? Let's pray this is wrong.
- (Chinese) Yen to become the currency peg -- If the dollar and the euro continue their wild swings, the Chinese artificial currency valuations will look attractive for small economies. Remember Argentina!
More Words
Courtesy of Howard Ruff:
New Stock Market Terms
(I Still have a Sense of Humor)
CEO -- Chief Embezzlement Officer.
CFO -- Corporate Fraud Officer.
BULL MARKET -- A random market movement causing an investor to mistake himself for a financial genius.
BEAR MARKET -- A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.
VALUE INVESTING -- The art of buying low and selling lower.
P/E RATIO -- The percentage of investors wetting their pants as the market keeps crashing.
BROKER -- What my broker has made me.
STANDARD & POOR -- Your life in a nutshell.
STOCK ANALYST -- Idiot who just down-graded your stock.
STOCK SPLIT -- When your ex-wife and her lawyer split your assets equally between themselves.
FINANCIAL PLANNER -- A guy whose phone has been disconnected.
MARKET CORRECTION -- The day after you buy stocks.
CASH FLOW-- The movement your money makes as it disappears down the toilet.
YAHOO -- What you yell after selling it to some poor sucker for $240 per share.
WINDOWS -- What you jump out of when you're the sucker who bought Yahoo @
$240 per share.
INSTITUTIONAL INVESTOR -- Past year investor who's now locked up in a nuthouse.
PROFIT -- An archaic word no longer in use.
Retail Blues
It's just fear now (unless your name is Linens & Things or Sharper Image), but there is a foreboding sense of inevitability. Yes, stores will close. Yes, more stores will go bankrupt.
In my house, we're betting on the survival of Target, even though their numbers are weak. We're betting on the failure of The Body Shop, however. Only time will tell.
Wednesday, December 24, 2008
Top 10 Words for 2009
It has been hard to get my head wrapped around the financial crisis. I console myself that this is true even for geniuses and Wall Street veterans. One thing is sure, though, the financial crisis has elevated new words into common parlance, and has changed the definitions of rather technical terms. Looking ahead to 2009, there are 10 words that popped up a lot in the past year, and the meanings of these words will remain important as we collectively figure out a way out of the quagmire.
10. Credit. We have seen the post-Lehman world become one where no one gives anyone any credit. Credit facilities are nullified, credit lines are dried up. The impact on trade is currently immeasurable, but the forecasts are dim. So much of trade is reliant on the money market (short term loans for the purposes of buying inventory), but that whole industry is now a Fed facility. There Wall Street, and then there’s the street, the neighborhoods in which real people live. In the neighborhood, credit also has meaning. It means money sent from a lender to you. This is not your money. This is money you don’t have. So, spend it wisely if it’s offered to you.
9. Derivative. A derivative is an instrument that has a value. Okay. And that value is dependent on the value of other things. Got it? So, for example, I think oil will go through the roof in several years. So, I make a contract to buy oil in ten years at low price (someone else thinks oil will be even cheaper, and is willing to supply it to me at the buying price as agreed in the contract). The contract itself has a value because it allows the holder to buy oil at a certain price, regardless of what the actual market value will be. Now, as time goes by and we get closer to the ten year point of the contract, the value of the contract itself will go up or down. If, for example, oil is super, super cheap, then my contract will have less value, because it allows the holder of the contract to buy oil at a price higher than market value. Who wants that? But, if the price of oil skyrockets, then the contract is worth more because the holder of the contract gets to buy oil at less than market value. Similarly, the bonds that bundled mortgages are derivatives because the value of the bond (the bundle of mortgages) is determined by whether the home buyers continue to pay their mortgages. If there are a lot of defaults, then the bond’s value goes down. If everyone pays, then the bond retains its value (and may even go up if investors are eager for a safe place to put their money).
There is no street equivalent, strictly speaking, because we have more common sense in the neighborhood.
8. On/Off Balance Sheet. As lenders piled up stacks of risky mortgages and related derivatives, there was a need to place these volatile assets some place where they couldn’t do damage to the lenders’ balance sheets. Neighborhood equivalent: buying a car you can’t afford and putting it in your mom’s name. When you stop making payments, the dealer comes and takes away the Escalade, crippling your mother’s credit and possibly putting her in legal trouble. You don’t escape, though, because your mother may forgive, but she won’t forget. Plus, your siblings will all know you suck, thus ensuring that you will always have to double check your turkey sandwich for special sauce courtesy of your older brother.
7. Transparency. This means both operations and products are open for inspection. In the derivative buying madness, we had a de facto lack of transparency as there was literally no time to unravel the mortgage bundles prior to the sale of the bonds. Simply, there were too many risk-dumb investors who wanted a piece of the action and were willing to shell out hundreds of millions to buy something they didn’t inspect. Of course, the mortgage originators and other securitizors willfully created this environment, giving short notice prior to auctions.
The neighborhood equivalent is buying dope advertised as chronic, but sold in an opaque, airtight bag. “No, don’t look at it. I’ve got other buyers lined up with cash in hand. You want the good stuff or not?” Take it home, light it up, cough on the mortgage shwag.
6. Leverage/Overleveraged. Bank regulations require a certain ratio between assets and outstanding loans and deposits. This means banks have to have a certain level of money on hand in case depositors pull out. For a bank, a customer’s deposit is an obligation. They are borrowing money from the depositor. So, if there is a bank run, the banks need to be able to pay depositors as well as any loans they owe to other banks. A bank or other entity becomes overleveraged when its obligations to pay others far exceed the cash on hand.
In the neighborhood, college loans are increasingly the cause of people being overleveraged. You enter college without many assets, yet are given credit lines up to infinity. Doctors, lawyers, and other professional degree holding persons are saddled with immense debt upon graduation. The credit given to them is predicated on the idea that they will make a lot of money. Basically, the lender is looking at (future) cash flows rather than assets when determining how much money to lend. Plus, the law gives these lenders a great deal of security – college debt cannot be discharged in bankruptcy.
5. Liquidity/Illiquidity. Liquidity and leverage go hand in hand. If you are liquid, then you have enough cash to pay for your obligations. These days, with the credit markets frozen, liquidity equates to solvency. Basically, if you can’t pay your bills today, you’re out of business.
In the neighborhood, we know this all too well. That’s why we have credit cards.
4. Collateral. If you take out a loan, you should pledge something of value in return. That’s what makes credit cards so scary. Visa doesn’t ask you to put anything up of value, it doesn’t even take an interest in the thing you purchased. If you buy a house, the bank can take the house away if you don’t pay your monthly mortgage payments. If you don’t pay your credit cards, however, Visa doesn’t come and take away your Coldplay CD. Stock tip: don’t buy credit card companies. The business model is just too sketchy in the post-credit bubble world.
3. Subprime. People who meet certain financial criteria are given loans at a rate near the prime rate (mortgage jargon for something that will exceed inflation). Those with shaky credit histories are riskier, so the banks will lend to you with a risk-adjusted premium. This can mean a percentage point or two above the average. That’s no big deal. But, mortgage lenders developed all these terribly stupid mortgages that entice people to take out a loan that they can only pay for a year or two before the rates reset to the risk-adjusted levels.
It’s like dating someone with a checkered history of infidelity. Once the infatuation period wears off, he or she is going to be looking elsewhere. You can count on it. Just like you can count on people defaulting on loans they couldn’t really afford to pay. The introductory rate was the infatuation period. The rest is just what you deserve.
2. Bailout. I have two definitions for this one. The first is: the social cost of poor regulation. The second one is: a tax for believing U Chi ideology.
The neighborhood equivalent is believing that the preacher with the Cadillac is putting God first, then when he goes to jail for embezzlement, the congregation has to pitch in to keep the soup kitchen running.
1. Accountability. This is as hard to define as “spirit” or “mind”. We know it exists, but it has never been observed in replicable conditions.
10. Credit. We have seen the post-Lehman world become one where no one gives anyone any credit. Credit facilities are nullified, credit lines are dried up. The impact on trade is currently immeasurable, but the forecasts are dim. So much of trade is reliant on the money market (short term loans for the purposes of buying inventory), but that whole industry is now a Fed facility. There Wall Street, and then there’s the street, the neighborhoods in which real people live. In the neighborhood, credit also has meaning. It means money sent from a lender to you. This is not your money. This is money you don’t have. So, spend it wisely if it’s offered to you.
9. Derivative. A derivative is an instrument that has a value. Okay. And that value is dependent on the value of other things. Got it? So, for example, I think oil will go through the roof in several years. So, I make a contract to buy oil in ten years at low price (someone else thinks oil will be even cheaper, and is willing to supply it to me at the buying price as agreed in the contract). The contract itself has a value because it allows the holder to buy oil at a certain price, regardless of what the actual market value will be. Now, as time goes by and we get closer to the ten year point of the contract, the value of the contract itself will go up or down. If, for example, oil is super, super cheap, then my contract will have less value, because it allows the holder of the contract to buy oil at a price higher than market value. Who wants that? But, if the price of oil skyrockets, then the contract is worth more because the holder of the contract gets to buy oil at less than market value. Similarly, the bonds that bundled mortgages are derivatives because the value of the bond (the bundle of mortgages) is determined by whether the home buyers continue to pay their mortgages. If there are a lot of defaults, then the bond’s value goes down. If everyone pays, then the bond retains its value (and may even go up if investors are eager for a safe place to put their money).
There is no street equivalent, strictly speaking, because we have more common sense in the neighborhood.
8. On/Off Balance Sheet. As lenders piled up stacks of risky mortgages and related derivatives, there was a need to place these volatile assets some place where they couldn’t do damage to the lenders’ balance sheets. Neighborhood equivalent: buying a car you can’t afford and putting it in your mom’s name. When you stop making payments, the dealer comes and takes away the Escalade, crippling your mother’s credit and possibly putting her in legal trouble. You don’t escape, though, because your mother may forgive, but she won’t forget. Plus, your siblings will all know you suck, thus ensuring that you will always have to double check your turkey sandwich for special sauce courtesy of your older brother.
7. Transparency. This means both operations and products are open for inspection. In the derivative buying madness, we had a de facto lack of transparency as there was literally no time to unravel the mortgage bundles prior to the sale of the bonds. Simply, there were too many risk-dumb investors who wanted a piece of the action and were willing to shell out hundreds of millions to buy something they didn’t inspect. Of course, the mortgage originators and other securitizors willfully created this environment, giving short notice prior to auctions.
The neighborhood equivalent is buying dope advertised as chronic, but sold in an opaque, airtight bag. “No, don’t look at it. I’ve got other buyers lined up with cash in hand. You want the good stuff or not?” Take it home, light it up, cough on the mortgage shwag.
6. Leverage/Overleveraged. Bank regulations require a certain ratio between assets and outstanding loans and deposits. This means banks have to have a certain level of money on hand in case depositors pull out. For a bank, a customer’s deposit is an obligation. They are borrowing money from the depositor. So, if there is a bank run, the banks need to be able to pay depositors as well as any loans they owe to other banks. A bank or other entity becomes overleveraged when its obligations to pay others far exceed the cash on hand.
In the neighborhood, college loans are increasingly the cause of people being overleveraged. You enter college without many assets, yet are given credit lines up to infinity. Doctors, lawyers, and other professional degree holding persons are saddled with immense debt upon graduation. The credit given to them is predicated on the idea that they will make a lot of money. Basically, the lender is looking at (future) cash flows rather than assets when determining how much money to lend. Plus, the law gives these lenders a great deal of security – college debt cannot be discharged in bankruptcy.
5. Liquidity/Illiquidity. Liquidity and leverage go hand in hand. If you are liquid, then you have enough cash to pay for your obligations. These days, with the credit markets frozen, liquidity equates to solvency. Basically, if you can’t pay your bills today, you’re out of business.
In the neighborhood, we know this all too well. That’s why we have credit cards.
4. Collateral. If you take out a loan, you should pledge something of value in return. That’s what makes credit cards so scary. Visa doesn’t ask you to put anything up of value, it doesn’t even take an interest in the thing you purchased. If you buy a house, the bank can take the house away if you don’t pay your monthly mortgage payments. If you don’t pay your credit cards, however, Visa doesn’t come and take away your Coldplay CD. Stock tip: don’t buy credit card companies. The business model is just too sketchy in the post-credit bubble world.
3. Subprime. People who meet certain financial criteria are given loans at a rate near the prime rate (mortgage jargon for something that will exceed inflation). Those with shaky credit histories are riskier, so the banks will lend to you with a risk-adjusted premium. This can mean a percentage point or two above the average. That’s no big deal. But, mortgage lenders developed all these terribly stupid mortgages that entice people to take out a loan that they can only pay for a year or two before the rates reset to the risk-adjusted levels.
It’s like dating someone with a checkered history of infidelity. Once the infatuation period wears off, he or she is going to be looking elsewhere. You can count on it. Just like you can count on people defaulting on loans they couldn’t really afford to pay. The introductory rate was the infatuation period. The rest is just what you deserve.
2. Bailout. I have two definitions for this one. The first is: the social cost of poor regulation. The second one is: a tax for believing U Chi ideology.
The neighborhood equivalent is believing that the preacher with the Cadillac is putting God first, then when he goes to jail for embezzlement, the congregation has to pitch in to keep the soup kitchen running.
1. Accountability. This is as hard to define as “spirit” or “mind”. We know it exists, but it has never been observed in replicable conditions.
Tuesday, December 23, 2008
Economic Statistics for November
http://www.treas.gov/offices/economic-policy/macroecon/monthly_economic_data.pdf
I am not sure which of those figures is the ugliest. The spread between 10-year Treasuries and corporate bonds is pretty bad -- nearly 6 points. It makes me wonder if we're still not seeing the worst of the equity market if the perception of risk of bond default has any grounding in reality.
The jobs loss figures are also staggering, but that has been discussed everywhere.
Retail sales are down over 6% for the year, but only down 1.8% if you take out autos and auto parts. Makes me wish I had enough money to go buy a car on discount!
The housing and oil trends basically tell the whole story of the economy. Oil spiked this summer with the weak dollar. Demand plummeted due to decreased use of cars -- a consumer driven reduction in demand. Then, the oil market dropped as manufacturers and others decreased output and scaled back growth -- a producer driven reduction in demand. That's the real economy in microcosm.
With housing, the market was still fairly strong back in springtime. As the subprime defaults piled up, and the derivatives became personan non grata amongst the securities and collateral cliques, consumers got the message: housing is too expensive to buy. Plus, savvy home buyers started thinking about the correction and vultures (not meant to be pejorative) started thinking about foreclosures. Have you divested your stock in Pulte Homes yet?
As much as it pains me, the only domestic solution to the economic and financial crisis is restoring value to the toxic assets. That means 1) insuring the stupid things at par value (which no one wants to do because of the fear of placing cash anywhere but in reserve right now), or 2) bail out the home owners. Option 1 allows the housing market to correct, and it gives some value to the CDOs and MBSs and whatever else -- so those things can be pledged as collateral to get the secondary lending market back on track. Of course, the formation of the insurance pool would require such an outlay of funds that the banks wouldn't have any cash to lend anyway. Catch 22, I guess. I suppose that is why the banks rejected this plan back in April when Bernanke and Paulson demanded that the banks work out the subprime debacle on their own.
Option 2, the homeowner bailout. This keeps people in their homes, but it will preserve the artificially inflated home values, which will crush demand. People will keep their homes, but they'll be stuck in them.
I am not sure which of those figures is the ugliest. The spread between 10-year Treasuries and corporate bonds is pretty bad -- nearly 6 points. It makes me wonder if we're still not seeing the worst of the equity market if the perception of risk of bond default has any grounding in reality.
The jobs loss figures are also staggering, but that has been discussed everywhere.
Retail sales are down over 6% for the year, but only down 1.8% if you take out autos and auto parts. Makes me wish I had enough money to go buy a car on discount!
The housing and oil trends basically tell the whole story of the economy. Oil spiked this summer with the weak dollar. Demand plummeted due to decreased use of cars -- a consumer driven reduction in demand. Then, the oil market dropped as manufacturers and others decreased output and scaled back growth -- a producer driven reduction in demand. That's the real economy in microcosm.
With housing, the market was still fairly strong back in springtime. As the subprime defaults piled up, and the derivatives became personan non grata amongst the securities and collateral cliques, consumers got the message: housing is too expensive to buy. Plus, savvy home buyers started thinking about the correction and vultures (not meant to be pejorative) started thinking about foreclosures. Have you divested your stock in Pulte Homes yet?
As much as it pains me, the only domestic solution to the economic and financial crisis is restoring value to the toxic assets. That means 1) insuring the stupid things at par value (which no one wants to do because of the fear of placing cash anywhere but in reserve right now), or 2) bail out the home owners. Option 1 allows the housing market to correct, and it gives some value to the CDOs and MBSs and whatever else -- so those things can be pledged as collateral to get the secondary lending market back on track. Of course, the formation of the insurance pool would require such an outlay of funds that the banks wouldn't have any cash to lend anyway. Catch 22, I guess. I suppose that is why the banks rejected this plan back in April when Bernanke and Paulson demanded that the banks work out the subprime debacle on their own.
Option 2, the homeowner bailout. This keeps people in their homes, but it will preserve the artificially inflated home values, which will crush demand. People will keep their homes, but they'll be stuck in them.
Friday, December 19, 2008
Pretend Bailout: GM and Chrysler
See: http://online.wsj.com/article/SB122969367595121563.html
The ineptitude of journalists reporting on law is exceeded only by their misadventures with science news.
Let's get one thing straight right away about this auto bailout: it is not yet in effect, and won't be until the Unions agree to it. And they won't.
See: http://www.treas.gov/press/releases/reports/chrysler%20final%20term%20&%20appendix.pdf
The bailout money will come when the auto companies come back with the unions' blessing to cut pay, cut unemployment packages, and convert cash contributions for benefit plans into stock holdings.
The UAW gets it: http://www.uaw.org/auto/12_19_08auto1.cfm
The ineptitude of journalists reporting on law is exceeded only by their misadventures with science news.
Let's get one thing straight right away about this auto bailout: it is not yet in effect, and won't be until the Unions agree to it. And they won't.
See: http://www.treas.gov/press/releases/reports/chrysler%20final%20term%20&%20appendix.pdf
The bailout money will come when the auto companies come back with the unions' blessing to cut pay, cut unemployment packages, and convert cash contributions for benefit plans into stock holdings.
The UAW gets it: http://www.uaw.org/auto/12_19_08auto1.cfm
On the other hand, the auto companies have to sell their corporate jets! That just cracks me up!
Germany Kaput?
Ambrose Evans-Pritchard (is Evans his maiden name? I just don't get the hyphenated names) points out the grim news that Germany is toast. Great.
http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2008/12/19/germany_is_already_collapsing
In short, no one's buying anything, so Germany is not selling anything and expects its economy to shrink at Depression levels. Awesomely bad.
I wish I had posted this statement earlier because it is now too painfully true: the European Central Bank has no idea what it is doing. Is it a tool for Grand Europolitik? Is it a lender of last resort? Does it represent Europe (a misformed entity, as though Hephaestus rather than Athena was sprung from the forehead of Zeus)? Or does it represent European nations? I just can't understand why the ECB has been trying to fight inflation through autumn when the world economy has been facing meltdown.
If the ECB fails to stimulate the Eurozone economy in the next 18 months or so, expect the death of the EU. No joke.
http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2008/12/19/germany_is_already_collapsing
In short, no one's buying anything, so Germany is not selling anything and expects its economy to shrink at Depression levels. Awesomely bad.
I wish I had posted this statement earlier because it is now too painfully true: the European Central Bank has no idea what it is doing. Is it a tool for Grand Europolitik? Is it a lender of last resort? Does it represent Europe (a misformed entity, as though Hephaestus rather than Athena was sprung from the forehead of Zeus)? Or does it represent European nations? I just can't understand why the ECB has been trying to fight inflation through autumn when the world economy has been facing meltdown.
If the ECB fails to stimulate the Eurozone economy in the next 18 months or so, expect the death of the EU. No joke.
Thursday, December 18, 2008
Churn Theory on the NYTimes
Cohen doesn't address the complexity of churn, especially when the vectors are all out of whack, as in today's economy. Plus, the churn is global. Nonetheless, a good piece:
http://www.nytimes.com/2008/12/18/opinion/18Cohen.html?_r=1&hp
http://www.nytimes.com/2008/12/18/opinion/18Cohen.html?_r=1&hp
Last Step Before QE
What more can the Fed do? Quantitative easing is next, I guess. As if the Fed's balance sheet didn't look bad enough. The only good news about the Fed rate cut is the weakening of the dollar. This should bolster commodities a bit, plus it will quiet the deflationary spiral panic monkeys.
See:
http://www.thebigmoney.com/articles/explainer/2008/12/16/bernanke-s-blowout
What can't the Fed do? Fix the economy. The problems are now systemic. The spread between the corporate bond (Baa) and 10-year Treasuries is around 6 percentage points (http://www.treas.gov/offices/economic-policy/macroecon/monthly_economic_data.pdf), which means the perception that corporations will fail is extremely high. Think of it another way, corporate bonds are now giving much greater returns than shares of equity. I thought several months ago that there might be a bit of a bond bubble. Looks like it has arrived. The good thing about a bond bubble is that it can only burst with widespread corporate defaults. If that happens, get a gun because chaos will reign when unemployment hits 20% or so.
See:
http://www.thebigmoney.com/articles/explainer/2008/12/16/bernanke-s-blowout
What can't the Fed do? Fix the economy. The problems are now systemic. The spread between the corporate bond (Baa) and 10-year Treasuries is around 6 percentage points (http://www.treas.gov/offices/economic-policy/macroecon/monthly_economic_data.pdf), which means the perception that corporations will fail is extremely high. Think of it another way, corporate bonds are now giving much greater returns than shares of equity. I thought several months ago that there might be a bit of a bond bubble. Looks like it has arrived. The good thing about a bond bubble is that it can only burst with widespread corporate defaults. If that happens, get a gun because chaos will reign when unemployment hits 20% or so.
Thursday, December 11, 2008
Interesting and scary slideshow at CNNMoney.
Highlights: The future is precarious. Don't expect the markets to improve any time soon. Dampen expectations.
One expert is long on commodities. Not a bad plan, but I think the short run is going to be terrible for commodities. Then again, he specifically referenced ag commodities. That is probably going to be the one bright spot. Oh, and water, once that gets listed.
Everyone, put on your visored helmets! Shit-alanche is coming!
But, seriously, what is a person to do? If you can trust your financial advisor, that's great. But, what about the rest of us? Inflation is lurking. So, getting deleveraged is of no use unless you're struggling to pay the bills. The question remains though, if you don't aggressively pay down your debt, where should you put your money?
Fundamentals. Desired/needed product or service. Low cost production. Low overhead. Adequate cash on hand or reliable credit facilities (preferably the former, of course). Management style: grinder, rather than visionary.
What companies fit that description?
Highlights: The future is precarious. Don't expect the markets to improve any time soon. Dampen expectations.
One expert is long on commodities. Not a bad plan, but I think the short run is going to be terrible for commodities. Then again, he specifically referenced ag commodities. That is probably going to be the one bright spot. Oh, and water, once that gets listed.
Everyone, put on your visored helmets! Shit-alanche is coming!
But, seriously, what is a person to do? If you can trust your financial advisor, that's great. But, what about the rest of us? Inflation is lurking. So, getting deleveraged is of no use unless you're struggling to pay the bills. The question remains though, if you don't aggressively pay down your debt, where should you put your money?
Fundamentals. Desired/needed product or service. Low cost production. Low overhead. Adequate cash on hand or reliable credit facilities (preferably the former, of course). Management style: grinder, rather than visionary.
What companies fit that description?
Wednesday, December 10, 2008
Cybersecurity and Non-Proliferation: Losers' Lunch
CSIS is asking the President-Elect to make cybersecurity a national priority. Sounds good. But, how does a centralized structure with agencies and departments spewing out like kraken tentacles coordinate a coherent cybersecurity policy?
The brains at CSIS are big, but I was hoping for something better than nuclear nonproliferation as a model. If national cybersecurity works out as well as nonproliferation, we're in for a rough quarter century ahead of us.
The brains at CSIS are big, but I was hoping for something better than nuclear nonproliferation as a model. If national cybersecurity works out as well as nonproliferation, we're in for a rough quarter century ahead of us.
Tuesday, December 9, 2008
Shamanism and the Dismal Science
Basically, no one knew what would happen when Lehman Bros. was allowed to fail. If enough people in economics and finance understood the interplay amongst derivatives, no one would have permitted Lehman to fail.
Our modern shaman, the economist garbed in a button down shirt, consults his models the way his ancient predecessor examined the stars. The economist looks at indicators; the shaman spills the blood of a goat and prods the entrails. Both the modern and the ancient look for the same thing, a clue to forces about which he possesses no direct knowledge.
The scientific method excised much of shamanic practice, and clinicalized the remainder. Will there be a time when humankind looks back at our era with a sense of patronizing pity, wondering at how we relied on the solo ignorant economist to divine our fortune?
Our modern shaman, the economist garbed in a button down shirt, consults his models the way his ancient predecessor examined the stars. The economist looks at indicators; the shaman spills the blood of a goat and prods the entrails. Both the modern and the ancient look for the same thing, a clue to forces about which he possesses no direct knowledge.
The scientific method excised much of shamanic practice, and clinicalized the remainder. Will there be a time when humankind looks back at our era with a sense of patronizing pity, wondering at how we relied on the solo ignorant economist to divine our fortune?
Friday, December 5, 2008
Commodities Update
According to Bloomberg News:
Down: copper, corn, oil
Up: soybeans (Chinese states were ordered to obtain reserves)
Gold is unchanged.
Once minerals hit bottom, hopefully that will inspire more production. The question will remain, though, as to who will be buying finished goods.
OPEC will cut production. They have to be careful, though. If they cut production too much, the whole world will switch to batteries.
When will potable water supplant oil and gold as the commodity of prime speculation?
Down: copper, corn, oil
Up: soybeans (Chinese states were ordered to obtain reserves)
Gold is unchanged.
Once minerals hit bottom, hopefully that will inspire more production. The question will remain, though, as to who will be buying finished goods.
OPEC will cut production. They have to be careful, though. If they cut production too much, the whole world will switch to batteries.
When will potable water supplant oil and gold as the commodity of prime speculation?
Thursday, December 4, 2008
Financial Market Meltdown: The Churn Theory
I console myself as I watch the grim headlines spit out by Google News and Yahoo! News each day by remembering that there is value out there. Workers somewhere are building stuff. Consumers out there are buying things. We just have a lot to churn through until the fundamentals appear rational again.
The sources of the churn are many. Incomprehensible derivatives. Too much liquidity. Lax lending standards. Mortgage fraud. Lack of common sense. Corruption.
And that is just a recent list. The churn has other vectors. Globally, we're still trying to integrate the post-USSR countries into the market. China produces, but it does not consume. It keeps its currency artificially weak. Europe is getting old. The price of oil is increasingly unstable.
For the financial meltdown to end, it will require time. During this time, policy makers should contemplate ways to mellow the churn. This will require a plan to stabilize currencies globally, develop alternative energies to power the BRIC economies and American drivers, and try to restore competition to the marketplace free and clear of liens held by political entities. There should be no systemic risk posed by any single company's survival or failure.
The sources of the churn are many. Incomprehensible derivatives. Too much liquidity. Lax lending standards. Mortgage fraud. Lack of common sense. Corruption.
And that is just a recent list. The churn has other vectors. Globally, we're still trying to integrate the post-USSR countries into the market. China produces, but it does not consume. It keeps its currency artificially weak. Europe is getting old. The price of oil is increasingly unstable.
For the financial meltdown to end, it will require time. During this time, policy makers should contemplate ways to mellow the churn. This will require a plan to stabilize currencies globally, develop alternative energies to power the BRIC economies and American drivers, and try to restore competition to the marketplace free and clear of liens held by political entities. There should be no systemic risk posed by any single company's survival or failure.
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