Day: April 6, 2012

Sorted Weekly Tweets

Sorted Weekly Tweets

Valuations

 

  • High Yield Closed End Funds 68% over NAV, 3% avg premium. Loan Participation CEFs 40% over NAV, -1% avg discount. Conditions r medium hot $$ Apr 07, 2012
  • Why Stocks Look Too Pricey http://t.co/TWqZzGg3 Various Indicators Suggest the Market Is No Longer a Bargain, at best fairly valued $$ Apr 07, 2012
  • Contra: The alarming fall in syndicated lending http://t.co/hiGK9UoK With the high yield mkt running hot why not avoid restrictive banks $$ Apr 06, 2012
  • Not so new… Eddy Elfenbein said something similar 4 months ago: http://www.crossingwallstreet… http://t.co/mhIxGGwt Apr 04, 2012?(on inflation expectations driving stock prices in the short run)
  • Time to take some risk off the table http://t.co/sCuYxc6u Trends breaking globally, US looks okay. Humble Student has made good calls lately Apr 04, 2012
  • The Dangers of an Interventionist Fed http://t.co/thKsHa8J QE Removal: what happens to banks if Fed does & 2 inflation if Fed doesn’t $$ Apr 03, 2012
  • Junk Bonds ? Getting Risky for a New Reason? http://t.co/7bJ08JxT Record pace of junk issuance bodes ill 4 performance… 3 yrs from now. $$ Apr 03, 2012
  • Two Pros Weigh In on U.S. Stocks: Ben Inker’s Bearish View http://t.co/iJ7742P5 Katie Nixon’s Bull View http://t.co/Zn9jj503 $$ Apr 02, 2012
  • Eichengreen on Credit Bubbles http://t.co/bSs0MHPA Leading indicator of finl stress in em mkts: loan growth > 2x GDP growth 2 yrs earlier $$ Apr 01, 2012
  • Taking the High Out of High Yield http://t.co/WYIvHb0n Nonprofessionals are the ones buying junk at the margin. This won’t end well. $$ Apr 01, 2012

 

Central Banking

 

  • The ECB has completely lost control over the monetary policy for Greece http://t.co/MHNTXLHo Massive liquidity drain; total credit failure Apr 07, 2012
  • Post-war financial repression is back http://t.co/JGLo9Aic If the post-war experience is any guide, savers face many years of suffering. Apr 06, 2012
  • Bernanke – I’m Slowing Down the Ship http://t.co/TJcJl20n Stocks don’t like less inflation coming and so they fall. But bonds rally. $$ Apr 06, 2012
  • Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive http://t.co/rREDdqrW LTRO can only go so far; can solve liquidity, not solvency Apr 06, 2012
  • The Market?s Obsessive Fixation on The Fed & QE http://t.co/W6kg1n7k Runs through a Fed tightening scenario, thinks Fed won’t sell bonds $$ Apr 04, 2012
  • Oest.. Nationalbank follows Bundesbank in refusing some periphery collateral http://t.co/96xx0xg7 Not so big in itself; Tear in EZ fabric Apr 04, 2012
  • Draghi Tested as German Pay Deals Add to Euro Divergence http://t.co/glKumOZx Inflation rising @ core? May even labor productivity some $$ Apr 04, 2012
  • @federalreserve Tried using your Data Download Program today http://t.co/vRroRPMt I managed 2get the data I needed, but it was tough 2use Apr 03, 2012
  • Bernanke – ‘The Fed never makes mistakes’ http://t.co/JBgRHqx2 He goes, speaks to soft audiences, argues that no one could have known #dope Apr 01, 2012

 

China

 

  • Coup Rumors in China Have Deeper Meaning http://t.co/QaoDxKFF Small fissures appearing in the Communist Party’s hold on power $$ Apr 07, 2012
  • Australia?s Export Slump Intensifies Rate-Cut Pressure http://t.co/sIDzeteW China sneezes, Australia catches a cold, mate. $$ Apr 06, 2012
  • China doomsayer sees crash coming http://t.co/2QatU1ps Hardly a crash, but GDP shrinking. Wait, that *is* a crash for China? $$ Apr 06, 2012
  • The Revenge of Wen Jiabao http://t.co/nw5qvCNa Long read. Eye-opening. Formal system of Comm Party eclipsed by family coalitions that war $$ Apr 04, 2012
  • The informal aspects of how China is governed relies on rival coalitions of elite families over the long run. Short-run, Comm party rules $$ Apr 04, 2012
  • China Accelerates Markets Opening as QFII Quota Doubles http://t.co/yrXVDcdR May prove 2b significant due to unintended consequences $$ Apr 04, 2012
  • China Manufacturing Gain Masks Exporters? Woes http://t.co/VyeN9AWF Goods unneeded by the rest of the World build up in China $$ #glut Apr 03, 2012

 

United States

 

  • When safe assets return http://t.co/QLUPuj1j Long piece on the status of money-like instruments, public and private. Many questions. $$ Apr 07, 2012
  • Income Inequality Is Killing the Economy, Obama Says?Is He Wrong? http://t.co/xrA4pGu2 Going up in developed world, going down globally $$ Apr 07, 2012
  • And I don’t get it as well, Josh.? I’m as Libertarian as they come, but with financial services, I know that trickery? http://t.co/lIJDCr1Y Apr 05, 2012
  • More woes in Fedl subsidized solar power: http://t.co/83ch2YUM & http://t.co/6XaEjl10 ht: @zerohedge | Send bureaucrats 2study physics? $$ Apr 04, 2012
  • The return of the US manufacturer http://t.co/75WCMyPi Manufactured goods represented 61 per cent of all US exports during 2010 $$ Apr 04, 2012
  • +1 RT @ReformedBroker: ADP is the Diet Arizona Iced Tea of Employment gauges. Like, we’ll take it if it’s there but no one’s looking for it Apr 04, 2012
  • When does the US Treasury bubble burst? http://t.co/8agHomQH “Pomboy pointed out that Treasury yields are less than current CPI rates” $$ Apr 03, 2012
  • Why Are the Fed and SEC Keeping Wall Street?s Secrets? http://t.co/bZYF3LgV Fed & SEC view those they regulate as their clientele $$ Apr 02, 2012
  • US consumers dipping into savings http://t.co/757XDPuW Implies that the recovery is weaker than presently posited, demand comes from savings Apr 01, 2012
  • Obama Campus Fervor Losing 2 Apathy as Students Sour on 2012 http://t.co/kcyQbWKI Students thought they were getting change, got Bush-plus Apr 01, 2012
  • How Stockton, California Went Broke in Plain Sight http://t.co/ggOzSOmV If you hand out benefit increases like they are candy… $$ Apr 01, 2012

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Finance

 

  • Quants: The Alchemists of Wall Street http://t.co/L0CzLQVN Recommend this video, features Paul Wilmott, Matthew Goldstein, & more $$ Apr 07, 2012
  • The 401(k): Americans ?just not prepared? 2 manage their own retirement funds http://t.co/8Tr0wggt Conclusions similar http://t.co/etCEp8BT Apr 06, 2012
  • Hedge Funds Accomplishing Very Little in the Aggregate? http://t.co/pxqjw2kk HFs tend 2b volatility-averse, weaker funding than long-only $$ Apr 04, 2012
  • Ackman SPAC a nice touch, no? RT @ReformedBroker: Private Equity-held Burger King coming public again. “Hooray!” said no one to no one else Apr 04, 2012
  • Performance persistence in hedge funds http://t.co/zORfjAts How do hedge funds differ v unlevered value investors? $$ gets pulled vals drop Apr 04, 2012
  • ETN Double Dipping With GAZ? http://t.co/Uo9y1T5p Interesting piece. An ETN issuer can make more $$ stopping creation & lending shares Apr 04, 2012
  • Loan classes “season” over 10-30% of the life of loan… defaults/prepays stabilize. Large cohorts 4 bond issuance go bad in the 3rd yr $$ Apr 03, 2012
  • Merrill, Morgan Stanley seen losing grip on rich http://t.co/44mW7ki0 Top 4 brokers mkt share 56% in 2007, 45% in 2011 & still falling $$ Apr 03, 2012
  • Low Vol Underperforming http://t.co/NYqjw2Fp Every valid strategy has times when it doesn’t work, to shake out the weak hands $$ Apr 03, 2012
  • Corporate pension funds break away from equities http://t.co/EMPaDGea Yes, when yields r low, DB plans move 2 bonds. Brilliant. $$ Apr 03, 2012
  • Does Danger Loom for Multiemployer Pension Plans? http://t.co/VpfDZ04m Plans that are <80% funded must take steps 2 nurse plans 2 health $$ Apr 01, 2012
  • Credit Suisse Opened Volatility Bets to Small Investors http://t.co/ZLMGANXh Wall Street produces products 2 benefit itself, not retail $$ Apr 01, 2012
  • Keynes: One Mean Money Manager http://t.co/WJ2jESFE “The board of King’s College gave him uncontested authority to invest as he wished.” Apr 01, 2012

 

Japan

 

  • Just a guess, but after Japan’s Current Account goes into deficit for ~2 years, the big adjustment down in the Yen will happen. $$ #ouch Apr 06, 2012
  • @valuewalk Probably because so many have lost money shorting the yen, & some have made $$ long the yen, that many just trust the momentum $$ Apr 06, 2012
  • @valuewalk long-dated yen currency puts have fairly low vol 😉 Not doing that either, but… someone will. Apr 06, 2012
  • Yen Forecast: Xie Sees 40% Drop, Japan Bubble Bursting http://t.co/EjI7hytt Wow. Thinks Japan near tipping point 4 internal financing fail Apr 06, 2012
  • Japan?s Strongest Storm Since 1959 Slams Into Tokyo Region http://t.co/CCOVz7C6 Very unusual 4 Tokyo 2 have such strong winds w/no typhoon Apr 03, 2012
  • Yen Losing Most Since ?95 Not Enough for Toyota http://t.co/IT0g84s8 Japanese Industry cheerleaders 4 “penny parity” $$ #race2thebottom Apr 02, 2012

 

Insurance

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  • Advisers, B-Ds retreat from Hartford http://t.co/garB6Bwn Not offering new annuities means can’t roll to $HIG products when surr chg ends $$ Apr 03, 2012
  • Agents will try to get holders of $HIG annuities to roll elsewhere when surr charge ends (new commission $$ ), but be careful if you own an+ Apr 03, 2012
  • annuity from $HIG, b/c one reason they are getting out of the biz, I think, is that some of the secondary gtees were 2 generous + Apr 03, 2012
  • there is probably a business in analyzing secondary gtees, b/c some r quite valuable, &u wouldn’t want 2get tricked into rolling it by agent Apr 03, 2012
  • Contra: Rising equity markets to drive US life insurers-Barclays http://t.co/S6JtPun7 Catch my comment at the end, didn’t get new DAC issue Apr 02, 2012
  • Insurance Fees, Revealed http://t.co/mLzhpT6V NY State says agents must disclose how compensated & offer to provide full details #woohoo Apr 01, 2012

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Personal

 

  • Sinkhole at the bottom of my street after a water main break. The water is more than 5′ deep & and hollowing out the road beneath. Apr 07, 2012
  • Street is one way, so I took my son who is a Police Explorer 2 talk to the policeman there. They knew each other. It’s a one-way street so + Apr 07, 2012
  • I asked the policeman (who was short handed) if he would like us 2 block street 2 traffic. Gratefully “yes.” We set up the safety gear. Apr 07, 2012
  • This is the opposite of last summer where we didn’t have power 4 6+ days, but we had water. We have power but no water. Hope it won’t b long Apr 07, 2012
  • Three Year Anniversary http://t.co/0HDD3iyD Congratulations, Hunter! @DDInvesting is our internet guide to all distressed debt $$ Apr 04, 2012
  • LinkedIn Events: Towson University Investment Group – Markets Summit http://t.co/kpgkDTto I’ll b participating on a panel. See you there! $$ Apr 04, 2012
  • @Frank_McG @volatilitysmile As I said to my wife today, “Take care of your wife, and she will take care of you.” Worked for the last 25 yrs Apr 02, 2012

 

Miscellaneous

 

  • Reprise: The Elfenbein Gold Model http://t.co/r3rHvZw3 @eddyelfenbein at his best, I fully subscribe to his model, reflecting cost of carry Apr 06, 2012
  • Matzo Ball Soup, Check. iPad, Check. For Passover, Jews Try Techie Seders http://t.co/xUW3izZl I dislike technology in religion. Yuck $$ Apr 06, 2012
  • Flying Auto Reviving Dreams of Chitty Chitty Bang Bang http://t.co/WixQb8AV Cheap @ $279K, this one might actually work $$ Apr 06, 2012
  • This discussion has problems because there is no agreed upon definition of what “free will” means.? As with all quest? http://t.co/NoMpZf0U Apr 04, 2012
  • Here Come Tablets. Here Come Problems. http://t.co/ezFK4Wfu Five common mistakes: a slow rollout is better to get the bugs out. $$ Apr 03, 2012
  • Gene Maps Are No Cure-All http://t.co/JOLTtWTK Study Warns That DNA Scanning to Predict Disease Can Mislead; ‘Not a Crystal Ball’ $$ Apr 03, 2012
  • Ten Claims in Support of IFRS Adoption by the SEC ? & Why They are False http://t.co/nj2PZ1pd & http://t.co/4YrMSvaH & http://t.co/7lLtioGo Apr 03, 2012
  • The Mighty Mathematician You?ve Never Heard Of http://t.co/9Qp1NqOB Never heard of her & her impact on physics was as great as that of math Apr 01, 2012
  • Mangled Horses, Maimed Jockeys http://t.co/6Dl1gEmJ Maybe there is a public policy reason to close down racetracks, & after that boxing $$ Apr 01, 2012

 

Energy

 

  • Australia LNG Boom Threatened by US Shale Exporters http://t.co/qleN6sVd Cheap US Hydrocarbons invert prior economic certainties $$ #shale Apr 04, 2012
  • Shale oil: from curse to cure for East Coast refiners? http://t.co/MdlXvjIb US Shale oil is high quality; challenge is delivery2refineries Apr 04, 2012
  • Repsol Worst Debt Swaps on YPF Seize Threat http://t.co/BewpJA4p Argentina not 2b trusted; would buy $REP bonds on weakness, stock a ?? $$ Apr 04, 2012
  • Encana in Play as Petronas Seeks Natural Gas http://t.co/SEx832F1 Petronas looking long-term, b/c prospects for natgas pricing r poor $$ Apr 04, 2012
  • Why high gas prices at the pump? The answer is BICS http://t.co/LopjaesG Brazil, India, China, & Saudi Arabia have increased gasoline demand Apr 03, 2012
  • The rapidly shifting supply fundamentals in US natural gas http://t.co/myofZrQD Injection cycle starting early w/supplies high already $$ Apr 03, 2012

 

Rest of the World

 

  • Contra: The Buck Stops Here: A BRIC Wall http://t.co/RYykjXXr The BRIC nations r2 statist 2 link 2 gold. Good idea, doesn’t fit the politics Apr 06, 2012
  • Germany Asked to Forgo $1.3 Billion Deutsche Telekom Payout http://t.co/b8cvOOlB Interesting how Capex constrains euro-telcos, not US $$ Apr 04, 2012
  • Europe?s Ratings Revenge Founders on Market Reality http://t.co/D3dNu7sF Eurocrats stumble in dark; will return 2 old system; it worked $$ Apr 04, 2012
  • How A Baby Bust Will Turn Asia’s Tigers Toothless http://t.co/VE78u9tu Economic growth is partially population growth; sterile societies $$ Apr 01, 2012
  • Swedish High Street Rebound Ends Bets for Riksbank Cuts http://t.co/jYioq0NN A relative bright spot in Europe; having the Knonor helps $$ Apr 01, 2012

 

Company News

 

  • RE: @emergingmoney Never been crazy about firms that perpetually run w/neg working capital. Interesting idea, though. http://t.co/Xx6yFf8v Apr 04, 2012
  • Optical Delusion? Fiber Booms Again, Despite Bust http://t.co/9QiAmZOH Whouda thunk it? I knew this was getting close, demand 4new fiber Apr 04, 2012
  • Scarred Avon Is Takeover Target http://t.co/f2T9E7V7 Don’t think $AVP is a good takeover target: toss dist syst or incompatible syst $$ Apr 03, 2012
  • Technology obsoletes too easily, particularly in hot sectors. Very difficult to get to $1T of?Market Cap. Bit-by-bit? http://t.co/XjGU9ouG Apr 03, 2012
  • $AAPL ‘s War on Android http://t.co/ILGQVAZD Long, fascinating article; perversely, attempts to enforce patent can invalidate patents $$ Apr 02, 2012
  • Dude, is There any Value Left in $DELL ? http://t.co/iG5q5iea U know your marketing is stale when people reference advertising >10yrs ago $$ Apr 02, 2012

 

Housing

 

  • The rebound is now http://t.co/l4coNvgt Worth watching, but I would wait until the foreclosures have been mostly cleared, b4 saying bottom Apr 07, 2012
  • Home Prices Seen Dropping 10% in US on Foreclosures http://t.co/BBjzxKiU Once f/cs clear out, the market will normalize maybe even rise $$ Apr 03, 2012
  • McClellan on Lumber?s tendency to leading housing stocks http://t.co/cevWyVTs If past is prologue, housing prices are set for another dip $$ Apr 01, 2012

 

Funds

 

  • I’ve owned this in the past, but not now.? It’s been around for 19 years as a CEF — just have to watch the premium/d? http://t.co/XMVs6RBS Apr 06, 2012
  • Why I Won?t Be Buying TAGS http://t.co/2S8bqcQJ Expense ratio does not include the expenses paid on underlying ETFs owned by $TAGS $$ Apr 04, 2012

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Financial Distress

 

  • Reddy Ice Considers Filing for Bankruptcy http://t.co/IgpYjHue Is it just me, or are we seeing an uptick in insolvencies? $$ Apr 04, 2012
  • Hostess Serves Up New Batch of Cuts http://t.co/fHBXwHes Future failure as people don’t buy so many of the “sugar fat bombs” 4 kids $$ Apr 02, 2012
  • Failures: Pinnacle Airlines http://t.co/BXkJ8v9j AFA Foods http://t.co/xs4wsFEE Airlines & Meat renderers r born 2 fail $$ Apr 02, 2012
Gold does Nothing

Gold does Nothing

Gold does nothing, and as Warren Buffett said in his recent annual report:

Today the world?s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce ? gold?s price as I write this ? its value would be $9.6 trillion. Call this cube pile A.

Let?s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world?s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today?s annual production of gold command about $160 billion. Buyers ? whether jewelry and industrial users, frightened individuals, or speculators ? must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops ? and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it?s likely many will still rush to gold. I?m confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

 

Buffett misses the point on gold, something he doesn’t often do in economic matters.? Gold is valuable because it is beautiful, and it can’t be used for much aside from beauty.? Gold can only be used for things that are not necessary (with a few small exceptions), and is thus a luxury item.? Wait, doesn’t Buffett own a scad of jewelry stores, and he doesn’t get this?? Jewelry is not a necessity, but something to please those we love with something of beauty.

Beyond that, gold is divisible, easily melted down, and doesn’t weigh a lot relative to its value.? It is an ideal store of value.

Gold does nothing, and that’s good.? We need some things in this hectic world that do nothing.? What is the value of doing nothing?

Quietness.? Pause.? Repose.? Reflection.? Measurement Standard.

Fiat currencies change every day, and the price of gold relative to chose currencies changes similarly.? Gold doesn’t change; it’s like God in that way.? We don’t measure it.? Because it doesn’t change, it measures us, because we do change.

I’m not a gold bug.? I own no gold, aside from my small wedding ring and? few other odd bits of jewelry.? But there is a lot of value to a pretty commodity that has little usefulness aside from beauty.? Think of silver for a moment.? Whether in electronics or photography it has significant industrial value.? Though both are used as currencies, and stores of value, silver responds more to the economy, and gold just sits there.

Maybe that’s what Robert Zoellick meant when he talked about gold as a reference point for the global economy.? Unlike fiat currencies, which are manipulated by finance ministries and central banks, gold can’t easily be manipulated.? Gold is the measuring rod of economics, whether we like it or not.

That brings me to Eddy Elfenbein’s Gold model, and my refinement of it.? Gold reacts to real interest rates.? As real interest rates rise, gold falls, and vice versa.? Think of it this way: when real interest rates go down, there is less loss to holding gold, because fiat currencies suffer from financial repression.

Gold can’t easily be repressed; it is far less susceptible to government manipulation because it is something real and tangible — far harder to manipulate.

Some have suggested that gold could back the currencies of major emerging markets, and I think that would be a good idea, but I think none of the large emerging markets except Russia would dare or even want to do it.? Statists like fiat currency, because it gives them one more lever of control over those that they rule.? Gold-backed currencies are for limited governments, and in general, most emerging market governments don’t think that way.

With Mr. Buffett, I will agree, I would rather have the businesses and the farmland [pile B].? They will likely be more valuable in the long run than the gold.? But I might take the $1 trillion of “walking around money,” and use it to buy 10% of the cube of gold [pile A], leaving me with a piddling $40 billion of walking-around money.? I might look at the gold, and think how beautiful it is.

Fondle it?? Nah.? Just admire how unchangeable it is.? Businesses change; technologies obsolete whole industries as they create new ones.? Companies can be mismanaged, or outcompeted.? Very few last longer than a generation; they change a lot, and require constant management.

Farmland depletes unless you take the time to maintain it, and cheap potash supplies are getting scarce.? Besides, perhaps one of my great-grandchildren will note 100 years from now how the global economy has a hard time with the population shrinking globally.? At that point, with less pressure to increase yields, farmland might not be as valuable.? I’m not predicting this; it’s only possible — I’m only saying that arable land, another really scarce resource in the world could in some scenarios become less valuable in real terms.

The real value of the gold would be as a hedge against governments and central banks that financially repress their populations by holding interest rates, making it difficult for savers to preserve value.? And that’s what gold does best, preserving value, as it sits there, beautiful, doing nothing.

So, when governments and central banks debase their currencies, as in the ’70s, the 2000s, and create conditions where real interest rates are negative, gold flies in terms of the debased currencies, and then crashes back down if you get a Paul Volcker-type, and policy normalizes after a lot of pain, which this generation seems unwilling to take.? Until it does take the pain, there will be the tendency for gold to go higher, and more so, if real interest rates remain negative.

So, sit back and and watch the gold measure the policies of governments, central banks, even us.? Gold does nothing except sit there and look beautiful, and that’s what makes it so valuable.

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