Currency Wars


  • Battling the unknowns of currency devaluation | Reuters A tough game to play, particularly w/changed policy in Japan $$ Feb 09, 2013
  • This is what a currency war looks like Japan is leading the #currencywar by no longer sterilizing monetary policy $$ Feb 08, 2013
  • The Dark Side of Japan’s Creating Inflation Risk is interest rates rise and Japan can’t finance itself. #tippingpoint Feb 07, 2013
  • Japan Inc.’s appreciation of the yen’s depreciation Japanese stocks rally as their exports get relatively cheaper $$ Feb 07, 2013
  • Falling yen set to spark renewed currency wars Japan has finally “thrown the hammer down.” No more sterilization $$ Feb 05, 2013




  • Dell’s largest outside shareholder thinks it’s worth $10 more a share – Quartz Let Southeastern et al bid 4 control $$ Feb 09, 2013
  • The Three Scariest Letters for Bondholders: L-B-O | Fox Business Note: junk bonds r protected from this, not invt grade Feb 09, 2013
  • New Worry for Bondholders: LBOs Company is cheap & has good Bal Sheet, it could LBO, harming current bondholders $$ Feb 04, 2013




  • Danger Seen in Pension Fund Cuts on Abe Inflation Guess what? Inflation can harm pensioners. Sad 4 them. $$ Feb 07, 2013
  • Pension Funds Cut Back On Commodity Indexes Hoarding not a panacea, also, can get clipped on the roll $$ Feb 07, 2013
  • The Asset Mix (Stocks-Bonds) will make the Difference – 2 many Bonds Mr Abe? On pension asset allocation globally $$ Feb 07, 2013
  • Baby Boomers Sicker Than Parents’ Generation, Study Finds Will live longer too; big reason to reshape Medicare $$ Feb 05, 2013
  • Americans Rip Up Retirement Plans Nearly 2/3rds of Those Between 45 & 60 Plan Delays, Steep Rise From 2 Yrs Ago $$ Feb 05, 2013
  • Low Rates Force Companies to Pour Cash Into Pensions Low long rates push pension liabilities higher, req $$ payment Feb 04, 2013


High Yield


  • US High Yield Bonds: HYG On the support In order 4 HY 2 rally from here, need dumb buyers 2 apply leverage $$ Feb 08, 2013
  • Fed’s Stein: Signs of Overheating in Credit Markets Junk yields less than in June 2007. Replace CDO bid w/Fed $$ Feb 07, 2013
  • Two Things about High-Yield Bonds Investors Must Understand Today Low yields & spread relatives & high $$ prices Feb 07, 2013
  • A Mad Rush Could Be Coming In The Corporate Credit Markets Possible, but it depends on how levered investors are $$ Feb 05, 2013
  • No, there probably isn’t a bond bubble Misses key question: how much debt is being issued to acquire other debts? $$ Feb 05, 2013
  • US Higher Yield Bonds: A Corrective Update Corrections may be happening w/ both credit & high-quality long-duration $$ Feb 04, 2013



S&P Lawsuit


  • State Lawsuits Could Add to S&P Exposure Attorneys General for states become profit centers; opportunistic thieves Feb 07, 2013
  • Wrong: Levitt Says McGraw-Hill ‘Foolish’ to Not Settle S&P Lawsuit There’s a good chance that S&P will win, y give up Feb 07, 2013
  • S&P Lawsuit Undermined by SEC Rules That Impede Competition Will not be simple for the govt to win its case $$ #FTL Feb 07, 2013
  • S&P Lawsuit Portrays CDO Sellers as Duped Victims Stretching truth; CDO sellers knew credit better than agencies $$ Feb 07, 2013
  • S&P feels Justice’s lash, but can law ever conquer greed? Diffcult 2 single out people/firms 2 prosecute in big crisis Feb 05, 2013




  • Top NY court throws Travelers asbestos award into question Case started in 1948, when USF&G insured Western Asbestos Feb 08, 2013
  • Buffett’s Son Says He’s Prepared Whole Life for Berkshire Role As Chairman, Howard will be “cultural guardian.” $$ Feb 08, 2013
  • San Francisco Gasoline Rises as Tesoro Seen Cutting Rates It’s tough when state governments discourage refineries $$ Feb 07, 2013
  • Bond insurers aren’t the only winners in Rakoff’s Flagstar ruling All can rely on reps & warranties of mtge origin8rs Feb 07, 2013
  • Berkshire-Insured Muni Sees Good Demand Nothing amazing; some $BRK.B businesses r part of the development borrowing Feb 07, 2013
  • Life Insurer CFOs Say Their Financial Models Fall Short: Survey Surprising, another reason 2b bearish on life ins Feb 07, 2013
  • BlackRock Cautious as Sales End Dollar Bond Rally: China Credit Questions over credit quality, maybe 2 much supply $$ Feb 04, 2013
  • Herbalife Drops After Report of Law-Enforcement Probe $HLF rises today. $$ Worries over being named “pyramid scheme” Feb 04, 2013
  • Was the AIG Rescue Legal? Of course not. Gov’t should not play favorites; emergencies b a DIP lender of last resort Feb 02, 2013


US Politics & Policy


  • House Speaker: Washington Has to Address Spending Yes it does, but will the Senate and President ratify that? $$ Feb 07, 2013
  • Party Eyes ‘Red-State Model’ to Drive Republican Revival First balance budget on an accrual basis; no state does $$ Feb 05, 2013
  • House Leaders Weigh US Spending Bill Below $1T Good luck w/Senate & President on that, you will need it $$ Feb 05, 2013
  • Study Says States Lose Billions in Offshore Tax Avoidance Just an effect of federal tax policy, which needs change $$ Feb 05, 2013
  • The Fed’s Worst Fear Losing control of long interest rates; the bond market will eventually trump the Fed $$ Feb 04, 2013


Market Impact


  • Americans Are Tapping Into Home Equity Again Does this mean a return to the reckless equity withdrawals? Likely not $$ Feb 08, 2013
  • Banks Should Defer Bonuses for Up to 10 Years, Jenkins Says Better that banks become partnerships; creates caution Feb 08, 2013
  • Insiders now aggressively bearish Last Fri: sell-to-buy ratio for NYSE-listed shares listed stood at 9.20-to-1 $$ Feb 08, 2013
  • SP500 Complacent Divergence – Risk Factors Decelerating earnings growth threatens valuations. Econ surprises falling 2 Feb 08, 2013
  • Interdealer Brokers Emerge as Key Enablers in Libor Scandal & Them & Rain Man Tom Hayes $$ Feb 08, 2013
  • Schwab Unveils Game-Changing Commission-Free ETF Platform Part of the ETF’s fees go to $SCHW . No free lunch here $$ Feb 07, 2013
  • H-P Aside, Corporate Splits Are Wholly Worth Investors’ While Managements gain new focus; Behemoths lack true mgmt $$ Feb 07, 2013
  • U.S. to Offer Floating-Rate Notes Within a Year Money-market funds take heart; yield (w/spread duration risk!) $$ Feb 07, 2013
  • Small lenders ride US mortgage wave as big banks cut back Interesting 2c little independent mortgage brokers return $$ Feb 04, 2013
  • America’s Baby Bust Heard on Radio C-SPAN yd  Economies don’t work well when popul shrinks $$ Feb 02, 2013


Rest of the World


  • Mind the Liquidity Gap – Credit Gap 3 factors: global monetary policy, global credit supply & global credit demand $$ Feb 08, 2013
  • German Hope French Despair and EU Rescue: PMIs Eurozone PMIs r rising, but economies r still contracting $$ #France Feb 07, 2013
  • Basel Seen Rotten in Denmark as Banks Bypassed Denmark has many covered mtge bonds; Basel doesn’t care much 4them $$ Feb 07, 2013
  • Shades of ’80s for Japan’s Stocks What, Japanese stocks can go up after the demographic dividend has faded? Feb 07, 2013
  • Desperate Greeks scuffle at free food handout Total desperation. Democracy started there, and it may end there too $$ Feb 07, 2013
  • Canadians back2borrowing: avg consumer debt hits new hi overall debt low | cred: evergreen Feb 07, 2013
  • Last tweet derives from this article I believe in freedom, and small biz capitalism, with equality 4 all. $$ Feb 06, 2013
  • We need Obama/Hollande 2create economic barriers average people can’t surmount, so the clever rich can get richer. Cynical, but true $$ Feb 06, 2013
  • ECB Executive Board Member Asmussen: ‘German Interest Rates Will Rise Again’ Thinks *real* interest rates will rise $$ Feb 05, 2013
  • Top Iranians Trade Barbs in Rare Public Feud Corruption is endemic to Iran; rare 4 the mafiosi 2 fink on each other Feb 05, 2013




  • An Insider’s Guide to Counterfeiting Wine – Businessweek 3 ways to counterfeit expensive wines & how to avoid them $$ Feb 09, 2013
  • Most Australian Wine Exports Ship in Giant Plastic Bladders “We don’t ship glass around the world, we ship wine.” $$ Feb 09, 2013
  • Super Bowl Blackout Caused by Faulty Relay, Entergy Says That was what I guessed; weak spot in many power grids $$ Feb 08, 2013
  • Asteroid to Traverse Earth’s Satellite Zone, NASA Says Interesting we only get one week’s notice on the near miss $$ Feb 08, 2013
  • What Abraham Lincoln Liked About Richard III Lincoln was Shakespeare buff; 1 controversial man’s thoughts on another Feb 08, 2013
  • Lease Surprise in Stuyvesant Town “clause that allows landlord to increase the rent in the middle of the lease” $$ Feb 07, 2013
  • Nine Questions for Peter Levine, Andreessen Horowitz’s Enterprise Dude How SDN commoditizes much special hardware $$ Feb 07, 2013
  • On Pins and Needles: Stylist Turns Ancient Hairdo Debate on Its Head Kinda of a quirky story, but interesting $$ Feb 07, 2013
  • ‘They Owe It to Me’: FBI Identifies Top Email Phrases Used by Fraudsters – Compliance Week Set up filters, compliance Feb 06, 2013
  • Legacy of Benjamin Graham: via @youtube In last minute, BG anticipates the Efficient Markets Hypothesis years ahead $$ Feb 05, 2013
  • Legacy of Benjamin Graham: via @youtube Fascinating video w/Buffett, Kahn (2), Schloss, & other students of his $$ Feb 05, 2013
  • US Construction Jobs – A very Constructive Story Construction jobs coming back, looks like a dead cat bounce $$ Feb 04, 2013
  • Sending electronic money to friends catching on Creating next great avenue 4 money laundering; cheap & convenient $$ Feb 04, 2013
  • Hitler Awakes in 2011 Berlin, Becomes YouTube Hero Hard 4 me 2 believe. Does humor have any limits anymore? Funny $$ Feb 04, 2013


Replies & Retweets

  • @dpinsen 16x deteriorating free cash flow @ $24/sh. There’s some bluster there. Wouldn’t want to be a bondholder here $DELL $$ Feb 08, 2013
  • Commented on StockTwits: Wait, I’m wrong. Didn’t look far enough — they have 8.5% of shares, but 7.5% of votes. Onl… Feb 08, 2013
  • Commented on StockTwits: Here: Feb 08, 2013
  • ‘ @ampressman Thanks, Aaron. Reading it now. Good stuff. SE recently bought more $$ $DELL Feb 08, 2013  (This tweet was wrong, SE has been a seller of $DELL shares, and even recently…)
  • Owns 7.5%, what could they b thinking? $$ RT @BloombergNews: BREAKING: Dell holder Southeastern Asset plans ‘All Options’ to stop deal Feb 08, 2013
  • Worth the read RT @cate_long: Is the U.S. growing, or just issuing debt? – #MuniLand Feb 08, 2013
  • Seems reasonable to me $$ RT @TFMkts: @AlephBlog the high yield market is on cusp of some stop losses getting triggered Feb 08, 2013
  • @GaelicTorus Did not know that, thanks Feb 08, 2013
  • Small caps +7% $$ RT @credittrader: Gentle Reminder Japan Nikkei 225 +0.75% YTD in USD Feb 07, 2013
  • @anatadmati Twitter is too small for this. Read: & Biggest problem isn’t capital, but liquidity $$ Feb 07, 2013
  • @Nonrelatedsense @credittrader Thanks, missed that Feb 07, 2013
  • @BlandDexter In a word, yes. Feb 07, 2013
  • @The_Analyst What floors me are professional investors that don’t read the prospectus the first time they analyze a new type of investment. Feb 07, 2013
  • @SapienQuis A lot of investment banks got pinned w/crud they could not sell whether due to secondary trading or origination Feb 07, 2013
  • @The_Analyst Yes, they did have staff. If u r a professional firm, you must independent vet out credit quality; ignore rating read writeup Feb 07, 2013
  • Well done! RT @jasonzweigwsj: 2 things about high-yield bonds investors should understand today, from @DavidSchawel $$ Feb 07, 2013
  • @anatadmati A better idea would be double liability, where mgmt & directors lose their capital before shareholders do. Change incentives Feb 07, 2013
  • @anatadmati At current margins, banks could not earn their cost of capital w/30% E/A. Banks & credit would shrink a lot -> crisis Feb 07, 2013
  • @DavidSchawel Where will it be? Feb 06, 2013
  • Bondholders will get badly hurt $$ RT @DougKass: HPQ mulling a break up. $HPQ Feb 05, 2013
  • It’s starting $$ RT @LisaCNBC: The Japanese are going to overdo it and create an inflation problem. #Yen will spike in 2013. @PeterSchiff Feb 05, 2013
  • @TFMkts People made absurd predictions about capital mkts off of the experience 1982-2000, culmination ing tech bubble / lost decade $$ Feb 05, 2013
  • Mersenne Primes RT @motokorich: Largest Prime Number Discovered, and it’s 17,425,170 digits long. via @sciam Feb 05, 2013
  • @TFMkts Would be interesting 2c a firm try that. The wind seems to still b blowing the wrong way there, w/discount rates so low. Feb 05, 2013
  • He was/is a bright guy $$ RT @munilass: Picking on S&P just isn’t as much fun without @EconOfContempt around. Feb 05, 2013
  • RT @LaurenLaCapra: “big exchanges therefore stand to gain tremendously from even a relatively small shift twd futures & away from sw … Feb 05, 2013
  • “I only want to add one thing: its not what pundits say that matters, it is what people rely on economically… $$ Feb 04, 2013
  • RT @moorehn: Pffft. MT @nycjim: Washington Post says it, too, was victim of hacking attack that appeared to originate in China. http://t … Feb 03, 2013
  • Good marketing kills bad ideas, people & products $$ RT @MattVATech: Marketing is never a substitute for substance. Feb 03, 2013
  • “Only if you think that by waiting a little while you might have higher yields to invest at. Can’t…” — David_Merkel $$ Feb 02, 2013
  • “Hi, KD… my bond mandate is unconstrained, so I just aim for total returns. Right now I am pretty…” $$ David_Merkel Feb 02, 2013



  • My week on twitter: 77 retweets received, 4 new listings, 86 new followers, 81 mentions. Via: Feb 07, 2013


Sometimes you have to do odd stuff for your client.  My boss and I were asked to come to a client meeting where there would be games (and a dopey speaker, I will leave that out).  As it was I found myself in a game where the one who moves his feet amid pushing loses.  I came in 4th (amid 60), I eventually lost to the tax guy… a very clever guy who should never be underestimated.  I ended up beating him in a game where we were all blindfolded, and those that were touched were out (we were the last two).

But the best part of the contest  was the square game.  We were blindfolded, and rope was around us, and they told us we had five minutes to form a square.  When the official said, “Go!” a marketing guy shouted out, “I know there has to be an actuary in our group.  What do we do?”

I shouted out, “I’m an actuary!”  “To the right of me, counterclockwise, count off, I am number one!” And so I heard, “two, three, four… fifteen.”

Fifteen? Uh-oh, that does not divide by four, so I shouted, “Okay, listen to me!  Five, Nine, and Thirteen, put your arms at right angles, and pull out.  You are the corners of the square.  Everyone else, put no pressure on the ropes.  Fourteen and Fifteen, make sure that you are not touching.”

After that, I shouted, “Has everyone complied with what I said!”  After agreement, I shouted to the judges, “Okay, we’re done!”

When we took off our blindfolds, behold, a square!  Way ahead of the other teams, who looked like blobs.

All actuaries are bright, but many lack courage.  I have courage, and a desire to learn more in areas where I am not an expert.

I needed all of my skills and my courage working for that difficult client. Here’s an example: I did not invest in a hedge fund structured note, with a guarantee from the AA insurer who was pushing it.  I said to them, “most hedge funds are short liquidity.  Why should I invest there?”  He disputed that hedge funds were short liquidity, but he dropped the case and we did not buy.

Here’s another example: A guy called me, asking me to let him pay at par a premium mortgage that we needed to fulfill our liabilities.  I said to him, “I can’t do that, we need the payment over time so that our shareholders are not badly affected.”  Then I said, “Why not get a second mortgage if you need to take money out?”  He said, “A second mortgage? Those guys wear ‘panky rangs.'”

I had the same experience on the most prominent building in Baltimore — the TransAmerica Building, which was the Legg Mason building when I was dealing with it.  Toward he end of my tenure at Dwight, they called me, asking to buy out the second mortgage, which was now the first mortgage.  They offered a slight premium to par, and I said no.  I told them that we needed 125% of par to make us whole, and we would be done.  They offered 110%, and I told them to go away; I would not counteroffer.

I had a strong position, and so I did not have to move.  Sadly, when I left, the company made a bad deal with the borrower, and lost a lot of money.

What can I say? I did my best, and they lost due to their stupidity.  They got more interest due to my intransigence at minimum.











CDO Trough









Recent Trough


















Yes, I think high yield is expensive, and stocks as well.  We have replaced a set of maniacs who were creating CDOs, with a single maniac, the Federal Reserve.  The Federal Reserve has less effect on junk bonds because they directly affect Treasuries and Agency MBS.  Those are far more similar to AAAs than junk bonds.

When CDOs were bidding for every yieldy bond, they compressed relative yield spreads to unbelievable levels.  Today, those unbelievable yields come from the Fed.  They bid for MBS and Treasuries, leaving others to seek yield in riskier notes.

There is real risk here, and the Fed will get whacked when normal yield relationships, and real yields re-emerge.

From an e-mail from a reader:

Hi, David. I hope this e-mail finds you well. I am a long-time reader of your blog and have learned an immense amount about markets from your writings.

I am a stock analyst and am just starting to learn the nuances in the operating vs. holding co. relationship.

I saw your brief explanation here:

Could you point me to any websites, books, or articles that really delves into this? Specifically, there are lots of bonds issued on both the opco and holdco levels ( EIX, CZR, and many others).

I know distressed guys do this all day and I’ve already read Stephen Moyer’s Distressed Debt Analysis.  I understand structural vs. contractual subordination, cross guarantees, and other basics, but, I’d like to know how it would impact the publicly traded shares at the holdco level.

 For example, if holdco A has publicly traded shares and has opcos B and C. B is a profitable company while C is loss-making company. B and C both have publicly traded debt.

What would happen if C defaults?  Nothing is clear cut but I’m trying to find a good way think about these things.

I have been here already.  If company C defaults, company A has no obligation to make you whole.  In my case with Teleglobe, the bondholders got zero.  The parent, BCE, is still doing well.

This is a major aspect of being a bondholder.  You must analyze the relationships, so that you do not rely on those that do not legally need to pay you.  Implicit support is always suspect.  In a crisis, it goes away.