Category: Banks

Easy In, Hard Out (Updated)

Easy In, Hard Out (Updated)

My view is that there is no such thing as a free lunch, not even for governments or central banks.? Any action taken may have benefits, but also imposes costs, even if those costs are imposed upon others.? So it is for the Fed.? At the beginning of 2008, they had a small, clean, low duration (less than three years) balance sheet on assets.? Today the asset side of their balance sheet is much larger, long duration (over 6 years), negatively convex, and modestly dirty as a result.? Let me give you a few graphs created from the H.4.1 data, obtained via the poorly designed and touchy Data Download Program at the Fed?s H.4.1 portion of their website.

The first graph gives the liabilities of the Fed over the last 5+ years.? The data is taken from table 1 in the H.4.1 release.? You can see the massive expansion of the liabilities, and the way the crisis unfolded.? Currency, and ?Other Liabilities & Capital? build ?slowly,? i.e. 6.9%/yr and 10.2%/yr, respectively.? The US Treasury steps in with the Supplementary Financing Account at a few points where the Fed could use money deposited there for further expansion of quantitative easing, and leaves when they are no longer needed.

But the real growth comes in the ?Everything else? which grew at 37%/yr, and reserve balances with Federal Reserve Banks, which you can calculate an annualized rate of growth for (112%/yr), but a rate doesn?t do justice to the process, because it grew due to the three events ? QE1, QE2, and QE3.? The Fed bought assets from various parties, who now deposit at banks inside the Federal Reserve System.

H41_29264_image001

The next two graphs come from Table 2 of the H.4.1 report.? These describe the assets that have a maturity, which comprise over 80% of the Fed?s assets over the time of the graph, and over 90% at present.? First, you can see the growth of the assets bought through QE, Treasuries, Agencies, and MBS.? Second, you see the crisis responses: 1) the loan programs in the US, which explode and trail away and 2) the Central Bank Liquidity Swaps, which explode, trail away, and have come back in a muted form in late 2011 to early 2012.

H41_2014_image001

Perhaps the bigger change is that the Fed?s balance sheet has a lot more long-maturity assets than it used to.? This stems from the quantitative easing they have done, as well as their efforts to play God flatten the Treasury yield curve.

Now, almost all of the assets underlying everything 10 years and shorter pay out their principal all at the end, with no right of prepayment.? For 10 years and longer, at present 70% are Mortgage Backed Securities [MBS].? Those have average lives (weighted average time for payment of principal) considerably shorter than a bond that pays all of its principal at the end for three reasons:

  • Principal gets paid down slowly due to normal amortization.
  • Prepayments get made when it is advantageous to the borrower, which not only pays off principal today, but shortens the term of the loan, which accelerates the normal repayment of principal.
  • The final maturity of the longest loan in the pool is the final maturity of the pool.

So, in terms of actual interest rate sensitivity, the over 10 years bucket is probably only a little more sensitive to change in rates than the 5-10 year bucket.

H41_32012_image001

In normal times, central banks buy only government debt, and keeps the assets relatively short, at longest attempting to mimic the existing supply of government debt.? Think of it this way, purchases/sales of longer debt injects/removes liquidity for longer periods of time.? Staying short maintains flexibility.

Yes, the Fed does not mark its securities or gold to market.? Under most scenarios, it is impossible for a central bank which can issue its own currency to go broke.? Rare exceptions ? home soil wars that fail, or political repudiation of the bank, where the government might create a new monetary standard, or closes the bank because of inflation.? (Hey, the central bank has been eliminated twice before.? It could happen again.)

The only real effect is on how much?seigniorage the Fed remits to the Treasury, or, if things go bad, how much the Treasury would have to lend/send to the central bank in order to avoid the bad optics of negative capital, perhaps via the Supplemental Financing Account.? This isn?t trivial; when people hear the central bank is ?broke,? they will do weird things.? To avoid that, the Fed?s gold will be revalued to market at minimum; hey maybe the Fed at that time will be the vanguard of market value accounting, and revalue everything.? Can you imagine what the replacement cost of the NY Fed building is?? The temple in DC?

Or, maybe the bank would be recapitalized by its member banks, if they are capable of doing so, with the reward being the preferred dividend they receive.

Back to the main point.? What effect will this abnormal monetary policy have in the future?

 

Scenarios

1) Growth strengthens and inflation remains low.? In this unusual combo, it will be easy?for the Fed to collapse its balance sheet, and raise rates.? This is the dream scenario; and I don?t think it is likely.? Look at the global economy; there is a lot of slack capacity.

2) Growth strengthens and inflation rises.? The Fed will likely raise the interest on reserves rate, but not sell bonds.? If they do sell bonds, the market will back up, and their losses will be horrible.? If don?t take the losses,?seigniorage could be considerably reduced, or even vanish, as the Fed funds rate rises, but because of the long duration asset portfolio, asset income rises slowly.? This is where the asset-liability mismatch bites.

If the Fed doesn?t raise the interest on reserves rate, I suspect banks would be willing to lend more, leaving fewer excess reserves at the Fed, which could stimulate more inflation. Now, there are some aspects of inflation that remain a mystery ? because sometimes inflationary conditions affect assets, rather than goods, I think depending on demographics.

3) Growth weakens and inflation remains low.? This would be the main scenario for QE4, QE5, etc.? We don?t care much about the Fed?s balance sheet until the Fed wants to raise rates, which is mainly a problem in Scenario 2.

4) Growth weakens and inflation rises, i.e. stagflation.? There?s no good set of policy options here. The Fed could engage in further financial repression, keeping short rates low, and let inflation reduce the nominal value of debts.? If it doesn?t run wild, it could play a role in reducing the indebtedness of the whole economy, though again, it will favor debtors over savers.? (As I?ve said before, in a situation like this, or like the Eurozone, all creditors want to be paid back at par on the bad loans that they have made, and it can?t be done.? The pains of bad debt have to go somewhere, where it goes is the argument.)

I?ve kept this deliberately simple, partially because with all of the flows going back and forth, and trying to think of the whole system, rather than effects on just one part, I know that I have glossed over a lot.? I accept that, and I could be dead wrong, as I sometimes am.? Comment as you like, with grace and dignity, and let us grow together in our knowledge.? I?ve been spending some time reading documents at the Fed, trying to understand their mechanisms, but I could always learn more.

 

Summary

During older times, the end of a Fed loosening cycle would end with the Fed funds rate rising.? In this cycle, it will end with interest of reserves rising, and/or, the sale of bonds, which I find less likely (they will probably be held to maturity, absent some crisis that we can?t imagine, or non-inflationary growth).? But when the tightening cycle comes, the Fed will find that its actions will be far harder to take than when they made the ?policy accommodation.?? That has always been true, which is why the Fed during its better times limited the amount of stimulus that it would deliver, and would tighten sooner than it needed to.

Far better to be like McChesney Martin or Volcker, and be tough, letting recessions do their necessary work of eliminating bad debt.? Under Greenspan, and Bernanke to a lesser extent (though he persists in pushing the canard that the Fed was not too loose 2003-2004, ask John Taylor for more), there were many missed opportunities to stop the buildup of bad debts, but the promise of the ?Great Moderation? beguiled so many.

Removing policy accommodation is always tougher than imagined, and carries new risks, particularly when new tools have been used.? Bernanke can go to his carefully chosen venues and speak to his carefully chosen audiences, and try to exonerate the Fed from well-deserved blame for their looseness in the late 80s, 90s, and 2000s.? Please, Mr. Bernanke, take some blame there on behalf of the Fed ? the credit boom could never have happened without the Fed.? Painting the Fed as blameless is wrong; the ?Greenspan put? landed us in an overleveraged bust.

I?m not primarily blaming the Fed for its current conduct; we are still in the aftermath of a lending bust ? too much bad mortgage debt, with a government whose budget is out of balance.? (In the bust, there are no good solutions.)? I am blaming the Fed for loose policies 1984-2007, monetary policy should have been a lot tighter on average.? But now we live with the results of prior bad policy, and may the current Fed not compound it.

Postscript

The main difference between this time and the last time I wrote on this is QE3.? What has been the practical impact since then?? The Fed owns more MBS and long maturity Treasuries, financed by more reserve balances at the Fed.

Banks use this cheap funding to finance other assets.? But if they want to make money, the banks have to take credit risk (something the Fed is trying to stimulate), and/or interest rate rate risk (borrow short, lend long, negative convexity, etc).? The longer low rates go on through interest on reserves, the greater the tendency to build up imbalances in the banking system through credit and interest rate risks. 1992-1993 where Fed funds rates were held at 3%, was followed by the residential mortgage backed security market melting down in 1994, not to mention Mexico.? Sub-2% Fed funds rates from 2002 through mid-2004 led to massive overinvestment in residential housing, leading to the present crisis.

Fed tightening cycles often start with a small explosion where short-dated financing for thinly capitalized speculators evaporates, because of the anticipation of higher financing rates.? Fed tightening cycles often end with a large explosion, where a large levered asset class that was better financed, was not financed well-enough.? Think of commercial property in 1989, the stock market in 2000 (particularly the NASDAQ), or housing/banks in 2008.? And yet, that is part of what Fed policy is supposed to do: reveal parts of the economy that are running too hot, so that capital can flow from misallocated areas to areas that are more sound.? At present, my suspicion is that we still have more trouble to come in banking sector.? Here’s why:

We’ve just been through 4.5 years of Fed funds / Interest on reserves being below 0.5% — this is a far greater period of loose policy than that of 1992-1993 and 2002 to mid-2004 together, and there is no apparent end in sight.? This is why I believe that any removal of policy accommodation will prove very difficult.? The greater the amount of policy accommodation, the greater the difficulties of removal.? Watch the fireworks, if/when they try to remove it.? And while you have the opportunity now, take some risk off the table.

Sorted Weekly Tweets

Sorted Weekly Tweets

Market Dynamics

 

  • Gold, backwardation and the ?time cost of money? http://t.co/AauT82dWoE Many players want 2 make $$ off gold financing but conditions shift May 04, 2013
  • The sultans of swing http://t.co/rItrBNwPej Short vol pays income & loses in bad times, long vol loses income & wins in bad times $$ May 04, 2013
  • Public Pensions Underreporting Liabilities?? http://t.co/IdEnrkdcXc Milliman is incented 2 make things look good, or they would lose biz $$ May 03, 2013
  • It?s Time to Fight the Fed http://t.co/rAnFWIwctu Makes the case that stock market has decoupled from economic reality $$ cc @MicroFundy May 03, 2013
  • JPMorgan Caught in Swirl of Regulatory Woes http://t.co/RFuywRTw0s When finance gets complex there r many opportunities 4 mischief $$ $JPM May 03, 2013
  • Why is Doug Kass bearish on Buffett?s Berkshire? http://t.co/aCQVRoxEzv My challenge is2ask original questions that have never been asked $$ May 02, 2013
  • High-Speed Traders Exploit Loophole http://t.co/aMdRBW72x3 Y can’t the same data feed be provided to all participants? $$ May 02, 2013
  • Treasury Is Readying Floating-Rate Debt http://t.co/d2ybajZWWO First new Treasury debt product in years. Wonder what the index will be… $$ May 02, 2013
  • Don’t get me wrong, QE is bad policy. Rather than having a short sharp recession that clears the way 4 growth, Fed traps us in malaise $$ May 02, 2013
  • When Defensive Stocks Plays Offense http://t.co/aF6MIrTzyQ @ReformedBroker describes effect of $$ flowing in2 low vol stocks, erasing safety May 01, 2013
  • Gold Rush From Dubai2Turkey Saps Supply as Premiums Jump http://t.co/2I3a2B5npH True in the US too: http://t.co/AmkUqn639p $$ #takedelivery May 01, 2013
  • Canadian banks r largely shielded from effects of housing downturn b/c government-owned Canada Mtge & Housing insures 64% Canadian mtges $$ May 01, 2013
  • Meet the man who’s selling Canada short http://t.co/HqStfr9CCe Shorting bank common stocks, & the Loonie. Market prices / rent – high $$ May 01, 2013
  • My Edge and the Crossroads http://t.co/KfcVQUCCjc @ReformedBroker gives us a glimpse of how he synthesizes disparate market data $$ May 01, 2013
  • The Great Gold Debate Continues, And It’s Serious http://t.co/Xwtar2rlWE As central banks debase fiat $$ ,gold standard gets more attention Apr 29, 2013
  • Big Number: Revenues Missing a ‘Beat’ http://t.co/IwTCtzSUZS Only 44% of companies have beaten revenue estimates, rally could slow down $$ Apr 29, 2013
  • Gold Climbs as Higher Physical Demand Counters Decline From ETPs http://t.co/2c6WAxC5Yn Negative real cost of carry favors gold here $$ $GLD Apr 29, 2013
  • Gold Bears Defy Rally as Goldman Closes Short Wager http://t.co/WRNWV4MayC Demand 4 physical gold continues while ETPs c outflows $$ $GLD Apr 29, 2013
  • Market?s $20T Yielding 1% Shows Austerity Mistaken http://t.co/NnEbi5SshB Monetary policy papering over budget deficits aids stagnation $$ Apr 29, 2013
  • Stock Analysts Tell All! http://t.co/I4ixQlTBeU Follow the $$ | C how analyst comp affects their actions; hedge funds matter, retail doesn’t Apr 29, 2013
  • The Mind of Jeffrey Gundlach http://t.co/aLmhR5gEuB @eddyelfenbein takes us on a brief tour of how Gundlach came 2b a clever contrarian $$ Apr 29, 2013
  • Oil demand at lowest level since Oct http://t.co/X6qhQnYOS8 More signs of global sogginess $$ Apr 29, 2013
  • When Safe Havens Become Bubbles In Disguise http://t.co/XTPtp4jgGa Good article if you view the investing alternatives @ end skeptically $$ Apr 29, 2013
  • Gold Rout for Central Banks Buying Most Since 1964 http://t.co/Zzkd0slUS8 Gold overshot, but negative real cost of carry favors a rise $$ Apr 28, 2013
  • Bank-Loan Funds Pose New Risks http://t.co/V0F6rX4TSV This is a minor mania — expected future returns are low to negative. Avoid. Avoid $$ Apr 27, 2013

Other

 

  • Cicadas, the Wedding Crashers Who Can Jitterbug http://t.co/jcnOqeJeY0 Will b going2an outdoor wedding in late May, should be a scream $$ 😉 May 03, 2013
  • Note, Shodan can be used positively 2 identify security flaws in your own systems 😉 $$ http://t.co/PmMo1IWcrp May 03, 2013
  • SHODAN – Computer Search Engine http://t.co/5stvEHa6Js Why be the last person on your block w/o ability to unprotected computer networks? $$ May 03, 2013
  • NO PIZZA FOR YOU!!! http://t.co/6BxRJtamn2 Mayor Bloomberg runs into his “Personal Slice Limit,” & has to go to another pizza purveyor $$ May 03, 2013
  • 5 Twitter tools to Unfollow Inactive Users http://t.co/o467OjGtgA Interesting utilities cc: @carney @reformedbroker $$ May 02, 2013
  • Billionaires Flee Havens as Trillions Pursued Offshore http://t.co/Lbmk1sofQC Politicians interested protecting tax havens 4 their owners $$ Apr 29, 2013
  • Run or walk: Why science hasn?t determined which exercise is best http://t.co/nFB6BgCPzf Equal expending of calories -> similar results $$ Apr 29, 2013
  • Texas Town?s Blast Crater Shows Risk From Patchwork Zoning Laws http://t.co/LHYMiBq3l7 Necessary dirty industry has 2 go somewhere $$ Apr 28, 2013
  • Can You Get a Refund From a Bad Hedge Fund? http://t.co/VO3AsaooVO If your hedge fund has lost $$, u may be able 2 rescind your purchase Apr 28, 2013
  • Are Bachelor’s Degrees Worth It? http://t.co/AxAWgZmWge Bachelor’s degrees may not b worth it, but community college can bring a return $$ Apr 28, 2013

 

Rest of the World

 

  • Too-Big-to-Fail Danish Banks Seek Bailout Text in Sifi Law http://t.co/jRJigpfsW1 Overleveraged housing sector & banks challenge Denmark $$ May 03, 2013
  • Chinese Way of Doing Business – In Cash We Trust http://t.co/pGEcUDgMTa More corrupt ur nation is, the more u want 2do cash transactions $$ May 02, 2013
  • Denmark Exhausts Stimulus Avenues as Housing Losses Persist http://t.co/MjtLztxIeg Denmark is the poster child 4 mtge excess, then Canada $$ May 02, 2013
  • Japan household spending surges as Abenomics gains momentum http://t.co/9wehqDMxde Inflation genie comes out of the bottle, what next? $$ May 01, 2013
  • Where the Chinese credit is going? http://t.co/lYHxHMCNeZ “financial distress is another reason why credit expansion has not worked well” $$ May 01, 2013
  • Why the China Dream Might Be a Mirage http://t.co/hO4YupHbJl Economic change w/o political change will not work much longer in China $$ Apr 30, 2013
  • Factories to face headwinds from enlarged TPP http://t.co/dbPXgxlqzr Chinese businesses build factories elsewhere 4 cheap labor $$ #surprise Apr 29, 2013
  • European Leaders? Softening on Austerity May Accelerate http://t.co/VnLL4Npykr Ending austerity is one thing; sharing losses is another $$ Apr 29, 2013
  • Silvercrest’s Patrick Chovanec http://t.co/H2RgxU16Kq Excellent interview w/ @prchovanec on the difficulties w/old Chinese growth model $$ Apr 29, 2013
  • Japan’s ‘wall of money’ proves elusive for global markets http://t.co/l9d8RVnqks So far, most of the credit inflation recycled in Japan $$ Apr 29, 2013
  • The hole the mutual fund industry has dug for itself http://t.co/MEYDxqJgy5 Huge mutual fund fees in Canada shortchange investors $$ #Wow Apr 29, 2013
  • Europe: Aging deepens debt-laden region?s economic woes http://t.co/jWqDYPaDSO Economic growth relies on a population not shrinking $$ Apr 29, 2013
  • Danes as Most-Indebted in World Resist Credit http://t.co/PPfvdn12tT Denmark is the poster child 4 what happens w/2 much mortgage debt $$ Apr 29, 2013
  • Japan’s Abenomics New Export By-Product: Deflation! http://t.co/0YMovyM2Br Growth does not come as more reserves build up in the banks $$ Apr 29, 2013
  • Japan’s Yen Unintended Consequences – Fukushima and the Yen – Hara-Kiri http://t.co/TRqa9gjIUs Higher fuel costs begin 2 bite in Japan $$ Apr 29, 2013
  • Europeans Are Thinking the Unthinkable: That Debt Defaults Might Make Sense http://t.co/BQdfWoGknw Only if u can stiff foreign creditors $$ Apr 29, 2013

 

Companies & Industries

 

  • Buffett Bets on Business Insurance ?Big Time? http://t.co/tlcMeszcWJ Rounding out underwriting book; more conservative version of $AIG $$ May 03, 2013
  • Quite a first day of trading for CST Brands, Inc. Common Stock Finance http://t.co/nFzrkovLWN Spun off from Valero | FD: + $CST & $VLO $$ May 02, 2013

?? Endurance Reports First Quarter 2013 Financial Results http://t.co/VC4x9cUQBh I have never seen an earnings beat this big b4 | FD: long $ENH May 01, 2013

  • How Wall Street Defanged Dodd-Frank http://t.co/FzgwKpOvBh Long, worth a read, describes financial industry’s strategy 2 kill Dodd-Frank $$ May 01, 2013
  • I don’t like D-F b/c it’s weak in areas that matter, & strong in areas that don’t matter. &, study committees shouldn’t have lotsa power $$ May 01, 2013
  • I was serious on that last comment. Actuaries serve as honest, semi-neutral advisors to the regulators, & have a significant ethics code $$ May 01, 2013
  • That makes insurance regulation significantly more brainy than banking regulation. Also tougher, b/c harder 2 co-opt 50 state regulators $$ May 01, 2013
  • New Ajit Jain Signals in the Berkshire Hathaway Tea Leaves http://t.co/k5sikoCKGM Is Ajit preparing 2b CEO or retire? FD: long $BRK/B $$ Apr 29, 2013
  • Apple doesn’t deserve top credit rating: Fitch http://t.co/ardXsKVuoB Problem is that the $$ is overseas & the debts r in the US $AAPL Apr 29, 2013
  • Tech Stocks Are Cheapest in Seven Years http://t.co/InmrCkKmVw Question should b how sustainable revenue streams r in a soggy economy $$ Apr 29, 2013
  • States Object to ‘Payday’ Lawsuit Lending http://t.co/ZL7vvCz3GQ This looks like a good market 2 avoid; 2 much risk from legal changes $$ Apr 29, 2013

 

US Economic Policy

 

  • Deflation, not inflation, could bedevil markets http://t.co/seyOKKmSZV Watch global weakness weigh on the US, also inventory drawdowns $$ May 03, 2013
  • US Economy : 6 Critical Indicators of Potential Recession Flashing RED http://t.co/32jNZ3SNrC A stroll through the bearish economic view $$ May 03, 2013
  • A possible step towards numerical guidance for QE? http://t.co/fjNXmEMPPk Volume/Clarity of Fed communications doesn’t matter $$ #deadend May 03, 2013
  • Fed weighs tighter cap on bank leverage http://t.co/oLiw2XZdqf Maybe adapt well-designed RBC formula life insurance industry uses $$ #noway May 01, 2013
  • Obama to Name Congressman Mel Watt to Housing-Finance Post http://t.co/LClhqyLnij This seems like a mistake; Zandi would have been better $$ May 01, 2013
  • There Will Be Haircuts http://t.co/uGuDijhW7d @pimco gives 4 ways govt will fleece us: negative real rates, inflation, default, cap ctrls $$ May 01, 2013
  • Roubini: Money supplies holding back economy, but run could last 2 years http://t.co/kaoOK1Nd41 Monetary policy is weak in a liquidity trap Apr 30, 2013
  • Powerful Union, Upstart Battle Over Shrinking Pie http://t.co/z5N7DME5sT Another sign that unions are a thing of the past. Good riddance $$ Apr 30, 2013
  • Ebbing Inflation Means More Easy Money http://t.co/32RIuQeX1f Fed’s new job is 2 push the marginal productivity of capital to zero $$ Apr 29, 2013
  • Wall Street is full of ‘crooks,’ Jeffrey Sachs told Philadelphia Fed audience http://t.co/V8LhcyX8qg Evidence would help, many assertions $$ Apr 29, 2013
  • US Growth comes Mostly from Inventories http://t.co/WJnRbUGfiJ The current expansion is not robust, IMO will not persist at rates >1.5% $$ Apr 29, 2013
  • The Federal Financial Triangle http://t.co/tc8vEvK7QP The Fed, the Treasury, & GSEs have mispriced financial risk -> deeper US deficits $$ Apr 29, 2013
  • Are You Ready for the New Investment Tax? http://t.co/yDSIkClF5H Make a lot of many from investments? This tax could surprise u in 2014 $$ Apr 28, 2013

 

Fixed Income

?

  • DoubleLine’s Gundlach seeks more risk in new closed-end fund http://t.co/EaBoKhCGCv I like the strategy, wonder when will get 2 crowded $$ Apr 29, 2013
  • Fitch US High Yield Default Insight ? March 2013 http://t.co/8KnB3v1uN7 Lots of good data on the stretched junk bond market $$ $HYG $JNK Apr 29, 2013
  • Junk Bond Daily Yield Snapshot: 5.289% (Yes, Another Record) http://t.co/1GiDYWac74 Further price gains should b incremental due 2 calls $$ Apr 29, 2013

 

At the Bloomberg Washington Summit

  • Bloomberg Washington Summit http://t.co/t1pgPaRBRg The videos from the event can be found here. 5.5 hours of video #BBwash $$ May 03, 2013
  • At the Bloomberg Washington Summit, Part 5 http://t.co/k3a3maTPST Alan Krueger (Chmn Council of Economic Advisers) & Other Stuff #BBwash $$ May 03, 2013
  • At the Bloomberg Washington Summit, Part 4 http://t.co/lQVo1drGbc Economics, US Postal Service, Lunch & China #BBwash $$ May 03, 2013
  • At the Bloomberg Washington Summit, Part 3 http://t.co/i3KmSxbKmz Infrastructure, Corp Tax Reform, Dodd-Frank, & Garry Gensler $$ #BBwash May 03, 2013
  • At the Bloomberg Washington Summit, Part 2 http://t.co/6m43ZgCm8X Unemployment, Healthcare Spending, & the State of the states $$ #BBwash May 03, 2013
  • At the Bloomberg Washington Summit, Part 1 http://t.co/Rjgb8zY60u US Budget, Sequester, dysfunctional politics & economics #BBwash $$ May 03, 2013
  • Back home from #BBwash, watch for a summary post later tonight at http://t.co/HQR2bRfS06 Thanks 2 @bgov, @BoozAllen, @Visa, @Bloomberg Apr 30, 2013
  • Final panel optimistic about tax reform over the next 2 years Prob over 50%. Can’t say I’m that optimistic #BBwash Apr 30, 2013
  • John Rogers of the CFA institute asks Q on differential taxation of dividends/interest, of course panel goes 4 ending dbl taxation #BBwash Apr 30, 2013
  • Take back my last tweet. Panel agrees on every corporate tax cut, but shies away from anything that might affect their interest #BBwash Apr 30, 2013
  • Final Panel at #BBWash on corporate tax reform, the significant disagreements of panelists indicate y reform will b tough Apr 30, 2013
  • Last tweet made 2 counter what the VA Governor said about his budget being balanced, along with the rest of the states #BBwash Apr 30, 2013
  • States only balance on a cash basis. Various pension, healthcare and other liabilities r not fully funded all states in the Union #BBWash Apr 30, 2013
  • VA Gov McDonnell speaking of the US “Don’t you know we are broke?” Then goes on 2 talk about our unfunded public benefit liabilities #BBwash Apr 30, 2013
  • VA Governor makes case that sequestration cuts r unfair b/c they disproportionately affect VA. But VA benefited when spending rose #BBwash Apr 30, 2013
  • #hello still waiting on sequestration’s effect on Virginia #BBWash Apr 30, 2013
  • Waiting 2 get 2 the main topic w/the VA governor on sequestration, interviewer still grilling on perceived conflict of interest #BBwash Apr 30, 2013
  • @cate_long Cool, if you were here, I would say “hi.” Instead, I type “hi.” Apr 30, 2013
  • Gov McDonnell of VA speaking @ #BBWash about sequestration, Instead, gets grilled by interviewer on perceived conflicts of interest Apr 30, 2013
  • @cate_long Are you here at BBWash or watching on television? Apr 30, 2013
  • Ravitch says the threat of BK can make all of the parties focus; biggest state risk is confiscatory tax levels, not reduced benefits #BBwash Apr 30, 2013
  • Rendell makes case 4 telling truth & shared sacrifice. Ravitch: Muni Bankruptcy is an admission that democracy has failed #BBWash Apr 30, 2013
  • RT @cate_long: Rendell “If city goes bankrupt cant borrow again” BBG’s Glasgall “Orange County went bankrupt and can still borrow” #bbwash Apr 30, 2013
  • Moderator makes point about the frenzy in the junk muni market, Ravitch says cities & states have no choice but 2 have access 2 mkts #BBWash Apr 30, 2013
  • Ed Rendell makes case 4 a single payer health system. Same point can be made for no health insurance, which would lower costs more #BBWash Apr 30, 2013
  • Pension & OPEB panel @ #BBwash is making the case that we are in deep trouble, w/little way out Apr 30, 2013
  • @cate_long Thanks, useful… Apr 30, 2013
  • @cate_long Thanks, just puzzled by the moderators comments on OPEB at this panel at #BBwash Apr 30, 2013
  • @cate_long Cate, most corporations don’t reserve OPEB, b/c they can walk away from it, Governments can’t do the same? Apr 30, 2013
  • @CescaAntonelli Could be, I think she is the leading candidate as well, but I don’t like her seemingly reflexive dovishness Apr 30, 2013
  • Never happened b4 2 VC RT @CescaAntonelli: Yellen has right of first refusal at Fed, Meyer says at @BBGlink #bbwash http://t.co/Qwn6MvlmVP Apr 30, 2013
  • Krueger suggests that people have to adjust their definition of fairness. Trouble is there is no fairness, it is all based on trade #BBwash Apr 30, 2013
  • @tomkeene brings up corporate tax code given $AAPL bond deal, Krueger says a deal can be done if the base can b broadened #BBWash #notlikely Apr 30, 2013
  • Krueger goes on talking about inequality, has few solutions; education is slow if it works, throwing $$ @ it hasn’t worked recently #BBWash Apr 30, 2013
  • Krueger spending a lot of time criticizing the sequester, suggests there is a way to do smart cuts. When have we ever done that? #BBWash Apr 30, 2013
  • Krueger suggests that fixing infrastructure has the highest payoff. Problem: haven’t *ever* done it, & the budget 2 deep in deficit #BBwash Apr 30, 2013
  • Kreuger implies Stockman’s opinions r not worthy of consideration #BBWash Apr 30, 2013
  • Delicious food & good conversation @ #BBwash lunch. Sat w/ @tomkeene & @steve_hanke Apr 30, 2013
  • @pattersonscott In my opinion, that comes down to misregulation of inv banks & AIG , they should have regulated derivs as if on B/S #bbwash Apr 30, 2013
  • @pattersonscott & I argued 4 ring-fencing the derivative counterparties, & let the holding companies fail, but had 2 have mtges fail 1st Apr 30, 2013
  • @pattersonscott derivatives did crater some companies taking one side of the mortgage trade, but mortgages had to go bad first Apr 30, 2013
  • @pattersonscott for every winner on a derivative, there is a loser. nets to zero — on the original loan there are real loan losses #BBwash Apr 30, 2013
  • Appreciate CFTC Chairman Gensler’s sense of humor, even if it burns time… #BBwash Apr 30, 2013
  • #BBwash Gensler says that we will move away from Libor. Me: Any benchmark not based on trades will b gamed, as well as those based on trades Apr 30, 2013
  • @pattersonscott Some were tied to the mortgages, but the real losses came from the mortgage underwriting, which came first #bbwash Apr 30, 2013
  • Utterly mistaken RT @cedwaddell: #BBwash Gary Gensler, chair of CFTC, says 8 million jobs lost since 2008 due to unregulated swaps market Apr 30, 2013
  • Gensler traces the crisis to the derivatives markets when it was really due to bad mortgage lending #BBwash #FTL Apr 30, 2013
  • @PeterCCook Ask him why derivatives are not regulated like insurance, and require insurable interest #BBwash Apr 30, 2013
  • @PeterCCook Ask him why derivatives are not regulated like insurance, and require insurable interest Apr 30, 2013
  • RT @cate_long: “I believe that the role of the Post Office is universal service and overnight delivery is part of that” Sen Cardin #bbwash Apr 30, 2013
  • USPS CFO thinks there is a long-term solution, needs regulatory changes, allowing delivery of alcohol, etc. wants more independence #BBwash Apr 30, 2013
  • CFO of $UPS talks about two scenarios for rises in interest rates: good: improvement in productivity, bad: stagflation #BBwash #duh Apr 30, 2013
  • If business were already agreed on tax policy, tax policy would have changed already #BBwash Apr 30, 2013
  • Mistaken concept that the business community has 1 clear goal in tax policy, one man’s tax expenditure is more valuable than others #BBwash Apr 30, 2013
  • Eclectic panel Sen. Ben Cardin (D-Maryland), Kurt Kuehn, CFO UPS & Joseph Corbett, CFO & EVP, USPS — don’t think this goes far #BBwash Apr 30, 2013
  • PA gov Corbett leaves benefits/fees of fracking to local governments where it is needed #BBwash Apr 30, 2013
  • Corbett wants to be the “Texas” of Natgas, TX ain’t what it used 2b #BBwash Apr 30, 2013
  • 1 in 6 people in PA on Medicaid would b 1 in 4 under Obamacare, according2 Tom Corbett, PA 2nd highest in Medicaid b/c optional covs #BBWash Apr 30, 2013
  • @fbonacci @incakolanews @felixsalmon Easy come, easy go, little high, little low… nothing really matters, anyone can see… Apr 30, 2013
  • At #BBwash , Tom Corbett talks about selling the state liquor stores, when it barely moves the needle in terms of the NPV of the liabs Apr 30, 2013
  • John Rogers of the CFA Institute asks Engle why we should invest in a new bubble created by the Federal Reserve? Engle waffles. #BBWash Apr 30, 2013
  • @incakolanews Galileo, Galileo, will you let me go? Apr 30, 2013
  • Engle correct in noting that the tea party has made washington a 3-party game, which creates a complex blocked situation #BBWash Apr 30, 2013
  • Gotta give Scaramucci credit for getting on this #BBWash panel, he has said some notably odd things Apr 30, 2013
  • Federal Reserve less independent since Dodd-Frank, & not in a good way, it supports the US financial sector & government #BBwash Apr 30, 2013
  • Pitt: if I were a college professor, I would give Congress an “F” 4 Dodd-Frank #BBWash Apr 30, 2013
  • Humorous panel w/Harvey Pitt, Robert Engle, and Anthony Scaramucci — Engle is clueless, thinking Fed policy can b easily removed #BBwash Apr 30, 2013
  • Wargaming in economics is impossible; there is no way to predict next economic crisis, writ small. Overlevered systems r risky #BBwash $$ Apr 30, 2013
  • Too much discussion over bailing out the system. Too little discussion over how to limit overall debt and debt complexity #BBWash $$ Apr 30, 2013
  • Good discussion @ #BBwash where they describe how more complex laws & regulations make markets more complex rather than clear $$ #worse Apr 30, 2013
  • Panel on Dodd-Frank arguing about bank capital, arguing that higher capital isn’t so bad. #BBwash $$ That said, liquidity is more important Apr 30, 2013
  • Panel on Dodd-Frank arguing about bank capital, arguing that higher capital isn’t so bad. #BBwah $$ That said, liquidity is more important Apr 30, 2013
  • Really disappointed in the lack of reasoning from Larry Meyer, not disappointed in Chris van Hollen, nothing to expect there $$ #BBwash Apr 30, 2013
  • At the Bloomberg Washington Summit: definitely a liberal bias to first two panels, saying that the current deficits must continue #BBWash $$ Apr 30, 2013

?

Wrong

  • Wrong: Fed Seen Slowing Stimulus With QE Cut by End of This Year http://t.co/h2ckgPDc3e Sorry, but the Fed will increase its QE in 2013 $$ May 02, 2013
  • Wrong: Europe?s New Path: Austerity with a Human Face http://t.co/HXzbWFx2v9 Real austerity hasn’t been tried yet, only debt monetization $$ Apr 29, 2013
  • Wrong: ?Peak Fossil Fuels? Is Closer Than You Think: BNEF – Bloomberg http://t.co/XoKYF1qoEW No way; governments of world won’t cooperate $$ Apr 28, 2013
  • New York Times Moves Toward Netflix Model as Ads Tumble http://t.co/rHrbxxAe8e I think $NYT is eventually a zero as the internet eats it $$ Apr 28, 2013

?

Replies, Retweets & Comments

  • 5.5% annualized growth $$ RT @EddyElfenbein: Nominal S&P 500 earnings are expected to be roughly double this year compared with 2000 May 03, 2013
  • @EddyElfenbein http://t.co/FvBzLDzuGI On the IBM Industrial Average, where I propose the News Corp Industrial Average May 03, 2013
  • @H_X_S Thanks, Janetter looks interesting. May 03, 2013
  • Liked the old Tweetdeck better $$ RT @danprimack: Does Twitter know that some of us probably would have paid to keep tweetdeck alive? May 03, 2013
  • @AndreCimini It’s all a part of the current “race to the bottom” monetary policy game. Trying to figure out how this one blows up May 03, 2013
  • @fsmontenegro Thanks, missed that, relied on a friend May 03, 2013
  • ‘ @JayLeonard No doubt, & realize these are marginal rates, which few pay because of the Swiss cheese nature of the corp tax code $$ May 03, 2013
  • @alestuma I get that — that’s y some investors co-locate servers at the exchanges. But not getting the same feed initially is different May 02, 2013
  • ‘ @WarrenBuffett Good 4u, Mr. Buffett. We all await your wise counsel, especially me, a student of yours & a shareholder. $$ FD: + $BRK.B May 02, 2013
  • @TheStalwart I don’t think much happened overnight, but I did publish a five piece set of articles on the Bloomberg Washington Summit May 02, 2013
  • @notgunnamatta Yes May 02, 2013
  • @dpinsen There r no good solutions in the bust. The only sane thing is to try to prevent booms from getting out of control, a la Martin $$ May 02, 2013
  • @CardiffGarcia If I had the data, would be interesting to try a parabolic fit, & look at the coefficients, looks like it would flop May 01, 2013
  • @rubicon59 @PlanMaestro @SajKarsan I think I was the only one that did public analyses of the 3 Maiden Lane trusts, but I was wrong there 2 May 01, 2013
  • @rubicon59 @PlanMaestro @SajKarsan Yes, I did; I presumed that the really junky assets that they had would default far more than they did May 01, 2013
  • Cool $$ RT @jasonzweigwsj: our great Fed-speak comparison machine: see how the FOMC’s statements change over time http://t.co/CubyVqQ6KL May 01, 2013
  • @Matthew_C_Klein Next in line r colonialists who exploited Belgium/Congo, Germany/SW Africa, Spanish in the new World, Black Slavery $$ May 01, 2013
  • @Matthew_C_Klein Historically, it is fascinating how many attempts at forced collectivization led to massive deaths, Ukraine, Cambodia $$ May 01, 2013
  • His rhetoric usually leaves me cold $$ RT @TheStalwart: Some folks asking who, exactly, Krugman has persuaded. Fair question. May 01, 2013
  • @Matthew_C_Klein I’ve seen higher estimates on the deaths c book “Hungry Ghosts;” the statistics r hard 2 come by; most don’t want 2 talk $$ May 01, 2013
  • “Any anomaly can be overfished. The low volatility anomaly was one of the more durable ones, but?” ? David_Merkel http://t.co/syjdr5nHDU May 01, 2013
  • @CFAevents Honored that you would mention me. Thanks. Osband’s book was one of the best I have read on the topic. May 01, 2013
  • @djoalpha11 @tomkeene What flash crash? Apr 30, 2013
  • @csissoko But most of the issuance of bad mtges were prime, not subprime — the issuance of Fannie & Freddie were more responsible 4 crisis Apr 30, 2013
  • @csissoko Yes, the lust for yield drove willingness to enter into CDS, taking risk, receiving premium, which led some issuance of bad mtges Apr 30, 2013
  • @Nonrelatedsense I read otherwise in an article yesterday… but thanks for the correction Apr 30, 2013
  • Apologies, you are right RT @Nonrelatedsense: @AlephBlog DSL is absolutely a Closed End Fund. Prospectus: http://t.co/vXcUpTEZi9 Apr 30, 2013
  • @Nonrelatedsense It’s an ETF, not a CEF Apr 30, 2013
  • Also leads 2 creation of more shares, grows the fund $$ RT @vzban123: Per doubline website, IPO price is almost 5% premium to NAV. Apr 29, 2013
  • Yeh, saw that. Just another symptom of yield lust. $$ RT @vzban123: @AlephBlog Per doubline website, IPO price is almost 5% premium to NAV Apr 29, 2013
  • It’s a great job if you have the skills to get it; it’s even better if you have business skills as well… http://t.co/ji5jgSLPA9 Apr 29, 2013
  • @aneiro Any stats on what %age of the market is trading to call, rather than maturity? Apr 29, 2013
  • @codywillard I suspect there r a lot of games going on w/ETPs, certainly in Europe, regulation is tighter here, collateral issues & arb Apr 29, 2013
  • @codywillard I was against the bailouts dear friend; what I puzzle over is how many games r *presently* being played on Wall Street Apr 29, 2013
  • @EddyElfenbein model 2 minimizes the sum of squared ratios between actual & modeled prices. Model 2 more reliable, IMO, though fits worse Apr 29, 2013
  • @EddyElfenbein model 1 minimizes the sum of squared differences between actual & modeled prices. Apr 29, 2013
  • @Jesse_Livermore Emerging Market Government Bonds, maybe Long Treasuries — it is a deflationary environment, kinda, maybe, sorta, meh $$ Apr 27, 2013

 

FWIW

  • My week on twitter: 47 retweets received, 48 new followers, 89 mentions. Via: http://t.co/cPSEMLXpb8 May 02, 2013

?

Using Life Insurance Products to Fund Long-Term Needs

Using Life Insurance Products to Fund Long-Term Needs

I have noted recently a number of advertisements offering risk-free investing.? When I dig into them, they are selling life insurance and annuities.? They claim high rates of return with virtually no risk.? Here are the problems:

  • Life insurers have come off of 3+ decades of falling interest rates, portfolio yields are high relative to what you can get in the market today.? Some insurers may show above average rates, but if enough take advantage of them, the rates will fall to market levels.
  • Commissions to agents are relatively high, which has two effects: 1) less investment performance goes to the insured, and more to the agent, and 2) High surrender charges.? If you ever need your money in full, you will never get it back from an insurance contract.
  • People have forgotten the 1970s, with rising interest rates, where many insurers were near bankruptcy, and on a market value basis, many were technically bankrupt.
  • Life insurers that have written a lot of variable business or a lot of indexed business have taken on a lot of hidden equity risk.? Imagine a Great Depression scenario, where equities fall 90% over 3 years, and it takes 20 years more for values to recover.? Guess what?? Virtually all of the life insurance industry dies, whereas most survived the Great Depression.
  • From Mutual Insurers, life insurance dividends are not guaranteed.? In a real crisis, dividend scales could drop to zero.? The insurance you thought was free regains a price.
  • Equity indexed products rarely return well.? When I analyzed them back in the early 2000s, T-bill yields were the result of my models.? Today, T-bill yields are so low that the returns must be better.? That said, you will have to accept low returns versus a long surrender charge.

Insurance is meant for protection, not savings.? It is also meant for scamming the tax man, especially with respect to estate taxes.

Just be wary here, I’m not naming names, because many of these parties are litigious, another sign of weakness.? But there is no “one size fits all” method for Wealth Management.? One of my clients recently complimented me because I don’t try to get all of the assets of a client.? Indeed, I want my clients to feel that they have chosen me for their purposes.? I do not want them to allocate more to me than they are comfortable allocating.

So, be aware of the limitations inherent in life insurance products.? And when you hear that something is virtually risk-free, take a step back and hold onto your wallet.? Nothing is risk-free.? Even with the guaranty funds backing the insurers, the full value of large policies is not guaranteed, much like large depositors in the banks.

The regulation of the solvency of life insurers has been better than that of banks for the last 30 years, but it hasn’t been perfect.? I was on the takeover team that tried to have AIG to take over the Equitable.? AXA overbid, and bought a bad situation just as it was about to turn.

As for AIG, some of those promoting insurance products say that AIG’s life insurance subsidiaries did not need a bailout in the crisis.? That was false, because of the securities lending agreements, and a few other things.? Most of the domestic life companies of AIG received bailout money.

The good record of life insurance lack of default over the last 30 years is the result of three things:

  • Falling interest rates
  • Better solvency regulation than banks
  • AIG’s life insurance subsidiaries were bailed out.

Be diversified, and don’t use just one set of entities to fund your retirement.? Using only insurers runs a lot of regulatory and taxation risk.? A future government may find clever ways to undo the clever tax avoidance that has been achieved there so far.? Spread your regulatory risk.? If you are wealthy enough, spread out your country risk, but be wary as you do so.? Who will support the rule of law better than the US?? Where will governments not tap assets under custody in a crisis?? Remember Cyprus.? It will not be the last place where assets are expropriated for the good of locals, even if locals got hurt as well.

 

Classic: Get to Know the Holders? Hands, Part 2

Classic: Get to Know the Holders? Hands, Part 2

Note: this was published at RealMoney on 7/2/2004.? This was part four of a? four part series. Part One is lost but was given the lousy title: Managing Liability Affects Stocks, Pt. 1.? If you have a copy, send it to me.

Fortunately, these were the best three of the four articles.

-==-=-==-=?==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=????????

Investing Strategies

Some groups can reinforce their own behavior in the market, causing booms and busts.

Balance sheet players tend to be strong holders.

Liquidity can change the market landscape.

 

In Part 1 of this column, I began describing the various classes of investors and their investment behavior. In Part 2, I’ll continue that description, and will follow it up by explaining how some classes of investors can temporarily reinforce their own behavior, causing booms and busts. Finally, I will offer practical ways you can benefit from understanding the behaviors of different investor classes.

 

8. Leveraged Private Investors

The use of leverage gives the investor the ability to make more out of his bets than his equity capital would otherwise allow, but eliminates some of the advantages that the unleveraged possess. Investors that are leveraged do not entirely control their trade; if their assets decline enough in value, either they or the margin desk will reduce their position.

Leveraged investors are in the same position as the European banks that I discussed in Part 1. Worry sets in as one gets near a margin call, not when the margin call happens. As worry sets in, mental pressures to change the asset positions materialize. The challenge to the investor is to decide whether to liquidate, or take chances. Being forced to make a decision leads to a higher probability, in my opinion, of making the wrong decision.

In addition, leveraged longs have to pay for the privilege of financing additional assets. With overnight rates low today, that might not seem like much of a cost. But when the market is in the tank and interest rates are sky-high, as they were from 1979 to 1982, the cost of leveraged speculation is a deterrent and helps keep a lid on the market.

9. Short-Sellers

Being short is not the opposite of being long. It is closer to the opposite of being a leveraged long. Shorts do not entirely control their trade; if their shorts rise enough in value, either they or the margin desk will reduce their position. This is the opposite of leveraged longs. Remember, unleveraged longs can stay put as long as they like, and almost no one can force them to change. Shorts can be forced to cover through a squeeze, whether through rising prices threatening their solvency or a decrease in borrowable shares from longs moving their shares from margin to cash.

Stocks with a large short interest relative to the float, like Taser (TASR:Nasdaq) , can behave erratically with little regard to anything more than the short-term technicals of trading. (If fundamental investing is akin to a chess game, trading Taser is more akin to a street brawl.)

Short-sellers also have costs that unleveraged longs don’t face. When it is difficult to borrow shares (i.e., the borrow is tight), you might have to pay for the privilege of borrowing. As an example, when I was short Mony Group, I had a 2% annualized rate to pay on the last block of shares that I shorted. The rest came free, but that was before the trade got crowded. (When the borrow is not tight and if you are big enough, it is possible to get a credit, but that’s another story.)

Another cost is paying any dividend that the company might pay. Granted, the stock is likely to drop by the amount of the dividend, but cash going out the door to support a trade makes a trade more difficult to hold on to.

 

10. Options Traders

Buyers of options fully control their trade and pay a premium for the privilege. Sellers of options give up some control of their trade and receive a premium for their trouble. Being short an option is like being short a stock; theoretically, the risk is unlimited. If the short options of an investor rise enough in value, either they or the margin desk will reduce their position. Long option investors face no such constraints, but they do face the continual decay of the time premium of their options.

When there are company-issued options outstanding, such as warrants, convertible preferreds and convertible bonds, another trading dynamic can develop. Because the company has offered the call options on its stock, unlike other investors, it can issue stock to satisfy calls. The dilution from share issuance can put a ceiling over the price of the stock near the strike price for the call options until enough demand exists for the stock that it overcomes the dilution.

One more example of embedded options shows up in the residential mortgage bond market. Residential mortgages contain an option that allows the mortgage to be prepaid. Mortgage bond managers, who often manage to a constant duration (interest-rate sensitivity), run into the problem that their portfolios lengthen when rates rise, and shorten when rates fall. This can make them buyers of duration (longer mortgages or noncallable Treasuries) when rates fall, and sellers when rates rise.

In either case, with enough mortgage managers (and mortgage originators, who are in the same boat) doing this, it can become self-reinforcing because many market players buy into a rising market and sell into a falling market. This has an indirect effect on the Treasury and swap markets because mortgage hedgers use them to adjust their overall interest-rate sensitivity. In general, mortgage hedgers are weak holders of Treasuries, which they sell off as rates rise.

?

Balance Sheet Players vs. Total Return Players

I find it useful to divide the players in the investment universe into two camps: balance sheet players and total return players. Balance sheet players can lose it all and then some. Total return players can lose only what they have invested and include mutual funds (including index funds), unleveraged private investors, defined benefit plans, option buyers and endowments. Balance sheet players include banks, insurance companies, leveraged private investors and option sellers.

Total return players tend to resist — or at least are capable of resisting — market trends, which provide stability in the market. At the edges of negative price movements, balance sheet players find that they have to sell risky assets in order to preserve themselves. In severe market conditions, balance sheet players can make market movements more extreme.

I think it helps to view the behavior of balance sheet players through the lens of self-reinforcement. When there are too many of them crowding into a trade, there is the potential for instability. If the price of the asset has been bid up to the point to where a buy-and-hold investor would feel that he could not obtain a free cash flow yield adequate to compensate him for the risk of the purchase, then the asset is unsustainably high, which does not mean that it can’t go higher. When you see long-term investors exiting, it’s usually time to leave.

Fueled by leverage, some players will increase their bets as the price of the asset rises because they have more buying power with a more expensive asset. Finally, a few smart players start to sell and the process works in reverse as leverage levels increase for balance sheet players with a large concentration in the stock and a self-reinforcing cycle of selling begins. The same boom-bust cycle can happen with total return players, but it would be more muted because of the lack of leverage.

At the end of the bust, the buyers typically are unleveraged buy-and-hold investors. For example, I remember picking over tech and telecom stocks in 2001-02 that had been trashed after the bubble burst. This is a sector of the market that I don’t play in often, because I don’t know it so well; that said, it became 30% of my portfolio. Many of those stocks were trading for less than their net cash and a few were even earning money. My thought at the time was that if I tucked a few of these stocks away and held them for five years or so, I’d have something better at the end. With the bull market of 2003, my exit came sooner than I expected; other market players saw the potential of the cheap, conservative tech companies that I held and liked them more than I did.

This brings me back to weak and strong hands. In general, total return players have stronger hands than balance sheet players, at least when market values are out of whack with long-term fundamentals.

 

Illiquidity and LTCM

An asset is illiquid when the bid-ask spread is wide, or even worse, when there is no bid or ask for a given asset in the short run. This can happen with large orders in small-cap stocks and in “off the run” corporate bonds. Often an illiquid asset offers a higher potential return than a more liquid asset; given the disadvantage of illiquidity, in a normal market it would have to. Even a liquid asset can act illiquid if you hold a large amount of it relative to the total float. Trying to sell rapidly would drive down its price.

To hold illiquid assets, you either have to hold them with equity or a low degree of leverage with a funding structure for the leverage that can’t run away. One example is the type of portfolio I ran in the mid-1990s: unleveraged micro-cap value stocks. Another example is Warren Buffett’s portfolio. He buys whole companies and large positions in other companies, and funds those purchases with a modest amount of leverage from his insurance reserves.

My counterexample is more interesting (failure always is). Long Term Capital Management for the most part bought illiquid bonds and shorted liquid bonds that were otherwise similar to the illiquid bonds. When LTCM was small relative to the markets that it played in, it could move in and out of positions reasonably well, and given the nature of bonds, absent a default, there was a natural tendency for the bonds to converge in value as they got close to maturity.

As LTCM became better known, it received more capital to invest. Assets grew from profits as well. Wall Street trading desks began to figure out some of the trades that LTCM was making and started to mimic the firm. This made LTCM’s position more illiquid. It was fundamentally short liquidity, leveraged up using financing that could disappear in a crisis and had LTCM wannabes swarming around its positions.

At the beginning of 1998, it had earned huge returns and its managers were considered geniuses. The only problem was that they were running out of places to put money. The yield spreads between their favored illiquid and liquid bonds had narrowed considerably. “The juice had been squeezed out of the trade,” but they still had a lot of money to manage.

By mid-1998, with the Asian crisis brewing and Russia defaulting, there came a huge premium for liquidity. Everyone wanted to get liquid all at once. Liquid bonds rose in price, while illiquid bonds fell. The LTCM imitators on Wall Street got calls from their risk control desks telling them that they had to liquidate the trades that mimicked LTCM; the trades were losing too much money. In at least one case, it imperiled the solvency of one investment bank. But at least the investment banks had risk-control desks to force them to take action. LTCM did not, and the unwinding of all the trades by the investment banks worsened its position.

When the severity of the situation finally dawned on the investment banks, with the aid of the Federal Reserve, the investment banks realized that there was no way to easily solve the situation. LTCM couldn’t be liquidated; its positions were so large that a “fire sale” meant that the investment banks that lent it money would have to take a haircut. LTCM needed time and a bigger balance sheet, if the investment banks were to be repaid. The investment banks eventually agreed to recapitalize LTCM funds and unwind the trades at a measured pace. Even the equity investors got something back when the liquidation of LTCM was complete. LTCM’s ideas weren’t all bad, but it was definitely misfinanced.

 

Final Advice

Keep these basic rules in mind as you consider how to apply these concepts to your own trading. They aren’t commandments, but paying attention to them will help you make more informed investment decisions.

  1. All good investment relies at least implicitly on sound asset-liability management. Assets should be matched to the type of investor and funding structure that can best support them.
  2. Understand the advantages that you have as an investor, particularly how your own cash flow and funding structure affect your investing.
  3. Try to understand who else is in a trade with you, what their motivations are, their ability to carry the trade, etc.
  4. Don’t overleverage your positions. Always leave enough room to be able to recover from a bad scenario.
  5. Be aware of the effects that changing demographics may have on pension plans and individual investors.
  6. Always play defense. Consider what can go wrong before you act on what can go right.
  7. Be contrarian. Maximize your flexibility when the market pays you to do so. Be willing to sell into manias and buy after crashes.
Classic: Get to Know the Holders’ Hands, Part 1

Classic: Get to Know the Holders’ Hands, Part 1

Note: this was published at RealMoney on 7/1/2004.? This was part three of a? four part series. Part One is lost but was given the lousy title: Managing Liability Affects Stocks, Pt. 1.? If you have a copy, send it to me.

Fortunately, these were the best three of the four articles.

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Investing Strategies

Different investor groups in the market have different patterns of funding and disbursement.

Understand those patterns to read market action more clearly and see what trends might emerge.

 

Recently, the firm I work for held a large amount of the common stock of Phoenix (PNX:NYSE). As the stock rallied, I kept moving out my sell target, because the technicals on the stock were so compelling. There were no analysts saying buy, there were a few saying sell and the short interest was high. The company was doing all the right things and the stock had great price momentum, but the valuation was just too high. I wanted to sell, but I couldn’t figure out when.

Finally, on Feb. 21, the stock price began to rally on no news. Going to the message boards, I discovered that there was a momentum investor with a radio show who was making one of his occasional television appearances, and was touting Phoenix. I went to our trader and said that we had our chance. There was a group of valuation-insensitive buyers buying the stock with abandon. I said, “Ride the ask [offer stock at the asking price], and if you get any thick bids near the ask, hit them.” (Read: If there are aggressive large bidders, sell to them at their level.) We sold our position in two weeks, without disturbing the market; we were able to get an average price of about $14.25. (Our trader is top-notch.) Today the price of Phoenix is about 15% lower. The momentum investors choked on the stock that we (and others) fed them.

Why did this work for us? We understood two aspects of how Phoenix traded very well: the fundamentals and technicals. The fundamentals taught us what fair value should be, but the technicals taught us how investors would react to movements in the stock price.

Every investor has a mode of funding and a mode of disbursement. The funding and disbursement modes affect how long and under what conditions an investor wants to, or is able to, hold his position. Some examples will illustrate general principles of these modes. I will describe the ways that various classes of investors fund their investments, how their investments are held, how they are liquidated and how all of this affects what kinds of investments they can use from both an asset class and liquidity standpoint. I also will attempt to explain how the behavior of some classes of investors can become temporarily self-reinforcing, leading to booms and busts.? Finally, I will try to give some practical advice along the way as to how you can benefit from the behaviors of different classes of investors.

 

1. Banks and Other Depositary Institutions

Banks make promises to depositors. Some of these promises are absolute; some are contingent on external events. Bank regulations exist to make the keeping of the promises more certain (or, in modern times, keep the guarantee funds solvent). Banks have to keep adequate capital on hand to provide a margin of safety against insolvency. The amount of capital varies on the immediacy with which deposits may be withdrawn, the degree of equity/credit risk of the assets and how well the asset cash flows are matched to the liability cash flows.

Liquid assets must be set aside to meet the amount of funds that may be withdrawn immediately with little or no penalty. The more that is set aside, the lower the risk and the lower the profit. If the assets are materially longer or contain more equity risk than a money-market-like investment, there may be a loss when the assets are liquidated to pay off depositors. In general, the cash flows of assets must be matched to the liabilities that fund them, at least in aggregate.

This biases banks to hold primarily short- to intermediate-term, high-quality fixed-income assets: bonds, loans, mortgages and mortgage-backed securities. These are generally safe investments, but banks are fairly leveraged institutions. If the market moves against their investments and their capital cushion gets eroded to the point where their ability to operate becomes questionable to regulators (or customers), the banks might be forced to sell investments into a falling market in order to preserve solvency.

The first motive of a financial institution is to survive; the second is to profit. When the first motive is threatened, even if there is a good possibility that the institution will survive and make more money if it retains the assets that now are perceived as risky, in general, the risky assets will get sold to assure survival at the cost of current profitability.

To return to a concept I discussed in the first column I wrote for RealMoney, Valuing Financial Slack in the Steel Sector, banks with a high degree of leverage relative to the overall riskiness of their assets and liabilities possess little in the way of financial slack. Volatility in the markets that cuts against their position harms such companies. They end up becoming forced sellers and buyers.

Banks with financial slack can enjoy volatility. When the markets are dislocated, they can make room on their balance sheets to wave in securities that are distressed and temporarily trading below intrinsic value. During times of volatility, the strong benefit at the expense of the weak, whereas weak firms outperform during periods of stability. As an example, after the real estate crisis in 1989-1992, the banks that did the best over the whole cycle were those that did not become overleveraged, did not over-lend to marginal credits and had diversified operations. During the crisis, they had the flexibility to lend in situations of their choosing at favorable yields.

 

2. Insurance Companies

Insurance companies are like banks but generally have longer funding bases and typically run at a higher ratio of surplus to assets. Insurance companies typically have more ways to lose money than banks, and potential cash flow mismatches in the longer liability structure require more capital to fund potential losses. In principle, the higher surplus levels and the longer liabilities should allow for investment in longer-duration assets like equities, but the regulations make that difficult. Surplus is limited; what gets used for equities can’t be used for underwriting.

As a counterexample, consider what happened to the European insurance industry in 2002. European insurers are allowed to invest much more in equities than their U.S. counterparts can. (Berkshire Hathaway (BRK.A:NYSE) is an interesting exception here.) As the bull market of the 1990s came to an end, European insurers found themselves flush with surplus from years of excellent stock-market returns, and adequate, if declining, underwriting performance. The fat years had led to sloppiness in underwriting from 1997 to 2001.

During the bull market, many of the European insurers let their bets ride and did not significantly rebalance away from equities. Running asset policies that were, in hindsight, very aggressive, they came into a period from 2000 to 2002 that would qualify as the perfect storm: large underwriting losses, losses in the equity and corporate bond markets and rating agencies on the warpath, downgrading newly weak companies at a time when higher ratings would have helped cash flow. In mid-2002, their regulators delivered the coup de grace, ordering the European insurers to sell their now-depressed stocks and bonds into a falling market. Sell they did, buying safer bonds with the proceeds. Their forced selling put in the bottom of the stock and corporate bond markets in September and October of 2002. Investors with sufficient financial slack, like Warren Buffett, were able to wave in assets at bargain prices.

This principle may be articulated more broadly as, “The tightest constraint dominates investment policy.” As an example, an insurer that already was at a full allocation on junk bonds could not take advantage of the depressed levels in the junk bond markets; such investors were biting their nails, wondering if they would make it through alive. Another example occurred in 1994, when the most volatile residential mortgage bonds were blowing up. Insurance companies that had a full allocation to that class could not buy more when prices were at their most attractive. Companies and investors that rarely bought the “toxic waste” of the residential mortgage bond market began scooping up bonds at discounts unimaginable previously. A number of flexible investors, including St. Paul (now St. Paul Travelers) and Marty Whitman both ventured outside their ordinary investment habitats to benefit from the crisis.

 

3. Defined Benefit Pension Plan

Defined benefit plans need cash to fund payments to beneficiaries. The amount and timing of the benefit payments vary with plan demographics (sex, age and income), physical roughness of the industry and the specific plan provisions (e.g., late retirement, early retirement, etc.). Inflows to DB plans depend on funding levels and the financial health of the company sponsoring the plan. For an individual DB plan, the cash inflow and outflow characteristics will help determine the plan’s asset allocation, together with the risk tolerance of the plan sponsor.? The more risk-averse a plan is, the less capable it is of funding inflows, and the older the plan’s participant population, the larger the proportion of assets that will go into bonds and other safer investments.

For all DB plans in aggregate, though, the cash flow and demographic characteristics mirror those of the Old Economy. DB plans were created back in the days when the relationships between employer and employed were more fixed than they are now. In the current era of more short-lived employment relationships and with the average age of participants in DB plans rising, these plans face several challenges:

  1. Net cash outflows are getting closer.
  2. There are fewer cash inflows.
  3. Plans are being terminated (or converted to cash balance plans) due to cost, economic weakness and inflexibility.

DB plans are major holders of equity and debt in the U.S., but they are not as great a force as they once were.? Defined contribution plans (i.e. 401(k)s, 403(b)s, etc.) are bigger now. The relative decline and aging of DB plans has had, and will continue to have, two effects in the market. First, because of aging, there will be a greater relative demand for bonds. Second, DB plans have always had a long investment time horizon. That is shrinking now. DB plans tend to resist trends in the market; they tend to rebalance to a fixed asset allocation, which leads them to buy low and sell high. DB plans were the ones selling equities in March 2000 and buying in October 2002; their rebalancing strategies insured that. As DB plans become a smaller fraction of the investor base, markets will become more volatile due to the reduction in long-horizon capital in the market.

 

4. Endowments

Endowments plan to survive forever. Forever is a tough mandate.

Inflows to endowments are uncertain, and outflows are fairly constant. They have spending formulas, the most common of which has the charity spending a constant percentage each year, usually 4% to 6% of the endowment. (In the old days, say 10 years ago, most formulas allowed charities to spend income, which was defined as dividends plus net capital gains.) Within these constraints, endowments behave like defined benefit plans.

 

5. Mutual Funds

Mutual funds do not face any fixed funding or disbursement. Their flows come from retail money chasing past performance. Managers that do well face the blessing of attracting more funds, which they hope will not dilute their returns. Managers that do poorly have funds withdrawn from them, forcing them to liquidate investments that they otherwise think are promising. If a manager is a big enough investor in a given company’s stock (think of Janus’ concentrated portfolios), this can have the effect of worsening performance as liquidation goes on, or boosting the already good performance of managers that are receiving cash inflows to a concentrated fund.

These tendencies become more pronounced the better or worse that performance gets. When performance is near the median level, say, within the second and third quartiles, performance-driven fund flows are small. For many mutual fund managers, this gives them the incentive to never drift too far away from the benchmark, whether that is an equity index or an average portfolio of peers. There is safety in the pack, even if there might be more grass to eat further from the herd. It is rare for a mutual fund manager to be fired for being mediocre.

 

6. Index Funds

What is true of regular mutual funds is also true of index funds, but the difference between the two helps illuminate a basic idea on demographics. Aside from taking market share away from active managers, when do index funds receive and disburse funds? The answer lies mainly in the demographics of investors.

When investors are younger, they invest surplus cash. When they are older, particularly after retirement, they liquidate investments to generate cash. Given the demographics in the U.S., the excess return for merely belonging to the S&P 500 has been roughly 4% per year over the past 15 years; index funds have received disproportionate large inflows relative to the market as a whole. Aside from that, in aggregate, active equity managers benchmark to something that approximates the S&P 500. Belonging to the S&P 500 ensures a continuing flow of capital.

Or does it? What will happen near 2020, when aggregate investment behavior changes from saving to liquidation?? Belonging to major indices may not have the same cachet as investors liquidate their holdings to fund present needs. What was 4% positive in the 1990s could become 4% negative in the 2020s, absent a continuing move toward passive investing.

I don’t have a firm answer here, but I do have suspicions. I would be cautious of too much index exposure 15 years from now, to the extent it can be avoided. (And of course, this will be anticipated several years before the flows turn negative.)

 

7. Unleveraged Private Investors

Sometimes private investors feel disadvantaged vs. larger institutional players, but there are advantages that unleveraged private investors have that institutional players often don’t: the abilities to invest for the long term, concentrate and do nothing.

Institutional investors are subject to the tyranny of constant measurement because they manage money for others. As I have noted before, measurement affects how a manager invests, particularly when it might affect the amount of assets under management, or the receipt of incentive fees. This encourages managers to be both short-term in their orientation and more like an index. It also encourages hyperactivity; clients often expect a manager to make changes to the portfolio even when doing nothing could be the most prudent policy.

Unleveraged private investors can make aggressive investment decisions. They can concentrate their portfolios or consider more esoteric areas of the market. They also can back away from the market if they feel that opportunities are absent. Finally, they can buy and hold, which is not always an option for institutions. They can’t always ride out long but temporary dips in the price of an asset.

That an unleveraged private investor can do these things doesn’t mean he should. Using these advantages presumes a level of expertise in the market well in excess of the average investor. Most investors are average and should index. Those with skill should use it to their maximum advantage, realizing that they are taking their own financial life in their hands; the risks to such an approach are significant, but the same is true of the rewards.

Unleveraged private investors have needs for cash. Some will need it for college, retirement, a second home, etc.? The sooner that an investor will need to liquidate a significant portion of his portfolio, the more conservative the portfolio must be to achieve those spending goals. Looking at private investors in aggregate, this would mean that as the baby boomers approach and enter retirement, there might be a tendency for the overall willingness to take risk in the markets to decline. Also, once the baby boomers are in retirement, assets will have to be liquidated to support them, which will be a drag on the markets at that time.

-=-=-=-=-=-=-==-=-=-=-=-

In the second part of this column, I will describe how the funding and disbursement modes of three more key groups of investors affect the market, \and how balance sheet players and total return players further mix up the market forces. I’ll also use the Long Term Capital Management crisis to illustrate how illiquidity can shape and shake the market.

At the Towson University Investment Group?s International Market Summit, Part 2

At the Towson University Investment Group?s International Market Summit, Part 2

Here are some questions submitted in writing that did not get asked. ?Here are some questions & answers:

1??????? What do you make of the move towards energy independence in America and what are some benefits that accommodate it?

Any innovation that lowers costs is a good thing. ?Energy independence is a a shibboleth that many bow to but is meaningless, absent embargoes or war.

The important thing is to deregulate exports of energy from the US, so that it can be done freely, allowing energy companies the ability to send crude oil and LNG to the places that value it the most. ?We also need to permit pipelines, and ignore the shortsighted environmentalists who don’t realize that pipelines minimize pollution relative to rail.

There will be some benefit to other US industries, which will get cheap energy because they don’t have high energy transport costs.

2??????? You can argue that we are in the midst of a bond bubble.? What are the implications on markets in the event this bubble bursts?

We aren’t in a bond bubble, at least not yet. ?Bubbles are typically asset-liability mismatches, where long assets are financed short. ?For a bond bubble to pop, you need the short financing rate to rise above the yield of the long bonds being financed. ?In more plebeian terms, you need the yield curve to invert. ?Bubbles pop when investors have to feed the asset in order to hold the position, and that never lasts long.

3??????? What are some risks of the global stimulus taking place?

We are involved in a?colossal?”race to the bottom.” ?Those with low exchange rates can temporarily stimulate their own economy, until another major country devalues their currency. ?The main risk is stagflation. ?Little growth, and depreciation of purchasing power. ?Personally, I would have preferred a deeper recession that eliminated bad debts.

4??????? How big of a risk is the European Union and Euro instability given the unprecedented circumstances in Cyprus where depositor monies are at risk?

The risk is big. ?Why should anyone hold money in a non-core Eurozone bank? ?Better to put it under your mattress where it can’t be confiscated.

Cyprus demonstrated that a Euro is not a Euro; value depends on where the Euro is. ?Far better to have many predictable currencies than a single unpredictable currency.

The Cyprus experience teaches two main lessons to those in stressed nations:

a) The deposit guarantees mean nothing.

b) Your money has a safer home buried in your yard.

You don’t want that to be the case. ?Runs on banks in weak nations compound all the other problems. ?Why help create the conditions of the Great Depression?

5??????? What do you make of the transparency (or lack thereof) in China? How big of a threat does this pose to investors and companies that do business in China?

Regardless of how cheap an asset is, you never trade away transparency. ?If you don’t understand an asset, you will never be able to trade it properly. ?It is a huge threat; avoid situations like this.

As an aside, China does not have the “rule of law.” ?They have “rule by law.” ?The distinction is significant, because under “rule of law” the government is subject to the law. ?Under “rule by law” the government controls the legal process. ?You are only as safe as your government connections are strong, and that is not very reliable as a foreigner.

6??????? With the suggestions from the president to increase the minimum wage, what are some of the effects that it might have on unemployment, foreign and business investment, and the market in general?

7??????? Should state minimum wages be tied the federal minimum wage and will the change in minimum wage at the federal level have any effect on states since they are not tied to federal minimum wage law?

You can’t get something for nothing. ?Any government intervention changing a price will have less impact than commonly believed. ?The free market should regulate wages, not the government.

But away from that, many corporations are penny wise, pound foolish. ?There are virtues in paying your employees an above-market wage where you:

  1. Train them
  2. Instill loyalty
  3. Make them part of the decision-making process
  4. Give them a sense of ownership, and offer profit-based bonuses.

If you pay your employees the minimum, expect minimum or worse efforts. ?Pilferage often comes from employees who realize their efforts are not appreciated.

I suspect this will go 2-3 more pieces. ?I hope you enjoy them.

Sorted Weekly Tweets

Sorted Weekly Tweets

Market Dynamics

 

  • The Scary Risks of Safety Bubble Up http://t.co/Tv3tG8TwSH Never forget that dividend stocks r stocks & that assets r risky if overpriced $$ Apr 11, 2013
  • Cheap Mortgages Are Hiding the Truth About Home Prices http://t.co/bQoXGHWVwO If Mtge rates r artificially low then housing prices r high $$ Apr 11, 2013
  • Suckers! Tech Execs Selling Stock as Nasdaq Hits High http://t.co/6lPnjk7sxu Fed is the tide; who will b found swimming naked when it ebbs $$ Apr 11, 2013
  • Banking Business: Complexity Cubed http://t.co/N1itJvjmbx If you want to simplify corporate structure, start simplifying the tax code $$ Apr 11, 2013
  • The 14% Rate of Corporate Profits Will Eventually Revert 2 Mean, Spoiling the Party http://t.co/6TZXKn29uX Don’t use P/E 2 measure cheap $$ Apr 10, 2013
  • Most big companies, unless they r simple start to underperform at mkt cap > $100B. Managing the complexity is virtually impossible. $$ Apr 10, 2013
  • How The Equity Q Ratio Anticipates Stock Market Crashes http://t.co/2LiEi9zFzR & The Q Ratio and Market Valuation http://t.co/9tM6srmneq $$ Apr 10, 2013
  • Check Here to Tip Taxi Drivers or Save for 401(k) http://t.co/cNg8wSSDmh Stupid efforts at manipulating behavior eventually fail $$ #quitit Apr 10, 2013
  • Questions to Ask Your Adviser About Fees http://t.co/78kLdmlTGN Main things what do you pay & find out who else is paying him Apr 09, 2013

 

Europe

 

  • Merkel?s No-Nuke Stumble May Erode Re-Election Support http://t.co/B8c0441GDR An unforced error; far better 2 invest in Nuke plant safety $$ Apr 11, 2013
  • Swedish Banks Make Money Ditching Cash as Krona Goes Virtual http://t.co/pcWOQztjwL It is a mistake to make $$ disappear. Ask Cyprus why $$ Apr 11, 2013
  • Economic Crisis Hits the Netherlands http://t.co/63VuWJta03 Imagine a nation where 120% LTV loans & trading homes every 3 yrs is common $$ Apr 10, 2013
  • ECB Survey Challenges Image of Poor Southern Europe http://t.co/ITmwyBr5ng I suspect this study is wrong or measuring the wrong thing $$ Apr 10, 2013
  • Why Thatcher Wouldn?t Succeed in Our ?Lean In? Culture http://t.co/CKpMa4GYov U have to + in the concept of killing sacred cows w/courage $$ Apr 10, 2013
  • Portugal austerity plan frays http://t.co/ukBVsCYNeE Top court struck down wage cuts and lower pensions for state workers; what now, Troika? Apr 09, 2013
  • Soros: Europe faces ‘slow death’ Japan is trying to escape http://t.co/SEtqiNEBBU Seems 2 argue for massive QE, but no sign that QE works Apr 08, 2013
  • Why Rescue Fragile Banks? Outsource Them Instead http://t.co/ixYB95jHug Exile TBTF banks to the E-Zone; let them pay 4 the bailouts Apr 08, 2013
  • Europe Builds Own Chapter 11 http://t.co/kHrgFmMHc2 Moves closer to the US, but still is not as flexible in rehabilitating corporations Apr 07, 2013

 

Credit Markets

 

  • Foreclosures Jump in New York as US Sees Decline: Mortgages http://t.co/oaz5prhQVA Judicial f/c states catch up w/the rest of the US $$ Apr 11, 2013
  • Pimco’s Gross Turns Positive on 10-Year Treasurys http://t.co/8uBxkzWxgK Guessing what central banks will want 2 buy, mug’s game Apr 10, 2013
  • Bank Investors Press Breakups to Add Value, Burnell Says http://t.co/DQefb93MB5 Biggest banks r worth more broken up; can’t manage well $$ Apr 10, 2013
  • Banks rethink the branch, but will it work? http://t.co/JwDHF22Re4 This article is just another way 2say there r2 many banks & branches $$ Apr 10, 2013
  • The leverage story banks want to hide http://t.co/yebYHRCxn5 To avoid bank insolvency focus on liquidity of assets/liabs in stressed times Apr 09, 2013
  • Contagion Starts Small http://t.co/0PeQhSd6Qb Small->large requires domino debt failures, needing liquidity for illiquid, or safety mismatch Apr 09, 2013
  • Time bomb to the next crash is ticking as debt sales surge http://t.co/zn41h2eJ8E Investors requiring safety mismatch buying unsafe debt Apr 09, 2013
  • Where Bank Regulators Go to Get Rich http://t.co/hGnGn3hpwt An astounding array of former regulators aiding “end arounds” on regulation Apr 08, 2013

 

 

Rest of the World

 

  • Ghost of Suharto Seen in Boomtowns Leading Indonesia Growth http://t.co/nYsu2yuN5L Indonesia often booms near end of global econ cycle $$ Apr 11, 2013
  • Low bond yields luring global central banks into equities: survey http://t.co/HoeVX2qHbY This is so unorthodox & cronyist it beggars belief Apr 09, 2013
  • Why Capitalism Won?t Change North Korea?s Regime http://t.co/dSxzrFaCgz Current leaders will lose out if people learn how badly they live $$ Apr 10, 2013
  • Clashes Highlight Egyptian Divide http://t.co/oaMtZkIbjC Hippocratic Oath applies to diplomacy w/”regime change:” “First do no harm!” Apr 08, 2013
  • Is the Global Economy Slowly Falling Apart? http://t.co/zMQx2ih1vE Good list of some of the major problems; overstated title/weak conclusion Apr 08, 2013

 

China

 

  • A Day in the Life of a Beijing ‘Black Guard’ http://t.co/P8ElsIJPMM Secretive groups stop Chinese citizens complaining about local govts $$ Apr 11, 2013
  • China Exports Miss Forecasts as ?Absurd? Data Probed http://t.co/Ycch2uQu04 Will b interesting 2c how people revise views on Chinese data $$ Apr 10, 2013
  • In China, off-balance-sheet lending risks lurk in the shadows http://t.co/Vg4tBss9gV Tough Q: how do the shadow banks & municipalities fund? Apr 09, 2013
  • New Bird Flu Seen Having Some Markers of Airborne Killer http://t.co/8QrkkXKaY5 No sign of mammal-to-mammal transmission, would not worry Apr 07, 2013
  • China Says It Can Manage H7N9 Virus as Infections Rise http://t.co/mfgn75pOIY No human-to-human transmission yet, SARS-like most likely Apr 08, 2013

 

Japan

 

 

US Politics & Policy

 

  • Options Few as US Leaders Told Saturday Mail Can?t End http://t.co/317ANktRxp Raise all postage prices, & double 4 junk mail $$ Apr 11, 2013
  • Boomers Push Doctor-Assisted Dying in End-of-Life Revolt http://t.co/kTfahFMOwh It’s almost like the Boomers want to corrupt everything $$ Apr 11, 2013
  • Medical School at $278,000 Means Even Bernanke Son Has Debt http://t.co/VrYkFx2Lcr Bad idea 2 invest where rules can b changed against u $$ Apr 11, 2013
  • Obama seeks to reduce US subsidy of crop insurance http://t.co/LfxfYeC63n It is time 2 end ALL Ag subsidies; just goes 2 Big Agriculture $$ Apr 10, 2013
  • FOMC Minutes Show Several Members Saw QE Over by Year-End http://t.co/xkcGOm2ly1 Don’t think so, but if true, lighten up on risk assets $$ Apr 10, 2013
  • Andy Kessler: The Pension Rate-of-Return Fantasy http://t.co/MzvTrYHBFh Excellent piece: bad pension assumptions; will lead2 benefit cuts $$ Apr 10, 2013
  • Interview with Harvard Economist Carmen Reinhart on Financial Repression http://t.co/XkB8Mf5R1Z Sane words amid macroeconomic snake oil $$ Apr 10, 2013
  • USDA asks White House to approve sugar-for-ethanol program http://t.co/g2Ldt5ge3s Utter corruption, $$ in the pockets of the US Sugar lobby Apr 09, 2013
  • A Primer for Understanding Obama’s Budget http://t.co/O9DgmLFQQD This is y Federal Debt always goes up by more than the planned deficit Apr 09, 2013
  • Evangelicals Push Immigration Path http://t.co/KCaNhFnhGd Governments limit immigration 4 selfish reasons; migrants come b/c desperation Apr 09, 2013
  • U.S. Plans New Laser Weapon for Persian Gulf http://t.co/ZdzZZTwSs4 Don’t get too excited; it only works at short range #studyphysics Apr 09, 2013
  • O?Malley Wins on Guns, Taxes Seen as 2016 Resume-Packing http://t.co/74fFr0oKkf Raided liability funds 2 finance current spending #phony Apr 09, 2013
  • How Obamacare Will Distort the Health-Care Market http://t.co/o0yHYcgESu This was easy2c in advance; ability to adjust premiums very limited Apr 08, 2013
  • Rhode Island’s Scary State Treasurer http://t.co/ib56cMDhWI Raimondo fires back after Forbes contributor attacks her http://t.co/qHeAUIw7P7 Apr 08, 2013
  • Workers Stuck in Disability Stunt Economic Recovery http://t.co/G0gqpP8pLM Many of these people should be called unemployed, not disabled Apr 08, 2013
  • Chicago Mayor’s Pension Conundrum http://t.co/iE5grwyd14 Tip of the iceberg; this is going on in different ways in all US states Apr 08, 2013

 

 

Wrong

 

  • Wrong: This Underused Metric Points To Big-Name Bargains http://t.co/MpAgxDmzsN 4 of 8 “bargains” r insurers; no way 2calc free cash flow $$ Apr 10, 2013
  • Wrong: Kill the 30-Yr Mortgage http://t.co/XKm9fRJXaR You don’t finance long-term assets like homes w/short-term debt. Badly thought-out $$ Apr 10, 2013
  • A better long-term solution to make the residential RE mkts more stable would be to ban mortgage insurance & second lien mortgages (HEL) $$ Apr 10, 2013
  • Wrong: Stalking the Silent Financial Killer in Our Midst http://t.co/HVOm4GCjHM Please kill this while little: LTC not underwritable $$ Apr 10, 2013

 

Other

 

  • Mmm, the Flavors of Fermentation http://t.co/i7sNTIixK4 Interesting article that points out the many ways we use fermentation 4 flavoring $$ Apr 11, 2013
  • Gates Helps Australia?s Richest Man in Bid to End Slavery http://t.co/UMUOLJ8nvT Noble goal 2 free those who r essentially kidnapped $$ Apr 11, 2013
  • How Thatcher Saved Britain http://t.co/Re3BWfPvPx She did not give in 2 the Unions, nor Argentina, nor USSR, nor the media; she stood alone Apr 10, 2013
  • Wood: the fuel of the future http://t.co/QZC54Ud6gy Having lived in a town where wood was the most common winter heat source, air was dirty Apr 09, 2013
  • Tour Data Suggest Tiger Woods Owes His Comeback to One Basic Skill?Sinking Putts http://t.co/WSOTrhn0iU Drive 4 show; Putt 4 dough. Apr 09, 2013
  • Label Decoder | Protein Additives http://t.co/HAx2Ta4UEu I think we are creating more health problems by eating processed foods Apr 09, 2013
  • 10 Insanely Overpaid Nonprofit Execs http://t.co/gH0Fa7EszO Caught btw managing a large enterprise & charitable mission; fight each other Apr 08, 2013
  • The Golf Shot Heard Round the Academic World http://t.co/EeFl5NFoMz Multiculturalism that cannot tolerate the ideas of conservatives Apr 07, 2013

 

Insurance

 

  • As an aside, SCOR’s balance sheet is more levered than it seems. Reminds me a little of Scottish Re (spit, spit) RGA’s looks solid FD:+ $RGA Apr 11, 2013
  • RGA, Scor in final race for Generali US unit-sources http://t.co/MUbVuvMpZv SCOR aggressive, will likely overpay | FD: + $RGA $$ Apr 11, 2013
  • Ace?s Greenberg Says Takeover Spree Beats Share Buybacks http://t.co/lwYLCLUg45 Seems like Evan is trying 2 create a mini- $AIG $$ $ACE Apr 11, 2013
  • Record levels for global reinsurer capital http://t.co/y70eA0H6Xz Listen 2 1Q conf calls, listen 4 pricing, divs, buybacks. EZ $$ been made Apr 10, 2013
  • Metlife on Offensive Against Systemic Tag http://t.co/NgBhd6I1p7 Life Ins cos shouldn’t b SIFIs unless they have short-dated funding $$ $MET Apr 10, 2013
  • Insurers see promise in pay-for-performance health plans http://t.co/Hrpy0KEk4M Skeptical: does not remove incentives 4 overuse by doctors Apr 09, 2013

 

Banks

 

  • Banks Are Not as Bad as You Think: Pettis http://t.co/rPWAZy1GbD Afraid I have to disagree, bad banks set back growth in 1870s & 1930s $$ Apr 11, 2013
  • Crapo Says He Opposes Setting Capital Standards With Legislation http://t.co/SshephsE7y Far better2focus on liquidity analyses under stress Apr 09, 2013

 

Technology

 

  • Regulators Feeling ‘Social’ Pressure http://t.co/sylIMHMQ65 In Age of Twitter, Old Rules That Don’t Address New Media Pose Challenges $$ Apr 11, 2013
  • Drug Conjugates: ‘Guided Missiles’ to Treat Cancer http://t.co/eA3EatBo7M Drug conjugates attack tumor cells, rather than just any cells $$ Apr 10, 2013
  • The Future Of Mobile [SLIDE DECK] http://t.co/iLu3Cr3uQ7 Long, but data-packed & a breezy read. cc @hblodget thanks, I learned some stuff Apr 09, 2013
  • Sponsors Now Pay for Online Articles, Not Just Ads http://t.co/wDOd0t57nd I get ~10/week of these at my blog. Have never taken any of them. Apr 09, 2013
  • We Just Took A Big Step Toward Having Super High-Definition Desktop Displays http://t.co/VL5LYGWACt So fine u won’t notice the pixels Apr 09, 2013
  • This Simple App Could Put E-Books On Millions Of Phones In The Third World http://t.co/wOFojOf6N2 Software & Cheap phones promote literacy Apr 09, 2013
  • Hypothermia Cure: Cooling Infants to Battle Brain Damage http://t.co/EG0o8qRu1H Interesting & Odd technology may benefit 0.1%+ of births Apr 09, 2013

 

US Economy

 

  • Murdoch-Diller Showdown Threatens to Make Fox Cable-Only http://t.co/pcIriVUDYw Endgame for the separation of content & transmission $$ Apr 11, 2013
  • North Dakota Undergoes Refining Renaissance http://t.co/UTFF2277sz U know things r hot when a new crude refinery is built from scratch $$ Apr 11, 2013
  • You Got In; Now, Please Come http://t.co/GWCQyqnIGV Speaks 2 the overcapacity problem in colleges; high fixed costs r driving pleading $$ Apr 10, 2013
  • ?Everyone believes that, given where we are with interest rates, the only eventual direction is up” I c this said daily maybe more $$ Apr 10, 2013
  • US Transports Economic Pulse : Trucks — Boats – Planes – Trains http://t.co/0kriEgfKnt Two up, two down — all in all, we muddle along Apr 09, 2013
  • I am become Ron Johnson, Destroyer of Worlds http://t.co/YUxa84LUKT @reformedbroker sets up future biz school case study. I + my $0.02 $JCP Apr 09, 2013

 

Replies, Comments & Retweets

  • Commented on StockTwits: Not really. At present I own the following for clients & me: $NWLI $RGA $AIZ $SFG $AFL &… http://t.co/q0v0UYfVRp Apr 11, 2013
  • Ouch RT @ReformedBroker: Gundlach: Forget Fed Minutes, QE is not stopping anytime soon, talk is just talk. Yellen’s down to do this til 2025 Apr 11, 2013
  • RT @ReformedBroker: “Japan is important to watch, it’s a pace car for stock market peaks, weird policy responses and currency debasement … Apr 11, 2013
  • I think so too $$ RT @ReformedBroker: Gundlach: “Emerging market corporate debt is THE best area of investment grade fixed income right now” Apr 11, 2013
  • @fundmyfund If “Everyone Ought to be Rich” then who will deliver the pizzas? 😉 Apr 11, 2013
  • @LaurenLaCapra Another idea: http://t.co/Gw1UKjS66Q DB available 4 pay: http://t.co/L2kLOZUlr0 League Tables cost $6 http://t.co/EG0FGgb6pu Apr 11, 2013
  • @LaurenLaCapra Thy this http://t.co/L9ZkQztxzD and if that’s not enough try this Google query: http://t.co/mO3CEmQwiM Take care Apr 11, 2013
  • ‘@PensionDialog 2003 vs now, interest rates were higher & valuations 4 risk assets lower. Pension returns will b lower over next 10 years $$ Apr 10, 2013
  • @ritwik_priya Saw that, though housing values have fallen across much of Europe, particularly where mortgage debt is high Apr 10, 2013
  • @PensionDialog That’s backward looking, while interest rates are forward looking. In 2003, 10Y Tsy yields were more than 2% higher than now Apr 10, 2013
  • ‘@EMostaque To some degree, others will let funding levels stay low (& hope), some will pay more $$ , some will cut benefits where possible Apr 10, 2013
  • @IraApfel Sadly, proposal will reduce assets in MMFs, which r usually more stable than banks in a crisis. Better: http://t.co/nC8D4TetbQ $$ Apr 10, 2013
  • Yes RT @asymptotix: So, if anyone must leave, it should be Germany (and Finland), not Italy, Greece, Ireland, Portugal or Spain.. Apr 09, 2013
  • @jarrodwilcox A free trade zone in Europe is a good thing & might prevent war; a common currency, the way it is going could start one Apr 09, 2013
  • @jarrodwilcox But I think WW 3 is a boogeyman. Sandwiched between Russia/USSR & the US, that big of a war wouldn’t be likely 2 happen. Apr 09, 2013
  • Probably the latest peak blossom since I’ve been here RT @EddyElfenbein: Cherry blossoms in DC http://t.co/IG9XiDIYrc Apr 09, 2013
  • RT @jarrodwilcox: @AlephBlog Euro looks like a disaster until you remember WWII. Political will to overcome divisions may still be will … Apr 09, 2013
  • Those are succinct insights in why the Euro would fail. There were other saying similar things at the time… http://t.co/7B0cpWcIhO Apr 09, 2013
  • RT @AndreCimini: @AlephBlog Yes, absolutely. Here’s a couple of very interesting articles on Canada: 1) http://t.co/HEXt7c8HKH 2) htt … Apr 09, 2013
  • @AndreCimini Cam Hui is a good guy; I usually agree w/him. Second article makes some very good points; I learned from it, tho I knew some Apr 09, 2013
  • @AndreCimini It was an interesting article. Interesting to contrast US/States v Canada/Provinces. Provinces do more; linked tighter2Canada Apr 09, 2013
  • RT @AndreCimini: @AlephBlog Here’s why CDN gov’t debt deceiving; add in provincial debt and total debt is around 86% of GDP. http://t.c … Apr 09, 2013
  • @AndreCimini Thanks, I had forgotten that. Apr 09, 2013
  • 1 straw blowing in the wind, some go other ways RT @ReformedBroker: Forward Earnings Estimates Set a New Record High http://t.co/4OxyGoYQcX Apr 08, 2013
  • @groditi Also factor in the drag from pension liabilities, reductions from spending rules from lower interest rates; I think it washes Apr 08, 2013

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FWIW

  • My week on twitter: 34 retweets received, 2 new listings, 61 new followers, 34 mentions. Via: http://t.co/cPSEMLXpb8 Apr 11, 2013

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Sorted Weekly Tweets

Sorted Weekly Tweets

US Fiscal & Monetary Policy

 

  • Obama?s Budget Would Cap Romney-Sized Retirement Accounts http://t.co/3xC4YflVFO Might indirectly harm smaller accounts, article states Apr 05, 2013
  • Obama Budget Plan Would Curb Social Security Growth http://t.co/3wvyDuN3tE Small curbs; reinforces idea: can’t trust Govt on inflation Apr 05, 2013
  • Obamacare Sticker Shock: Are You Ready to Pay Double? http://t.co/hKaBmRzQMZ Getting bad enough that the Democrats might undo Obamacare… Apr 04, 2013
  • ?Greatest bond bubble in history? will burst in economic chaos, says Stockman http://t.co/SuFObaenCK Collins & Aikman makes him Cassandra Apr 04, 2013
  • How the Fed fueled an explosion in subprime auto loans http://t.co/g7r3Likl56 Cheap AAA financing + personal stories of aggressive lending Apr 04, 2013
  • Who will be the next Fed chair? Here are Wonkblog?s odds. http://t.co/44Bqhho05m Every one of these is a horrible idea, especially Yellen $$ Apr 03, 2013
  • Krugman should be careful tossing out the phrase ?cranky old man stuff.? It tosses like a verbal Boomerang. #livesinaglassshouse $$ #stones Apr 01, 2013
  • Stockman Warns of Crash of Fed-Fueled Bubble Economy http://t.co/wsxbP1tsTe Krugman called Stockman?s piece ?cranky old man stuff? $$ Apr 01, 2013
  • Fannie Mae and Freddie Mac Face New Problem: Profitability http://t.co/KobaLaMezt Some in Govt plan on keeping F&F under govt control $$ Apr 01, 2013

 

North Korea

 

  • Understanding Kim Jong Un?s Tantrums http://t.co/EeGXEUuvcH Has 2 prove tough guy bona fides to generals, while pushing modest reform agenda Apr 05, 2013
  • North Korean Nukes: How Worried Should We Be, and What Is Kim Jong Un Thinking? http://t.co/vsoaHvzQvI Mutual deterrence of first move Apr 04, 2013
  • Scooping Up North Korean Coins http://t.co/Sokc9jIfZe Jimmy Rogers picks up some unusual numismatic coins from North Korea. $$ Apr 01, 2013

 

Eurozone

 

  • Merkel Losing Allies in $700 Billion Shift to Renewables http://t.co/CEh2j8TE4p For a science PhD, she certainly tends 2 magical ideas Apr 05, 2013
  • Draghi Considers Plan B as Sentiment Dims Post Cyprus Fumble http://t.co/Wbu9ggM2cd Unwinding the Euro would be appropriate #unforcederror Apr 05, 2013
  • Le Fracking for Geothermal Heat Drawing Ire of French Oil http://t.co/5KHqRtfdO9 The French tie themselves in knots: irrational policies Apr 05, 2013
  • EU Unemployment: Titanic in Perspective http://t.co/uSxKOfNLn5 Summary of the EZone unemployment problem, culled from many websites Apr 04, 2013
  • A weakening Germany in a weaker EU http://t.co/CsuZ3KQ86x But can Germany rescue itself; whole EZone slowing down; time 4 action Mario! 😉 Apr 04, 2013
  • World from Berlin: ‘Germany Isn’t Living Up to EU Responsibility’ http://t.co/ozzZJbr5xR But what will Germany do when it has2rescue France? Apr 04, 2013
  • Audi Wants to Change a 45-Year-Old U.S. Headlight Rule http://t.co/V0aOqzGRi0 Only high & low-beams r allowed; Audi wants more variety Apr 04, 2013
  • Cyprus Turks Share Pain as Banking Crisis Revives Talk of Unity http://t.co/VmHELItCED Serious talks will come through younger politicians Apr 04, 2013
  • The ECB Fragmented Monetary Policy http://t.co/o8o8d0nucY Eurozone no longer has single monetary policy; euros not worth same everywhere $$ Apr 03, 2013
  • Euro Zone Unemployment Hits Record High http://t.co/lLgg6ZQVKg Fringe Europe suffers from the political dreamers post-WWII $$ #breakup Apr 03, 2013
  • Money Funds Meet Zero Yields by Breaking Buck Taboo: Euro Credit http://t.co/uD672kwCfP Short-term finance hits the wall in Eurozone $$ Apr 03, 2013
  • Slovenia?s Jazbec Inherits Bank System to Avert Bailout http://t.co/MDrCmuYmEk Don’t care how smart u r; pain involved in deleveraging $$ Apr 03, 2013
  • Texas wants its gold back! Wait, what? http://t.co/HuH7vg53Z8 This is a rational response to kleptocracy a la Cyprus. $$ Apr 02, 2013
  • Developing Nations Retreating from Euro as Reserve Currency http://t.co/tH91Uw76SC Predictable; can reserve currency allow confiscation? $$ Apr 02, 2013
  • President Hollande Failing to Control Unemployment Crisis http://t.co/XojVG1pZMl It would require considerable deregulation 2fix France $$ Apr 02, 2013
  • Sundown in America http://t.co/hpeIDbcvzl Much as I have not liked Stockman, the logic is decent; he is arguing for the free markets. $$ Apr 02, 2013
  • Mitch McConnell Prepares To Give Barack Obama The Political Shellacking Of A Lifetime http://t.co/AqOqm1Vwey Worth a read, PPACA is a dog $$ Apr 02, 2013
  • Wrong: Confessions of a Keynesian heretic http://t.co/MnUyIqdIZ2 Another believer in monetary alchemy, but not fiscal alchemy $$ #endthefed Apr 01, 2013

 

Japan

 

  • Wrong: Japan?s Brave New Monetary Era http://t.co/NxIU0Ovc4J Doing the same thing over & over & expecting a different result. Won’t work Apr 05, 2013
  • Japan’s Yen UnCompetitveness – Fukushima and the Yen – Hara-Kiri http://t.co/4UfjiH40XM Export > Import favors yen fall; now is vice-versa Apr 05, 2013
  • Kuroda to Bernanke: My Bazooka Is Bigger Than Your Bazooka http://t.co/4d2ocM3BJN “I can destroy my nation faster than u can. Nyaah! Nyaah!” Apr 05, 2013
  • Bank of Japan in Bold Bid for Revival http://t.co/DyKXQFLpsC We must devalue & inflate our way to prosperity! Apr 04, 2013

 

Church v State

 

  • Next few tweets will b controversial: Founder’s thoughts on “No establishment of religion” applied to the National govt, not the states Apr 04, 2013
  • Laws favoring certain churches persisted in various states until 1850s, & some had religious test oaths for officeholders into 20th Century Apr 04, 2013
  • The “test oaths” died for lack of use, clean up in the 1900s, was largely perfunctory. The next tweet contains today’s story Apr 04, 2013
  • Proposal would allow state religion in North Carolina http://t.co/SZIXiT2Xht Won’t pass modern constitution muster, but would in early 1800s Apr 04, 2013

 

Other US Politics

 

  • Seven Dumb Things Bankers Say http://t.co/2A5GTQn59w Among them that the big banks aren’t too big, & that the economy is not 2 financialized Apr 06, 2013
  • Deep in the Red of Texas, Republicans Fight the Blues http://t.co/UP2ZmRA4Fi Texas, future blue state, must motivate voters to care Apr 05, 2013
  • ‘Dear Airline, Here’s the Problem…’ http://t.co/6fBnR48kb0 Customized surveys home in on problems so airlines can fix complaints fast Apr 04, 2013
  • Pro-Gun Laws Gain Ground http://t.co/QXGXNbDwyZ Since Newtown Massacre, More States Ease Regulations Than Bolster Them Apr 04, 2013
  • Tough Calls on Prenatal Tests http://t.co/I4037KsAt8 Beware false positives; If u get a positive, do a 2nd invasive test 2 check Apr 04, 2013
  • 5 big Dodd-Frank battles http://t.co/Z7CfTuUVUA Volcker Rule, consumer bureau battle, random ratings, derivatives fight all on agenda Apr 04, 2013
  • Health Insurers Prevail in Medicare Fight With Washington http://t.co/Z8TskpLoi6 Another example of the perversity of the PPACA $$ #abolish Apr 03, 2013
  • Court says Stockton, California may proceed with bankruptcy http://t.co/DTgMt85Er1 Largest muni bankruptcy will challenge guarantors $$ $AGO Apr 02, 2013
  • Banks Win Dismissal of Substantial Portion of Libor Suits http://t.co/HzdRoTIYS8 Difficult 2 prove particular damage 2 claimants. $$ #toobad Mar 31, 2013
  • Frats Worse Than Animal House Fail to Pay for Casualties http://t.co/ViKN3I1Tb8 Very long article: national fraternities avoid liability $$ Mar 31, 2013

 

Financials

 

  • Wrong: Beware of those who cry ‘bubble’ about bonds http://t.co/DHvp60swjB Article argues about wrong classes of bonds; Tsys not bubble Apr 05, 2013
  • As Business Lending Rises, Concerns Emerge About Profit http://t.co/D8bdwXm5Re May b no defaults now, but loan pricing tighter than exp loss Apr 04, 2013
  • The Lurkers of Wall Street http://t.co/odjuKYZodt @reformedbroker Of “desk analysts” that turn to Stocktwits when they can’t find news Apr 04, 2013
  • Freeh Says Corzine?s Risky Strategy Helped Fell MF Global http://t.co/wSDrswvoYB B wary when companies pursue biz askew from main biz Apr 04, 2013
  • HSBC Converts Loan Clients to Enter Junk Top 10 http://t.co/2yj8hHMW4E Pay more in yield, but gain flexibility from fewer covenants Apr 04, 2013
  • Bond Traders Club Loses Cachet in Most Important Market http://t.co/7Hw4frsFOn It’s just not worth it 2b a primary UST dealer w/direct bids Apr 04, 2013
  • Financial ETF Falters Amid Bearish Bets as Bank Earnings Loom http://t.co/axMByUp3Zd Ratio of $SPY to $XLF is rising http://t.co/zz0tdIslzq Apr 04, 2013
  • I miss working in a life ins investment dept. You get to see all of the prospectuses for bizarre credit deals; u *feel* the credit cycle $$ Apr 04, 2013
  • Bitcoin?s largest market crashes after wild price swing http://t.co/SAEdfFOmAN Smile when u say Bitcoin & “crash course” in same sentence $$ Apr 03, 2013
  • Gross Says Buffett, Soros Careers Fueled by Expansion http://t.co/1WaBuu49bu Honest Gross; Taking 2much credit risk briefly looked good $$ Apr 03, 2013
  • Mortgage Gamble Pays Off for Wells http://t.co/S82N3MwglF Doing balance sheet lending w/an option to sell if conditions r good $$ FD: + $WFC Apr 03, 2013
  • Willow Fund as a Cautionary Tale for Investors http://t.co/UUsO9xUE2n Large strategy changes r always red flag; invalidates track record $$ Mar 30, 2013
  • Does Blame Predict Performance? http://t.co/K79d7gJgqS “Blame cultures” can improve investing by identifying &fixing problems w/foresight $$ Mar 30, 2013
  • Carl Icahn Unleashed: Wall Street’s Richest Man Is On The Attack — Just Ask Michael Dell http://t.co/Nck6h50plR Was interviewed 4 this $$ Mar 30, 2013

 

Other

 

  • Is Jeffrey Loria the Worst Owner in Sports? http://t.co/B5qrnvM9c3 & Rent-seeking in professional sports http://t.co/QmhopqxwAw ?cc @munilass Apr 04, 2013
  • Gold Slumps Toward Bear Market as Investors Cut Holdings http://t.co/2dOeIfPl4r Positive self-reinforcing liquidation of ETF units, mebbe Apr 04, 2013
  • A Man in the Mirror http://t.co/85QSn5dSSM Bill Gross says great investors have had a huge tailwind from growth of credit. What comes next? Apr 04, 2013
  • Firefox 20 is giving me fits w/a Javascript bug keeps popping up boxes that say “Error: missing ( after for” Also no posting 2 stocktwits Apr 04, 2013
  • Visa Demand Jumps http://t.co/MlszY9pJ9y Employers Set to Quickly Reach Cap on Skilled Foreign Workers $$ Companies race to get ltd # visas Apr 02, 2013
  • Republican Born Roosevelt Digs Deep for Texas Oil Found With CO2 http://t.co/DJ0DBx6YGV CO2 injection liberates tight oil in West Texas $$ Apr 02, 2013
  • Buffett?s Missed Airlines Bet http://t.co/eEf37K7iOI Remember Buffett invests like baseball w/”no called strikes.” No fat pitch 2 swing @ $$ Apr 01, 2013
  • Suzy Weiss: To (All) the Colleges That Rejected Me http://t.co/5jzMZGzSe9 Satirical article:useless things colleges look 4 in applicants $$ Apr 01, 2013
  • Airline Returns Refute Buffett Aversion 2 US Carriers http://t.co/CD3fFjhcOo Dead cat bounce & that qualifies2undo the history of losses? $$ Apr 01, 2013

 

Overly Large Nonbank Financials

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  • $NLY $GLD $SPY $VWO ticker list 4 publicly traded Miscellaneous Financial Services companies w/ > $50B in assets $$ http://t.co/OIrnSfE5jY Apr 04, 2013
  • $AMP $BLK $BAM $SCHW $MS $UBS list of tickers 4 publicly traded Investment Services companies w/ > $50B in assets $$ http://t.co/6QiByewpnV Apr 03, 2013
  • $AIG $BRK/A $CB $CNA $HIG $L $TRV list of tickers 4 publicly traded P&C Insurance companies w/ > $50B in assets $$ http://t.co/2jVlnE5oVT Apr 03, 2013
  • $GNW $LNC $MET $PL $PRU $UNM list of tickers 4 publicly traded Life Insurers companies w/ > $50B in assets $$ http://t.co/cSoZnSL3LZ Apr 03, 2013
  • $AFL $CI $PFG $UNH $WLP list of tickers 4 publicly traded Acc & Health Insurance companies w/ > $50B in assets $$ http://t.co/5JFJCzxZOm Apr 03, 2013
  • $DFS $GE $SLM list of tickers 4 publicly traded Consumer Financial Services companies w/ > $50B in assets $$ http://t.co/4KPicolqgc Apr 03, 2013

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Replies & Retweets

 

  • @probability_wtd Many things concern me, including this. Really difficult 2c the government keeping their hands of pension monies. Apr 06, 2013
  • Buffett isn’t simple RT @researchpuzzler: my latest #wsjexperts comment, on lessons from Buffett http://t.co/vA3sdSIp11 HT @alephblog Apr 05, 2013
  • @LaMonicaBuzz They have both assets & liabilities in the yen; they try 2 keep it even, effect should b small | FD: + $AFL Apr 05, 2013
  • All significant energy use improvements have been more efficient use of oil, gas&coal RT @finemrespice: http://t.co/oBrHYmgszO <- Insanity. Apr 05, 2013
  • I would be fine w/that RT @Nonrelatedsense: @AlephBlog strikes me as better to eliminate dividend taxes for C corps Apr 05, 2013
  • “Just a market for speculators, because nothing physical is traded that producers want to hedge?” ? David_Merkel http://t.co/2IvwG2nAt9 $$ Apr 05, 2013
  • @neilbarofsky Really glad for you. I rarely get to meet any heroes. She was prescient. Apr 04, 2013
  • RT @DavidSchawel: MOAR mREITS: Blackstone backed Ellington Mortgage $EARN files for $100mil IPO. Let no yield hog be left without a 12% … Apr 02, 2013
  • @The_Analyst 15-20 years ago Apr 01, 2013
  • ‘ @The_Analyst Real-time, this is 18-20 years ago, but it illustrates modern problems. It will get closer to the present as I move along $$ Mar 31, 2013
  • RT @DavidSchawel: CS lessons from Cyprus: sr. bank debt no longer safe, uninsured bank deposits have been nailed in, and capital control … Mar 30, 2013

 

FWIW

 

  • My week on twitter: 44 retweets received, 3 new listings, 58 new followers, 45 mentions. Via: http://t.co/cPSEMLXpb8 Apr 04, 2013

 

Redacted Version of the March 2013 FOMC Statement

Redacted Version of the March 2013 FOMC Statement

January 2013 March 2013 Comments
Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors. Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year.

 

Shades GDP view up.
Employment has continued to expand at a moderate pace but the unemployment rate remains elevated. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated. Shades their view enmployment up.? So long as discouraged workers increase, this is a meaningless statement.
Household spending and business fixed investment advanced, and the housing sector has shown further improvement. Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive. New fiscal policy comment, but it should read, ?fiscal policy has become somewhat less loose.?
Inflation has been running somewhat below the Committee?s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices.? Longer-term inflation expectations have remained stable. No change.? TIPS are showing flat inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is still near 2.86%.

The FOMC is wrong on inflation.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. No change. Any time they mention the ?statutory mandate,? it is to excuse bad policy.
The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. Emphasizes that the FOMC will keep doing the same thing and expect a different result than before. Monetary policy is omnipotent on the asset side, right?
Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook. The Committee continues to see downside risks to the economic outlook. Shades down their views of the global financial markets.
The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective. No change. CPI is at 2.0% now, yoy, so that is quite a statement.
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.? The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. No change.

Does not mention how the twist will affect those that have to fund long-dated liabilities.

Wonder how long it will take them to saturate agency RMBS market?

Operation Twist continues.? Additional absorption of long Treasuries commences.? Fed will make the empty ?monetary base? move from $3 to 4 Trillion by the end of 2013.

 

Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative. No change.
The Committee will closely monitor incoming information on economic and financial developments in coming months. The Committee will closely monitor incoming information on economic and financial developments in coming months. No change. Useless comment.
If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. No real change.
In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases. In determining the size, pace, and composition of its asset purchases, the Committee will continue to take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives. Maybe they are hedging a little here ? if they get close to their objective, they might start? to reduce policy accommodation?
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. No change.

Promises that they won?t change until the economy strengthens.? Good luck with that.

In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee?s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. Not a time limit but economic limits from inflation and employment.

Just ran the calculation ? TIPS implied forward inflation one year forward for one year ? i.e., a rough forecast for 2014, is currently 2.32%.? Here?s the graph.? The FOMC has only 0.18% of margin in their calculation if they are being honest, which I doubt.

 

In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. No change.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. No change.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Charles L. Evans; Jerome H. Powell; Sarah Bloom Raskin; Eric S. Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. No change
Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations. Voting against the action was Esther L. George, who was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations. Esther George takes up the thankless task of telling the FOMC that they are doing more harm than good.

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Comments

  • Notable: they mention that fiscal policy is less accommodative.? Also, some new language leaves room for policy gradualism.
  • Not so notable: they shade up their views on GDP and employment, and shade down their views on global financial market stability.
  • I really think the FOMC lives in a fantasy world.? The economy is not improving materially, and inflation is rising. Note that the CPI is close their 2.5% line in the sand.? TIPS-implied inflation 1X1 (one year ahead for one year) is 2.32%, and 5X5 is around 2.86% annualized.
  • Current proposed policy is an exercise in wishful thinking.? Monetary policy does not work in reducing unemployment, and I think we should end the charade.
  • In my opinion, I don?t think holding down longer-term rates on the highest-quality debt will have any impact on lower quality debts, which is where most of the economy finances itself. When this policy doesn?t work, what will they do?
  • Also, the investment in Agency MBS should have limited impact because so many owners are inverted, or ineligible for financing backed by the GSEs, and implicitly the government, even with the recently announced refinancing changes.
  • The key variables on Fed Policy are capacity utilization, unemployment, inflation trends, and inflation expectations.? As a result, the FOMC ain?t moving rates up, absent increases in employment, or a US Dollar crisis.? Labor employment is the key metric.
  • GDP growth is not improving much if at all, and the unemployment rate improvement comes more from discouraged workers.

 

Question for Dr. Bernanke

Ever liability is someone else’s asset.? Aren’t you doing nothing by trying to hold long term interest rates lower?

Sorted Weekly Tweets

Sorted Weekly Tweets

US Politics & Economic Policy

 

  • Employers Blast Fees From New Health Law http://t.co/FfuBRO2HQp Phases in the added costs of covering sick people previously uninsured $$ Mar 15, 2013
  • Conservative Groups Warn GOP Lawmakers About Deals With Obama http://t.co/vui4GOINCw If this were a 2-player game, would have been solved $$ Mar 15, 2013
  • Gundlach: Investors are asking the Wrong Question http://t.co/xA1UgvCica ht: @ReformedBroker QE as a permanent affair w/which we have 2 live Mar 15, 2013
  • New Group Pushes Corporate-Tax Overhaul http://t.co/P3dwgqQON6 Trying 2 End Double Taxation of foreign profits. Hasn’t worked so far $$ Mar 14, 2013
  • The Almighty Dollar Is Back http://t.co/F3iP3Zblyk Skeptical. Waiting for the Fed to announce increase of QE to send the $$ back down Mar 14, 2013
  • GIs Fighting Nazis Last Time Factory Workers Toiled Longer http://t.co/pVMlMGFRQ0 This is optimistic for new hiring $$ Mar 14, 2013
  • Grand Bargain Taxes, Entitlements Cuts Await Deal Makers http://t.co/gJZ2c4Uc17 My sense is that we r heading 4 another deadlock $$ Mar 14, 2013
  • Refusal to Expand Medicaid May Cost Employers $1 Billion http://t.co/kpxJmCeZvT Pressure is going to grow to eliminate PPACA & Medicaid $$ Mar 14, 2013
  • US Growth = Inventories http://t.co/dOIp5n9sPH Much of the presumed growth in the US is just rebuilding of inventories to a peak level $$ Mar 12, 2013
  • GOP Budget Establishes Contrast With Democrats http://t.co/ocLQndOvsP No chance of it being passed, but gives an idea of where 2 sides r $$ Mar 12, 2013
  • SEC Charges Illinois Over Pension Funding http://t.co/MxEF6hPYPy This is how it should be. No one gets punished in the slightest. $$ Mar 12, 2013
  • Note from last tweet: a lot of ppl want to punish bankers, what about state officials who lie – they r much bigger, where is the outcry? $$ Mar 12, 2013
  • Fed mulls putting a ‘not for sale’ sign on its assets http://t.co/uZAcaHmLeO A sign of weakness from the Fed; they know they r trapped $$ Mar 10, 2013

 

Roman Catholic Church

 

  • Jesuits Had Past Struggles With Popes http://t.co/P8Vy8YEifr In the RC church, they have top liberation theologians &their top opposition $$ Mar 14, 2013
  • Ten things you probably didn?t know about the Jesuits http://t.co/tFijZNMkV9 If the Church have defined anything to be black… amazing $$ Mar 14, 2013
  • The sins of the Argentine church http://t.co/FTzKlsq1I7 New Pope may have been complicit w/Military Dictators killing their enemies. $$ Mar 14, 2013
  • The Changing Church http://t.co/mDPol6orR5 Interesting 2c change in locations of Cardinals. Size of RC church overstated, many not active $$ Mar 14, 2013
  • How Is the Pope Elected? http://t.co/j8p5L9dB5I A little late, but I thought this was an interesting infographic on papal elections $$ Mar 14, 2013
  • African Catholics Look to Black Pope to Safeguard Tradition http://t.co/vxZrJJDgvv US Media does not get how traditional most Catholics r $$ Mar 13, 2013
  • Black Smoke Signals No New Pope http://t.co/9qp8nzlbRb More & less unity in RCC than commonly thought. More: Europe, Less: elsewhere $$ Mar 12, 2013

 

Financial Markets

 

  • To all of the fixed income followers out there: someone asked me today to recommend good bond blogs. What would you recommend? Mar 15, 2013
  • Highest Bond Yield at Auction in a Year Could Be Sign of Things to Come http://t.co/fShhD5iAlp Or it could be a buying opportunity $$ Mar 15, 2013
  • $OAK Founder Knows How to Get an Edge in Investing http://t.co/TaRQSiK5gI “Experience is what u get when u didn’t get what u wanted.” $$ Mar 14, 2013
  • Smallcap Stock Volatility Index Hits All-Time Low http://t.co/l6tCXV7VS4 Complacency is the rule of the the day among small cap stocks $$ Mar 14, 2013
  • 5 ways Warren Buffett invests that you don?t http://t.co/AeCs8fqe6g Good job describing what parts of Buffett’s strategies can b mimicked $$ Mar 14, 2013
  • Team Alpha Retirement Portfolio: Dividend Investing Vs. Annuity Purchasing http://t.co/HNHqI40vDP Example of y I don’t read Seeking Alpha $$ Mar 14, 2013
  • New Carlyle Group Fund Lowers Bar for Investors http://t.co/xiCTwy07Zk As @reformedbroker aptly put it, “Muppet Bait” Avoid. Avoid. $$ Mar 14, 2013
  • Fidelity to Expand ETF Relationship With BlackRock http://t.co/d4PIiCb7oh Fidelity says “Me 2,” by partnering with $BLK . No value added $$ Mar 14, 2013
  • moving down-market http://t.co/qP0YSWKubG @researchpuzzler has it right, inviting small accounts in means opportunities r getting worse $$ Mar 14, 2013
  • Historical S&P 500 Price to Sales (P/S) Chart http://t.co/dm2ZhDDgtE Useful little chart – around avg now, but profit margins r a record $$ Mar 13, 2013
  • SP500 Bull and Bear Factors – Not so Fun Damentals! http://t.co/5OjwvLbLPw Bull factors: QE, Buybacks, Yen. Bear: Econ data, Earnings mo $$ Mar 13, 2013
  • Gold Sales From Soros Reveal 12-Yr Bull Run Decay http://t.co/ze7DSsdIkN Makes me want 2 do a piece on $$ weighted vs time weighted on $GLD Mar 13, 2013
  • Why (Most) People Hate Good Financial News http://t.co/PZcf1usKD1 Regret is a strong force in psyche of amateur investors: missing out $$ Mar 12, 2013
  • How Much Of The Stock Market?s Growth Is Caused By Its Shrinking? http://t.co/Kfxipqvr1Y I would be skeptical here; capital changes weak $$ Mar 12, 2013
  • Securities Lending: Worth The ?Risk? http://t.co/AZxSKFzM2T When done right, sec lending is almost free money, the risks r low. $$ Mar 12, 2013
  • New ETF Underway for Distressed Debt http://t.co/Wp3ZPwaZqj Bad idea. Creating indexes for distressed bonds will be hard, Won’t attract $$ Mar 12, 2013
  • Firms Send Record Cash Back to Investors http://t.co/n0vNv0ppei A sign of economic weakness; there are few places to invest for growth $$ Mar 10, 2013

 

Wrong

 

  • Wrong: Amazon Preparing Bid For Barnes And Noble? http://t.co/qYB3yE6u8U Combination would not be allowed by the FTC $$ Mar 13, 2013
  • Wrong: Why Insurers May Be Unprepared for the Next Big Storm http://t.co/WuJIpvtVBj Most P&C insurers have more than adequate reserves $$ Mar 13, 2013
  • Wrong: The US can?t afford a Chinese economic collapse http://t.co/9vskptvxvx We can afford it; China won’t affect much in the US $$ Mar 12, 2013

 

Rest of the World

 

  • China s Next Potential Bubble: Hello, Anybody Home? http://t.co/IstgcTQZCN Trapped. Potential sellers need prices 2 stay high, buyers low $$ Mar 15, 2013
  • Embrace consumption, IMF’s Zhu urges China http://t.co/TAc5toyktZ Easier said than done. Party not ready to give people more freedom. $$ Mar 15, 2013
  • Nordic Testicular Cancer Mystery Prompts Chemicals Probe http://t.co/LqwH8klTLq Interesting, might be a combo of genetics & environment $$ Mar 15, 2013
  • Jeffrey ??s Japan Stocks http://t.co/lvhM6LFXAv?s-japan-stocks/?utm_source=dlvr.it&utm_medium=twitter Weak yen drives Japan stocks up $$ Mar 15, 2013
  • Recent cyberattacks could be part of a Chinese military strategy started nearly 20 years ago http://t.co/NxZ99g2ZKo Explains what is up now Mar 14, 2013
  • Brazil?s Richest Family Forging $13 Billion Niobium Dream http://t.co/2MHbOkhHPd Stronger flexible steel from a Brazilian tech company $$ Mar 14, 2013
  • Even Berlusconi Can?t Slow Bulls Boosting Euro View http://t.co/PV2mGvfHRr Great 4 core Eurozone, bad news 4 the fringe Eurozone $$ Mar 13, 2013
  • Chinese inflation hits 10-month high http://t.co/rGZJHoZsqj The end of the cycle comes when Chinese inflation gets out of control $$ Mar 13, 2013
  • Snow Causes European Travel Chaos http://t.co/tz3afCLET9 That’s one thing about weather & climate, constantly changing & always will $$ Mar 13, 2013
  • Should You Bond With Azerbaijan? http://t.co/gpE429eGa8? by @jasonzweigwsj | Emerging market govts are better run than developed govts $$ Mar 12, 2013
  • Norway Fund Flees Currencies Tainted by Stimulus Addiction http://t.co/X7YasIGkKn Rational response2 depreciating currencies: hail Norway $$ Mar 12, 2013

 

Banks

 

  • JP Morgan’s Jamie Dimon showed too much hubris and too little humility http://t.co/4feQB2Q6Jx @moorehn highlights cultural problem @ $JPM $$ Mar 15, 2013
  • Bubble Exchange: Technology vs Financials http://t.co/BJKoaFfjdo Suggests that financials, not tech, will do better in the future $$ Mar 15, 2013
  • EU Said to Plan Concession on Tax Credits as Bank Capital http://t.co/Ss3J4KBGbv Deferred Tax Assets should not be allowed as capital $$ Mar 15, 2013
  • Deferred Tax Assets r only valuable if a company makes $$ in the future, which for a bank in distress is less likely; should not b capital Mar 15, 2013
  • Beware of a New Banking Bubble http://t.co/gr5c2S9NaI Three recent deals involved premiums of 32% to 83% above tangible book value $$ #fire Mar 14, 2013
  • Fisher and Rosenblum: How to Shrink the TBTF Banks http://t.co/pNfzML2A22 Could work, roll back safety net, keep pieces small, holdcos fail Mar 14, 2013
  • 5 Big Questions for the Future of Retail Banking http://t.co/sCKi6QjfCu Branches buy/sell, online/mobile, layoffs, interest margins down $$ Mar 14, 2013

 

Companies & Industries

 

  • Lawmakers Examine Ethanol Credits’ Affect on Gas Prices http://t.co/5RHXnKcuFG Wasteful program doesn’t aid conservation adds 2 pollution $$ Mar 15, 2013
  • 5 beloved tech products that were sentenced to death http://t.co/bg4S90UHlZ Impending death of Google Reader makes writer wax nostalgic $$ Mar 15, 2013
  • Google and Bing Say the Future of Search Is Conversational http://t.co/mx2gfh6oSr Software improves ability 2 understand contextual data $$ Mar 15, 2013
  • Herbalife short-seller sues banks, Icahn over alleged fraud http://t.co/NaL4X9aXW3 Losing investor throws good $$ after bad, will not win Mar 14, 2013
  • Evolv, Making Hourly Workers More Profitable, Lands $15 Million http://t.co/DDEyoCk7Ay Improves retention of the employees u want 2 keep $$ Mar 14, 2013
  • Lincoln?s Cooper Shuns Shoot-For-Moon Funds After Goldman http://t.co/7PdLGT5TGb This does not make me feel better about $LNC. Avoid. $$ Mar 14, 2013
  • How Benjamin Franklin Invented the Mail-Order Business http://t.co/TC6DmWsZck A look at the precursors to mail-order retail. Interesting $$ Mar 14, 2013
  • Lego Builds New Billionaires as Toymaker Topples Mattel http://t.co/jxkqNatzZk Family controls 75% of the operation through Kirkbi A/S $$ Mar 14, 2013
  • 8 Megatrends Defining the Oil & Gas Industry http://t.co/Taz5Dsujwh Nationalization, Ending subsidies, Green, New frontiers, LNG, M&A $$ &c Mar 14, 2013
  • Blackstone Said to Get $2.1 Billion Loan for Home Purchases http://t.co/qDg7DrSBGk I’m skeptical, don’t think renting homes is scalable $$ Mar 14, 2013
  • Many hospitals, doctors offer cash discount for medical bills http://t.co/ckLOHxh1TH ht: @dpinsen | Sometimes ucan pay less w/o insurance $$ Mar 13, 2013
  • Gas Rigs Drop to Fewest Since 1999 as Drilling Declines http://t.co/b3YztqbTqs Almost like the old days when they would flare off natgas $$ Mar 13, 2013
  • Starr Proceeds With Fight Over $AIG Rescue http://t.co/WPNIOyib7B I don’t think he will win, but Greenberg will get his day in court $$ Mar 13, 2013
  • Beating The Downturn By Degrees http://t.co/9BT69ix6Fs Good summary article on the for-profit educators $$ Mar 13, 2013
  • Liberal-Arts Colleges Dangle Deals to Woo Students http://t.co/v3Qd07x8AD Pay for 4 years & never have 2 pay again; u *can* finish 4 free $$ Mar 13, 2013
  • InTrade Online Betting Site Shuts Down Abruptly http://t.co/Rb0Ppald2u A long shot from the start, current bettors may b stuck w/the loss $$ Mar 12, 2013
  • Green Cars Have a Dirty Little Secret http://t.co/wk5UfvYiYn Producing and charging electric cars means heavy carbon-dioxide emissions. $$ Mar 12, 2013
  • Uninsured Americans Get Hit With Biggest Hospital Bills http://t.co/6QeybZMIz8 First value of insurance is buying power lowering prices $$ Mar 12, 2013

 

Other

 

  • Jim Gaffigan Is the King of (Clean) Comedy http://t.co/RhUM30krSU Heartening 2c clean humor getting attention; certainly harder 2 do $$ Mar 15, 2013
  • The Bearded Man http://t.co/ub5n07UjFZ I’m no trendsetter. If you’re out of fashion long enough, eventually u accidentally get in fashion $$ Mar 15, 2013
  • Does money taint the sharing economy? http://t.co/yTjd3w8ThO If you want an organization to last, there must be a profit margin $$ Mar 15, 2013
  • Scientists find how deadly new virus infects human cells http://t.co/YLfoqPbvJ1 Disease is similar to SARS. Infected 15, killed 9 $$ Mar 14, 2013
  • Former Ravens May Outnumber Ravens http://t.co/SIxpATVmC6 Noticed in Baltimore; curse of the Joe Flacco contract; less $$ for rest of team Mar 14, 2013

 

Retweets & Replies

  • ‘ @tradewins @moorehn The problems are concealing data from the regulators, & Dimon perhaps concealing what he truly knew at the time $$ Mar 16, 2013
  • @TWealthMgmt Yeah, they are good, & I mentioned them. Seems many bond blogs have folded; they had a finite maturity 😉 Mar 15, 2013
  • @nelson3748 Railroads r scarce; impossible to replicate; has a big moat w/pricing power; trucking has no moat; scale is needed Mar 14, 2013
  • I just left a comment in “5 ways Warren Buffett invests that you don?t – Jonathan Burton’s Life Savings – MarketWat?” http://t.co/2tjAaDwkV7 Mar 14, 2013
  • Yes, but the nice thing about Pi day is that it has been a round RT @EddyElfenbein: Celebrating Pi Day seems so irrational. Mar 14, 2013
  • @EliHoffmann Don’t get me wrong I *like* dividends & have for a long time. They r more frail than the new advocates assume Mar 14, 2013
  • @EliHoffmann There r other things he got wrong re insurance, but the faith in dividends is naive. They get cut in bad periods like the ’70s Mar 14, 2013
  • @EliHoffmann Annuities r guaranteed by state guarantee funds Mar 14, 2013
  • @DavidSchawel Thanks, but r u bullish on it or neutral? Mar 14, 2013
  • @DavidSchawel How successful? Mar 14, 2013
  • No RT @pdacosta: VZ president says Chavez, now close to Christ, had a hand in choice of South American pope http://t.co/WYR2izYIsk Mar 14, 2013
  • “Pretty cool. Billy Joel took a chance on the student, and it was beautiful. Kid had moxie.” ? David_Merkel http://t.co/YBUfXDNSGH $$ Mar 14, 2013
  • UCan say that again RT @ReformedBroker:Muppet Bait MT @researchpuzzler:Don’t miss your chance 2 play w/big boys of PE http://t.co/5fg2tLPXS3 Mar 14, 2013
  • Listening to broadcasters in Rome, it reminds me of the Super Bowl when the power went out; gotta say something, but not much to say… $$ Mar 13, 2013
  • . @scott_matagrano Also, $AIG’s domestic life companies were BK until rescued b/c of sec lending… long story: http://t.co/EmnSclWqVS $$ Mar 13, 2013
  • @scott_matagrano Not *quite* riskless. There were some bond trades I could not execute b/c we could not get the shares back. Mar 13, 2013
  • @merrillmatter I don’t but some of my clients do. Mar 13, 2013
  • @ReformedBroker Hey Josh, where is that indicator now? Mar 12, 2013
  • @weelifeworkplay Saw that, but property tends not to vary in value as much as currencies do. Owning land tends to preserve value, mostly $$ Mar 12, 2013
  • @prchovanec In a word, overvalued. P/E measurements of value fluctuate too much b/c earnings varies more than sales or book $$ Mar 12, 2013
  • @exMBB I avoid life companies that primarily write variable business; the accounting quality is poor. No opinion on $PNX $$ Mar 12, 2013
  • @SagittaCapital I’m afraid that one is a ‘No.” I don’t have a lot to say there. Mar 12, 2013
  • @60Minutes @sherylsandberg That’s dumb. It could just be rudeness, or ego, and the same applies to boys. Will to power <> leadership $$ Mar 11, 2013
  • @prchovanec P/E is more significant in the short-run. CAPE10 & Q-ratio more significant in the long run. $$ Mar 10, 2013

 

FWIW

 

  • My week on twitter: 48 retweets received, 11 new listings, 51 new followers, 55 mentions. Via: http://t.co/cPSEMLXpb8 Mar 14, 2013

 

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