Category: Banks

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Market Dynamics

 

  • Go Your Own Way: Correlation Breakdown in the Market http://t.co/3Zwpx3kB @japhychron hints at deterioration in US stocks as USD strengthens May 26, 2012
  • RE: To me it implies that conservative HY investors are running out of places to put money.? Yellow flag. http://t.co/eUSRq8dY May 25, 2012
  • Vanguard Closes High-Yield Fund ? ETF Alternatives http://t.co/bMmYUMTC Note: ETFs proposed take more credit risk than Vanguard fund does $$ May 24, 2012
  • Vanguard’s high yield fund was fairly conservative; they may feel strain in the size of their positions relative to t? http://t.co/lLJFeiYc May 24, 2012
  • RE: They were called the Americus Trusts, sponsored by the Americus Shareowner Service Corp., and they had Scores and? http://t.co/TPNPkL8T May 23, 2012
  • Wealthy Americans Turn to Trusts to Shield Assets http://t.co/2rKGuNWb Reasons: taxes, liability, avoid probate. Covetous world $$ May 23, 2012
  • You can say that again, momentum is addictive $$ RT @credittrader: lol – never learn – especially when momentum feels so good haha May 23, 2012
  • @credittrader I’m well. Fascinating that $JPM didn’t learn from the correlation crisis in 2005; tranche px/corr relationships shift $$ May 23, 2012
  • IG CDX diverges from S&P500; JPMorgan advocates mean reversion trade http://t.co/FIsOqhBN Long IG spreads vs HY spreads and equities $$ May 23, 2012
  • Kroll Sees Supplanting S&P in Rating Commercial Mortgage Bonds http://t.co/IrzfQ6cH Gratuitous trash talk on competitor S&P from Kroll $$ May 22, 2012
  • Treasuries in Longest Winning Streak Since ?98 on Europe http://t.co/EWJkiN5u Everyone knows that Treasury yields can only fall, right? $$ May 20, 2012

 

Eurozone

 

  • Merkel May Be Persuaded on Euro Debt-Sharing Compromise http://t.co/P3yQaN1K H/L misrepresents Merkel; does not seem likely politically May 25, 2012
  • Indeed, why not? RT @TimABRussell: ?http://t.co/831diM1O Why not just pick the best person for each position regardless of sex, race, etc? May 25, 2012
  • If a man will not respect his “wife” by marrying & staying with her, why should you expect him to respect women in mo? http://t.co/83lvXtu1 May 25, 2012
  • Stock Market Performance Versus Dollar http://t.co/mfrXyqvp Difficult for the US stock market to do well when the $$ is strengthening v Euro May 25, 2012
  • Slim Family Sees European Crisis as Good Time to Invest http://t.co/XZOgx3xX Buy when there is blood running in the streets $$ #slimchance May 25, 2012
  • Europe Girds for Greek Exit http://t.co/HMfsVt86 Two problems: Can’t kick Greece out & Greece can only leave Eurozone by leaving EU $$ May 24, 2012
  • Euro-Zone Economic Contraction Deepens http://t.co/b49VctDj Overindebted Eurozone muddles as politics/bureaucracy strangle growth $$ May 24, 2012
  • EU Chiefs Clash on Euro Bonds as Crisis Summit Bogs Down http://t.co/S1YnHrbM Fiscal Union requires political union; elephant in room $$ May 24, 2012
  • The Seeds of the EU?s Crisis Were Sown 60 Years Ago http://t.co/SsWQUvGa Overly ambitious EU goal of “ever closer union” leads 2 crisis $$ May 24, 2012
  • War-Gaming Greek Euro Exit Shows Hazards in 46-Hour Weekend http://t.co/WD7HSbMI Assumes Greek competence & they care about global mkts $$ May 23, 2012
  • A Greek Exit Could Make the Euro Area Stronger http://t.co/C7v2mDmM Concludes that a Greek exit would lead the rest 2 pull together $$ May 23, 2012
  • Campaign for Joint Euro Bonds Builds http://t.co/xXAvSU73 Will the core Eurozone countries give up resources to bail out the fringe? $$ May 23, 2012
  • Europe?s Prisoner?s Dilemma ? LTRO Needs to Continue for Years http://t.co/NldAsVL2 Until govt debt is gone from finl sector?s bal sht $$ May 23, 2012
  • Germany to Sell Interest-Free Bonds http://t.co/q7ewNqd2 It is good to be king. People give you their money, & they pay for the honor $$ May 22, 2012

 

US Politics / Economics

 

  • Even with a High Court win, Obamacare won’t work http://t.co/NKhyAe56 Failed ideas @ the states will not add up to a successful Federal plan May 26, 2012
  • USDA Is a Tough Collector When Mortgages Go Bad http://t.co/ZX24InYJ Definitely has different goals than most of the govt re mortgages May 26, 2012
  • Report: Negative Equity More Widespread Than Previously Thought http://t.co/UkQBpbGY Adds in value of second liens, 31%+ inverted $$ May 24, 2012
  • Let Mr. Reid look to his own spending extremism.? As for me, let the tax cuts expire, and automatic cuts happen.? Bet? http://t.co/cabthITQ May 22, 2012
  • Shale Glut Means $1-a-Gallon Savings at the Pump http://t.co/RHlFbT3L Liquefied Natgas would shave $1/gal over diesel for trucking $$ May 22, 2012

 

China

 

  • New Signs of Global Slowdown http://t.co/2o4kFRkD Weak Reports in U.S., Europe and China Suggest Economies Are Slipping in Sync $$ May 26, 2012
  • @researchpuzzler Pettis is among the best on China. @ritholtz and John Mauldin are good friends. Trends in China r very negative… $$ May 25, 2012
  • EM investing: check out the grid http://t.co/dIEGJeJC 3Qs How much electricity do they have? Future development? Probability of success? May 24, 2012
  • China flash PMIs point to contraction, again http://t.co/DZGf3ZZS The number for May is 48.7, compared to 49.3 in April. 7th decline. $$ May 24, 2012
  • China, North Korea ties hit rough weather http://t.co/r7TlDbux Kim Jong Un needs lessons showing honor2the Suzerain: Chinese Communist Party May 24, 2012
  • RE: @SoberLook I’ve heard that Chinese electricity consumption has flatlined.? Another straw in the wind. http://t.co/IqAHJCgo May 21, 2012

 

Companies

 

  • Facebook Investor Spending Month?s Salary Exposes Hype http://t.co/eGhCiHXq Please. Stox r risky. High expectation stox r veryrisky $$ $FB May 24, 2012
  • General Mills Unveils Restructuring, Job Cuts http://t.co/IUHltbai $GIS Budget-conscious US consumers push back against price increases May 23, 2012
  • Benihana Agrees to $296 Million Buyout http://t.co/YxJtfun3 Agreed 2b acquired by investment firm Angelo Gordon & Co. for about $296M $$ May 23, 2012
  • The Miracle on Wellington Street http://t.co/DUbSY81d Fairfax Financial Holdings’ tricky transaction for 6.6% of Odyssey Re -> legal trouble May 21, 2012
  • Barclays to Sell Entire $6.1 Billion BlackRock Investment http://t.co/notUgeFk Basel III rules make it uneconomic to hold as capital $$ May 21, 2012
  • Houghton Mifflin Harcourt Publishing Files for Bankruptcy http://t.co/heUuF3gj Bank debt -> New Equity, old Equity -> warrants for 5% $$ May 21, 2012

 

Financial Sector

 

  • JPMorgan Gave Risk Oversight to Museum Head Who Sat on AIG Board http://t.co/INr9ebI5 No banking experts on $JPM ‘s risk ctrl committee May 25, 2012
  • Goldman to JPMorgan Swap Trades Soar on Risks http://t.co/fvSPysAp A cheap-ish option on systemic risk rising. And not in the eurozone! $$ May 25, 2012
  • JPMorgan Copper ETF Plan Seen Creating Havoc by Merchant Groups http://t.co/zoJ0BfeM They oppose retail hoarding b/c it hurts them $$ May 24, 2012

 

Advice Regarding Life

 

  • I Wish I Had Known: Don?t Underestimate Compounding In EVERYTHING http://t.co/mIdFf5Dx People overrate their ability to change habits $$ May 26, 2012
  • Compound Experience, Not Just Interest http://t.co/n6CaWLN0 Early behavior influences later behavior, and the options that will be open 2u May 26, 2012

 

Berkshire Hathaway

 

  • Buffett Says Free News Unsustainable, May Add More Papers http://t.co/medRWMWm Strategy: Buy papers, end free distribution on Internet $$ May 25, 2012
  • Buffett?s Idiot Challenge Seized by Jain in Premium Hunt http://t.co/89qcKilo Misses how Jain blew it reinsuring life & LTC from Swiss Re May 23, 2012
  • Don’t get me wrong, Ajit Jain knows more about insurance than me; I’m saying he is not perfect; he does not know all insurance equally $$ May 23, 2012

 

High Frequency Trading

 

  • +1 That would work too RT @merrillmatter: @AlephBlog how about for all orders, one second minimum life May 24, 2012
  • Mutual Funds Promised Haven From Speedsters http://t.co/iCFFZXsU I proposed this HFT solution @ BaltimoreCFA 2 1 of those interviewed $$ May 24, 2012

 

Miscellaneous

 

  • The sex slavery stuff makes me sad/angry. I have daughters. $$ RT @moiracathleen: Brothels on Wheels http://t.co/COBuwJbS @leafjohnson May 25, 2012
  • How a bizarre legal case involving a mysterious billionaire could force 1.2M Canadians 2b married, against their will http://t.co/zv7QJBCz May 24, 2012
  • Veterans Face Ruin Awaiting Benefits as Wounded Swamp VA http://t.co/W0Ydcu3x Long sad tale: wounded vets not getting enuf disability pay May 24, 2012
  • Gold Boom Spreading Mercury as 15 Mln Miners Exposed http://t.co/f7oBSo26 Long fascinating article about mercury poisoning in Colombia $$ May 24, 2012
  • Rust-Belt Babushkas Live Alone as Fewer Remain to Marry http://t.co/ASbsIAMg % of US single person households up ~250% since 1940, 8%->27% May 23, 2012
  • Private Spacecraft Lifts Off Toward Space Station http://t.co/JlGRR2m0 The sustainable space age has begun, w/private $$ flying rockets May 23, 2012
  • Fitch Downgrades Japan http://t.co/rITu0126 Blasts the govt 4 taking a “leisurely” approach2solving country’s spiraling debt problems $$ May 23, 2012
  • Is the College Cave Age About to End? http://t.co/ispDBLTX Thinner slices of “deeper” knowledge produce less relevant research & teaching May 21, 2012
  • Getting America on a Diet That Works http://t.co/vooh1iNN What’s funny2me is how little agreement there is today on what works in diets $$ May 21, 2012
  • +1 Fatal Risk RT @ToddSullivan: AMAZING book…one of my favorites RT @alephblog: Please follow my friend @BoydRoddy, who is new to Twitter May 21, 2012
  • Please follow my friend @BoydRoddy, who is new to Twitter. $$ May 21, 2012
  • Read my review: ‘The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Funds’ by Maneet Ahuja via @alephblog http://t.co/kJf89aVT May 21, 2012
Skewed Incentives

Skewed Incentives

Posted on by David Merkel

May is a tough month for me, because I have to submit reports for the nonprofits that I work with, and this year is worse, because I have a moderate injury that I need? to see a doctor about, but can’t until next week, because of the schedule.

But I do want to say a few things about the JP Morgan news.? First, JP Morgan should be broken up, whether state by state, or by Federal reserve district, with an investment bank spun off as well.

Second, after we have been through 2008, why do we care about a piddling $2Billion+ loss?? JP Morgan’s balance sheet can handle far more than that, and come back kicking.

Third, there are a lot of people who are mindlessly asking for the reinstatement of Glass-Stegall, without realizing that the repeal had little to do with the crisis.? Most of the losses at banks sprang from bad lending on residential mortgages, not trading.? Also, if regulators had been more fastidious about asset quality and leverage, it also might not have happened, but who dares to oppose a boom?

My point of view is that states are better at regulating financials than the federal government.? It is far harder to co-opt 50 regulators than one.

Decentralized government, where power is limited, is far harder to corrupt than centralized governments like India, China, Russia, Greece, etc.

Fourth, when a bank engages in a complex trade, and is a large portion of the market, it is asking for trouble.? Companies have problems when they become the market for financial promises.? Markets work well when there are a large number of players, with no one dominating.? Financial markets with a dominant player have a problem because it becomes difficult for the dominant player to discern the right price.? They don’t want to set it too low, because it makes their own financials look bad.? That skewed incentive can harm economic truth, and the company as well.

Being a monopolist or an oligopolist is not as easy as the textbooks would say, at least for long-term transactions.? When there is no free market to validate your pricing against, how does an oligopolist come up with an economic price?? It can’t do so.

We get on shaky ground when anyone becomes dominant in a market of promises.? Initially the accounting is flexible enough that losses do not occur on bad lending, but eventually the bad/negative net cash flows crush the firm.? This is why I never invest in novel financial companies.

 

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Eurozone

 

  • Danske Bank?s Patience With Moody?s Evaporates http://t.co/eGbf3kV5 Questions over willingness of Denmark to provide support in a crisis. May 11, 2012
  • CIC Stops Buying Europe Government Debt on Crisis Concern http://t.co/dljk9Tau Overblown; China will return to funding the Eurozone $$ May 10, 2012
  • Greeks May Hold $510 Billion Trump Card in Renegotiation http://t.co/P7U4LSpG Depends on how well Core EZone banks have divested Greece $$ May 10, 2012
  • Spanish Banks Erode Creditors With ECB Loans http://t.co/HaEx3bgT Better collateral highly encumbered; Unsec debts implicitly subord 2 ECB May 10, 2012
  • Greece Euro-Exit Debate Goes Public http://t.co/0xOgsa7G Core Eurozone wrestles w/how to kick Greece out, even though they can’t. $$ May 10, 2012
  • How a Radical Greek Rescue Plan Fell Short http://t.co/Ds0589IG Greece is failing as a culture due2 corruption; no rescue would work $$ May 10, 2012
  • Denmark?s Banks Endure Writedown Shock Delaying Recovery http://t.co/A2Vdpymn Good sign on Denmark; take pain early -> in good shape $$ May 10, 2012
  • Greek Election Surprise Rejects ?Barbarism? of Bailout Austerity http://t.co/oX0nt5SF Growth is magic, magic I tell u! Just invoke it! $$ May 08, 2012
  • Merkozy End Means Franco-German Gulf; Greek Voters Rebel http://t.co/iCd0Cs6l Loss of Sarkozy may not b bad, but Greek paralysis will b $$ May 08, 2012
  • Francois Hollande has ten weeks to avert a French bond crisis http://t.co/3SEAWJB5 When few adults r in the room the children run wild $$ May 08, 2012
  • Challenge to Austerity, And Germany, Is Sharpened http://t.co/BWbgQJ85 The odds have risen that Germany will leave the Eurozone $$ May 08, 2012
  • Obvious but it needs 2b said $$ RT @Hawk100Clemens: Mauldin tells #CFA12 every monetary union in history has failed. May 07, 2012
  • France faces 40pc house price slump http://t.co/nPuMaVnJ If French banks have trouble now, just wait until the bad mortgage debt hits $$ May 06, 2012

 

JP Morgan

 

  • What Beached the London Whale? Credit Indices http://t.co/JKFxfaMb Crosshedging long credit risk by buying protection on an index? $$ May 11, 2012
  • J.P. Morgan Trades In Its Crown http://t.co/QUJ6hmoA That goes for firms and CEOs as well: $JPM and Jamie Dimon will not get free passes May 11, 2012
  • Drew Built 30-Yr JPMorgan Career Embracing Risk http://t.co/uocyyVC1 Lifetime 2build reputation; few years 2destroy it; revealed: 1 day $$ May 11, 2012
  • And the best way to reduce risk is to lower leverage & raise cash $$ RT @marydchilds: “The best way to hedge something is to get rid of it.” May 11, 2012

 

Facebook

 

  • Facebook Co-Founder Saverin Gives Up U.S. Citizenship Before IPO http://t.co/kL1VQYXU Cuts down on the tax bill; discount prior 2 IPO $$ May 11, 2012
  • Facebook IPO Said to Get Weaker-Than-Forecast Demand http://t.co/ktK5Bgun $FB faces slowing revenue growth, order books 4 IPO go slack $$ May 11, 2012

 

Miscellaneous

 

  • Google?s Brin Makes Strides in Hunt for Parkinson?s Cure http://t.co/YvL4LUNA He may get it one day; his Mother already has Parkinson’s $$ May 11, 2012
  • And also for those who call vegetables “veggies?” RT @jasonWSJ: Can we impose a $40 fine on dudes who refer to sandwiches as “sammies”? May 10, 2012
  • Firefox browser group irked with Microsoft, Windows 8 http://t.co/tBZ9GFuw Only Internet Explorer runs on Windows 8; expect some lawsuits $$ May 10, 2012
  • Aluminum Buyers in Japan to Pay Record Fee on Supply Drop http://t.co/7AVU1knI Smelting capacity reduced, China buys more, Japan pays up May 10, 2012
  • @RobTheStreet A lot depends on the definition of marriage, Would you allow people to marry inanimate objects, animals, or multiple parties? May 09, 2012
  • Brookstone to sell Lilliputian portable power chargers, this year http://t.co/FnSvdfOw Impressive technology if it works. $$ May 08, 2012
  • Economy Reshapes Wisconsin Recall Vote http://t.co/G0OetHhV My wife and father were forced in2 unions by collectivist brutes. Go Walker! May 08, 2012
  • Father?s Shadow as Transit Leader Hard to Evade for Shuster http://t.co/0FAZUqd4 Bud Shuster is a jerk, forcing us through Breezewood $$ May 08, 2012
  • Kellogg?s Kashi Targeted as Web Food Fighting Escalates http://t.co/BNhf5294 We need 2 send a lot of people back 4 science reeducation May 08, 2012

 

Rest of the World

 

  • Sony, Panasonic Fall to 30-Year Lows as TV Losses Mount http://t.co/Euo37RLQ Sold Panasonic after reviewing uneconomic “green” agenda $$ May 11, 2012
  • Kim Jong Un Bashes ?Pathetic? North Korea Fun Park http://t.co/gb4S9HBc He should know; he lived outside NK, where there is real fun $$ May 10, 2012
  • Sukhoi SuperJet Disappears During Indonesia Demo Flight http://t.co/0JrxAkAw Another sign of degraded Russian abilities in aerospace $$ May 10, 2012
  • Bad H/L: Shooting to Kill Pirates Risks Blackwater Moment http://t.co/laW55VEo Correct H/L: Hiring Armed Guards protects cargoes &crews $$ May 10, 2012
  • Drug-Defying Germs From India Speed Post-Antibiotic Era http://t.co/XGeno5mf Long. Scariest article of the day; wash your hands w/soap $$ May 08, 2012
  • Israel Pyramid Rules Turn Insurers Into Buyout Targets http://t.co/4tXBqehx Interesting:

Israel is limiting holding company levels to 3 $$ May 10, 2012

  • UK Pay Protests Oust Aviva Chief http://t.co/WKVdmQGM I remember when they overpaid for Amerus Life in the US; sign of bad management $$ May 10, 2012

 

 

Energy

 

  • RT @merrillmatter: @AlephBlog Methinks we’ll need to see some epic blowouts in natgas space (ha ha) before supply/demand can come back i … May 10, 2012
  • Chesapeake Deals Carry $1.4 Billion in Undisclosed Liability http://t.co/UFohsseZ $CHK May b worth a look when things stop getting worse May 10, 2012
  • When the Exxon way stops working http://t.co/BgN2zLO6 $XOM learns 2b more cooperative w/foreign countries where it wants 2 explore 4 oil $$ May 08, 2012
  • Argentina Taps Ex-Schlumberger Executive Galuccio to Run YPF http://t.co/j5P1oyoS Possibly a good choice to run the purloined company $$ May 08, 2012

 

Fixed Income

 

  • Still time to make money in Treasury bonds http://t.co/ABl43gzM The depressionary bull case 4 long T-bonds; D. Rosenberg & Lacy Hunt $$ May 10, 2012
  • Why Emerging Market Corporate Bond ETFs are Hot http://t.co/tWvz0sif High USD yield, but be wary. Laws governing creditor rights vary $$ May 10, 2012
  • In other words, the 30-year Tsy sold well today b/c some seek Depression insurance & others hedge convexity or immunize long liabilities $$ May 10, 2012
  • Treasuries Pare Losses as Europe Concern Aids Sale http://t.co/C7jytF08 Investors make sure they get income 4 30-yrs & $$ back when old May 10, 2012
  • S&P Warns Of $46T Perfect Credit Storm http://t.co/jZTbvy42 If companies have adequate cash flows from operations, this is not an issue. May 10, 2012

 

Canada

 

  • In Canada, Alternate Currency Keeps Traction With Fans http://t.co/ePyXRH1f Paper Money, Issued by Canadian Tire, Is Popular Way 2Pay $$ May 11, 2012
  • Revisit after their housing bubble pops RT @vgmac: There is a lot of love for Canada’s banking system here at the Chicago Fed conferences $$ May 10, 2012
  • @vgmac Then again, at the first Treasury/blogger summit I told them they should imitate the Canadian regulators and central bankers. #canada May 10, 2012
  • Canada Housing Bubble Concern Shown in Insurer Query http://t.co/kGHcqgDE Should the Canadian govt try2exit the mortgage insurance biz? $$ May 10, 2012
  • CMHC Says Capital Levels “Double” OSFI Requirements http://t.co/R4p5TuBO F&F also had capital far higher than their disaster level $$ May 08, 2012

 

Cisco Systems

 

  • Cisco shares drop on tech spending worries http://t.co/06maBaX4 Global economic weakness feeds into tech firms that sell much abroad $$ May 10, 2012
  • @ampressman Cramer said something like, “It’s not a growth company if they have to talk about the economy, weather, industry factors, etc.” May 10, 2012
  • @ampressman $AAPL is a growth company, at least for now, $CSCO was a growth company somewhere in the last 15 years… May 10, 2012

 

Delta Air Lines

 

  • Buy Delta Air Lines: Trainer Refinery Purchase & Improving Financials Will Lift The Stock http://t.co/W7YeEmgb Poorly reasoned thesis $$ May 08, 2012
  • Remember when $DD bot Conoco? There would b synergies in petrochemicals. $DD bot it at the peak, spit it out at the bottom $$ #limitscope May 08, 2012
  • $DAL substitutes risk in jet fuel pricing 4 risks in crude oil, gasoline, heating oil prices, & operational risk in a biz it doesn’t know $$ May 08, 2012
  • @The_Analyst Agreed, though enough capacity has come out of the industry through mergers that they might finally c some pricing power $$ May 08, 2012

 

US Housing

 

  • 5 Pitfalls of Home Refinancing http://t.co/ZxGUF3HM Longer maturity, Closing costs, Contract terms, Hidden fees, Appraisals $$ May 10, 2012
  • Look Who?s Pushing Homeowners Off the Foreclosure Cliff http://t.co/T6CBkUAt Mtge docs exist to protect the lender’s property interest $$ May 08, 2012
  • RE: @bloombergview Read any mortgage contract; it exists to protect the rights of lenders, including protecting the m? http://t.co/ob9eIcBt May 08, 2012
  • No Repeating Slowdown Seen by U.S. With Banks to Housing http://t.co/A0LNwrjh While hi % of mtges r underwater, finl stress will remain $$ May 08, 2012
  • Pimco Housing Bear Kiesel Says It?s Time to Start Buying http://t.co/f3zaBNZA He assumes dark supply will hang on for higher prices. $$ May 06, 2012

 

US Regulation

 

  • Maybe to be perfectly fair, the government releases the data on a website at midnight ET, long before the US markets ? http://t.co/9Zqniljs May 10, 2012
  • A Jury of Peers for Broker Disputes http://t.co/5Ly14oKJ The playing field may be more even now; odds r still stacked against investors May 10, 2012
  • Congress Seeks Postal Overhaul While Making It Impossible http://t.co/lvcEBxmw The real danger is after reduction, PS is less relevant $$ May 10, 2012
  • US Millionaires Told Go Away as Tax Evasion Rule Looms http://t.co/Tx6lr1Bl Fewer foreign banks will accept accts w/US citizens/firms $$ May 10, 2012

 

Berkshire Hathaway

?

  • Biggest Buffett Targets Seen Spanning Deere to Henkel http://t.co/dLbp9pic Muses about what Buffett would buy 2 eclipse BNSF $$ May 08, 2012
  • +1 RT @Kevin_Holloway: Good read on possibilities of recent $BRK.B purchases among some other gd thoughts by @AlephBlog http://t.co/xkN8SlXu May 08, 2012
  • Deep in the Insurance Weeds at Berkshire Hathaway http://t.co/GkH9oWBo This helps explain the life reinsurance losses at $BRKB. LTC $$ May 08, 2012
  • Buffett understands tech. But he searches for revenue streams that can’t easily be obsoleted. $AAPL & $GOOG could be ? http://t.co/VyOnKUTy May 07, 2012

?

Market Dynamics

 

  • World?s Simplest Stock Valuation Measure http://t.co/OvmQTmHs Growth Rate/2 + 8 = PE Ratio; @eddyelfenbein & his conservative PE formula $$ May 10, 2012
  • Dole Food Breakup Seen Bearing Fruit With 58% Return http://t.co/C4SvaNvw Can $DOLE become a high margin biz, & pay down debt? $$ May 10, 2012

 

Financial Sector

 

  • What about front-running? $$ RT @abnormalreturns: @MebFaber: Nail in the Mutual Fund Coffin (NAV Based ETF Trading) http://t.co/SZ3CbIY3 May 08, 2012
  • BTW, for those holding dividend funds, back in 1994, stock managers following a yield strategy got crushed. $$ #annushorribilisforbonds May 08, 2012
  • The Dangers of Dividend Funds http://t.co/5WSdEFwN Dividend funds may b safer than other stock funds, r still stock funds w/real risk $$ May 08, 2012
  • True 4 many $$ RT @ReformedBroker: ?Daddy, what do you do at your job?? http://t.co/mxrcVyhm May 08, 2012
  • BofA?s New Black-Belt Data Chief Targets Blinding Gaps http://t.co/P60yhtAk Merger integration didn’t happen in $BAC ‘s IT areas $$ #mess May 08, 2012
  • Billion-Dollar Traders Quit Wall Street for Hedge Funds http://t.co/2yFJ2JXr Volcker Rule reducing dealer-driven market liquidity $$ May 08, 2012
  • Flash-Crash Story Looks More Like a Fairy Tale http://t.co/0mBQDGKZ Still a mystery; but4any self-feeding panic, players leaning wrong way May 08, 2012
  • Almost Half of Finance Graduates Seek New Jobs, PwC Says http://t.co/YUuH9KJl The bubble in financial jobs has popped, decamp 2 other inds May 08, 2012
  • ?Where is Everybody?? http://t.co/7YPOcMUb Little retail participation is bullish; it means that only the relatively smart $$ is playing May 08, 2012
  • 50 Ways to Restore Trust in the Investment Industry http://t.co/VHhllKyp The CFA Institute gathers opinions from members on cleaning up $$ May 08, 2012
  • RE: @bloombergview Equity is more expensive than other types of bank capital; raising the cost of capital means fewer? http://t.co/qPvVygll May 07, 2012
  • Heat’s on Triparty Repos http://t.co/7Jk7DrTS Fed Is Pressing Big Players to Reduce Exposures to $1.7 Trillion Market $$ May 06, 2012

 

Company Specific

 

  • How Hewlett-Packard lost its way http://t.co/pA683e3H Very long & ugly article about board & mgmt dysfunction @ $HPQ. FD: +$HPQ 4 me&clients May 08, 2012
  • A Real Concern For Apple?s Stock: Telecom Carriers Threaten to Kill Subsidies on Phones http://t.co/JlQwSDAq Interesting thesis $$ May 08, 2012
  • AMR Said to Seek More Overseas Flights as Suitor Circles http://t.co/eUHdHju4 $LCC wins more backing, could allow filing another plan $$ May 08, 2012

 

Politics

  • Exodus From Tiburon to Texarkana Is Exaggerated http://t.co/nsyd3QjF Truth is, people & firms r sticky, until they finally get fed up! $$ May 10, 2012
  • If we do not discipline ourselves, the bond market will discipline us $$ RT @carney: Why the left will keeping winning. http://t.co/kJcfgEt4 May 08, 2012
  • Too bad, we need a better opponent to Obama $$ RT @BloombergNews: Breaking: Santorum Endorses Former Rival Romney as Republican Nominee May 08, 2012
  • Don’t Worry (About GDP), Be Happy http://t.co/BaSDMbTM GDP approximates economic growth; more subjective progress measures r ridiculous May 08, 2012
  • @justinwolfers Last thing we need on the Fed is another neoclassical Ph. D. economist. Let’s try some brainy generalists, value investors $$ May 07, 2012
  • @GaelicTorus @justinwolfers All I am saying is value investors understand how the economy works better than neoclassical economists do $$ May 07, 2012
  • Disabled Americans Shrink Size of U.S. Labor Force http://t.co/NX6ZzCjK I still resent former neighbor on SSD, putting Xmas lights on roof May 06, 2012
  • But are they ending with an accrual basis surplus, not just a cash surplus? That’s the question. http://t.co/uGa7WX14 May 06, 2012
The Best of the Aleph Blog, Part 15

The Best of the Aleph Blog, Part 15

Posted on by David Merkel

This stretches from August 2010 to October 2010:

The Education of a Corporate Bond Manager, Part VII

On the value of credit analysts.

The Education of a Corporate Bond Manager, Part VIII

On price discovery in dealer markets, and auctions gone wrong.? I never knew that I could haggle so well.

The Education of a Corporate Bond Manager, Part IX

On the vagaries of bulge-bracket brokers, and how a good reputation helps on Wall Street.

The Education of a Corporate Bond Manager, Part X

On how we almost did a CDO, and how it fell apart.? Also, how to make money in the bond market when you reach the risk limits. 😉

The Education of a Corporate Bond Manager, Part XI

On my biggest mistakes in managing bonds.? Also, on aggressive life insurance managements.

The Education of a Corporate Bond Manager, Part XII (The End)

On bond technical analysis, and how to deal with a rapidly growing client.?? Also, the end of my time as a bond manager, and the parties that came as a result.?? Oh, and putting your subordinates first.

Queasing over Quantitative Easing

Queasing over Quantitative Easing, Redux

Queasing over Quantitative Easing, Part III

Queasing over Quantitative Easing, Part IV

Queasing over Quantitative Easing, Part V

Queasing over Quantitative Easing, Part VI

The problems with the Fed’s seemingly “free lunch”strategy.? Pushes up asset prices and commodity prices, benefiting the rich versus the poor.

The Economic Geography of Publicly-Traded Companies in the United States by Sector

The Economic Geography of Publicly-Traded Companies in the United States by Sector (II)

Shows what US states have diversified vs concentrated economies by sector, and what states dominate each sector.

Portfolio Rule One

Industries are under-analyzed, relative to the market on the whole, and relative to individual companies. Spend time trying to find good companies with strong balance sheets in industries with lousy pricing power, and cheap companies in good industries, where the trends are not fully discounted.

Portfolio Rule Two

Purchase equities that are cheap relative to other names in the industry. Depending on the industry, this can mean low P/E, low P/B, low P/S, low P/CFO, low P/FCF, or low EV/EBITDA.

Portfolio Rule Three

Stick with higher quality companies for a given industry.

Portfolio Rule Four

Purchase companies appropriately sized to serve their market niches.

Portfolio Rule Five

Analyze financial statements to avoid companies that misuse generally accepted accounting principles and overstate earnings.

Portfolio Rule Six

Analyze the use of cash flow by management, to avoid companies that invest or buy back their stock when it dilutes value, and purchase those that enhance value through intelligent buybacks and investment.

Portfolio Rule Seven

Rebalance the portfolio whenever a stock gets more than 20% away from its target weight. Run a largely equal-weighted portfolio because it is genuinely difficult to tell what idea is the best. Keep about 30-40 names for diversification purposes.

Portfolio Rule Eight

Make changes to the portfolio 3-4 times per year. Evaluate the replacement candidates as a group against the current portfolio. New additions must be better than the median idea currently in the portfolio. Companies leaving the portfolio must be below the median idea currently in the portfolio.

The Portfolio Rules Work Together

How the portfolio rules work together to create a “margin of safety.”

The Rules, Part XVIII

When rules become known and acted upon, the system changes to incorporate them, making them temporarily useless, until they are forgotten again.

When a single strategy becomes dominant, it can become temporarily self-reinforcing.? Eventually, it will become self-reinforcing on the negative side.

A healthy market ecology has multiple strategies that are working in separate areas at the same time.

The Rules, Part XIX

There is room for a new risk model based on the idea that risk is unique among individuals, and inversely related to the price paid for an asset.? If a risk control model has an asset becoming more risky when prices fall, it is wrong.

?The Rules, Part XX

In the end, economic systems work, and judicial systems modify to accommodate that.? The only exception to that is when a culture is dying.

?Managing Illiquid Assets

Illiquidity is an underrated risk.? Most financial company failures are due to illiquidity, which usually takes the form of too many illiquid assets and liquid liabilities.? Adding to the difficulty is that it is generally difficult to price illiquid assets, because they don?t trade often.

Of Investment Earnings Assumptions and Century Bonds

If we could turn back the clock 65 or so years and set up a more conservative method of accounting for pension liabilities, we would be much better off today.

Who Dares Oppose a Boom?

This piece won a small prize, and in turn, I received three speaking engagements.

Fairness Versus Economics

Fairness Versus Economics (2)

People care more about fairness than improving their own economic/social position.

Earnings Estimates as a Control Mechanism, Flawed as they are

Earnings Estimates as a Control Mechanism, Flawed as they are, Redux

Earnings estimates have their problems, but they exist to give us a flawed method of estimating the future performance of companies.

-==-=-=-=-=–=-=

That’s all for now.? Never thought I would do so many long series when I started blogging.

Redacted Version of the April 2012 FOMC Statement

Redacted Version of the April 2012 FOMC Statement

Posted on by David Merkel
March 2012 April 2012 Comments
Information received since the Federal Open Market Committee met in January suggests that the economy has been expanding moderately. Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. No real change.
Labor market conditions have improved further; the unemployment rate has declined notably in recent months but remains elevated. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. No real change.? The unemployment rate is down, but few jobs are being created, and people are dropping out of the labor force.? The improvement isn?t that large.
Household spending and business fixed investment have continued to advance. The housing sector remains depressed. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed.

 

 Shades up their view on the housing sector.? ?I would be more cautious.
Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer-term inflation expectations have remained stable. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable. Shades up their view of inflation, finally.? TIPS are showing higher inflation expectations since the start of the year. (5y forward 5y inflation implied from TIPS.)
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.? Mentions of the statutory mandate are always meant to hide the distasteful aspects of what they do.
The Committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the Committee judges to be consistent with its dual mandate. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Shades up its views of future GDP growth.
Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. Strains in global financial markets continue to pose significant downside risks to the economic outlook. Shades up its view of risks from global financial markets.
The recent increase in oil and gasoline prices will push up inflation temporarily, but the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate. No real change.
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 expects to maintain a highly accommodative stance for monetary policy. 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 expects to maintain a highly accommodative stance for monetary policy. No change.
In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

 

 No change.
The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies 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. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability. The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies 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. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability. No change.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. No change.
Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014. No change.? Thank you, Mr. Lacker.

?

Comments

  • No significant changes from last time.? They shaded up their views on housing, inflation, and global financial risk.? That?s all.
  • 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.
  • Also, the reinvestment 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.
  • The Fed is out of good policy tools, so it will use bad policy tools instead, and for longer than before.
  • Do they want the yield on 30 year TIPS to go negative?? Looks that way.
  • GDP growth is not improving much if at all, and the unemployment rate improvement comes more from discouraged workers.? Inflation has moderated, but whether it will stay that way is another question.

Questions for Dr. Bernanke:

  • Is it possible that you don?t really know what would have worked to solve the Great Depression, and you are just committing an entirely new error that will result in a larger problem for us later?
  • Why do think extending the period of accommodation by a little more than a year will have any significant effect on the economy, aside from stock and bond prices?
  • Discouraged workers are a large factor in the falling unemployment rate. Why do you think the economy is doing well?
  • Couldn?t increased unemployment be structural, after all, there is a lot more competition from labor in emerging markets?
  • Why do you think that 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?
  • Why will reinvestment in Agency MBS help the economy significantly?? Doesn?t that only help solvent borrowers on the low end of housing, who don?t really need the help?
  • Isn?t stagflation a possibility here?? I mean, no one expected it in the ?70s either.
  • Could we end up with another debt bubble from keeping short rates so low?
  • If the Fed ever does shrink its balance sheet, what effect will it have on the banks?
Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Busy week last week.? Here’s the economic and other news:

=-=-=-=-=-=–=-=-==-=-=-==-=-=-=-=–==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

China

 

  • Bloomberg: Inflated Notions http://t.co/hvMoIFH6 Patrick Chovanec questions whether Chinese economic statistics are correct. $$ Apr 22, 2012
  • China?s Political Stability Questioned, while Deposit Withdrawals Accelerate http://t.co/X9kJ9oZb Deposits exit China’s banks; many worry $$ Apr 22, 2012
  • Asia dominates new treasury purchases http://t.co/BXvgGQRi If you want to favor your exporters, you have to suck in the debts of the buyers Apr 22, 2012
  • China?s Achilles heel http://t.co/3TPxHEvL Very difficult to change the practice of having fewer children once it is entrenched $$ Apr 22, 2012
  • Son is a good man, more worthy than Dad $$ RT @mprobertson: & the first wife had a son. http://t.co/dFzgm1kp extra extra, read all about it Apr 19, 2012
  • Chinese Move to Wealth Products May Undermine Bank Stability http://t.co/bYK4qImP Disintermediation happening increasing shadow bank risk $$ Apr 18, 2012
  • Chinese Officialdom Indulges in the Almost-Free Lunch http://t.co/tTMkP8JK A modest subsidy/perk looks big if the 1 looking in is poor $$ Apr 18, 2012
  • The Power Shift in China http://t.co/bgxN7t8h Shifts: 1.weak leaders < strong factions 2. government < interest groups 3. party < country $$ Apr 18, 2012
  • More Chinese get US green card http://t.co/ZU30ahwF They know where they’ve got it good, not in the Socialist worker’s paradise! $$ Apr 18, 2012
  • So many Chinese officials r arrested 4 embezzling funds through Macau that 2 scholars devoted a study to the subject http://t.co/YZbDqX57 $$ Apr 18, 2012
  • That?s Governor Zhou to you http://t.co/AkXcHbPZ Check out chart of central bank balance sheet growth http://t.co/VG0bySGA China leads $$ Apr 18, 2012
  • China widens the range 4 currency fluctuations. Is it really making x-rate more flexible? http://t.co/Rv79vI0q PBOC still targets x-rate $$ Apr 18, 2012
  • Rotting From Within http://t.co/vAwKBTzb Investigates the massive corruption of the Chinese military; makes corruption in the US look small Apr 18, 2012
  • Bo Xilai’s first wife gets her revenge at last http://t.co/UsrGejSF Some Chinese r very good @ maintaining a grudge 4a long time $$ Apr 18, 2012
  • China Doubling Yuan Band Signals Drive for Convertibility http://t.co/FK9OohMh Importance overstated; will not have a big effect on x-rate Apr 18, 2012
  • China Adds Treasuries for Second Month on Reserve Growth http://t.co/Ev9Fqi8s Export earnings have 2b invested somewhere $$ is best of bad Apr 18, 2012
  • China New Yuan Loans Surge in March as Money Supply Quickens http://t.co/DmXg6QB5 Sounds inflationary, if not 4 goods, then 4 assets $$ Apr 18, 2012

 

Energy

 

  • Peak oil goes mainstream (again) http://t.co/BijPuVFG Oil & Gas will never run out, but the price to get them could get high $$ Apr 22, 2012
  • Feeling peaky http://t.co/4mefPCBR “But there is a simpler explanation: that supply is inadequate to keep up with rising demand.” $$ Apr 22, 2012
  • Could US natural gas run out of storage capacity? http://t.co/8R1aYxjM Yes, it could, and we could see the price of spot gas go 2 zero $$ Apr 22, 2012
  • Delta?s Oil Refinery Plan Flies Against Economic Sense http://t.co/0xAnIV2z It rarely makes sense to be vertically integrated. $$ Apr 22, 2012
  • Obama’s oil market plan more politics than substance http://t.co/w2vwKhNx Crude oil market is so big; would be difficult 2 game secretly Apr 18, 2012

 

Eurozone

 

  • Odds of bankruptcy http://t.co/v0xBexrW Short table of bankruptcy odds: European banks = E-Zone Fringe > US Banks > Other nations $$ Apr 22, 2012
  • The bank-sovereign linkage in the Eurozone http://t.co/9q7Sx9cn Not 2 surprising; governments & banks comprise most systemic risk $$ Apr 22, 2012
  • Spain’s loan delinquencies accelerate http://t.co/3Nlf2QDu Really ugly graph: http://t.co/iJVux7fj The Spain issue is not dead $$ #ezonedead Apr 22, 2012
  • Paulson Said to Short Europe Bonds Amid Spain Concern http://t.co/hJQwSc9n This one isn’t as easy as shorting subprime. Be careful $$ Apr 18, 2012
  • Modell Deutschland ?ber alles http://t.co/DtrBNHDL Suggests EZone imitate German labor rules, but not austerity $$ Apr 18, 2012
  • French Campaign Enters Final Week With Hollande Extending Lead http://t.co/whQhmUb1 & widening recently; could make Ezone matters messy $$ Apr 18, 2012
  • Downgrades Loom 4 Banks http://t.co/EdDRDGQa Moody’s Weighing Ratings Cuts to 114 Institutions in 16 European Countries $$ #lookoutbelow Apr 18, 2012
  • Spanish Minister Asks ECB to Buy Bonds as Crisis Deepens http://t.co/cUcLRHLW Things r calmer now but this is the path of least resistance Apr 18, 2012
  • Spain?s Surging Bad Loans Cast New Doubts on Bank Cleanup http://t.co/QQT2BSsB NPLs /totallending jumped to 8.16% in February, <1% in 2007 Apr 18, 2012
  • Weidmann says not ECB job to tackle Spain’s problems http://t.co/kRUWSfyQ Famous last words $$ ECB only entity w/flexbility 2act fast Apr 18, 2012
  • Ray Dalio’s Bridgewater Says Spain Is Worse Off Than It Was Before The LTRO http://t.co/nVMDpG5c It’s a solvency, not a liquidity problem Apr 18, 2012
  • GEORGE SOROS: The Euro Crisis Just Entered A ‘Less Volatile But More Lethal Phase’ http://t.co/uzIev7nm LTRO papers overinsolvency probs Apr 18, 2012

 

Rest of the World

 

  • Argentina’s shadow FX rate shows total loss of confidence http://t.co/RVRicp1p Dishonesty in one area makes others distrust u elsewhere $$ Apr 22, 2012
  • Cristina: she is not alone http://t.co/gBWcllwU Many nations engage in expropriation from foreigners. $$ Apr 22, 2012
  • Pakistan And India To Go To War Over Water? http://t.co/2mx9a7u9 Whiskey’s for drinking, water’s for fighting over — Mark Twain $$ Apr 18, 2012
  • Unlikely but never say never RT @SCMITHA: @AlephBlog Sir No chance of war bet India & Pakistan both Nuclear Army Chief Kayani wants peace Apr 18, 2012
  • Mexico Manifesting its Own Destiny http://t.co/kLwx5A6l “Mexico has clearly stood out to me for its relative and absolute strength.” $$ Apr 18, 2012
  • Japan?s Teachers Fund to Start Investing in REITs, Hedge Funds http://t.co/9nKnY0zM Trend following; late to the alternative assets party Apr 18, 2012


US Tax Policy & Pensions

?

  • Congress Eyes 401(k)s Again http://t.co/nRL9IkeO Interesting article on some possible/unlikely proposals to change 401(k)s $$ Apr 22, 2012
  • How to Pay No Taxes: 10 Strategies Used by the Rich http://t.co/ljjgefpc The main problem is defining income, not tax rates on the rich $$ Apr 22, 2012
  • Occupy defined-benefit pension funds! http://t.co/eQooNetC Employees would be better off with DB plans, even if had to fund them themselves Apr 22, 2012
  • New Suits Over Do-It-Yourself IRAs http://t.co/B6UYpG5m They aim for the wrong target; the custodian is only a conduit, not a referee $$ Apr 22, 2012
  • As population ages, institutions reduce equity holdings http://t.co/rPfescwH A first: US pensions have allocated more to bonds than equities Apr 18, 2012

?

Miscellaneous

 

  • The New York Times Company in 2015 http://t.co/qp451VDA An optimistic view of $NYT three years from now. I will not buy it. $$ Apr 22, 2012
  • Joel Kotkin: The Great California Exodus http://t.co/WOvr2BFE Y California is in deep trouble & will shrink as better places r found $$ Apr 22, 2012
  • Contra: Climate Change Has Nothing to Do With Al Gore http://t.co/GO0S60J3 Misinterprets Lk 16:2, & I am to believe he is a Christian? $$ Apr 22, 2012
  • The Celestial Event That Sparked a Revolution http://t.co/Kn3E9XJb Fascinating tale on the transit of Venus across the Sun $$ #June6th Apr 22, 2012
  • The Downside of Cohabiting Before Marriage http://t.co/a1fFySzW For a man & woman 2 live together long run requires decisive commitment $$ Apr 18, 2012
  • Amazon’s knock-off problem (35 Shades of Grey, anyone?) http://t.co/oRJNKhVB Fascinating that some r knocking off books & selling on $AMZN Apr 18, 2012
  • Median age for first marriage spikes to record, holding back family formation http://t.co/Uf2SbCTI Long-run effect on society won’t b good Apr 18, 2012
  • To Pay Off Loans, Grads Put Off Marriage, Children http://t.co/G72NieZI Far better to skip college than put off marrying & children $$ Apr 18, 2012
  • The 101 Finance People You Have To Follow On Twitter: http://t.co/pIaCWK1n A good list, but where’s @moorehn, @interfluidity, @edwardnh $$ Apr 18, 2012
  • Dark Meat Getting a Leg Up on Boring Boneless Breast http://t.co/7BDSaTru “Every single day we have shortage of dark meat.” Who knew? $$ Apr 18, 2012
  • ?Pink Slime? Furor Means Disaster for U.S. Meat Innovator http://t.co/uGwKSIhw The other side of the story; fighting bacteria in beef $$ Apr 18, 2012
  • RAIL TRAFFIC CONTINUES TO SOFTEN http://t.co/EnhWT7Ay Economy slowing; just another straw blowing in the wind. $$ Apr 18, 2012
  • Freeport Deal Talk Intensifies on Cheap Copper http://t.co/DH26Nf1s Would be a big deal & difficult to pull off; Interesting idea tho $$ Apr 18, 2012
  • Taxes are filed and now I have some time to tweet, making up for lost time… Apr 18, 2012
  • @danprimack Private Investment Limited Partnership. Features: asset & profit-based fees. Limited liquidity & information. Aims high gets low Apr 17, 2012?(DM: defining ?hedge fund? in 140 chars)

?

Economics & Finance Theory

?

  • Is modern portfolio theory bunk? http://t.co/NrplQvbp Low volatility anomaly says bunk; if you didn’t know MPT was bogus alre ady-> #hopeless Apr 22, 2012
  • U.S. money supply growth offers bullish signal http://t.co/aqV6oP0c It is bullish in nominal terms for risk assets; not bullish for the rest Apr 22, 2012
  • Slump Taught Profligate Americans Value of Saving http://t.co/22jWf3OL Having slack assets & not being in debt is a virtue not a vice $$ Apr 22, 2012
  • The Great Depression as a Credit Boom Gone Wrong http://t.co/OBXRGeY2 Until the great depression is viewed as the bust after a credit boom + Apr 22, 2012
  • …we won’t get policy right. The credit cycle is real, & the Fed ignores it, providing liquidity as if it were not a structural problem. $$ Apr 22, 2012
  • El-Erian Breaches The Final Frontier: What Happens If Central Banks Fail? http://t.co/pRcdN42N Goal: print enough credit until promises -> 0 Apr 18, 2012
  • Deflation Does Not Lead to a Depression, suggests Research http://t.co/2VTu2bAd Separate probs; falling inflation vs systemic impaired debts Apr 18, 2012
  • Depression is a choice http://t.co/F4YdBn8x Every creditor wants 2b paid off @ par; many debtors would like compromise, enabling econ growth Apr 18, 2012
  • Difficulties in forecasting the impact of shadow inventory on the housing market http://t.co/xcALioOb Mtge > value makes sales slow, $$ low Apr 18, 2012

?

Financial Markets

?

  • Are fixed income ETFs the new “securitization” product? http://t.co/6qo2U7Zg Shows the many ways that sponsors make $$ off of ETFs Apr 22, 2012
  • Time for the SEC to institute new disclosure rules on CEO leverage http://t.co/nMJZslXg Insider CEO deals r material & should be revealed $$ Apr 22, 2012
  • Fear Barometer Bubbling http://t.co/HjXre23p Puts getting more expensive relative to calls on the S&P Apr 22, 2012
  • Is This the Book that Inspired Jamie Dimon’s Warnings About Regulation? http://t.co/ikzuXwlD Regs make banks behave alike ->systemic risk $$ Apr 22, 2012
  • @historysquared One question I always ask is how mgmt/directors treat outside passive minority shareholders. Do we ride the back of bus? $$ Apr 18, 2012
  • @historysquared Yeh, don’t let management control audit, nominating, or compensation committees. Split Chairman & CEO, etc., etc., etc… $$ Apr 18, 2012
  • Regulators should encourage more diversity in the financial system http://t.co/xhfvsTlS Consistent regs create less diversity forces conform Apr 18, 2012
  • In New Funds, Old Flaws http://t.co/h931mglc Some have high fees, longer-term tracking error, hidden counterparty risk, enable stupidity Apr 18, 2012
  • Why Investors Should Pay Attention to the JOBS Act of 2012 http://t.co/kk9seYVH Here’s what Hunter thinks are the positives of the JOBS Act Apr 18, 2012
  • Fannie Mae Fix Said to Retain Some US Mortgage Role http://t.co/YPAFyygs Crazy people @ UST. 2much debt on housing in general->instability Apr 18, 2012
  • Wells Fargo, JPMorgan Label More Junior Liens as Bad Assets http://t.co/QpwE2S43 Wow, this took a long time to finally happen $$ #reality Apr 18, 2012
  • Structured-Note Fees (etc) http://t.co/rYf5WXBS IBs must disclose likely value of securities, fees incurred in creation of the notes $$ Apr 18, 2012
  • Citadel, Millennium Above $115 Billion With Rule Change http://t.co/j53AMUGG Many hedge funds have borrowed lots; now we know how much $$ Apr 18, 2012
  • Year’s first outflows from HY bond funds http://t.co/mUmIq0Yw May eventually lead to $$ weakness Apr 18, 2012
  • Green Light for Hedge-Fund Ads Means Caution on Main Street http://t.co/4mh9LNgW Most people will not fare well w/complex investments $$ Apr 18, 2012
  • Doing the Right Thing: Upside? Zero. Downside? Financial Ruin? http://t.co/eZlNDJJA We aren’t paid 2b sheriffs a la: http://t.co/egqIsb9V $$ Apr 18, 2012
  • Do Jubilee shares make any sense? http://t.co/2LxtggJ1 I don’t think so. Unnecessary complexity; increased illiquidity; would not work $$ Apr 18, 2012
  • 12 Intriguing Insights on Mutual Funds http://t.co/6U3JZegh Interesting mutual fund trivia from Morningstar $$ Apr 18, 2012
  • Interesting post. But a successful spec on 1 risk can morph into credit risk post-crisis. … http://t.co/Vzlb5xdT Apr 17, 2012
  • Falcone looks like a one-trick pony who made one lucky bet and won. Now he loses regularly. http://t.co/dsivgMCs Apr 16, 2012

 

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

Valuations

 

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

 

Central Banking

 

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

 

China

 

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

 

United States

 

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

?

Finance

 

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

 

Japan

 

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

 

Insurance

?

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

?

Personal

 

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

 

Miscellaneous

 

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

 

Energy

 

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

 

Rest of the World

 

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

 

Company News

 

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

 

Housing

 

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

 

Funds

 

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

?

Financial Distress

 

  • Reddy Ice Considers Filing for Bankruptcy http://t.co/IgpYjHue Is it just me, or are we seeing an uptick in insolvencies? $$ Apr 04, 2012
  • Hostess Serves Up New Batch of Cuts http://t.co/fHBXwHes Future failure as people don’t buy so many of the “sugar fat bombs” 4 kids $$ Apr 02, 2012
  • Failures: Pinnacle Airlines http://t.co/BXkJ8v9j AFA Foods http://t.co/xs4wsFEE Airlines & Meat renderers r born 2 fail $$ Apr 02, 2012
Easy in, Hard out

Easy in, Hard out

Posted on by David Merkel

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 balance sheet on assets.? Today the asset side of their balance sheet is much larger, long duration, and modestly dirty.? 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 4+ 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 14.1%/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 33%/yr, and reserve balances with Federal Reserve Banks, which you can calculate an annualized rate of growth for, but a rate doesn’t do justice to the process, because it grew due the two events — QE1 & QE2.? The Fed bought assets from various parties, who now deposit at banks inside the Federal Reserve System.

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 what is presently a muted form today.

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 75% 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 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.

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, orpolitical 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 QE3, QE4, 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 has 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.

But 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; today, it is trying to deal with a lending bust — too much debt, and much of it is bad, 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.

Sorted Weekly Tweets

Sorted Weekly Tweets

Posted on by David Merkel

 

China

 

  • China’s first bond default could be good market medicine http://t.co/8ShFniYM Bond trader: “We don’t really have a credit risk culture.” $$ Mar 31, 2012
  • Is China’s slowdown worse than previously estimated? http://t.co/CkZw8tLK Could b business conditions that are worst since 2009. $$ Mar 31, 2012
  • China Banks Said to Underestimate Local Government Risks http://t.co/qpPicyEe China has a clever bureaucracy; always has; big CYA $$ Mar 25, 2012
  • Chinese capitalism is just another knockoff http://t.co/w2hSozQL China is not Capitalist; it rewards Party members, not citizens. $$ Mar 25, 2012
  • Debating a ?Hard Landing? http://t.co/NMnYk2XX friendly debate – Andrew Batson & Patrick Chovanec over China facing a ?hard landing? in 2012 Mar 25, 2012
  • I Am Jordan’s Complete Lack of Surprise: Chinese Co’s Forced to Falsify Data http://t.co/BMj7ux0T Command & control economy, not free $$ Mar 25, 2012

 

Market Dynamics

 

  • The Nature of a Crowded Trade http://t.co/sf1phJjP A July 2008 article of mine where I reflected on the high correlations of the prior 3 yrs Mar 31, 2012
  • A Market Lacking Diversification http://t.co/khXUVjaL Correlation conditions similar to 2006-2008, only diversifier hi-qual long bonds $$ Mar 31, 2012
  • Pension Deficit for 100 US Company Plans Increased 41% in 2011 http://t.co/FdIZTltW Low long hi-qual rates & cruddy returns on risk assets Mar 31, 2012
  • 2277 Stocks and Still Not Diversified? http://t.co/iu0Pw8Ty Recommended solution is similar 2a levered version of the Permanent Portfolio $$ Mar 31, 2012
  • New from Aleph Blog The Rules, Part XXXI: The offering of liquidity through limit orders is a real service to th… http://t.co/ZiuzWIo5 Mar 30, 2012
  • Passive Aggressive: Index-Linked Securities and Individual Investors http://t.co/ZrjMCKCz Curbs stock picking, encourages factor timing $$ Mar 29, 2012
  • Bankers are telling corporate clients this is their chance to refinance http://t.co/Eh9tHEX6 The window of cheap junk financing is open $$ Mar 28, 2012
  • New from Aleph Blog Replacing Defined Contributions: I think that it is pretty certain that defined contribution… http://t.co/Dis34ql2 Mar 27, 2012
  • What Will Replace the 401(k)? http://t.co/miLAuoYc How about DB pensions where it depends on how much the employee kicks in plus match? $$ Mar 27, 2012
  • US Stocks Advance Following Bernanke?s Comments http://t.co/D7sORuIU Stox react 2 increases in inflation expectations. TIPS & Bonds fall $$ Mar 26, 2012
  • Hedge Funds Capitulating Buy Most Stocks Since 2010 http://t.co/XHwxzxNO Short-term money alert! Will propel mkt 4 a while, then… $$ Mar 26, 2012
  • If Bloomberg Business Week is a better magazine than old Businessweek (I think so), what magazine should we use now 4 a dumb $$ indicator? Mar 26, 2012

 

Asset Management

 

  • Nontraded REITS should be a nonstarter for clients http://t.co/O1ZuMvX8 And here’s one that just announced a 72% loss: http://t.co/la8d29my Mar 31, 2012
  • Oaktree IPO Could Pay 2 Founders $117.2M Each http://t.co/Yufla6Jk The Most Important Thing is getting rewarded 4 building AUM 😉 $$ Mar 31, 2012
  • The Trouble With Exchange Traded Notes http://t.co/ZL7dVpjO Unsecured credit, total return swaps, low level of regulatory protection $$ Mar 31, 2012
  • Good 4 all of us RT @frankvoisin: My interview Research Magazine’s April issue: http://t.co/zioono6R Also features @VitaliyK @alephblog $$ Mar 30, 2012
  • Bain Gave Staff Way to Swell IRAs by Investing in Deals http://t.co/4LlAExBt Letting employees in on the fun shares the wealth. Good $$ Mar 30, 2012
  • Lying By Omission: Mutual Funds, Track Records & Departing Managers http://t.co/4MUyNRYs Track recrds shuld b suspended when critical ppl go Mar 29, 2012
  • New from Aleph Blog A Pox on Promoted Stocks (2): By this time, I would think that it would be worth the the tim… http://t.co/DJkH6E4W Mar 28, 2012
  • The Measured Approach to Value http://t.co/XiZOUMOn Features investors Vitaliy Katzenelson & Croft-Leominster, & smaller Frank Voisin & me Mar 28, 2012
  • GoodHaven Realizes Its Vision http://t.co/zJVmCFMa The CIO of Markel, Tom Gayner showed them favor and invested with them. Good for them. $$ Mar 27, 2012
  • What This Industry Needs is a Good Disruption http://t.co/imKDcElR There r a few areas of the financial industry that justify their fees $$ Mar 27, 2012
  • Found PDF slide presentation: http://t.co/0GfhME7m The Market for Financial Advice: An Audit Study $$ Worth a read, paper not free @ SSRN Mar 26, 2012
  • Treasuries Rise for Fourth Day on Global Growth Concern http://t.co/JYpanHTu Funny how the sentiment has reversed; who is surprised? $$ Mar 25, 2012

 

Monetary Policy

 

  • @kyles09 No, not a believer in MMT, MMR, or neoclassical macro. 2 much aggregation, not everything happens at once, goods/services central + Mar 30, 2012
  • @kyles09 and $$ only facilitates goods/services. Debt is important, but not central, some goods owned outright, w/no liabs. Money is a + Mar 30, 2012
  • @kyles09 creation of a culture, not the government, because @ the edges, FX & commodities will crowd out bad currencies. MMT -> inflation $$ Mar 30, 2012
  • What Does Bernanke Know? http://t.co/LydpOqk1 Introduces “The Guy Rate” http://t.co/zNVeUYmP Unemployment of older guys has hi costs Mar 29, 2012
  • Demand for U.S. Debt Is Not Limitless http://t.co/NWKHcpCD In 2011, the Fed purchased 61% of Treasury issuance. That can’t last. $$ Mar 29, 2012
  • Bitter Money Fights Shaped U.S History http://t.co/36jWnkQq Abandoning Gold Helped Dollar Gain Preeminence http://t.co/QbYMkTNL $$ Mar 28, 2012
  • For the last tweet, those r2 good articles by Simon Johnson & James Kwak, authors of ?13 Bankers? & co-founders of The Baseline Scenario $$ Mar 28, 2012
  • Housing bubbles and interest rates http://t.co/9TfzMpt2 Makes my point that asset price levels should be part of monetary policy $$ Mar 31, 2012

 

Banking & Finance

 

  • FiveBooks Interviews > @Ritholtz on Causes of the Financial Crisis http://t.co/RQQZfHTz Many good perspectives from 6 authors on the crisis Mar 31, 2012
  • Geithner?s Math Puzzle Beyond Numbers for DeMarco http://t.co/Eg9BjcgE Principal forgiveness would have moral hazard impacts. $$ Mar 30, 2012
  • Why not make LIBOR off of binding offers of the banks to borrow/lend to any of their group $10M short-term unsecured? Avg — LIBOR/LIBID $$ Mar 30, 2012
  • Libor Links Deleted as UK Bank Group Backs Away From Rate http://t.co/HOy8TOof British Bankers? Association distances itself from LIBOR $$ Mar 30, 2012
  • Branson?s Virgin Money Seen Disrupting U.K. Retail Banks http://t.co/bPcD8im7 Always been a Branson skeptic; he have audited financials? Mar 30, 2012
  • Why not make LIBOR off of binding bids/offers of the banks to borrow/lend to any of their group 10 million dollars sh? http://t.co/wK3HyopV Mar 29, 2012
  • Is Hartford Financial’s market exit a death knell for the annuity crowd or just more Hartford haplessness? http://t.co/AUEVqxWQ Both. $$ Mar 29, 2012
  • The Birth (and Death) of the Moral Age of Wall Street http://t.co/eStszd7i At one point the moral code of $GS had some meaning, not much now Mar 29, 2012
  • @BarbarianCap More subtle than that; for insurance accounting &the concept of release from risk, it is the conservative side of realistic $$ Mar 27, 2012
  • A Proposal for the Resolution of Systemically Important Assets and Liabilities: The Case of the Repo Market http://t.co/WYQGAVVx +1 $$ Mar 26, 2012
  • But, disagree. Would b simpler and more effective to disallow repo financiers unrestricted access to collateral even in counterparty default Mar 26, 2012
  • Obama Relies on Debt Collectors Profiting From Student Loan Woe http://t.co/pYWwgLq2 How independent debt collectors get people 2 pay $$ Mar 26, 2012
  • A Bailout by Another Name http://nyti.ms/GRTNMM GSE writedowns would constitute a direct & sizable gift from taxpayers 2 the largest banks Mar 26, 2012
  • Banks? preemptive strike against Dodd-Frank http://t.co/wjHW0nyv Banks adjusting strategies in order to keep doing as much biz as possible Mar 26, 2012
  • MF?s Corzine Ordered Funds Moved to JP Morgan, Memo Says http://t.co/cYaT9sHy The most likely cause may prove to b correct $$ #corzine Mar 26, 2012
  • BOE’s Tucker: Rehypothecation Consequences ‘Under the Radar’ http://t.co/0X8ZQMMH Good. Rehypothecation should b reviewed, perhaps limited Mar 26, 2012
  • @EpicureanDeal @dsquareddigest I would still lay the blame @ the door of $GS mgmt. Could have grown via retained earnings &stayed private $$ Mar 26, 2012
  • @EpicureanDeal @dsquareddigest Also, there r real advantages 2 partnership culture in an investment bank; risk control works a lot better $$ Mar 26, 2012
  • The Age of the Shadow Bank Run http://t.co/deJRQGgy Borrow short, lend long; clip a spread. Surprise! During the crisis you lose big! $$ Mar 25, 2012
  • The Interest Rate Swaps that Are Bankrupting Local Governments http://t.co/yHQZ1r3u Not true. Gov’ts tried to minimize taxes w/swaps, failed Mar 25, 2012
  • Three?s a Crowd http://t.co/KHtbrqpe Disagree w/the conclusion, because $GS did not have to go public; problem is mgmt, not shareholders $$ Mar 25, 2012

 

Pensions

 

  • Brazil?s pension system http://t.co/90O97tQ4 They allow people to retire too early & offer too much. More unsustainable than Medicare $$ Mar 30, 2012
  • @AlexRubalcava Perhaps a cash balance plan would do that. DB plans are not expensive because of explicit costs. They r expensive b/c + Mar 28, 2012
  • @AlexRubalcava during boom times benefits look free and get set too high, leading to high costs in the bust phase & plan terminations. $$ Mar 28, 2012

 

Politics

 

  • Obama Is a Loser Who Wins, Like FDR in 1936 http://t.co/K0x9go0T Don’t assume a bad economy insures the defeat of Obama. FDR won in ’36 $$ Mar 31, 2012
  • The Rejection of Austerity Begins http://t.co/CgWKa9x6 Until failure, ppl vote 4 politicians who promise magic prosperity thru govt fiat $$ Mar 30, 2012
  • Germany: The Final Frontier… Whose True Debt/GDP Is Now 140% http://t.co/KgW2d76E When you add up the guarantees, doesn’t look so good. $$ Mar 29, 2012
  • Justices Suggest Parts of Health-Care Law May Be Thrown Out http://t.co/cMvKHR20 B best 2 throw the whole law out; let Congress start over Mar 29, 2012
  • Contra: Court Can?t Let Broccoli Get in Way of Health Care Law http://t.co/5Yp2o8tB Sup Ct is moving 2 define interstate commerce better Mar 26, 2012
  • Death Tax Defying http://t.co/FrkL5yLB Eliminate the estate tax; Tax everyone on unrealized capital gains. $$ Same result. Mar 25, 2012
  • Intelligence community can keep data on Americans with no ties to terrorism for up to 5 years http://t.co/PCM7ldiG Stinks; call the ACLU $$ Mar 25, 2012

 

US Economy

 

  • Why Natural-Gas Prices Could Fade to Red http://t.co/GApb0xie When everyone tries 2 frack @ once, there is too much natgas, price falls Mar 30, 2012
  • US coal production declines as industry faces further stress http://t.co/l3WpZtDC Fracking has unpredictable consequences; affects energy $$ Mar 29, 2012
  • Bidding Wars Erupt as U.S. Supply of Homes for Sale Falls http://t.co/JsgIdewr In certain locales, & on the low end, there r bidding wars Mar 29, 2012
  • The Biggest Bellwether In The World Is Giving Some Ominous Comments About Growth http://t.co/vHWs9lwB $FDX says things r slowing down $$ Mar 29, 2012
  • Planned Pipelines to Rival Keystone XL http://t.co/qQZ1Dsj2 Enterprise Products Partners & Enbridge may build competing pipelines $$ Mar 28, 2012
  • ‘Pink slime’ producer suspends operations http://t.co/CvptYPhU Goes from 4 factories to 1. 600 people will probably lose their jobs $$ Mar 28, 2012
  • @valuewalk @The_Analyst It is better for students to start small businesses. Forget economics, it is a waste. Profit/loss best teacher $$ Mar 27, 2012
  • The Economic Surprise Index is now trending down http://t.co/eJCEEdvy @soberlook reminds us that not everything is going well $$ Mar 27, 2012

 

Miscellaneous

  • Like it? I’ve actually bought cars that way! RT @mprobertson: http://t.co/UHdFL0Eu How to buy a car using game theory. very interesting. $$ Mar 31, 2012
  • Eating Chocolate Regularly May Make You Leaner, Survey Suggests http://t.co/l8c6MMpA This means one dark chocolate Dove promise/day $$ Mar 27, 2012
  • The second most dangerous people in the world are smart people with wrong postulates. Mar 25, 2012
  • The most dangerous people in the world are politicians who peddle the views of the smart people with wrong postulates. $$ Mar 25, 2012
  • Madoff FBI Files Reveal How He Fooled His Own Employees http://t.co/lmq2AoZG Gives hope to those accused; Madoff controlled data tightly. Mar 25, 2012
Seven Notes

Seven Notes

Posted on by David Merkel

First, I have some blog news:? my hosting provider made me delete 7000 spammers out of my user database.? That left me with 200+ users.? Inadvertently, in the process, around 70 bona fide users with surnames starting with the letters J-Z got deleted.? So, if you got deleted, and have to re-register, my apologies.? I tried to be careful, but made an error when matching databases.

Second, MetLife should not have to undergo the stress tests that banks do.? Banks borrow short and lend long; they are inherently unstable.? Insurance companies generally match assets and liabilities, and are stable.? The only insurer of consequence to fail in the crisis was AIG, and it was because of derivatives and securities lending issues, areas that other insurance companies do not touch, or handle differently.

Third, why does an institutional investor use an investment bank?

When I was a corporate bond manager, we used everyone.? We wanted access to deals, and if you don’t deal with all of the majors, you are shut out.? Of course every manager deals with Goldman Sachs even if they don’t trust them.? The big guys know this and keep their brokers at arm’s length.

If you are a reporter, that is why managers will not speak on record.? If the syndicate desks on Wall Street don’t like you, they won’t give you good allocations on contested deals.

Bond managers are wise to use Goldman.? They are wiser to realize that Goldman does not act in their interests, and so, be cautious.? And to the degree that you are a smart manager, you can lessen your dependence on the big guys, and work with the hungry second tier, who know that money can be made by implementing the ideas of smart investors, so find ways to buy cheap bonds for smart investors from dumb investors, and sell rich bonds from smart investors to dumb investors.? After all, brokers only make money when assets are bought or sold.

There are few friends on Wall Street.? Big institutions know that, retail investors should learn that.? But the guy who resigned from Goldman should be aware that not all clients were muppets.? Firms I was with would avoid derivatives unless we were the ones structuring them.? If we have control, derivatives are good.? If we don’t have control, derivatives are bad.? Control is good….

You should always be thinking that those who you deal with may not be acting in your interest, and often, it is because of forces beyond their control.? I was pinned with $10MM face of Teleglobe bonds and the main broker dealing in them held (unknown to me at the time) $100MM+ of the bonds.? My efforts to sell the bonds failed because the broker had a larger position, and there was no active market.

Fourth, just because you live in America, it doesn’t mean you should get a high wage.? Particularly for manufacturing wages are declining, and why shouldn’t they decline, because productivity is not rapidly advancing.? It’s like my article on comparable worth.? Most Americans are going to have to get used to being poorer, because there are many others who can do what they do for less.? And, that partly explains the 1% vs 99% argument, because as the rest of the world grows, and the US doesn’t, it has impact on those in the US that earn too much relative to their productivity.

Fifth, imagine for a moment that you are in charge of an organization that is going to play a baseball game against the winners of the World Series.? You can choose any people to be players that have not been employed in MLB for the last five years.? How well do you think you will do?

Duh. You know you are going to lose.? Well, the same thing applies for those that are arguing that the 99% can dominate the 1%.? Short of Soviet tyranny, it won’t work.? The 1%, should it really exist as a stable organization, is too smart, and will beat the 99% nine times out of ten.

We talk a lot about democracy, though our government thwarts it when it can.? Government typically boils down to aristocracy — the rich rule, and it can’t be otherwise, unless we want Communism, like China under Mao.? In the Eurozone, under the “socialism,” the wealthy happily rule.? Only societies that are wiling to destroy wealth are willing to deny power to the wealthy.? And China is a great example here, as the wealthy increasingly dominate their government, to a greater degree than is true in the US.

Money talks, losers walk, and I never give money to politicians; it is all too corrupt.? Just realize that the deck is stacked against you.? Money finds a way to win in the process eventually.

Sixth, California will suffer for making retiree healthcare unchangeable.? Retiree healthcare in its present form is not affordable by almost everyone.? Why destroy your state by making? promises that can’t be upheld?

Seventh, after you read this, explain why you might trust Chinese statistics.? I reminds me of AIG where bad news had a hard time traveling to the top.

 

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