Finance Trends Letter

We've got some interesting market and business related features to share with you, so let's launch right into our "Features of the week" without further ado. Enjoy! 1. Insider trading is all the rage these days, and between coverage of this trend, the reappearance of LBOs in the form of "private equity", and the scheduled return of Gordon Gekko, it almost feels like the late 1980's all over again. This clip on "the new insider trading" from Bloomberg TV brings us up to date and takes us back, all at the same time. 2. China's mainland stock market, trading at 45 times earnings, is being fed by a herd mentality according to some observers. An excellent piece from Bloomberg that illustrates the universal appeal of attaining wealth and autonomy through trading, while at the same time showing the "risky shift" behavior of crowds during a time of speculative boom. 3. Super-rich extend their lead over the merely affluent . According

A quick update on the ongoing trend towards financial exchange consolidation worldwide. We've talked a lot about exchange mergers and proposed buyout deals in the past; at times it seemed as though we might need one of those keiretsu -style entity-relationship diagrams to keep all the alliances and takeover approaches straight. NYSE, Euronext, LSE, Nasdaq, Tokyo Stock Exchange, CME, CBOT, ICE, and NYMEX. These are just some of the larger firms that got this ball rolling, and we don't know when or where it will stop. All we know is that we probably won't reach the endpoint of this trend until the exchanges decide they've grown weary of their new, "go global or go home", mantra. So in the meantime, we update this little web of consolidation with the latest news of a deal between the London Stock Exchange (LSE) and Borsa Italiana . Nasdaq is not happy about the deal, as it had sought to acquire the LSE for itself, a strategy that seems ever more unlikely as t

We are saddened to hear that Hans Sennholz died on Saturday, June 23, 2007. He was a wonderful writer and economist, and a lifelong advocate for liberty and truth. Our condolences to his family and friends. For more on Sennholz's life and work, please see recent tributes from Joseph Salerno , Peter J. Boettke , and Lew Rockwell at Mises.org. See also, Sennholz's 2004 speech, "Finding My Way" . You can also find links to his articles and work at Mises.org, and at Sennholz.com . And finally, posts mentioning Hans Sennholz and his work. Read, learn, and pass it on.

Having spent much of the last week keeping up with the news and all manner of market-related interviews and features, I've decided to take a slightly different tack over the next few days. I'll still be posting a bit, but I'll also be spending some time catching up on some book reading, specifically on the topics of inflation and past hyperinflationary periods. This reading will form the basis of some upcoming posts/articles I plan to write. First, will be an essay on the true definition of inflation. What is inflation? What is its cause? Why do so many of us have an insufficient understanding of this monetary phenomenon? What can we do to protect ourselves from the ravages of inflation, and what can be done to prevent it in the first place? These are all questions I hope to answer and examine further. Second, an article on the lessons of past inflationary & hyperinflationary periods, as shown through the work of Max Shapiro, author of The Penniless Billionaires , and o

What a week it's been. Subprime mortgages and collateralized debt obligations made waves on Wall Street as two Bear Stearns hedge funds collapse under the weight of their subprime-heavy CDOs. Meanwhile, the financial community worries that banks, pension funds, and hedge funds owning these instruments will have to write down the value of their holdings, spurring fears of a broader fallout from the ongoing subprime deterioration. Violence rocked the Middle East as a sort of civil war rages on in Gaza between Palestinian factions Fatah and Hamas. Meanwhile, a suicide truck bombing of a Baghdad mosque has left many dead and injured as the survivors wonders who is to blame for the divisive attacks. Plus, Blackstone goes public (slightly ahead of schedule) and proceeds to surpass its $31 offering price by 13% during the first day of trading. Read on for news of all these issues and more, as we list our features of the week. 1. Blackstone Group cashes out of its private-firm status as it

Bear Stearns shocks , Saigon shakes, and Hanoi rocks. The markets are shuddering over the collapse of two Bear Stearns-run hedge funds which were heavily exposed to the subprime-laden collateralized debt obligations (CDO) market. Now bankers fear the possibility of a domino effect collapse in the hedge fund world should panic level pricing of CDOs show these rather opaque instruments to be overvalued. Here's more on that from Bloomberg.com : The Merrill Lynch & Co.'s threat to sell $800 million of mortgage securities seized from Bear Stearns Cos. hedge funds is sending shudders across Wall Street. A sale would give banks, brokerages and investors the one thing they want to avoid: a real price on the bonds in the fund that could serve as a benchmark. The securities are known as collateralized debt obligations, which exceed $1 trillion and comprise the fastest-growing part of the bond market. Because there is little trading in the securities, prices may not reflect the hig

More debate on whether or not we're seeing a bubble in the Asian share markets. Today we'll hear commentary from Jon Sundt of Altegris Investments; his recent take, "Asia: hot market or frenzy?" , is lifted from John Mauldin's "Outside The Box" e-letter. This brief essay reveals that Asian market performance is a tale of two cities. Charts showing the relentless upward movement of leading market averages over the past several years are contrasted with a chart tracking investment returns in the MSCI AC Asia Pacific Price Index . This second chart shows that Asian markets were extremely volatile over a twenty year period. In fact, during this period, there were several times when your investment dollars would have been cut in half. This leads Sundt to conclude that the Asian share markets are extremely complex, and that intrepid investors would probably be better served by talented active managers able to navigate these waters. While he goes on to say tha

Here it comes, though we've not yet come full circle on this unfolding political drama. Thailand's ex-prime minister, Thaksin Shinawatra, has been ordered to return to Thailand by the military government that threw him out of power. Thaksin must return by the end of the month or face charges of concealing financial assets. Here's more from the New York Times : Thitinan Pongsudhirak, director of the Institute of Security and International Studies at Chulalongkorn University, was very skeptical that Mr. Thaksin would return and said that the true aim of the junta was probably to discredit Mr. Thaksin in the eyes of his supporters. “This will be used as a tool to convince Thaksin’s foot soldiers that, ‘Look, he is a bad guy,’” Mr. Thitinan said. Over the past three weeks the junta has sought to dismantle Mr. Thaksin’s political empire and loosen the former tycoon’s control over his wealth. His party was dissolved, and he and more than 100 allies were banned from politics for

Monday's talk on Bloomberg News seems to center around a possible breakdown in the structuring of global trade agreements, plus accusations of currency manipulation among trading partners. Let's see what we've got. First headline: "Beggar-Thy-Neighbor Protectionism Looms After Doha Trade Talks" . Bloomberg reports that the latest round of global trade talks may be faltering, and that discussions among WTO negotiators could be the last of their kind. The effects of globalization and technology may have rendered multilateral trade deals obsolete, although past benefits of such deals were substantial. The flagging momentum for multilateral trade deals in part reflects the success of earlier negotiations. After eight previous rounds of global agreements, developed countries have lowered tariffs to an average 4 percent from 40 percent, and more than half the world's trade is now duty-free. Multilateral accords may also be made irrelevant by globalization, as techn

"Global equities shrug off global bond sales" . That's the news from Financial Times' weekend edition. Here's market coverage from FT.com: Global equities shrugged off the rout in government bonds this week, with markets on both sides of the Atlantic closing on Friday near records. Leading indices on Wall Street were near lifetime peaks, while European and UK stocks closed at their highest level since 2000. Equities were under heavy selling pressure earlier in the week as the yield on the 10-year US Treasury bond struck a five-year high at 5.33 per cent amid concerns that strong US economic growth would rule out interest rate cuts by the Federal Reserve this year. European government bonds have also been trading at five-year peaks recently on expectations that eurozone rates could be raised by more than expected. But sentiment turned round sharply on Wednesday as investors felt that the bond market sell-off had been overdone. Benign US inflation data on Friday fu

We've got a lot of information to share in this Friday's edition of our "Features of the week" . And while I'm definitely a proponent of being selective when it comes to information, I do hope you'll all take some time to check out these article features which cover a number of different, and fascinating, topics. Having said that, enjoy! 1. "Good Companies, Bad Karma" . A Q&A discussion with marketing guru Jagdish Seth. 2. "Freedom, not climate, is at risk" . An FT comment by Vaclav Klaus. 3. The cost of gasoline around the world . Excellent graph and analysis from The Oil Drum . 4. There's a downside to Alberta's oil boom and it comes in the form of soaring rents and shortages in education, recreational opportunities, and medical services. 5. Building cities in the desert sand . Prince Fahd bin Sultan and construction mogul Bahaa Hariri hope to build megacities in Saudi Arabia where desert now stands. Will their long term pla

Here's a fun piece from Bloomberg columnist Mark Gilbert which takes its cue from Jeremy Grantham's recent remarks about the world's "first truly global bubble" . In, "Champagne Cheaper Than Vinegar = Bubble" , Gilbert lists his seven signs that the world has gone bubblicious and completely off its rocker. The world of contemporary art provides us with one prime example: Skullduggery? Take a life-sized platinum skull that looks eerily like Hedge-Fund Guy. Stud it with 8,601 diamonds weighing 1,106.18 carats. Give it a snappy title such as ``For the Love of God'' and, as long as your name is Damien Hirst, you have a recipe for turning $20 million of materials into a $100 million windfall. ``You have to get the price right, or it will come back into the market,'' Hirst told Bloomberg News reporter Linda Sandler. ``A lot of people buy things and flip them.'' You know there's a bubble when artists are trying to set their prices s

Better find a way to rig that Producer Price Index as well. Oh wait, you mean we have a "core" rate for the PPI too? Bloomberg reports : Prices paid to U.S. producers rose more than forecast in May, reflecting a fourth consecutive jump in fuel costs that threatens a broader pickup in inflation. The 0.9 percent increase followed a 0.7 percent rise in April, the Labor Department said today in Washington. So-called core prices, which exclude fuel and food costs, rose 0.2 percent. The report underscores Federal Reserve concerns that inflation won't moderate as forecast, economists said. Growing demand from overseas has pushed up prices for raw materials such as fuel and metals, giving businesses reason to try to pass on higher costs to customers. No problem, mon. Just exclude food and energy like we do with "core" CPI and everything will be "irie". Now if only we could convince people that metals prices are just a bit too volatile to include in t

Will the U.S. subprime mortgage lending debacle go down in financial history alongside such notorious washouts as the 1990 junk bond fiasco? This is the question I asked myself recently while reading through some old articles that detailed the speculative excesses of the high-yield investment markets of the 1980s and early 1990s. This was a period in which leading investment banks were riding high on the backs of a bull market in stocks, increased activity in the bond markets, a wave of (often junk-financed) LBO deals, and the development of new structured finance instruments, such as the collateralized mortgage obligation (CMO), forerunner to the many forms of collateralized debt obligations (CDOs) that would follow in its wake. It was a time to take risks in the hopes of getting rich. But the inevitable fallout in the junk bond market came, taking down high profile players such as Drexel Burnham Lambert and leaving institutional investors with what were reported to be enormous loss

We're taking a deeper look at market valuations today, and helping us in that task are a few articles taken from the most recent Big Picture "linkfest" . Thanks to Barry for posting and drawing our attention to them. The first item we'll highlight is a Wall Street Journal article entitled, "Wealth Hazard: Guessing Low on Profit Growth" . In this piece, Justin Lahart takes a look at the earnings picture for U.S. stocks and finds that second-quarter earnings could benefit from strength in overseas businesses and continued share buybacks: Companies in the S&P also bought back $110 billion of stock in the first quarter, Standard & Poor's estimates. That brought the total over the past four quarters to $442 billion -- enough to buy the bottom 100 companies in the S&P 500. Buybacks reduce the number of shares outstanding, lifting earnings per share. Second-quarter S&P 500 earnings are expected to be up just 3.2%, but analysts might again be sho

Lots to talk about in this Friday's edition of "Features of the week", especially in the subjects of oil, ethanol, and energy use. Plus, plenty of news besides, so kick back and enjoy. 1. "Another Inconvenient Truth" . Puru Saxena feels global production declines in crude oil will result in significantly higher prices and the possibility of shortages and rationing. 2. Meanwhile, George Friedman of Stratfor discusses possible advancements in the field of cellulosic ethanol production and the potential likelihood of a resulting fall off in global oil demand. 3. Robert Rapier discusses, "High Gasoline Prices" , in a two-part ( one & two ) article series. 4. "Energy in a Post-Peak World" . A Simmons & Company International slideshow, presented by Matthew Simmons. 5. Bono doubts the sincerity of the G8's pledge for African aid . 6. Secret CIA jails hosted by Poland, Romania , says a Swiss politician's report. This coincides with

The day is still young, but I don't know if I'll manage to come across anything so objectionable as the following piece before it's through. FT.com is hosting a Q&A with Andrew Keen , author of a new book entitled, The Cult of the Amateur: How Today's Internet is Killing Our Culture and Assaulting Our Economy (UK title). An intro to the Q&A debate contains the following information: Mr Keen does not believe in “the wisdom of the crowd”. Much of the content filling up YouTube, MySpace, and blogs is just an “an endless digital forest of mediocrity” which, unconstrained by professional standards or editorial filters, can alter public debate and manipulate public opinion. Now, I am no believer in the recently fashionable thesis of "the wisdom of the crowd", but I have to take issue with the rest of that paragraph. And it's not because I feel impugned as a blogger contributing to the "endless digital forest of mediocrity" (sucks that the phr

Economist Paul Kasriel takes on the topics of savings and investment and the idea that America is sitting comfortably atop a golden nest egg in, "Gene Epstein's Great American Savings (sic) Myth" . Here's an excerpt: In the cover article of the May 28 edition of Barron’s (see The Great American Savings Myth ) Gene Epstein, Barron’s economics editor, argues that household saving is being underestimated. Epstein’s argument centers principally on two issues – the growth in household net worth and the absence of spending on intangibles, such as research and development, from our official Gross Domestic Product (GDP)/saving statistics. I offer a counterargument that increases in household net worth do not necessarily represent saving in an economic sense. I also present evidence showing that investment in human capital – higher education and research/development – has not shown any extraordinary growth since the official measures of household saving have been plummeting in

Speaking of Jim Rogers (see previous post ), I thought I'd include this excellent video featuring the famed "adventure capitalist" that I found last night on the Dutch VPRO site, host to the fascinating Riverside Conversations series. In, "De Calculerende Cowboy" ( "The Calculating Cowboy", if my web translation is correct), Rogers takes us on a tour of his stops through Europe and dispenses his investment philosophy and wisdom along the way.  Take a ride with Jim in his trademark yellow, custom-built Mercedes SLK as he revisits his past and comments on developments in Europe near the turn of the millennium. Great moments throughout, and the footage of Jim at a European investment panel is just hilarious. But don't take my word for it; see it for yourself.   Viewing note : if you hear audio but don't see the accompanying video, try clicking the small little "x" box in the right hand scroll menu of VPRO's help screen.

I just wanted to follow up briefly on a post made over the weekend concerning protests and violence at the latest G8 summit in Germany. We talked a bit about the emotions stirred up by the world's "globalization" agenda, and reactions to such policies worldwide. I thought I'd add a bit to that discussion here with something I read last night in a 2002 essay by investor Jim Rogers . Here's what Jim had to say after returning home from his millennial trek across the globe: Globalization, we are discovering, is a very tricky concept. In the best of all possible scenarios, it means everyone will drink Pepsi, watch the NBA, and drive a Ford. Not everyone wants that. More and more people are turning inward to their own tribe, their own ethnic group or religion. Global telecommunications, the Web, and fast travel appear to make the world a smaller place but sometimes it simply makes people more protective of their own lives and culture. Words of a man who's seen it

White House aide Lewis "Scooter" Libby has been found guilty of perjury and obstruction of justice and sentenced to 30 months in prison for his efforts in stifling a CIA leak investigation. More from BBC News : A US judge has sentenced former key White House official Lewis "Scooter" Libby to 30 months in prison. Libby was found guilty of obstruction of justice and perjury in March over the investigation into the unmasking of CIA officer Valerie Plame. Libby was the former chief of staff to Vice-President Dick Cheney. Nobody has ever been charged with the offence of leaking the name of Valerie Plame, whose husband had criticised the war in Iraq. So Libby takes the fall. Will "Plamegate" ever reach the top of this administration? It looks as though the whole thing might fade out in the dying days of this presidential administration, much like the Iran-Contra scandal of Reagan's second term. More on this from BBC in the background article, "Trial r

The Bear Mountain Bull tips us to a rather interesting Minyanville article that outlines the differences between the much-watched US Dollar Index and the Fed's trade-weighted dollar index. Why does it matter which index you use? Because every picture tells a story (don't it), and these pictures each tell a different tale about the present and future course of the US dollar. As Minyanville's Lance Lewis tells it, the US Dollar Index is heavily weighted towards the euro (the European currency accounts for 57% of the index weighting), and this construction distorts our view of how the US currency is trading against the currencies of its major trading partners. While the US Dollar Index continues to defend its long-held support above the 78-80 area, the trade-weighted index shows another picture, one of a potential breakdown through very long-term support. In fact, a breakdown through the 200 month moving average did occur shortly after the article was published. Why is the

"G8 riots erupt in Germany" . This headline story is taken from the FT.com weekend edition. Demonstrations against globalization have provided a near constant backdrop to world business and trade organization summits in recent years. It's still hard for me to understand what to make of all of this. Having never witnessed one of these stand-offs close up, I'm left with impressions gained through news reports. There is a lot of anger being voiced over the perceived aims of globalization and the damage done to local environments, livelihoods, and cultures in the age of multinational corporate trade. It seems that the protests attract a lot of young people who feel disenfranchised and left without a voice or a vote on such matters. Here's more on the anti-globablization movement from Wikipedia.

Welcome to our "features of the week", where we highlight some of the most interesting news stories and web features around. Grab a seat and enjoy! 1. Let's have a sit down: "Bancrofts to discuss Dow Jones offer with News Corp " . 2. USA Today reports that government accounting rules are hiding trillions in liabilities . 3. FT.com on the pros and cons of "Business oriented venture philanthropists" . 4. Renaissance Capital CEO Stephen Jennings looks to Africa for future investment opportunities. 5. Peter Schiff talks to Bloomberg about what's fueling China's investment mania . 6. Fintag and FT on efforts to replicate hedge fund returns. 7. The Big Picture points us to a video interview with Bill Gates and Steve Jobs , together onstage in a rare joint appearance. 8. The Kirk Report tips us on a piece that highlights the wisdom of Charlie Munger . 9. Chongqing is western China's largest city, and is growing in size daily. IHT.com on China