Finance Trends Letter

Welcome to our "Features of the week" , where we review some of the week's most interesting articles features and news stories. Grab a chair and browse! 1. Bernanke and Bush attempt to calm the markets with their "plan to help homeowners" and the broader economy. Bush and Paulson stress that their is focused on homeowners in trouble, not a bailout of lenders. Funny, because this whole mess reminds me of the early 1990s S&L blowup more with each passing day. More on this from Bear Mountain Bull and The Big Picture . 2. "Mozilo Cashed Out at Top of Market" . Brett Arends on the hefty insider selling of Countrywide Financial shares. 3. Cleaning up on the meltdown . BusinessWeek reports on market participants who took the other side of some popular trades during the recent credit market turmoil. 4. A tribute to Dr. Kurt Richebacher , patriarch of the "anti-bubble" economists. 5. Jeffrey Tucker and Mark Thornton discuss the Mises Institute&#

Kevin Duffy has penned an interesting review of recent Fed rescue missions and their resultant effects on the stock market. "Financial Markets on Crack" takes a retrospective look at the Fed's tactical eases over a 9 year period (1998-2007), and finds a marketplace convinced of the Federal Reserve's duty to keep the markets and the economy pumped full of (credit) drugs. An excerpt from Duffy's article: This is now the third time in 9 years the Fed has acted as "fireman" as many believe is part of its job description: You can't just say 'we told you so' and turn your back. The Fed is the fireman of our economy, and there's a fire and they're gonna put it out. That's their job. Their job is not to sit around and scold people for making bad loans [and] for other people for buying those bad loans. The Fed's job is to put out the fire. - Peter Yastrow, market strategist, MF Global, August 9, 2007 Duffy goes on to

We're going to follow up Monday's post on the 2007 liquidity crisis with some reactions to the recent Fed interventions in the markets and the economy. Should the Federal Reserve and other leading central banks help bailout the investment funds, banks, investors, and homeowners that have been caught in the fallout of the recent credit crunch? That is the question at hand. But first, a summary of Fed actions and stimulations carried out thus far. IHT.com carries a useful and brief summary of the Fed's bailout actions to date. As the article details, the Fed reacted to the credit squeeze with a series of "liquidity injections", followed by a 50 basis point cut in the discount rate (the rate at which member banks borrow from the Fed), before removing certain regulatory caps on loans to the brokerage affiliates of large banks. Excerpt from, "What looks like a bailout?" : The cap on loans to an affiliate is a tenet of prudent banking. So waiving it, even te

Are we still in the midst of a liquidity crisis? Have certain segments of the financial markets become more volatile, or have some markets seized up due to a lack of ready cash and uncertainty? These are some of the questions and issues explored in a recent article, "The 2007 Liquidity Crisis - Q&A" . According to authors Andy Sutton and Atash Hagmahani, the recent turmoil in the markets has resulted in an ongoing liquidity crisis, one the media would like most people to ignore. The authors explain their view of what's currently happening in the equity and credit markets, and give an overview of why the current liquidity has occurred. You'll also find some historical reference to past liquidity crises, especially the Panic of 1907 . Comparisons between 2007 and 1907 have gained traction lately, as some observers find seem to find striking similarities between the two periods of financial fallout (no doubt they are also attracted to the analogy because of the 100-

Dispensing with all the serious business for a moment, we'd like to bring you something fun this Saturday afternoon. If you haven't seen it yet, MSN Video is showing a great series of of photos and clips from the Pebble Beach Concours d' Elegance . <br /> <a href="http://www.bing.com/videos/watch/video/pebble-beach-tour-delegance-with-the-keno-brothers/t2p3ixe?src=v5:embed::&fg=sharenoembed" target="_new"title="Pebble Beach Tour d'Elegance with the Keno Brothers">Video: Pebble Beach Tour d'Elegance with the Keno Brothers</a> The video tour of this great automobile exhibition is hosted by antique collectors and appraisers, Leigh and Leslie Keno, of Antiques Roadshow and Find! fame. There are some beautiful cars on display here, and the Keno brothers (who I absolutely love) are practically bouncing off the walls with their

Welcome to our "Features of the week" , where we share some of the web's most interesting articles, interviews, and blog posts. Sit back, browse, and enjoy. 1. Matthew Simmons presents his view of current and future energy realities in this recent interview with Financial Sense Newshour . 2. The Russian government prepares to take control of its gold mining industry , as resource nationalism continues. 3. Central banks are stealing from the average citizen , says Bill Fleckenstein. 4. Finance Trends Matter is featured on "Financial Blog Watch" . 5. "Ron Paul, the Mogambo Guru and Me" . M.A. Nystrom. 6. Bill Alpert takes a look at "Jim Cramer's bad bets" . 7. Is a hedge-fund hit man behind attacks on Fairfax Financial? 8. Bill Gross thinks the debt of financial companies such as Merill and Goldman offer attractive yields, and that the asset-backed commercial paper market is finished . 9. Investing in Africa may not be as easy or as p

I'm pleased to note that Finance Trends Matter was recently highlighted on WallSt.net's radio program, "Financial Blog Watch" . I was interviewed by the show's host, Dennis Olson, and the conversation centered around the issues we cover here at Finance Trends, highlighting important trends in the markets and the economy, and listing some other worthwhile blogs and internet sites that I like to check out. Anyone who would like to hear the program interview can do so by clicking on the Financial Blog Watch site and listening to the podcast in the site's own media player, or by clicking on the "Download" option for Episode 17 and opening the MP3 clip in your own media player. If you only have a few minutes to spare today, please do take the opportunity to check out some of the blogs featured in our sidebar's blogroll. As I mentioned in the interview, there are a number of very worthwhile finance and investment blogs on the web, and I've tried

"Jim Cramer's bad bets" . That's the title of an article written by Bill Alpert for Barron's and recently posted on the MSN Money website. The article's subtitle: "Barron's tracks the 'Mad Money' host's stock picks and comes to one conclusion: Steer Clear" . Ouch. Well, I've never been much of a Jim Cramer watcher, but I am aware of the ongoing debates concerning his show, his antics, and his investment recommendations. So naturally, I was rather interested to check out this article. I think you will find it interesting as well, whether you are a fan of the "J-Man" or not. The piece takes a very sensible, and skeptical, look at the value of Jim Cramer's on-air stock recommendations. On further examination of the available metrics for Cramer's stock-touting performance, Alpert finds that the overall performance of these picks offers little to shout about. He also calls on CNBC to provide a more thorough database o

While reading Paul Kedrosky's blog, Infectious Greed, the other day, I came across an interesting gallery article from Fortune magazine called, "Crisis Counsel" . Fortune surveyed some of the most respected investors around for their opinions on the recent subprime "meltdown" and the resulting market turmoil. Will the recent crisis send markets into free fall mode? Read on for reactions from Warren Buffett, Wilbur Ross, Jim Chanos, Jim Rogers, and Jeremy Grantham, to name a few.

Having "correctly forecast the downturn in global financial markets", Marc Faber speaks with Bloomberg to update his investment outlook and share his views on the recent central bank interventions in the market. Marc feels that recent interventions into the market and liquidity injections by the Fed are unjustified, and will only lead to greater problems in the economy at a later time. He also points out that many of the problems we are currently witnessing arose out of the easy monetary policies of 2001-2007; therefore "solving" these problems with yet another dose of liquidity amounts to pure folly. Faber also elaborates on his earlier calls for a deleveraging in the markets and resulting lower asset prices in the short-intermediate term. He notes that a capital outflow from emerging markets into the U.S. and the Yen will probably keep the dollar aloft for the time being, and allow U.S. markets to outperform most emerging markets for the next few months. Of cour

John Rubino, author and editor of the DollarCollapse website, has written an article that examines the rise of the "debt-as-money" financial system. In, "Nope, That's Not Money" , Rubino recounts Doug Noland's ideas on the ever-expanding definition of money and finds that recent turmoil in financial markets has shown certain money substitutes to be suspect. Here's an excerpt: With a few months of hindsight, it’s now clear that debt-as-money was not one of humanity’s better ideas. When the U.S. housing market—the source of all that mortgage-backed pseudo money—began to tank, hedge funds found out that an asset-backed bond wasn’t exactly the same thing as a stack of hundred dollar bills. The global economy then started taking inventory of what it was using as money. And it began crossing things off the list. Subprime ABS? Nope, that’s not money. BBB corporate bonds? Nope. High-grade corporates? Alas, no. Credit default swaps? Are you kidding me? No longer

Well, it's been a rough week for many in the markets, as the fellow in the picture can attest. As we finish out the week this Friday, the Federal Reserve has lowered the discount rate by 50 basis points to 5.75% in an effort to ease liquidity and shore up the financial markets. So far, markets in Europe and the U.S. are rallying higher on the move. Meanwhile, disaster has hardly limited itself to the world's financial markets. A bridge collapse in China, a Utah mining accident, deadly bombings in Iraq, and a powerful earthquake in Peru have left many dead and suffering in their wake. Please take a moment to consider these tragedies and their effect on the victims' friends and families. If you are in a position to help someone far away or nearer to you, please do. Having said all that, let's get started with our "Features of the week" . There are many interesting articles and interview features ahead, so kick back and enjoy. 1. Fed cuts discount rate to 5.75% .

Today we bring you a new interview with resource investor Rick Rule entitled, "The Golden Rule" , courtesy of Howestreet.com. For those of you who don't know Rick Rule, he is the founder and chairman of Global Resource Investments , a natural resource broker, and is considered to be one of the most informative speakers around on investing and speculating in mining and natural resource shares. In "The Golden Rule" , Rick talks with Victor Adair and shares his philosophy of resource investing and speculation. Rick describes himself as a contrarian investor who is focused more on the "micro" work of analyzing individual companies, than the "macro" big picture view that often dominates the attention of other investors. If you liked this interview, be sure to check out Rick's "Three Rules for Buying Resource Stocks" and keep an eye out for more of Rick's resource sector insights in the future.

Do some individual investors consistently outperform? That is the question asked by the CXO Advisory blog in a review of a recent paper that examines the investment performance of individual investors. Here is an abstract of the August 2007 paper in question, entitled, "Performance Persistence of Individual Investors" . This paper investigates the stock market performance persistence of individual investors. The study is based on unique data that allows us to observe month-end stock market portfolios of all individual investors over an eleven year period. We find that a substantial number of investors exhibit economically and statistically significant performance persistence. This is robust to how we measure past performance, how often investors trade and whether investors are small or large. Unlike the evidence from mutual and pension funds, the persistence in performance we uncover is not concentrated in investors with poor prior performance. We also show that forming

We spent much of last week talking about liquidity, attempting to define or clarify the term by differentiating "market liquidity" and "money liquidity" . From there, we went on to question how investment markets are impacted by the liquidity created by central banks . Today we look at how market participants are reacting to recent "liquidity injections" by the world's leading central banks. As you may have read, the Federal Reserve and the European Central Bank (ECB) have been supplying liquidity to the banking system in the form of loans and repurchase agreements. This action on the part of the central banks began last Thursday and has continued through today. The only problem is that the markets are now starting to wonder if these liquidity injections are enough to keep a financial crisis or an economic downturn at bay. Traders are now betting that central banks will have to reverse their stances on maintaining or raising key interest rates. Excer

Welcome to our "Features of the week" , where Finance Trends readers get a look at some of the most interesting articles and media/interview features around. Let's begin. 1. "Why is catching a baseball taxable income?" , asks Justin Ptak at the Mises blog. 2. Marc Faber says U.S. stocks are in the beginnings of a bear market. 3. The Wall Street Journal explains, "How Credit Got So Easy and Why It's Tightening" . 4. "Can Greed Be Contained?" . The Financial Philosopher on the continuing cycle of greed. 5. "How the Credit Bubble Came to Be" . Hat tip to The Financial Philosopher for this link. 6. Stock market corrections progressively shorter in duration , notes Martin Goldberg in his latest FSO market wrap up. Also, a technical bright spot in shares of Berkshire Hathaway? 7. FT Lex on defining liquidity . A tough job, as you can tell from our posts this week. 8. Barry Ritholtz has some advice for rich uncles and investors . 9.

Yesterday, in "Market liquidity and money liquidity" , we talked about liquidity in the markets and the difference between market liquidity and "money liquidity", the money and credit created by the banking system and central banks. Today, as we look at the relationship between money liquidity and asset and investment prices, both sides of the liquidity coin are in the news. Market liquidity has come into focus with credit markets witnessing an "evaporation of liquidity" as the subprime fallout goes global . Meanwhile, money liquidity has entered the story as investors debate the responses taken by leading central banks in their approach to recent market turmoil. Here's the latest from CNN Money, "U.S. Stocks Slide As Subprime Woes Go Global" : French banking group BNP Paribas said Thursday that it has suspended three funds with exposure to the U.S. credit markets as it has become impossible to accurately value them after "the complete

We talked on Monday about the current level of liquidity in the markets . Today we will take a look at the difference between market liquidity and liquidity in the form of available money and credit. When we talk about market liquidity , we generally refer to the ease with which assets and investments can be sold for cash. How liquid is the market for "x" - when we ask this question we are basically talking about how quickly we can turn item "x" (be it real estate, stocks, or bonds) into cash. If we can readily exchange our investment for money and suffer no significant downward price movement in the process, then the asset or investment is liquid. If the market for an asset or investment is shallow, or inactive, with high bid/ask spreads and volatility, that market is said to be illiquid. Illiquid assets and investments are often hard to sell, and oftentimes their sale can have a significant effect on prices in the market. This is one of the main issues in the ong

Let's take a look at how recent events in the credit markets have affected liquidity in the markets and the economy. We've been hearing a lot about a credit crunch as deals dry up or get withdrawn in the LBO space. Investors lately have cut way back on the riskier forms of debt that tended to fund these deals. Many have become very disillusioned by the recent fallout in the subprime mortgage bond and CDO markets. As Bloomberg puts it, "concerns over mortgage-backed securities have sapped investor appetite for other debt" . You said it. But some people don't think it's all that bad. Over at The Aleph Blog , editor David Merkel is of the opinion that the larger and higher quality sections of the bond market are well intact and functioning. While he recognizes the crisis in the market, he feels that a crisis-style situation is mainly limited to "the exotic stuff", namely, subprime backed ABS, LBO debt and high-yield deal loans, and derivatives on subp

Well, it's time to bring you our latest "Features of the week" post. We have plenty of interesting article features and interview clips to share, so let's get started. 1. "Making Money the Warren Buffett Way" . A US News & World Report feature. 2. "Credit market turmoil may last years" , according to a Societe General report. 3. "Easy Credit, Spoiled Dreams" . Reuters' report on the "Subprime Mortgage Fallout". 4. Quick meltdown - American Home Mortgage , which specialized in "Alt-A" mortgages and adjustable-rate loans, is widely expected to file for bankruptcy as 7,000 employees are fired. 5. A secret World War II nuclear city is now open to tourists. 6. "Greenspan has left more than a wall of worry to overcome" . 7. So far, so good for commodities . The asset class has so far been immune to the turmoil in the credit and equity markets. 8. Tragic bridge collapse highlights America's aging infr

"Take dead aim on the rich boys." - Herman Blume , in a speech made to the students of Rushmore Academy, 1998. Time to take a little time out from the endless coverage of the recent credit market debacle and focus a bit on personal wealth. Roll 'em... In a recent WSJ Wealth Report post , writer Robert Frank wonders if rich kids really do have it all. After profiling the attitudes of the nouveaux riches' young heirs at a Financial Skills Retreat camp, Frank is left with the impression that few of the youth surveyed will go on to grow their wealth or join the ranks of the next generation's business and investment moguls. Overall, he is left unimpressed by their knowledge and skills (which he finds lacking), and finds their "bubble of privilege" lifestyle a likely drag on their future competitiveness. From Robert Franks' "Wealth Report" post, "Why Rich Kids Don't Stay Rich" . My conclusion is that despite all their supposed ad

Well, the news of subprime's growing fallout continues as investors worldwide are affected by fund closures amid losses from subprime mortgage bonds and other high-risk debt. In fact, it's not even just exposure to the subprime mortgages that's worrying people now. It seems investors are now wondering whether debt instruments that are higher up the ladder carry an unacceptable level of risk. Just ask the the investors who are trying to pull their money out of Bear Stearns Asset-Backed Securities Fund . Mortgage bonds and asset-backed securities are suddenly suspect in the wake of of recent fund blow-ups and bank losses. It's not just a subprime problem anymore. "Bear Stearns Blocks Withdrawals From Third Hedge Fund" : Bear Stearns Cos., the manager of two hedge funds that collapsed last month, blocked investors from pulling money out of a third fund as losses in the credit markets expand beyond securities related to subprime mortgages. The Bear Stearns Asset-