Skip to main content

Posts

Showing posts from December, 2008

Happy New Year to our readers!

Happy New Year, everyone!

For those still keeping an eye on the markets on this last trading day of the year, Bear Mountain Bull has today's Market Wrap, as well as a look at the action in the S&P 500 for you.

Meanwhile, Bloomberg summarizes the financial events of 2008 in, "Journal of a Plague Year: Faith in Markets Crack Under Losses".

It seems the scope of economic events (bankruptcies, bailouts, and record-breaking Ponzi schemes) was a bit overwhelming this year, especially given the constant stream of economic cheerleading from media and government/central bank officials ("everything's fine!") during most of 2008.

Now that the tide has gone out, we see who's been swimming naked.

We'll be back on Friday to wrap up 2008 and look to the investment trends and cultural themes for 2009. Until then, please enjoy our most recent posts and have a great New Year's holiday.

Mark Mobius & Jim Rogers on Bloomberg

Bloomberg Television hosted interviews with well-known investors Mark Mobius and Jim Rogers last week, for a program series offering a preview of investment themes for the coming year.

Templeton fund exec, Mark Mobius told Bloomberg that he is happily buying emerging market shares, as 2008's sliding global share markets have uncovered "tremendous bargains" in a variety of emerging market sectors.

Although money outflows from mutual funds have been pronounced this year, Mobius feels that attractive dividend yields and valuations for emerging market shares will compel investors to put their sidelined money (currently in Treasuries and the like) back to work here in 2009.

Interestingly, Mobius is rather bullish on commodities and resource-based economies longer-term, noting that stock markets will lead and signal any future economic recoveries in BRIC countries. He feels that commodity supply stocks are currently being run down, and user inventories will eventually fall sho…

They called it - FSN interview archives

"No one predicted the severity...of the housing downturn" - Angelo Mozilo.

"Nobody was prepared [for this financial crisis]" - Robert Rubin.

You know, I doubt that anyone reading this blog would ever fall for such a line. But just in case you know someone who is susceptible to this type of blatant, self-serving lie, go ahead and point them to the following resources.

This weekend, the Financial Sense Newshour is rebroadcasting some past interviews with guests who made some prescient calls on the markets and the economy. Even if you know the score, you may want to go back and listen to some of these fascinating interviews to get an insight into financial events that have since unfolded.

Whether we're talking about the rise in tangible assets and commodities (Jim Rogers and Barry Bannister in 2005), historical patterns of bear markets (Donald Coxe and Russell Napier in 2004 and 2006), or the emergence of the credit bubble and the ensuing real estate bust/credit c…

Wall Street Stories - Edwin Lefevre

A little post-Christmas stocking stuffer for fans of Wall Street literature and stock market lore.

Here are the online book versions of Wall Street Stories, a collection of short stories written by Edwin Lefevre in 1901. Click the link and choose your preferred reading format: a scanned flip book copy, PDF, or text file ebook.

Edwin Lefevre was a writer and frequent chronicler of Wall Street, probably best known for his 1923 book, Reminiscences of a Stock Operator (pdf), a thinly-veiled biographical account of the life of trader Jesse Livermore.

Before writing Reminiscences, Lefevre had previously authored numerous articles, stories, and books, with investment and finance being a key theme in his work. As the following editorial summary to McGraw Hill's recent reprint edition notes, Wall Street Stories is filled with classic vignettes and character studies of early 20th century Wall Street investors.

"The book that launched Edwin Lefèvre's literary career, Wall Street Stori…

Sesame Street: How does Santa get in?

Classic Sesame Street short. Have fun with this. Maybe some of you have kids or nieces and nephews who'll enjoy it as well.

Tuesday's pre-Christmas Market Wrap

A quick pre-holiday market wrap up, for those plugging away ahead of tomorrow's holiday-shortened trading sessions. News from the close of today's trading, and more, follows.

1. Reuters and Bear Mountain Bull summarize the day's trading.

2. US home prices collapse at near-Depression rate.

Barry Ritholtz reviews the housing data and the NAR spin.

3. Merrill Lynch economist David Rosenberg thinks US commercial real estate is "the next bailout".

Washington Post has the details on commercial real estate investors seeking government aid.

4. "Sneaky ways you're lured to shop" - Forbes on Christmas sales.

5. Iceland boils over 'like Chernobyl' in civil unrest over economy.

6. Buffeted quants are still in demand.

7. James Grant: Fed's money printing carries dire consequences.

8. Financial Crisis: The Greatest Gift in a Generation.

Merry Christmas, Happy Chanukah, and a great holiday to all of our readers.

Check back in with us over the Christmas holi…

Marc Faber - 2009 to be "catastrophic"

Marc Faber joins Bloomberg TV to discuss the economy and the markets, his economic outlook leaving little in the way of holiday cheer.

According to Faber, "we are faced with a global recession that will last a very long time", and 2009 will be catastrophic for the global economy.

Faber also uses this opportunity to once again remind viewers that the problems we face are a direct result of previous government and central bank interventions into the economy.

As Marc points out, loose US monetary policy and a series of bailouts led to a marked increase in leverage and risk taking in the financial world. Had the policy makers not intervened to bailout failed hedge funds (LTCM) and countries (Mexico), market participants would have been much more careful, knowing that poor decision making and failure have consequences.

Plenty more to hear, as Marc offers his views on investment valuations, corporate earnings, commodities, Asian stock markets, mining shares, and Ponzi schemes. Enj…

John Paulson in Bloomberg Markets

Hot on the heels of our post on Jim Chanos' NY Mag profile, we bring you this latest hedgie report: a lengthy Bloomberg Markets Magazine profile of uber-successful hedge fund manager John Paulson.

You may remember John Paulson from such posts as, "John Paulson buys mortgage securities", and, "Seasoned investors search for values".

But today, he'll be starring in Bloomberg Markets' latest feature, "The Richest Hedge Funds: John Paulson Strikes Again". Here's an excerpt:

"There's not a lot of light in Paulson & Co.'s 28th- floor headquarters on a drizzly November afternoon. The Alexander Calder sculpture and multicolored prints have been shipped to the firm's new offices six blocks south. Darkness envelops the New York skyline.

The Dow Industrials have lost a total of 929 points over two days, and the jobless rate is poised to hit 6.5 percent. And John Paulson, who oversees $36 billion in hedge fund assets, isn't exactl…

Jim Chanos profile - New York Magazine

Noted short-seller and hedge fund manager Jim Chanos was the subject of a recent profile in New York Magazine.

Given the current spotlight of publicity shining on hedge funds and hedge fund managers, along with the fact that Chanos is one of the few fund managers actually making money this year, this piece should make for interesting reading.

Here's an excerpt from NY Mag's, "The Catastrophe Capitalist":

"It might be fun to share in a little Goldman-bashing with Chanos, until you realize that you and he are in very different circumstances. Your 401(k) has been plunging at the rate his fund is rising.

Chanos is arguably the most successful hedge-fund manager on Wall Street right now. As hedge-fund all-stars bleed red—SAC Capital’s Steve Cohen is said to be off 18 percent this year, Citadel’s Ken Griffin as much as 44 percent, and even David Einhorn, who presciently called Lehman’s implosion, has seen his fund, Greenlight Capital, slide a reported 26 percent—Chano…

Barron's interview with Stephanie Pomboy

Stephanie Pomboy of MacroMavens was the feature interview in this week's issue of Barron's. For those who didn't catch the print edition, here's the online version of Pomboy's recent profile (Hat tip to Richard Russell).

Excerpt from the Barron's profile, "Forecast: A Long, Cold Winter":

"Barron's: How bad has the macro economy gotten?

Pomboy: It is certainly the toughest one any of us has lived through. My fear is that it's actually just in the early stages and that it is going to get substantially worse on the economic side, although all the government measures that have taken place so far might help to insulate some of the damage on the financial side.

What about the short-term outlook?

Having been bearish, for me the real challenge is to identify the turn. One thing at work right now is what I call the cattle prod -- essentially the Fed poking people to take risk. They are taxing cash by having negative real returns on cash.

At the same ti…

James Grant on Bloomberg TV

Jim Grant of Grant's Interest Rate Observer joins Bloomberg TV for an interview, and schools us all on the SEC and the recent monetary easing by the Federal Reserve.

Hear why Grant feels the SEC is an "irrelevant" institution, and why the latest Fed actions will lead to a further debasement in the US dollar and slow any economic recovery.

You'll also hear Jim's thoughts on where investment opportunities may be found in this crazy time of "zero yields", persistent gloom, and globally tanking stock markets.
No spoilers from your editor, just press play (click on the image link) and get it straight from the horse's mouth. Enjoy the clip.

Likely outcome of new Fed policies?

In Monday's post, "Fed rates heading toward zero", we talked about the actions the Fed would likely take in their upcoming meeting, and how their latest policies might affect the markets and the economy in the coming months.

A quick update to Monday's post (see the comments section) posted the results of the Tuesday Fed meeting, and some analysis on their latest statements from Bloomberg and The Big Picture.

The consensus seemed to be that Fed funds rate are not longer the prime driver of Fed policy, and that unconventional lending programs and "quantitative easing" are the new watchwords of the day.

Today we're going to share one very relevant section from yesterday's Bloomberg article on that subject, "Fed cuts rate to low as zero, shifts policy focus". Here it is:

"“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and o…

Fed rates heading toward zero

It looks like a Japan-style trip to zero interest rates is in the cards for the US. We've been watching this scenario unfold for months now, and it looks like ZIRP is finally here.

MarketWatch has more on the upcoming Fed rate cuts:

"The Federal Reserve is likely to cut the federal funds rate as low as it can go at this week's meeting, and to begin shifting its focus to nontraditional policies.

"It would make the most sense for this meeting to be the last rate cut rather than dragging it out to the January meeting," wrote Chris Rupkey, chief financial economist at Bank of Tokyo Mitsubishi, adding that a "hallmark of the Bernanke Fed has been to move quickly and aggressively."

Rupkey's forecast calls for the Fed to cut rates by three-quarters of a percentage point to 0.25%. Most Wall Street firms expect a rate cut of a half point to .50%..."

Here are a few more details on the upcoming Fed meetings:

"...The two-day Fed meeting starts Monday aft…

Jukebox

Kick back and enjoy rock n' roll hits from the jukebox.

1. The Hollies - Carrie Anne.

2. The Byrds - I'll Feel A Whole Lot Better.

3. Them - It's All Over Now, Baby Blue.

4. The Beatles - No Reply.

5. Cat Stevens - The First Cut Is the Deepest.

6. Love - Always See Your Face.

Features of the week

Traders and investors: get set for our, "Features of the week".

1. Hedge funds face big losses in Madoff fraud case (WSJ).

"A number of prominent funds of hedge funds are believed to have invested money in portfolios established by Bernard Madoff, a securities trader and investment adviser who was arrested yesterday before appearing at a Manhattan court charged with securities fraud.

U.S. authorities claimed Mr. Madoff told employees at Madoff Investment Securities earlier this month that the investment advisory activities of his business had been "a giant Ponzi scheme." "

2. Dow/Gold ratio: looking at market performance in terms of gold.

3. Russians buy jewelry, hoard dollars as ruble plunges.

4.Fed refuses to disclose recipients of $2 trillion loans (Bloomberg).

"The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as…

Credit market update - Prieur du Plessis

Today's update on the state of the credit markets is brought to us by Prieur du Plessis, editor of the great investing blog, Investment Postcards from Cape Town.

Let's get right to it with a lead-in from Prieur's recent, "Credit Crisis Watch":

"In order to gauge the progress being made to unclog credit markets and restore confidence in the world’s financial system, I monitor a range of financial spreads and other measures. By perusing these, as summarised in this “Credit Crisis Watch” review, one can ascertain to what extent the various central bank liquidity facilities and capital injections are having the desired effect.

First up is the LIBOR rate. This is the interest rate that banks charge each other for one-month, three-month, six-month and one-year loans. LIBOR is an acronym for “London InterBank Offered Rate” and is the rate charged by London banks, and which is then published and used as the benchmark for banks’ rates around the world... "

Source…

Put the CDS market out of its misery?

"Put the credit default swaps market out of its misery". That's the prescription put forth by writer John Dizard in a recent FT column piece.

Let's hear what John has to say about this controversial segment of the credit derivative world.

"For several years, I have been among those calling for thoughtful, prudent, moderate steps for the reform of the credit default swaps market. They should be put on exchanges, put through central clearing houses, settlement backlogs reduced and then eliminated . . . etc.

I was wrong. The global credit default swaps market should just be liquidated, the contracts allowed to expire and the booby traps defused. Where they can't be defused, they will explode, and we will have to deal with the loss of capital and litigation.

Essentially, while the back office messes of the CDS market are being cleaned up, that leaves the question of why we need these things. We don't. The outstanding credit default swaps should be offset again…

Tribune, Blagojevich: not a great day for Chicago

No matter where you are in the country, you've probably seen the news today about the Tribune bankruptcy and the story surrounding Illinois Governor Blagojevich's arrest/corruption scandal.

I think the post title says it all, but let's include some actual news coverage of these events, just to make sure we're all up to speed.

Would it be strange to start off with coverage on the governor's arrest from the very paper (Chicago Tribune) whose editorial board was quietly threatened by said governor due to critical coverage of his term in office? It would? Well, let's do it anyway.

From the Chicago Tribune:

"Gov. Rod Blagojevich and his chief of staff, John Harris, were arrested today by FBI agents for what U.S. Atty. Patrick Fitzgerald called a "staggering" level of corruption involving pay-to-play politics in Illinois' top office.

Blagojevich is accused of a wide-ranging criminal conspiracy, including alleged attempts by the governor to try to se…

Obama's new New Deal

President-elect Barack Obama is not wasting any time in outlining his plans to prop up America's economy.

As the nation heads into the twelfth month of a recession (only officially announced last week), Obama is proposing huge government spending on infrastructure and works projects, programs that could cost $700 billion or more according to his own advisers.

Deficits be damned.

From, "Obama to focus on stimulus, not deficit" (Financial Times):

"Barack Obama on Sunday spelled out his plans for the biggest infrastructure investment in the US for half a century. The president-elect argued that with the economy reeling, his incoming administration could not afford to worry about a spiralling budget deficit.

Mr Obama’s proposals for government works on roads, bridges, internet broadband and school buildings, together with energy efficiency measures and health spending, are far more detailed than the normal announcements during a time of transition...

...Things are going t…

Features of the week

Commodities, the latest jobs report, a "bubble" in US Treasuries, and more food for thought; all in our latest, "Features of the week".

1. Stocks drop after weak jobs report (NY Times).

"...stocks fell sharply on news that the American economy had shed 533,000 jobs in November, its worst monthly losses in 34 years. The unemployment rate rose to 6.7 percent from 6.5 percent, and economists said the number of Americans without work would continue to swell as the recession spreads like an oil spill."

2. iTraxx Crossover index points to high risk of corporate default.

"The Markit iTraxx Crossover index rose above 1,000 basis points for the first time since it was created in 2004, implying a record number of companies are on the verge of default because of deepening financial problems...

...The index, which measures the cost of protecting junk-grade companies against default, has risen sharply in the past month as sentiment has worsened because of gloomy num…

The great "bear market rally" post

So, the question before us today is: "are we due for a bear market rally in shares?".

Let me say up front that I have no idea whether or not the greatly expected bear market rally will materialize anytime soon.

Having said that, let's hear from some gentlemen who have recently expressed their views on this topic publicly: investors Barton Biggs and Marc Faber.

Hedge fund manager and author, Barton Biggs recently offered his opinion in a Financial Times comment piece entitled, "The mother of bear market rallies is on the horizon".

Noting at the outset that he had misjudged the "severity and duration of this panic", Biggs goes on to say that stock valuations are cheap and that global markets have been battered and "are deeply oversold". When combining these factors with the pervasive negative sentiment, he finds that we may soon see the setup for a significant bear market rally.

Here's an excerpt from Biggs' piece:

"The systematic…

A $6 trillion Fed balance sheet?

You've probably been hearing some things lately about the unprecedented rise in the Federal Reserve's balance sheet. Today's post will focus on two recent articles from Barron's covering this subject.

The first, by Jack Willoughby, explains that the Fed's recent lending spree has swollen its balance sheet in recent months, increasing the risk of future inflation in the process.

An excerpt from, "Has the Fed Mortgaged Its Future?":

"IF THE FEDERAL RESERVE BANK WERE A COMMERCIAL LENDER, it would be a candidate for receivership, based on its capital ratios. Bank examiners generally view any lender with a ratio below 2% to be dangerously undercapitalized. The Fed's current capital ratio, or capital as a percentage of assets, is 1.9%.

The Fed has provided so many loans and emergency credits -- to banks, brokers, money funds and foreign countries -- that its balance sheet, viewed one way, is as leveraged as any hedge fund's: Its consolidated assets am…

Now can we call it a recession?

Now that we have the "official" blessing from the National Bureau of Economic Research (NBER), I guess we can actually start using the word recession, right?

Bloomberg, "Recession started in December 2007, NBER says":

"The U.S. economy entered a recession a year ago this month, the panel that dates American business expansions said today.

The declaration was made by the cycle-dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to NBER.

“The committee determined that the decline in economic activity in 2008 met the standard for a recession,” the group said in a statement on its Web site. The 1.2 million drop in payroll employment so far this year was the biggest factor in determining that start of the contraction, the group said.

Federal Reserve policy makers at their last meeting predicted …