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Showing posts from March, 2010

Interview: Russell Napier on global debt crisis

Financial Sense Newshour recently spoke to Ron Greiss of the Chart Store and Russell Napier of CLSA about the US and global debt pictures. You can hear what they have to say in this March 27 interview broadcast.

Soundbites from Alan Greenspan conceding that rising yields on US bonds are the proverbial canary in the coalmine for higher interest rates ahead lead off the broadcast. Jim Puplava and guest Ron Greiss have more to share on the state of the US' finances and its debt picture (which are rather grim).

Russell Napier chats with Jim later in this segment, sharing some key thoughts on the "structurally mispriced" US bond market. Anyone watching the Treasury market and the long-term direction of interest rates should check these interviews out.

Related articles and posts:

1. Russell Napier: The Next Crash - Finance Trends.

2. Anatomy of the Bear: Russell Napier interview - Financial Sense.

Astonishing idea: let home prices fall

Even when everyone around seems to have totally lost the plot, you can count on Caroline Baum to step in with some sorely-needed logic and truth. This week's edition: home prices and foreclosures.

Caroline reminds us, "Lower home prices can fix what government can't":

"New home sales, which lead the complex of housing indicators, fell to an all-time low of 308,000 in February, the fourth consecutive monthly decline. For existing home sales, it was the third consecutive drop after last year’s tax-credit- driven bounce.

Homebuilder sentiment has rolled over. Housing starts are bumping along the bottom, with new construction too low to accommodate normal growth in households, according to Michael Carliner, a Potomac, Maryland, economic consultant specializing in housing. Alas, all the Fed’s purchases and all the government’s men can’t put the residential real estate market together again. Between them, the federal government and central bank can lower mortgage…

Economist on Greece bailout, er, "rescue"

The bailout structure you've all been waiting for is here, now that 16 nations of the European Union (EU) have agreed to supply Greece with a backstop for its debt financing problems.

The Economist has the details:

"“THIS was the case that was never supposed to happen,” said Angela Merkel on Friday March 26th, at the end of a short but tense European Union summit in Brussels. Germany’s chancellor did not need to elaborate. To her visible distaste, Europe’s leaders had just agreed a mechanism for rescuing Greece from a sovereign credit crunch......The mechanism agreed late on March 25th by the 16 countries that share the euro was harsh. At the insistence of Mrs Merkel, Greece will be able to tap into emergency help only if available market financing has been deemed “insufficient” by experts from the European Commission and European Central Bank..."

I'll be perfectly honest here and admit that I do not fully understand the ins and outs of this agreement, or how and when …

Jim Rogers on life, travel, & investing

I mentioned Jim Rogers' most recent Bloomberg TV appearance in yesterday's post; today I'd like to link to that full interview and share some wonderful insights from Jim on life, travels, and lessons for the younger generations.

Of course, you'll also hear Jim's thoughts on the Dollar, the Euro, and the Greek debt crisis. Still, I wanted to highlight the more timeless wisdom imparted by Jim on his life and personal experiences. Hope you find the discussion worthwhile.

You can find more from Jim Rogers in our related posts section, or by using the Google search bar in our sidebar. Enjoy the clips!

Related articles and posts:

1. Jim Rogers: The Calculating Cowboy - Finance Trends.

2. Jim Rogers interview with Channel 4 - Finance Trends.

Statesmen vs. politicians

Jim Rogers offered up a great quote on the Greek debt crisis and the nature of politicians in his latest Bloomberg interview.

When asked about the effects of credit default swaps (CDS) and speculators on Greece's debt problems, Rogers replied that speculators were simply reacting to what the Greeks have done to their own finances and that, "Politicians don't normally understand how the world works; that's why they're politicians".

As we've discussed before, it is always expedient for politicians to lie and point fingers at others to distract from problems and crises of their own making. Which brings me to this line of thought: what type of behavior and leadership can we expect from true statesmen, as opposed to their more opportunistic colleague, the politician?

I turned to Google for a quick survey of opinion on this topic and found this quote at Wikipedia:

"A politician thinks about the next elections — the statesman thinks about the next generations…

Michael Lewis on Charlie Rose: The Big Short

Michael Lewis, well-known storyteller and author of The Big Short, joins Charlie Rose for a discussion of the financial crisis and the real-life characters in his new book, who saw the collapse coming and profited by shorting the subprime housing market.

There are many remarkable aspects to this story, but perhaps one of the most interesting themes to emerge from this discussion is Lewis' realization that the events chronicled so memorably in Liar's Poker were not, as he thought at the time, the end of an era, but rather the beginning of one that only seems to be ending now in 2010.

Enjoy the interview, and click over to our related posts for more insight on hedge fund managers Michael Burry, Andrew Lahde, and John Paulson, who profited from the subprime short trade and were profiled in Lewis' and Greg Zuckerman's latest books.

Seth Klarman: Lessons from 2008

Widely followed value investor and (Baupost Group) hedge fund manager, Seth Klarman shares his lessons from the recent financial crisis (Hat tip to Derek Hernquist for recently highlighting this piece).

Here's an excerpt from Klarman's, "Forgotten Lessons of 2008":
"One might have expected that the near-death experience of most investors in 2008 would generate valuable lessons for the future. We all know about the “depression mentality” of our parents and grandparents who lived through the Great Depression.

Memories of tough times colored their behavior for more than a generation, leading to limited risk taking and a sustainable base for healthy growth. Yet one year after the 2008 collapse, investors have returned to shockingly speculative behavior...Below, we highlight the lessons that we believe could and should have been learned from the turmoil of 2008. Some of them are unique to the 2008 melt- down; others, which could have been drawn from general market obse…

Marc Faber: FT.com interview

Marc Faber was recently interviewed by the Financial Times for their video series, "View From the Markets". Here's a quick overview of some of the topics and themes covered in this 4 part discussion:
Marc warns of a partial US debt default, in which the government denies payment to foreign bond holders due to the overwhelming burden of future interest payments on the debt. Usually, governments faced with this situation will "monetize" the debt and print money to inflate away the real debt burden.Irrational monetary policies and artificially low interest rates have fueled recent asset bubbles and laid the foundation of the global financial crisis. We continue to see these artificially low rates globally, which leads to misallocation of capital, as in the case of China currently.
Faber does not agree with targeted "excess profit" taxes on industries such as banks or oil companies. Instead, he points out that simply having high real interest rates would e…

Readings: derivatives, Greece, & a triple whammy

Here's what I'm reading this afternoon:

1. Triple whammy of trading costs, taxes, and inflation drags down returns on US stocks (with Bloomberg chart graphic).

2. Greece lifts a page from Citigroup's playbook - Jonathan Weil.

3. Barry Ritholtz' take on derivatives regulation.

4. Gregor Macdonald looks at oil consumption in the developing world and California.

5. Research models forecast peak oil at 79 mbpd in 2014 (HT: Chris Nelder).

6. 10 years after the dot com bubble and Nasdaq 5,000, Henry Blodget reflects.

7. Stock markets celebrate year of gains, but only Chile is above its 2007 peak.

8. Joe Fahmy feels the market wants to go higher from here.

Hope you find the articles worthwhile, we'll see you on Friday for more financial news and insight.

Hedgeye: The Principled One

There is so much good material waiting in the cue on the subjects of Greece, sovereign debt, and currency speculation, but here's the piece I want to share with you today.

It comes from Keith McCullough at Hedgeye and his post takes on the idea that, once again, "evil speculators" are somehow to blame for the fundamental economic problems of a country's own making.

An excerpt from, "The Principled One":

"The other George (Papandreou) is the Prime Minister of Greece. Since the Chinese told him to go fly his levered-up bureaucratic kite, Papandreou has been on a PR tour since Friday when he visited Germany.

Along the way, somehow he convinced France’s Nicholas Sarkozy that “speculators are creating malicious rumors” about his country. With some political wind from the left at his back, he took it up a notch ahead of meeting with Geithner today in Washington and called whoever he can’t see “unprincipled speculators.” George, you have to be kidding me. You hav…

Jim Rogers: Greece bankruptcy good for Euro

Jim Rogers tells Bloomberg TV that Greece should go bankrupt, and that this would be good for the euro and for Europe in the longer term.

As Jim points out, a Greek bankruptcy would show everyone that the euro is a serious and sound currency based on the strength of its financial commitments. Of course, he does not expect this level of discipline to prevail.

He also has some sharp words for those in the political sphere who have tried (as always) to blame speculators for "attacking" the currency and Greece's debt. Some much needed common sense and basic education on the nature of markets and economic fundamentals here (that you might want to share with others).

Check out the full interview and stop in tomorrow for more on the state of Greek and European finances. We've got a lot to talk about on this subject this week, so stay tuned.

Bloomberg profiles SAC's Steve Cohen

Bloomberg has published a lengthy profile of trader and SAC Capital founder, Steve Cohen. If you're not already familiar with the now-legendary hedge fund manager, you will be by the time you finish reading it.

Here's an excerpt from, "Steve Cohen's Trade Secrets".
"...Though Cohen attends more golf and other outings than he once did, most days the balding, blue-eyed, stocky investment manager does what he knows best: He trades. He has a perch in the middle of the Stamford floor, and his bets account for about 10 percent of profits -- down from more than 50 percent 10 years ago.He doesn’t like noise, so the phones on the floor don’t ring; they light up. He prefers jeans and sweaters to suits and looks more like a tax accountant on casual Friday than a trading titan running a $12 billion hedge fund firm.Near the trading floor hang pieces from Cohen’s extensive art collection, which includes works by Vincent Van Gogh, Pablo Picasso and Andy Warhol.Cohen maintain…

Michael Burry: Betting the Blind Side

Michael Lewis has a new book coming out called, The Big Short. It's supposed to be an account of the financial crisis and how the "US economy was driven off a cliff", thanks to the drive for cheap housing and the toxic investments Wall Street packaged around this goal.

Vanity Fair has published an excerpt from Lewis' book called, "Betting on the Blind Side", which highlights the subprime-housing short trade of California hedge fund manager, Dr. Michael Burry.

"In early 2004 a 32-year-old stock-market investor and hedge-fund manager, Michael Burry, immersed himself for the first time in the bond market. He learned all he could about how money got borrowed and lent in America. He didn’t talk to anyone about what became his new obsession; he just sat alone in his office, in San Jose, California, and read books and articles and financial filings.

He wanted to know, especially, how subprime-mortgage bonds worked. A giant number of individual loans got piled u…

John Carney: how AIG destroyed itself

I am checking out John Carney's recent Business Insider piece on the collapse of insurer AIG.

Here's an excerpt from Carney's description of "AIG as a buyer of risk" from, "The Untold Story of How AIG Destroyed Itself":

"AIG’s financial products division became what is known on Wall Street as a “synthetic buyer” of a variety of asset backed securities, including mortgages and infrastructure linked bonds. AIGFP would sell credit default swaps that performed for the company much like an ordinary bond would for a bond investor.

As long as the insured bonds were performing, AIG would receive a regular revenue stream from the buyer that mirrored the regular payments of interest and principle that a bond holder would receive. AIG was able investing in the bonds without actually having to buy them..."

Carney goes on to note that AIG had, in effect, taken a synthetic long position in these mortgage bonds by insuring the asset backed securities and writin…

Beware the fabulous money machine

Spencer Jakab penned an interesting commentary for FT Weekend on the Federal Reserve's $52 billion profit (unaudited) for 2009. Here's an excerpt from that piece, "Beware the fabulous federal money machine":

"Unlike its New York brethren though, the Federal Reserve has a literal licence to print money, minting some $52bn in profit last year and paying $46bn in dividends to its shareholder, Uncle Sam... “The man on the street doesn’t understand the $46bn earned by the Fed and given to the Treasury,” laments David Kotok, chairman of Cumberland Advisors. Financial markets do, and it is making them increasingly skittish. The Fed’s profits stem largely from its purchase of mortgage securities, a programme that is slated to end in about a month at some $1,250bn. The first hurdle is weaning the market off this money-printing exercise. That alone could lead to an unwelcome rise in mortgage costs. More daunting will be soaking up the excess cash created before it sparks i…