October 2009
38 posts
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“I believe that the conventional view that government bonds should be “risk...”
– Liquor before Beer - In the Clear
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Paul Mylchreest Thunder Road Report On The Gold...
I couldn’t find comments on this report on the web: Gold market - accident waiting to happen or crime scene? Don’t shoot the messenger (pdf)
It is a very thoughtful analysis, although often based on guesstimates, on gold trading volumes and its implications on the quantity of gold over ground. There are many interesting historic facts related to Yamashita’s gold treasure, Rogelio...
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Inflation-Adjusted Schiller P/E Ratio Since 1881
This chart via Dave Rosenberg newsletter is just too good:
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“Government-guaranteed mortgages accounted for 98% of total mortgage-backed...”
– Christopher Wood: Is the U.S. Economy Turning Japanese? - WSJ.com
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“On two occasions last year: on March 16, 2008, and subsequently on September 14,...”
– An Overview Of The Fed’s Intervention In Equity Markets Via The Primary Dealer Credit Facility | zero hedge
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A Lot Of Interesting Data On US Government Debt
From Geithner Widens Bills-to-Bonds Gap With New Sales (Update3) - Bloomberg.com:
$7 trillion of outstanding debt
$1.63 trillion maturing in 2010 (so will need to be rolled over)
Average maturity of 49 months (slightly more than 4 years), which is the second lowest on record since 1983
New government debt issued this week: a record $123 billion
Yields on 10-year Treasuries expected to rise...
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“I don’t think the question really is what is gold worth but what are currencies...”
– Pension Funds to Buy Gold as Insurance, McGuire Says (Update2) - Bloomberg.com
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Guess What's Going Up Now
I completed missed the news that all money printing by Bank of England already managed to fuel asset price inflation in … housing! Due to lower inventory of unsold homes than elsewhere (USA, Spain), London house prices already surged past 2007 record high.
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Guessing Guesses And Inflation vs Deflation
One of the reasons why I am a deflationista is that I think that the Fed will actually end up tightening too early. Memories of inflation of the seventies are stronger than deflation memories of the thirties. Or the Fed should hire a Japanese Central Banker …
Guessing the key question of the next decade inflation vs deflation implies guessing the Fed’s and the Government’s...
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Causal Fallacies Exposed
Sometimes, products are successful despite their features, not because of them. Sean Parker of Founder’s Fund says it best:
Parker also talked a bit about why it’s not always the best products that win. Craigslist, MySpace, AIM and eBay all were poorly designed or executed, yet they did well. This was because of their networks were strong enough to overcome their bad products, Parker said.
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Is It Finally Mobile Internet Time?
Techcrunch had a link to a Morgan Stanley presentation
on the mobile internet revolution. Will it be for real at last?
MS Economy Internet Trends 102009 FINAL
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Carry Trade Spreadsheet
To follow up on my previous post on carry trade, I built a super-simple
Carry Trade Spreadsheet on Google Docs to model the ROE (return on equity) of the trade for varying levels of leverage.
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“For 2009, total foreclosures are estimated to be 2.4 million. But coupling...”
– Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009
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Adding The Time Axis To Financial Modeling
One of the discussions that I am following closely is the one related to the crisis of financial modeling. A side effect of the financial meltdown of August 2007 (subprime) - September 2008 (Lehman, AIG) and the following credit crunch, is that existing models, mostly based on the Efficient Market Hypothesis, showed all their shortcomings.
My take is that all pre-meltdown models were...
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The Beauty of Straight Questions
Bloomberg had a story on Goldman Sachs and the moral hazard issue of being too big too fail.
Viniar’s remarks came after a reporter for the Daily Mail of London, Simon Duke, posed a perfectly reasonable question: “It seems fairly clear that, post-Lehman, that the U.S. Treasury’s not going to let any bulge-bracket firms go under,” Duke began, according to an audio recording of the call. “How can...
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“To paraphrase a great wartime leader, never in the field of financial endeavour...”
– Mervyn King calls for banks to split as public finances take record hit - Times Online
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US Dry Powder Against Dollar Crisis Runs Low
In case of a disorderly US dollar decline, the Fed would need the kind cooperation of foreigners, since it could only counter it with a mere $83.4 billion in foreign exchange reserves (of which 78.9% in gold).
For a good read on the US dollar prospects, I suggest Richard Clarida (PIMCO)’s article.
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Deflation Or Devaluation? Two Routes To The Same...
I recommend reading this analysis of Baltic states response to the crisis by Andrew Bosomworth of PIMCO.
So a large part of society without direct exposure to foreign currency debt – the young, old and companies in the tradable sector – is paying a high price to support those who borrowed foreign currency. Further cuts to the 2010 budget are looming. From the perspective of welfare, the cost of...
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The Financial Instability Hypothesis
Financial times has an article (thanks Francesco F.), that rightly focuses on increased sources of instability in the financial system as opposed to the inflation vs deflation querelle:
Once perceptions of rising inflation return, central banks might be forced to switch towards a much more aggressive monetary policy relatively quickly – much quicker than during the previous cycle. A short...
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If You Could Borrow At 0% You Would Be A...
Wonder how exactly investment banks posted record profits? The Fed is lending them money at 0% which they are investing back in government bonds at 2-3% risk-free. Lever it up 10:1 and you get your profits.
Because of the Collapse of 2008 financial reforms, the big investment banks are able to borrow money from the U.S. government at 0 percent interest. Then they can turn around and buy...
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Percentages Are Misleading
This Economist article on misconceptions about China reminded me why I always prefer absolute amounts to percentages …
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41% Of Italy's Current Deficit Is Financed By...
Central Bank of Italy released August Balance of Payments (pdf)
Considering the last 12 months rolling, current deficit worsened from €47B a year ago to €53B because exports shrank more (-88B or -16%) than imports (-82B or -14%). Italy’s current account deficit is about 3% of the GDP.
What is interesting is that almost half of that deficit is financed “errors and emissions”...
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Triffin's Dilemma And The Dollar As The World...
The Triffin dilemma is back in vogue: the reserve currency country needs to have a current account deficit to finance the global need of liquidity but at the same time a negative balance of payments undermines the value of the reserve currency itself.
The US has been providing the “working capital” financing for the world, but that will ultimately devalue the dollar. It is also true...
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Bonds vs Stocks: 18-1
After getting burnt twice in 10 years, Americans invest in bonds and avoid stocks:
As the Dow posted its steepest advance in seven decades to rally above 10,000, investors were pouring money into bonds. The nation’s fixed-income funds have attracted 18 times more money than stocks in 2009, even as the measure surged 53 percent after sinking to a 12-year low in March, according to data compiled...
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Entrepreneurship And Hacking In The Philosophical...
Paul Buchheit had an inspiring post on entrepreneurship intended as a way to distinguish perceived rules from actual rules. It is a form of “hacking” in the philisophical sense of search of the truth …
A little geeky, but information asymmetry regarding the rules of a market is indeed an intriguing concept.
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When A Government Steps In To Change Contracts
The Treasury changing mortgage-backed securities contracts a posteriori is an interesting case of regulatory risk that I wonder how many investors considered up front.
I would bet that very few people correctly estimated the risk of the Government stepping in to defend banks that are too big to fail and spreading their losses to other private investors by changing contracts unilaterally.
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Venture Capital Maybe Escaping Regulations
US-based VC firms lobbying effort seems to bear some fruit: Venture Capital Firms Allowed to Live - WSJ.com.
Now the issue will be to distinguish “growth” private equity firms (that do not use leverage either and mostly invest through equity injection) and late stage venture capital …
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Best Charts On Global Banks Market Cap
Round-up of interesting charts on market cap of global financial institutions to assess the demage of 2008-2009 financial meltdown:
Bubble Chart by Bloomberg, updated as of December 2008
New York Times animation since the peak, updated as of September 2009
Financial Times animation of top 20 global banks from 1999 to 2009
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When A Government Uses Ads To Sell Its Bonds
When I see Berlusconi’s face on a commercial selling Italian Government Bonds, then I’ll start to really worry.
They are doing it in Japan (source Bloomberg, via Hayman Capital letter)!
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The Deflation To Inflation Tipping Point
I agree with Chris Martenson when he says that the switch from deflation to inflation will be sudden and driven by social snowballing effects, independently from what will trigger it.
But it could be sooner than that. Or later. The point here is that we really don’t know and because our monetary system operates on faith, it means that we have to be prepared for the fact that a shift could...
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Hayman October Letter Takes The Inflationist Side
Hayman October Letter (pdf) to investors (via ZeroHedge) is as usual very insightful. Its manager Kyle Bass is on the inflationist side, due to unsustainable debt levels and government incentive to print their way out of it.
He has bearish views on China due to an unsustainable path in credit expansion and proposes a doomsday scenario for Japan.
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If You Thought The Housing Bubble Was Limited To...
… you were wrong.
The McKinsey Quarterly has a nice chart showing inflation-adjusted house prices in several countries:
The US housing bubble doesn’t seem so large anymore … and conservative Europe is catching up with the inevitable fall.
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That's A Lot Of VC Deals
PE Hub has a nice ranking of Venture Capital firms by activity in 2009. I am surprised at the sheer number of deals, and they are about 50% off 2008 …
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“Focus on high quality bonds and steady dividend paying stocks that can survive,...”
– PIMCO - Bill Gross Doo Doo Economics