Been a while since I visited my blog, I'm testing the integrated Office 2010 blog feature. Microsoft may be late to the internet party and still focused on delivering solutions inside their own products, but I'm still a sucker for a beta.
Monday, November 23, 2009
Saturday, March 15, 2008
Will we see a meltdown in September?
I had a friend post that some European analysts see the global financial system encountering a meltdown in September (sorry, can't find attribution).
If the system goes, it's going to go much sooner than September.
This paper is dry reading, but Bernanke wrote it in 2004. It's basically "What can the Fed do when we're truly fucked and nothing else is working", and it advocates outright purchase of assets when the Fed rate drops close to zero.
http://www.federalreserve.gov/pubs/feds/2004/200448/200448pap.pdf
However, the Fed just cannot control the flight of money out of the US markets, which becomes inevitable when risk, low ROI, and inflation make Brazil seem stable by comparison.
However, if we go, the world is coming with us. Europe and Asia simply cannot survive without us, yet. The entire world is one fiancial organism now, and like the Great Depression, it's going to hit everywhere if it does hit.
So far people are cheering the inventive interventions in the market. It's hilarious to watch all these free market capitalists screaming for socialist intervention in their investments. Just remember this when people claim the Democrats want to intrude into corporations, at least they'll do it both on the way up and the way down, as a way to pay for bailouts when times get bad. Republicans intervene just as much, but the bill goes to the little guy taxpayer rather than the investors and brokers after the markets are bailed out.
If the system goes, it's going to go much sooner than September.
This paper is dry reading, but Bernanke wrote it in 2004. It's basically "What can the Fed do when we're truly fucked and nothing else is working", and it advocates outright purchase of assets when the Fed rate drops close to zero.
http://www.federalreserve.gov/pubs/feds/2004/200448/200448pap.pdf
However, the Fed just cannot control the flight of money out of the US markets, which becomes inevitable when risk, low ROI, and inflation make Brazil seem stable by comparison.
However, if we go, the world is coming with us. Europe and Asia simply cannot survive without us, yet. The entire world is one fiancial organism now, and like the Great Depression, it's going to hit everywhere if it does hit.
So far people are cheering the inventive interventions in the market. It's hilarious to watch all these free market capitalists screaming for socialist intervention in their investments. Just remember this when people claim the Democrats want to intrude into corporations, at least they'll do it both on the way up and the way down, as a way to pay for bailouts when times get bad. Republicans intervene just as much, but the bill goes to the little guy taxpayer rather than the investors and brokers after the markets are bailed out.
No Meltdown
So some of the post-mortems are in on today's Fed and market actions, and it doesn't look good. Or rather, it looks good, because we averted a systemic margin call that could have created a death spiral for the entire banking system.
Some analysts believe that had the Fed not invoked that arcane rule from the 1930s to loan directly to Bear Sterns we'd already be in a vicious cycle of derivative-induced credit calls, which actually could have been more systemic and more rapid than the Great Depression. We should see more stories about this next week.
Cool, eh?
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/15/ccom115.xml
Some analysts believe that had the Fed not invoked that arcane rule from the 1930s to loan directly to Bear Sterns we'd already be in a vicious cycle of derivative-induced credit calls, which actually could have been more systemic and more rapid than the Great Depression. We should see more stories about this next week.
Cool, eh?
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/15/ccom115.xml
The swap spreads on Lehman Brothers rocketed to 465 yesterday, mirroring the moves in Bear Stearns debt days before. Fannie Mae and Freddie Mac - the venerable agencies created by Roosevelt that underpin 60pc of the $11 trillion mortgage market - had a heart attack on Monday. Their bonds were in free-fall, threatening to set off another cascade of bank writedowns.
These are not sub-prime outfits. They sit at the apex of the US mortgage credit industry. Hence the dramatic move by the Fed this week to offer a $200bn lifeline, agreeing to accept Fannie Mae and Freddie Mac issues as collateral.
Had the Fed delayed, many traders believe Wall Street would have plunged through resistance levels risking a full-fledged crash.
The 'monoline' bond insurers - MBIA, Ambac, and others - that guarantee most of the $2,600bn market for US municipal bonds have seen their shares collapse by 90pc since the Autumn.
They are still battling to raise enough to capital to save their 'AAA' ratings. Should they fail, the insured bonds will be downgraded in lockstep. Pension funds would be forced to liquidate huge holdings. As New York Governor Eliot Spitzer said before his own liquidation, such an outcome is too dreadful to contemplate.
You have to go back to the banking crisis of the Great Depression to find a moment when the financial system as a whole seemed so close to the precipice.
"We are now experiencing the first truly major crisis of financial globalisation," said the Swiss central bank governor Philipp Hildebrand this week.
"Never before have banks seen such destruction of their balance sheets in such a short time. Moreover, there are signs that the problems are spreading. The risk premiums on commercial property, consumer credit and corporate loans have risen sharply," he said.
Debt levels have been much higher than in the Roaring Twenties; the new-fangled tools of structured credit are more opaque: the $415 trillion nexus of derivative contracts is untested. Nobody knows for sure if the counter-parties are able to deliver on vast IOUs, or whether the construct is built on sand.
What keeps Federal Reserve officials turning at night is fear that the "financial accelerator" will now set off a vicious downward spiral. There is a risk of "very adverse economic outcomes," said Fed vice-chair Don Kohn.
Tuesday, March 4, 2008
Want to safely earn 5% tax exempt? California Bonds sale today and tomorrow
California Draws Record Demand From Individuals as Munis Rally
Inflation may make this less of a good deal in the future, however. The other wrinkle is that these bonds will not be insured by bond insurers.
California Munis Show New Trend Away From Bond Insurance
Bond insurers generally allowed people to buy bonds without much concern about the underlying soundness of the issuer and the repayment process. What this means is that the investor must do their own due diligence.
``We're telling everyone we can to sell Treasuries and buy munis,'' said Robert Millikan, who manages $5 billion as director of fixed income at BB&T Asset Management in Raleigh, North Carolina. State and local government bonds typically yield less than Treasuries because they pay interest exempt from income taxes, while bonds sold by the federal government don't.
Today's rally drove tax-exempt yields as much as 15 basis points lower from yesterday, traders said. A basis point is 0.01 percentage point. Top-rated 30-year general obligation bonds had risen to 5.01 percent yesterday, the highest since July 29, 2004, Municipal Market Advisors said.
Inflation may make this less of a good deal in the future, however. The other wrinkle is that these bonds will not be insured by bond insurers.
California Munis Show New Trend Away From Bond Insurance
Bond insurers generally allowed people to buy bonds without much concern about the underlying soundness of the issuer and the repayment process. What this means is that the investor must do their own due diligence.
Monday, March 3, 2008
Buying Gold at $975
Here's my analysis on gold as a buy right now.
Unless something of value is protected by intellectual or property rights, it is generally fungible, liquid and tradeable. There is usually a way to transform object of value A into object of value B, for example gold into food or diamonds into oil. Most such objects can trace their value to the physics of energy: how much energy it takes to transform, produce, harvest, or seek out this object from the world at large.
Unlike DVDs, trading cards, and dollars, it's not easy to make more gold. We're making progress with hydrogen fusion research, but no science we have currently allows us to transform something not gold into gold; the only current way to do it is via supernovae.
So all new gold must be found either in space or in the earth.
Most of the easy gold, lying in stream beds in California, Alaska, or elsewhere, has been plucked out and monetized anywhere from hundreds to thousands of years ago. So has much of the shallow earth gold. Most of the gold mines are pushing new technological limits of digging deeper and smarter to retrieve ever smaller amounts of gold. There are gold deposits with less gold per kilo of rock available, which would require more energy to retrieve a given amount of gold than from other sources. Another possible method to retrieve gold would be to atomically separate it from sea water, but there is no current process able to do so.
So there is a relation between energy expended and new gold found/mined. The amount of gold entering the system is X% percent of current levels, a small amount. This makes gold an ideal non-inflationary metric.
Gold in and of itself does have some value. It is used in electronics manufacturing, and is also used as adornment as jewelry. A barrel of oil however has a directly transformable value. We can use it as energy for anything for transportation to heating, and as a raw material for a host of manufactured items. So the value of gold is less intrinsically fixed than oil is.
Gold however, has some properties superior to oil. It is reasonably rare. It does not degrade or tarnish. It is dense, meaning little space is required for its storage or its transport. And it is malleable and ductile, making it easily stretched, beaten, or molded into arbitrary shapes. All of these make it ideal as a substitute for other things of value, as a currency. And indeed that has been one of its primary uses over the millenia.
One can argue that any given currency has a greater chance to fail as a medium of exchange than gold, merely by the fact that its tied to the existence of its issuing country. So there is a trust that gold will retain its value as a currency, enhanced by the properties enumerated in the previous paragraph.
A number of analyses have been done on the state of the global economy in general and the US in particular. A number of facts are pertinent.
The US government has been printing money at an increasing pace to combat issues of liquidity in the economy.
The federal deficit has been growing to an ever greater percent of GDP.
The dollar has been falling to record lows when measured against either other currencies or against general commodities.
The total trade deficit will increase to over 4 trillion dollars, and 800 million this year.
There has been increased demand (and competition) for commodities as the global economy expands.
The price of most commodities experieced a global recession from 1980 to 2000 as prices were depressed relative to global growth and inflationary measure.
Both the US stock markets and the US bond markets are expected to either trend negative or experience very slow increase in value relative to currency and inflationary forces.
If you believe that the pressures on the dollar will keep it low, the stock and bond markets will be down, and consumption of commodities will continue upwards, you should buy gold. I believe it, like most commodities are undervalued relative to their future value.
Unless something of value is protected by intellectual or property rights, it is generally fungible, liquid and tradeable. There is usually a way to transform object of value A into object of value B, for example gold into food or diamonds into oil. Most such objects can trace their value to the physics of energy: how much energy it takes to transform, produce, harvest, or seek out this object from the world at large.
Unlike DVDs, trading cards, and dollars, it's not easy to make more gold. We're making progress with hydrogen fusion research, but no science we have currently allows us to transform something not gold into gold; the only current way to do it is via supernovae.
So all new gold must be found either in space or in the earth.
Most of the easy gold, lying in stream beds in California, Alaska, or elsewhere, has been plucked out and monetized anywhere from hundreds to thousands of years ago. So has much of the shallow earth gold. Most of the gold mines are pushing new technological limits of digging deeper and smarter to retrieve ever smaller amounts of gold. There are gold deposits with less gold per kilo of rock available, which would require more energy to retrieve a given amount of gold than from other sources. Another possible method to retrieve gold would be to atomically separate it from sea water, but there is no current process able to do so.
So there is a relation between energy expended and new gold found/mined. The amount of gold entering the system is X% percent of current levels, a small amount. This makes gold an ideal non-inflationary metric.
Gold in and of itself does have some value. It is used in electronics manufacturing, and is also used as adornment as jewelry. A barrel of oil however has a directly transformable value. We can use it as energy for anything for transportation to heating, and as a raw material for a host of manufactured items. So the value of gold is less intrinsically fixed than oil is.
Gold however, has some properties superior to oil. It is reasonably rare. It does not degrade or tarnish. It is dense, meaning little space is required for its storage or its transport. And it is malleable and ductile, making it easily stretched, beaten, or molded into arbitrary shapes. All of these make it ideal as a substitute for other things of value, as a currency. And indeed that has been one of its primary uses over the millenia.
One can argue that any given currency has a greater chance to fail as a medium of exchange than gold, merely by the fact that its tied to the existence of its issuing country. So there is a trust that gold will retain its value as a currency, enhanced by the properties enumerated in the previous paragraph.
A number of analyses have been done on the state of the global economy in general and the US in particular. A number of facts are pertinent.
The US government has been printing money at an increasing pace to combat issues of liquidity in the economy.
The federal deficit has been growing to an ever greater percent of GDP.
The dollar has been falling to record lows when measured against either other currencies or against general commodities.
The total trade deficit will increase to over 4 trillion dollars, and 800 million this year.
There has been increased demand (and competition) for commodities as the global economy expands.
The price of most commodities experieced a global recession from 1980 to 2000 as prices were depressed relative to global growth and inflationary measure.
Both the US stock markets and the US bond markets are expected to either trend negative or experience very slow increase in value relative to currency and inflationary forces.
If you believe that the pressures on the dollar will keep it low, the stock and bond markets will be down, and consumption of commodities will continue upwards, you should buy gold. I believe it, like most commodities are undervalued relative to their future value.
It's official: Manufacturing is in recession
I think most people will agree that another of the pillars of the US economy is in recession. Add it to the list that already includes housing, financial markets, and consumer spending.
Friday's unemployment report will be the final piece of the puzzle if it's over 5%. However, one factor helping unemployment stay low is that jobs have not seen real wage increases in ten years. Companies are already running leanly regarding employment, and won't see a big cost savings by cutting jobs. Of course, having such low wages does mean that the economic burden falls on the average US worker instead of the company. Rising inflation, lowered wealth effect from the housing market collapse, and no real wage increases means tough times this year.
March 3 (Bloomberg) -- Manufacturing in the U.S. shrank at the fastest pace in almost five years and construction spending fell the most since 1994 as the economy moved closer to a recession.
The Institute for Supply Management's factory index dropped to 48.3 in February from 50.7 the previous month, the Tempe, Arizona-based group said today. Fifty is the dividing line between contraction and expansion. At the same time, the Commerce Department reported that spending on building projects slumped 1.7 percent in January, more than anticipated.
The collapse in housing is rippling through the economy as consumers pare spending and factories cut production of cars, furniture and appliances. Traders are betting the Federal Reserve will be forced to reduce its benchmark interest rate by 0.75 percentage point at its March 18 meeting.
Friday's unemployment report will be the final piece of the puzzle if it's over 5%. However, one factor helping unemployment stay low is that jobs have not seen real wage increases in ten years. Companies are already running leanly regarding employment, and won't see a big cost savings by cutting jobs. Of course, having such low wages does mean that the economic burden falls on the average US worker instead of the company. Rising inflation, lowered wealth effect from the housing market collapse, and no real wage increases means tough times this year.
Wednesday, January 2, 2008
Cramer's finally accepting we may be recessionary
Jim Cramer, who in my eyes has always been irrationally bullish, is finally quiet and admitting we're going to see 70s stagflation this year (recession plus inflation). He's investing in gold stocks now, and suggests everyone have gold this year.
http://www.thestreet.com/_dm/video/index.html?clipId=10396686&channel=Cramer+On+Demand&cm_ven=&cm_cat=&cm_ite=#10396686
http://www.thestreet.com/_dm/video/index.html?clipId=10396686&channel=Cramer+On+Demand&cm_ven=&cm_cat=&cm_ite=#10396686
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