Four Little Words

By |2014-09-03T21:07:29+00:00September 16th, 2008|Global Market Update|

“You just don’t understand.” When you hear that phrase in a relationship, pay attention. Chances are, you’ve missed something important. But when you’re looking at an investment and someone tells you this, grab your wallet. Chances are, you haven’t missed a thing. They’re either pulling one over on you, or their model is too complex for its own good. Over the last dozen years we’ve seen multiple companies tell us that their business was too sophisticated for the average investor to understand: Enron, Worldcom, [...]

Talking Tough

By |2014-09-03T21:06:35+00:00September 15th, 2008|Global Market Update|

The great boxer Joe Louis once quipped, “If you have to say you’re tough, you aren’t.” In financial markets these days, toughness is measured by liquidity and capital. To paraphrase Joe Louis, if you have to say how much you have, you haven’t got enough. I was thinking about this while reviewing the current financial crisis. It seems that all the banks that have talked about how much cash they have at the holding company or how well capitalized they are have all gone [...]

The Audacity of Fannie

By |2014-09-03T21:05:27+00:00September 12th, 2008|Global Market Update|

We all knew Fannie’s collapse was coming. Right? Fan and Fred had to re-state their books years ago. They were propped up by a generous lobbying campaign. And their capital requirements were less than one third that of normal banks. So why didn’t everyone see this coming? Part of the answer lies in the high level of uncertainty associated with Fan and Fred’s business. While combined they own about 1.7 trillion in assets, their guarantee business is more than 3 times that. Most people [...]

A Modest Memorial

By |2017-07-17T12:35:25+00:00September 11th, 2008|Global Market Update|

This update is a little different. It’s a testimonial to a friend of mine. Don Delapenha was a good guy. He coached his daughter’s soccer team. We used to exchange drills that we would use to help our kids develop dribbling and passing skills. A couple of our children were the same age. Don would call me a couple times a week. We’d talk about the markets, our kids, and current events. Don sold corporate and agency bonds to banks. He probably would have [...]

What’s Your Plan?

By |2014-09-03T21:03:14+00:00September 10th, 2008|Global Market Update|

There are no atheists in foxholes. And no conservatives when there are subsidies. Treasury’s takeover of Fannie and Freddie is the greatest socialization of risk since the Chrysler bailout of the ‘70s. By guaranteeing the bonds, the Feds have told every risk-averse investor that he’s a sap for worrying about credit. To paraphrase the Nike ad, just buy it. But we’ve seen this movie before, and it doesn’t end well. To bail out the Agencies, Treasury will just issue debt and inject cash. The [...]

Wipe Out!

By |2014-09-03T21:02:11+00:00September 9th, 2008|Global Market Update|

Fannie and Freddie are dead. Long live the mortgage market! With the stroke of a pen, Hank Paulson wiped out billions of dollars in shareholder investments and simultaneously sparked a 200 billion dollar rally in the stock market. The Agencies will continue to do business, but now the taxpayers will be on the hook for the losses that have come about from the last 5 years of aggressive lending. This solution was apparently “baked in the cake” a couple weeks ago when Freddie’s CEO [...]

Election Returns (Part 3)

By |2014-09-03T21:01:11+00:00September 5th, 2008|Global Market Update|

Why isn’t inflation a bigger issue? With all their policy positions, it’s the rare politician that discusses inflation. The last time I remember inflation being an electoral item was during the Carter/Reagan contest of 1980. And I find no evidence of it being discussed very much during any other post-war election. But as we’ve seen, inflation is a critical determinant of the market’s success during a President’s term. Many candidates may ignore the subject is because it’s been outsourced to the Fed. And the [...]

Election Returns (Part 2)

By |2014-09-03T20:59:48+00:00September 4th, 2008|Global Market Update|

Yesterday we said that policy, not politics, has a strong effect on the market. But which policies? When we look at real stock returns by administration, success and failure appear pretty bipartisan. We examined the S&P’s real total return for the four fiscal years following each administration’s election since World War II. The best two returns were from Clinton’s and Eisenhower’s first terms. The worst returns were from Nixon’s second term and Truman’s first. What’s the common theme here? Inflation. Clinton and Ike enjoyed [...]

The Cruelest Month

By |2014-09-03T20:59:00+00:00September 2nd, 2008|Global Market Update|

T.S. Eliot said that April is the cruelest month. But among stock investors, September’s got it, hands down. Since the Dow average was first calculated, the average market return in September has been minus 1%. All other months have been up about three quarters of a percent. September has been the worst. Does this mean pull your money from the market now? Not on your life! There’s no fundamental reason why September should be the worst month--it just happens to work out that way. [...]