By |2014-09-04T14:02:44+00:00October 16th, 2008|Global Market Update|

“The lights are going out all over Europe: we shall not see them lit again in our lifetime.” So spoke Sir Edward Gray , British Foreign Secretary during the run-up to World War I. He recognized then that Germany’s aggression and England’s response would radically change the European continent. I was thinking about this while watching the global financial architecture unravel. As banks, brokers, and insurance companies have failed, the world’s financial lights have been going out. We’re now facing a significant re-making of [...]

Four Part Harmony

By |2014-09-04T13:58:31+00:00October 15th, 2008|Global Market Update|

This is Doug Tengdin from Charter Trust with the Global Market Update for Wednesday, October 15th, 2008. So what's needed to fix the banking system? Many point to a four-part solution: keep plenty of cash in the system, recapitalize major banks, end the deleveraging, and move from to policies that take the punch bowl away when the party gets hot. So how are we doing? Liquidity? Check. The Fed has already pushed hundreds of billions into the system. Capital? Check again. The Bank of [...]

Pearl Harbor (not again!)

By |2014-09-04T15:19:27+00:00October 14th, 2008|Global Market Update|

Warren Buffet calls this our financial Pearl Harbor. He’s may be more right than realizes. Prior to Pearl Harbor, we had lots of information that could have prepared us for the sneak attack. We just didn’t have one central place to collect and analyze it. That shortcoming in our security apparatus led to the creation of the CIA. Similarly, in mid-decade we had plenty of information about real-estate speculation, excessive leverage, and a credit-default swap market that could combine to cause a financial meltdown. [...]

What’s Next

By |2014-09-04T14:01:09+00:00October 10th, 2008|Global Market Update|

So what’s the plan? Banks are scared silly. They don’t want to lend to one another, because with WAMU and Wachovia going under, they don’t know if they’ll get their money back. And this is a world-wide problem. The latest proposal is to have the Feds inject capital into the banks, in a way that allows the government to profit somewhat from any upside. Other countries have done this during banking crises, and it can keep the banks from needing to shrink. But we [...]

What Happened

By |2014-09-04T14:00:45+00:00October 9th, 2008|Global Market Update|

So how did we get here? When banks take losses on a lot of loans, it cuts into their capital—the accumulated earnings that forms their surplus of loans minus deposits. If it loses enough capital, the bank may be considered undercapitalized. If this happens, the quickest way out is for it to shrink its asset size. That’s the easiest way for the percentage of the bank’s capital to grow. This is why a lot of banks aren’t anxious to make new loans, or even [...]

Toothpicks and Bubble Gum

By |2014-09-04T14:00:20+00:00October 8th, 2008|Global Market Update|

A couple weeks ago I jokingly asked if the Fed was going into the airline and auto business. Now I’m afraid I was right. After Lehman failed, a large money market fund went down in price. That’s not supposed to happen, and there’s been a run on these funds. This in turn has made it really tough for a lot of companies to borrow short-term money. This is a big part of the credit crunch. The Fed tried a fund guarantee, but that hasn’t [...]

Full Disclosure: I’m Long

By |2014-09-04T13:37:54+00:00October 7th, 2008|Global Market Update|

“Men willingly believe what they wish.” That’s what Julius Caesar said over 2000 years ago. And it’s still accurate. When people want something to be true, they often convince themselves that it is true. In investments we often call this “talking your position.” I was thinking about this recently when I heard that Congress had consulted with Warren Buffett on the rescue package. Hellooo: Warren the Great just invested billions in Goldman and GE. He is an interested party. That’s why people should know [...]

Enough, Already

By |2014-09-04T13:35:19+00:00October 6th, 2008|Global Market Update|

After the rescue package, then what? Many observers note that the rescue package that came out of Congress last week was no panacea. They cite tightening global credit, a run on money market funds, and a lack of interbank lending as symptoms of a sick financial system that is starting to infect the real economy. Good companies like Harley Davidson or John Deere are having a hard time getting short-term credit. This makes it hard for them to finance customer sales. It may be [...]

Pearl Harbor?

By |2014-09-03T21:19:09+00:00October 3rd, 2008|Global Market Update|

Warren Buffet says we’re seeing a financial Pearl Harbor. Is he right? The Oracle of Omaha recently said that he’s never seen the level of economic fear people now have. Bank failures, money fund losses, broker bankruptcies, and insurance company bailouts have people crouching in a financial fetal position. What’s safe? I know two things that are secure: work and friendship. Having solid skills that add value to customers will always be profitable. Building relationships with family and friends who encourage or correct you [...]

The Eighth Circle

By |2014-09-03T21:19:31+00:00October 2nd, 2008|Global Market Update|

In Dante's masterpiece, he and the poet Virgil travel through hell. On the way they meet with a cavalcade of scoundrels suffering various punishments. In the eighth circle, they run into a whole host of malefactors: Sorcerers, Flatterers, Hypocrites. The most memorable group were the Thieves. Some of Dante's erstwhile friends have corrupted their own souls through their fraudulent dealings, and he describes how their essential nature changes from a man to a six-legged monster. I was reminded of this while watching the metamorphosis [...]