Pondering Pnzi

By | 2017-07-17T12:35:24+00:00 December 31st, 2008|Global Market Update|

In light of the Madoff scandal, many people want to know, "Could it happen to me?" While no two scams are exactly alike, here are some questions to ask: 1. Does the strategy make sense? It's been said that if you can't describe an investment plan on a napkin in crayon, it's probably too complex. Many investors walked away from Madoff because his approach wasn't tenable on a large scale as he claimed. 2. Does the investment firm revolve around one central personality? "Success [...]

Classical Investing (Part 5)

By | 2017-07-17T12:35:24+00:00 December 30th, 2008|Global Market Update|

In Dante's Inferno, the deepest region of hell is reserved for those who betray their country, family, and friends. It's a frozen gelatinous ooze, where the cold is so intense that the tears of the inmates freeze before they can even cry. Surprisingly, those consigned to this level of hell are unrepentant. They see their betrayals as justified, or at least ennobling in some way. But Dante was on to something when he described treason in such execrable terms. All betrayal is personal. This [...]

Addicted to Oil?

By | 2014-09-04T17:09:13+00:00 December 29th, 2008|Global Market Update|

It's popular now to say that America is addicted to oil. But I'm not sure that this is helpful. When gas prices go up, we drive less, buy hybrid cars, and turn down the thermostat. When prices go down, we change our behavior and consume more. That doesn't sound much like an addict's behavior. When an addict uses something, it doesn't really matter what the price is. It doesn't matter who gets hurt. It doesn't matter when he last got "fixed"; he just wants [...]

Boxing Day

By | 2014-09-15T14:47:34+00:00 December 26th, 2008|Global Market Update|

Today is Boxing Day. It's celebrated as a shopping holiday in most of the former British Commonwealth. In America, we pretty much ignore it, except if to remark on how alike but different we are from the English. It has its roots in St. Stephen's Day when it was traditional for Lords and Masters to give gifts to their servants and vassals. Christmas was for peers, St. Stephen's for workers. This social role reversal had the useful effect tying the classes together. After all, [...]

Economics and Christmas

By | 2014-09-04T17:07:12+00:00 December 24th, 2008|Global Market Update|

When you think of it, the Christmas story has a lot to do with economics. First, Joseph and Mary were on the road because of a new tax regime. Apparently Caesar hadn't heard of the dead-weight loss that arbitrary tariffs impose on an economy. And the three kings were one of our first international trade delegations. They brought free samples from outside the Roman Empire to offer to a king-in-waiting. The shepherds were managing an agricultural commodity. Perhaps energy prices had affected feedstock costs, [...]

You Get What You Pay For

By | 2014-09-04T17:06:37+00:00 December 23rd, 2008|Global Market Update|

The state-by-state labor data are pretty interesting.ch It’s understandable that the “bubble” states—California, Nevada, and Florida—all have high unemployment. And of course the domestic auto industry’s troubles are clearly having a major impact on states like Michigan, Indiana, and Ohio. But the Southeast has also been hit hard. North and South Carolina and Georgia all have above-average unemployment levels. It could be that cyclical manufacturers located in the heart of Dixie are suffering collateral damage from the automaker’s crisis. Equally interesting are the success [...]

The End of Capitalism?

By | 2014-09-04T17:05:51+00:00 December 22nd, 2008|Global Market Update|

The media are proclaiming the end of capitalism. Once again, reports of its death are greatly exaggerated. In a recent Larry King interview Michael Moore said that capitalism was “over.” After all, capitalism gave us liar loans where we lent a million bucks to some poor guy making $15 / hour. Wall Street’s culture of greed combined with Washington’s lasses-faire attitude to give us the credit crunch. So goes the story. Right now the government is engaged in a massive effort to fix the [...]

An Orderly …

By | 2014-09-04T17:05:04+00:00 December 19th, 2008|Global Market Update|

The Bush Administration is considering a orderly bankruptcy for GM and Chrysler. By the end of this they may need an orderly to wheel them out of the room. The auto industry is sick. The car-makers have made extravagant promises to their unions regarding pay, pensions, and health-care. Even in the best of times, those promises made it hard for the Big Three to sell cars profitably. With the economy in recession, those contracts almost guarantee that the companies will lose money. But this [...]

Absolute Zero

By | 2014-09-04T17:04:11+00:00 December 18th, 2008|Global Market Update|

In physical chemistry, everyday principles seem to be suspended as temperatures approach zero degrees Kelvin. It seems that as interest rates approach zero, the normal laws of finance get suspended as well. When temperatures approach absolute zero gas volumes contract to a theoretical singularity, electrical components experience superconductivity, and perfect crystals can form. When interest rates approach zero banks no longer have any incentive to hold excess reserves at the Fed, there will be more and more transactional failures, and interest rates can no [...]

Classical Investing (Part 4)

By | 2014-09-04T17:01:58+00:00 December 17th, 2008|Global Market Update|

Aristotle's Ethics has some pretty useful insight for investors. Aristotle talked about the "golden mean." He linked happiness and virtue to finding the balance between excess and deficiency in any particular trait. For example, the mean between cowardice and foolhardiness would be courage. In the investment context, Aristotle's "golden mean" would advocate finding a "golden balance" in your portfolio. Some have argued for "Stocks For the Long Run," that your best returns over time are achieved with a 100% equity portfolio. But investing that [...]