The Myth of the Steady State

By | 2014-09-05T13:26:16+00:00 September 30th, 2009|Global Market Update|

Everyone’s waiting for things to get back to normal. The problem is, no one knows what normal looks like. In August of ‘07, the wheels started to come off the bus. That’s when a year’s worth of real-estate price declines began to tell on the sub-prime mortgage market. First Bear Stearns’ hedge fund blew up. Then sub-prime originators began to fail. Then prime-based originators, and you know the rest. Now that we’re in a recovery, people are debating what the “new normal” will look [...]

Competition and Monoply

By | 2014-09-04T19:59:56+00:00 September 29th, 2009|Global Market Update|

Why do competitors try to become monopolists? Most business people enjoy competing. They know the thrill that comes from fighting for critical new business. They also know that competing keeps them sharp and helps them improve what they do, because if they don't serve their customers someone else will. So competition leads to happy customers and vigorous companies. So why do they want to become monopolists? If they can eliminate their competition, they secure a larger market and higher revenues. With no pricing pressures, [...]

Buy Back Blues

By | 2014-09-05T13:25:40+00:00 September 28th, 2009|Global Market Update|

Why do companies buy back their shares? It’s a fair question. A reasonably profitable company will generate excess cash, often more than it can use to grow. What should it do with it? Companies have three options: hold it, pay it via dividends, or buy back shares. In the absence of taxes, investors should be indifferent. Money earned is money earned, no matter how the company distributes it. The financial impact of each approach is the same. While holding excess cash might encourage management [...]

15 Minutes

By | 2017-07-17T12:35:22+00:00 September 24th, 2009|Global Market Update|

Meredith Whitney and Nouriel Roubini now say the panic is over. Should we care? These two analysts are now enjoying their 15 minutes of fame as two who correctly foresaw the financial issues surrounding toxic assets, excessive leverage, and unsustainable consumer spending. The Brown University graduate and New York University professor are both admittedly very smart. But do we need to jump at everything they say? Every market is different. In the late ‘90s Henry Blodgett and Mary Meeker understood how the internet was [...]

The Loser’s Game

By | 2014-09-05T13:25:06+00:00 September 24th, 2009|Global Market Update|

Has investing become a loser’s game? When we watch top sports performances we often watch winners: The hundred-mile-an-hour fastball, the service ace in tennis, the 300-yard drive in golf. Winning elite-level sports competition is a winner’s game: you win by hitting winners. But your average hacker wins in sports by not losing: getting the tennis ball back over the net, hitting the golf ball down the middle of the fairway, getting the baseball into play. In investing, some aspects are clearly loser’s games. Bond [...]

Simplicity, simplicity, simplicity

By | 2014-09-12T10:57:09+00:00 September 23rd, 2009|Global Market Update|

Could our financial problems have stemmed from too much complexity? In banking, there are four or five ways to measure capital and about a dozen ways to classify assets. In insurance there is likewise a complex web of reserve calculations and investment silos. And everyone in finance is subject to an alphabet soup of regulators. Is the solution to our problem adding one more layer of calculation and regulation? Having regulators compete with one another can be good on one level—it encourages each regime [...]

The New Puritans

By | 2017-07-17T12:35:22+00:00 September 22nd, 2009|Global Market Update|

H. L. Mencken once quipped that a Puritan is a person who is afraid that someone, somewhere, is having a good time. Well, we have a new Puritan class in our midst, and they’re not obsessing about personal good times. They’re worried about economic good times. They’re convinced that the average American has under-saved and overspent for decades, and now we have a bill to pay. The “New Normal” of this view has the savings rate rising to 10%, the economy running at 2%, [...]

The Ratings Game

By | 2014-09-04T19:52:21+00:00 September 18th, 2009|Global Market Update|

Is it free speech? Or a legal opinion? That's the question being asked about credit agency reports. During the sub-prime bubble, Moody's and S&P offered opinions about the bonds' credit quality. The idea that if you pool a lot of delinquent borrowers buying McMansions with nothing down together and you can create a Aaa bond is ludicrous now, but it didn't seem so then So now some folks want to take it out of their hides. In the past, the agencies have argued that [...]

The Ultimate Resource

By | 2014-09-12T10:57:18+00:00 September 17th, 2009|Global Market Update|

Is Africa calling? Since late last year, the South Africa market has been on a tear. The shares have almost doubled from their bottom at year-end, and they’re only 25% below their all-time high. Over the last 5-years it’s returned about 15% per year, a testament to the power of globalization. But isn’t Africa just a resource play? Are oil and diamonds and tourism the sum-total of the African economy? And aren’t disease, civil strife, and corruption real threats to stability? That’s only part [...]

Property Values

By | 2014-09-04T19:44:59+00:00 September 16th, 2009|Global Market Update|

I thought we were headed for a commercial property abyss. That's what all the bear hunters were saying. "Residential property was the first shoe. Commercial property will be the second." And when General Growth Properties declared bankruptcy last year it only fueled those fears. But a funny thing happened on the way to the funeral. The corpse just didn't show up. The largest mall owner in America, Simon Property Group, is looking to buy a bunch of General Growth's real-estate out of bankruptcy. Simon [...]