Spiritus Animalius

By | 2014-09-05T19:58:11+00:00 July 29th, 2010|Global Market Update|

Everyone agrees that helping small business is crucial The senate is debating a bill that would create a $30 billion government fund to help small banks lend to small firms. Negotiations played out while President Obama visited a New Jersey sandwich shop and plugged for the package of loan guarantees and tax breaks designed to encourage small companies to hire. It’s well-known that small businesses and new businesses do most of the hiring in a growing economy. That’s part of the reason America has [...]

A Free Lunch?

By | 2014-09-11T15:35:29+00:00 July 28th, 2010|Global Market Update|

Some mortgage folks are stumping for a free lunch. Are they right? Some analysts have made waves by advocating for changes in the mortgage market. If Fannie and Freddie ease some of their underwriting requirements—just for refis, and just for households that already have a government mortgage—it could yield a consumer windfall of up to $50 billion, and it wouldn’t directly cost the taxpayers a dime. Here’s how it would work. Currently, when a homeowner wants to refinance a conventional mortgage, he has to [...]

Banking on Stress

By | 2014-09-05T19:57:40+00:00 July 27th, 2010|Global Market Update|

So where is the next banking crisis going to hit? The bursting of the housing bubble in the US wiped out about $300 billion in bank capital here. That led to the demise of WaMu, Wachovia, Merrill, Lehman, and Bear. It followed a classic boom/bust pattern: innovation leading to price gains, followed by leveraged momentum investing, followed by a bust and financial crisis. After the shake-out and bailouts of 2008, the stress tests of 2009 restored faith in our banking system. In the aftermath, [...]

The Education of Money

By | 2014-09-05T19:57:04+00:00 July 26th, 2010|Global Market Update|

Investing isn’t so tough, the world is saying. Take my money … please! That’s what the tone seems to be today. Forget credit risk. Forget inflation risk. Forget about geopolitical, technological, or even criminal issues. Investors are competing to lend money for 30 years or longer if they find a Aaa counterparty. Recently the University of Virginia came to market with a taxable issue that matures in 2040. They borrowed $190 million at 4.9% to build dorms, improve labs, and expand the hospital. The [...]

Chinese Fortunes (Part 3)

By | 2014-09-05T19:52:06+00:00 July 25th, 2010|Global Market Update|

Is China destined to overtake us? That’s what the trends indicate. If you take the average Chinese economic growth rate and the average US rate over the past 20 years and apply these rates to the future, China’s economy will equal our economy by 2025. Are we ready for this? Yes, if China grows 8% faster than the US for the next fifteen years, it will indeed have a larger economy than ours. That’s just mathematics. But the only constant in the world’s economy [...]

Chinese Fortunes (Part 2)

By | 2014-09-05T19:51:33+00:00 July 22nd, 2010|Global Market Update|

So what would a changed China mean? Up until now, China has invested in traditional infrastructure: roads, bridges, airports, etc. And it’s helped them grow to be the world’s third largest economy. But for China’s growth to continue at an above-average pace, they need to switch gears. Up until now they’ve levered their economy off of demand from the US and Europe, betting that western consumers would lift them out of poverty. It’s worked pretty well. Over the past 20 years their economy has [...]

Chinese Fortunes (Part 1)

By | 2014-09-05T19:51:01+00:00 July 21st, 2010|Global Market Update|

Can the Chinese miracle continue? Sometime in the next 50 years the Chinese economy could equal that of the US. This is astounding, considering that as recently as 1990 their economy was only equal to 6% of ours. It’s now number three in the world and the size of almost one third of our economy. What have they done right, and can it continue? Within the context of central planning, the Chinese leaders have unleashed entrepreneurial spirits by encouraging exports, building infrastructure, and liberalizing [...]

Hungarian Goulash?

By | 2017-07-17T12:35:18+00:00 July 20th, 2010|Global Market Update|

Are the financial markets making progress? Sometimes it doesn’t seem so. The stock market appears pretty volatile, up 200 points one day and down 300 the next. What are we to think? One item that’s pretty encouraging, though, is how the markets have responded to the news from Hungary. In May Hungary had an election, and the new government indicated that servicing their debt could be a problem. The Hungarian Forint weakened, and global markets tumbled. At the time, it all seemed pretty silly. [...]

Stressing Out

By | 2014-09-11T15:33:25+00:00 July 19th, 2010|Global Market Update|

The European bank stress test results are due Friday. What are we likely to learn? On Friday the European bank regulators will release the results of stress tests on 91 banks. The tests have been done on a bank-by-bank basis and the results are supposed to be released on an individual bank basis and in aggregate. The tests include a macroeconomic shock and a sovereign debt shock—at least something worse than this last May. Banks being tested include the usual suspects, like Royal Bank [...]

The 3 Billion Dollar Question

By | 2014-09-05T19:48:49+00:00 July 18th, 2010|Global Market Update|

What are they going to do with all that cash? Over the past 3 years, corporations have built up quite a nest egg. Over $3 trillion in cash sits on corporate balance sheets, the fruit of years of rising margins and a formerly booming economy. When the downturn came, corporations cut costs to protect themselves. Now they have a cash war-chest. What are they going to do with that money? Conventional wisdom says that firms do share buybacks with one-time cash bonanzas, they expand [...]