Safety First

By |2014-01-08T16:02:16-04:00December 30th, 2010|Global Market Update|

So what makes a muni bond safe? Safety isn’t in the eye of the beholder. It’s an aspect of credit. And credit is simple: either the borrower pays you back or he doesn’t. That’s why I like studying credit: it’s like a pass-fail course where you’re always graded at the end. And if you do your work right, you should pass the course. Since credit has been around as long as people have been getting loans, what are the characteristics of sound credit? As [...]

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By |2014-01-08T15:59:28-04:00December 29th, 2010|Global Market Update|

“Sunshine on my shoulder makes me happy.” John Denver recorded that hit over 30 years ago. Whatever he meant, I’m pretty sure he did NOT intend it as a commentary on the municipal bond market. But that’s what’s needed in muni bond land: sunshine. By sunshine, I mean transparent disclosure of current financial conditions. The kind of disclosure we get in the stock market. The kind of information we get on the general economy. Because US companies have to report their revenues, expenses, and [...]

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Becoming One

By |2014-01-08T15:15:28-04:00December 28th, 2010|Global Market Update|

Back in October, another major leap was taken. The French President helped the German Prime minister with an intractable European problem. Their Dauville plan called for investor losses on bonds of “bailed out” countries. This was risky, but it has created a closer European Union. Originally, Germany wanted countries with excessive deficits to face automatic penalties. This would instill fiscal discipline. But only Finland and The Netherlands supported them. As a compromise, they offered the notion of investors taking a haircut on the bonds [...]

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Blowing Bubbles

By |2014-01-08T15:14:31-04:00December 27th, 2010|Global Market Update|

So, was it all just a bad dream? With the stock market ending at its high for the year and at levels not seen since the Lehman bankruptcy, it's reasonable to ask: have we learned anything? Should we just go back to business-as-usual? Clearly, there are some obvious lessons. For one thing, we know that markets are not perfectly efficient and that prices can be misstated for years. Ever since Gene Fama started looking at the behavior of stock market prices in the '60s, [...]

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Peer to Pauper

By |2014-01-08T15:07:20-04:00December 23rd, 2010|Global Market Update|

It’s Christmastime. And what would Christmas be without a thick slice of financial fraud. Amid the cash-wires from Nigeria and offers of an inheritance from a Yemeni fourth cousin comes a new scam candidate: peer-to-peer lending, or P2P for short. The concept seems simple: make loans directly to the borrower with some of your investment capital, and earn a much higher return than you could with a bank CD. By cutting out the middleman, everybody wins. Or not. Sites like or claim [...]

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Muni Blues

By |2014-01-08T15:10:56-04:00December 22nd, 2010|Global Market Update|

Meredith Whitney says hundreds of billions of dollars will be lost. Are the Chicken Little’s right this time? Meredith Whitney is famous for going short Citibank stock in October of 2007 while Chuck Prince was still dancing. She was right on that call, and has since been one of Wall Street’s most powerful analysts. In September she published a 600-page report on municipal finance that she says took two years to produce. Recently she said that she expects 50-100 significant municipal defaults next year [...]

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Naughty or Nice

By |2014-01-08T15:09:13-04:00December 21st, 2010|Global Market Update|

Why are people nice to each other? A recent study offers some clues. A group of subjects were divided up into pairs, with an "allocator" and a "receiver" in each. The allocator had the authority to divide $10 between the two of them. The receiver had no control over the split. In one set of experiments, the allocators just divided the money and the exercise was over. Interestingly, on average only 15% of the money was given to the receivers under these conditions. Then [...]

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Doing Nothing

By |2014-01-08T15:13:19-04:00December 20th, 2010|Global Market Update|

In Pooh's Little Instruction Book Piglet comments, "Don't underestimate the value of Doing Nothing." There are many investors who should heed his advice. Of the many temptations in investing, the temptation to act too soon is among the worst. If something unexpected happens, people want to know what what you are doing about it--as if your doing something will change the underlying problem. By contrast, if something expected happens, it is inviting to execute your plan right away, even though it is likely that [...]

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Out of Hibernation

By |2014-01-08T15:11:59-04:00December 17th, 2010|Global Market Update|

Are the bond market vigilantes coming back to the US? We saw the bond markets in Greece and Ireland fall prey to the bond vigilantes. These are institutional investors who aren't afraid to sell sovereign credits. In the early '80s we had bond vigilantes in this country. They weren't as concerned about credit risk as they were about interest rate risk. With Paul Volker running the Fed, interest rates doubled from 7% to 14% in a short period. The Treasury Bond contract moved down [...]

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By |2017-07-17T12:35:17-04:00December 15th, 2010|Global Market Update|

Mathworld There is a place, a wondrous, magical place, filled with transformations and amazing discoveries. It's not Narnia or El Dorado. No, this place is real. This is Mathworld. Mathworld is the place where math people live. They eat and breath in the everyday world, but their thoughts and notes are filled with x's and y's and other strange symbols. What they do can be very useful--email and blogs couldn't happen without Mathworld--but it seems like another place. Truth be told, I live in [...]

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