Banking on Banks

By | 2014-09-11T12:16:35+00:00 May 31st, 2011|Global Market Update|

So was it a structural problem, or just a liquidity problem? Around the world big banks are paying back the government aid that they received during the height of the financial crisis of 2008. The latest bank to formulate an exit plan is Dexia Bank, Belgium's largest financial conglomerate. In 2008 the financial giant received billions in support from the European Central Bank. Late last week the bank announced that it would be selling a number of business lines and investment assets in a [...]

The End of the World (As We Know It)?

By | 2017-07-17T12:35:05+00:00 May 27th, 2011|Global Market Update|

Once again the world hasn’t ended. Since you’re reading this, you’re aware that the world didn’t come to an end as predicted by Harold Camping some half-dozen times or so. But clearly, he’s not the first person to predict the End—just the most recent. Unshaven men with sandwich boards declaring “The End is Near,” were a staple of editorial cartoons of the ‘50s and ‘60s. And “millenarian thinking”—the believe that the world-order will be turned upside-down and a new, golden age will appear—has been [...]

Of Words and Waterfalls

By | 2014-09-12T10:47:14+00:00 May 24th, 2011|Global Market Update|

She's baaaack. Not content to listen to the commentary that suggests that she doesn't know what she's talking about, Meredith Whitney is on the interview circuit again defending her assertion that there will be hundreds of muni defaults this year totaling hundreds of billions of dollars. Only this time she's redefining what the word "default" means. Usually it means that a party to a contract doesn't pay what is owed. But Meredith is using the word in a more elastic manner. In a Wall [...]

Of Words and Waterfdalls (Part 3)

By | 2014-09-11T12:15:41+00:00 May 23rd, 2011|Global Market Update|

So why should we care about Greece? To borrow a phrase, it’s the banks, stupid. Greek debt is held by a variety of European banks. Most of those banks—the public ones—are subject to mark-to-market accounting rules. So they’re already had to write down their Greek debt by 30-50%; their Irish bonds by 20-30%, and Portugese debt by 30-40%. So publicly traded banks like Deutsche Bank or BNP Paribas or Banco Bilbao have already taken a hit to their capital. But government owned banks like [...]

The Reluctant Hegemon

By | 2014-09-12T10:47:28+00:00 May 19th, 2011|Global Market Update|

What’s up with Germany these days? With the Greek bailouts, they’ve conspicuously said that they don’t want to lead the Euro-zone, they just want everyone else to follow the rules. But Germany is the undisputed kingpin of continental Europe. They have the largest economy, largest population, and largest trade surplus. Since German manufacturers compete on quality, not on price, a stronger Euro doesn’t hurt their exports all that much. Germany has become the indispensible nation. No solution to the European debt crisis is possible [...]

Potholes on the Road (Part 2)

By | 2014-09-12T10:47:37+00:00 May 18th, 2011|Global Market Update|

What else can go wrong? The economy seems to be chugging along, albeit at a modest pace. Is there something out there that could knock it off track? One possibility is higher interest rates. Rates are at rock-bottom levels. Cash yields nothing. Short bonds yield almost nothing. To get a government bond yield equal to the average inflation rate of the last 10 years, you have to buy bonds that don’t mature for seven years—until 2018. To buy tax-exempt bonds that keep up with [...]

What is Normal? (Part 2)

By | 2014-09-12T10:47:46+00:00 May 17th, 2011|Global Market Update|

The stock market has been strong, earnings have been growing, but a commodity price surge threatens to derail consumer spending. What's normal for the stock market during a recovery? To look at historical averages, the first year of a recovery the market rises 30-40%, the second year 10-15%, the third year 5-10% and the fourth year stocks struggle. The first year of this recovery the market roared, rocketing 60%. We need to think back to those times, though. In 2009 there were serious fears [...]

Potholes on the Road (Part 1)

By | 2014-09-11T12:11:21+00:00 May 16th, 2011|Global Market Update|

What could disrupt the global economy? The economy has grown for seven consecutive quarters, and any future downturn seems remote. Leading indicators are trending higher. But portfolios don't prosper via complacency. It's worthwhile to look at what might a problem. What worries me is trade. Not current trade. Our exports and imports have been growing quite well, and global trade volumes have been accelerating. What seems to be difficult now is the political calculus around trade. The math is straightforward: David Ricardo demonstrated the [...]

What is “Normal”?

By | 2014-09-11T12:05:46+00:00 May 13th, 2011|Global Market Update|

A prominent investment manager has been either celebrated or condemned (depending on your point-of-view) for trumpeting of a "new normal" of lower growth, higher inflation, and higher unemployment. Is this justified? Exhibit A in the evidence for a new normal has been the slow recovery. Almost 9 million jobs were lost in the recession; only a million have been recovered. By this point in every prior post-war recession, jobs had surpassed their previous high point. Advocates of government intervention suggest that we could be [...]

Central Casting

By | 2014-09-12T10:48:00+00:00 May 12th, 2011|Global Market Update|

Central banking is fun. That’s why everyone wants to do it. Ha. Not really. Bernanke’s press conference was a tour-de-force, and not just because he said “Hi” to his mother at the end. Bernanke is a stable, capable spokesman who can give a speech or field a question without batting an eye. He learned early on from a stray comment he made to a financial journalist that “loose lips” can sink markets. Through a combination of self-discipline and rigorous rehearsal, he carried off his [...]