Lions and Tigers and Mortgages

By | 2014-09-09T16:52:30+00:00 January 31st, 2012|Global Market Update|

A recent story by NPR breathlessly reports that Freddie Mac is profiting from the continued troubles in the housing market. They reported that the mortgage giant retained interest in some mortgage derivatives while selling off the super-safe portion. If mortgages refinance more slowly, these bonds do well. And of course, Freddie has tightened their credit standards over the past couple years. So doesn’t this represent a conflict-of-interest? On the face of it, yes. Owning derivatives that benefit from lower prepayments when you set underwriting [...]

Strong Safety

By | 2017-07-17T12:34:58+00:00 January 30th, 2012|Global Market Update|

The answer to this question is far from obvious. In the past ten years we’ve seen some spectacular failures among large companies: Lehman, Fannie Mae, Enron. And even more companies fell dramatically in price never to recover, like Citigroup and AIG. Small stocks have typically been pegged as a volatile asset class. But when the giants fail, where do you go for safe, blue-chip growth? The short answer is, there is no such thing as safety. Our selective memories erase the spectacular failures of [...]

Tax Man

By | 2014-09-09T16:51:31+00:00 January 27th, 2012|Global Market Update|

One reason is taxes. The typical cell-phone user pays an FCC tax, a couple of state taxes, a 9-1-1 charge, and a couple other charges. Those tax bills can add up: in New York City the average burden is over 20%! And it’s not like people have a lot of choice about paying them. Sure, you can monitor your usage and choose plans, but for many people cell phones are an essential part of doing business—like having a driver’s license or using a computer. [...]

The Open Market Committee

By | 2014-09-09T16:53:24+00:00 January 26th, 2012|Global Market Update|

In their post-meeting statement, the Fed explicitly acknowledged that their long-run inflation target is two percent. This has long been suspected by Fed-watchers. But now the Fed is publishing its goal. Are there problems with this uber-transparency? One issue is that we are now drowning in data. We’ve gone from guessing what Fed policy is based on “system rp’s” and “coupon passes” to a turgid, 500-word essay. What’s next? Stream-of-consciousness writing a la James Joyce? Live tweets from the FOMC’s Board Room? There’s so [...]

Investing in Themselves

By | 2014-09-09T16:53:48+00:00 January 25th, 2012|Global Market Update|

Dividends, I get. When a company wants to give money back to its shareholders (on a regular basis) it initiates a dividend. When the business grows, it increases the dividend. But if the business is growing so fast that management might need the cash quickly—for investing in new equipment, or for an acquisition—then the dividend might be pretty small, or they might not even have one. But stock buybacks are different. With a stock buyback the company buys its own shares, in the market [...]

Either/Or

By | 2014-09-09T16:54:14+00:00 January 24th, 2012|Global Market Update|

When it comes to the Euro there are two schools of thought: either the Europeans are going to work things out and hold things together, or it’s all going to break up. Either the politicians rise to the occasion or there is a catastrophic break-up, with serial sovereign debt defaults and financial contagion spreading around the world. But this is the fallacy of the excluded middle. There may be a way for countries to make fiscal and monetary adjustments that doesn’t sound like a [...]

Up To Our Ears?

By | 2014-09-09T16:54:43+00:00 January 23rd, 2012|Global Market Update|

That’s what many seem to believe. They note that the average credit card debt per household with a credit card is over $15 thousand. Since the median household only makes $50 thousand a year, surely that’s too much. But Mark Twain once famously noted that there are three types of lies: lies, damned lies, and statistics. Averages can be misleading. Average debt takes the total debt outstanding and divides by the number of households with a credit card. It’s pulled up dramatically by a [...]

Calling Alexander Hamilton (Part 2)

By | 2014-09-09T16:55:11+00:00 January 20th, 2012|Global Market Update|

Whenever nations have consolidated their currencies, they’ve needed to establish their credit in order to manage their finances. Shortly after the discovery of America, Spain issued debt under a hybrid city/state model to finance its exploration. In 18th century England Parliament issued bonds through earmarked taxes: each new bond issued was funded by an excise tax on specific items. In the new United States, the Federal Government purchased, at par, the debts that the states had accumulated during the American Revolution. Financial markets today [...]

Bottom’s Up!

By | 2014-09-09T16:55:50+00:00 January 19th, 2012|Global Market Update|

No, you won’t see a reduction in foreclosure sales. And no, you won’t see prices rising. But there are some early signs that the housing market is (finally) improving. And that’s great news for the US economy. Housing is one of those funny markets. There’s one market for contract sales, another for distressed sales. There’s one market for starter homes in the Cleveland suburbs, and there’s another for Bel Air mansions overlooking the UCLA campus. But one thing about the housing market that is [...]

Looking for Balance (Part 2)

By | 2014-09-12T10:33:44+00:00 January 18th, 2012|Global Market Update|

How often should you rebalance a portfolio? Rebalancing a portfolio is a good idea, and it takes some time for things to work out. But when should you do it? We know rebalancing is important. It forces us to trim our winning positions and buy segments of the market that haven’t done so well. Buying low and selling high is a good way to add value. But timing is important. If you rebalance too often, you’re just adding trading costs, not value. But if [...]