California Sleeping

By | 2017-07-17T12:34:47+00:00 August 31st, 2012|Global Market Update|

What’s up with California? Long the home of bleach-blonds and beach boys, California has been in an economic funk that has hit harder and lasted longer anywhere else in the nation. In 2007, unemployment averaged 5.4%, before rocketing to 12.4% in 2010. And it’s still at 10.7%--well above the national average, and twice that of New Hampshire at 5.4%. This is important, because California’s economy is one-eighth of the nation as a whole. If California were a country, its $1.9 trillion economy would be [...]

Great Wall of Worry

By | 2017-07-17T12:34:47+00:00 August 30th, 2012|Global Market Update|

What caused the financial crisis? Some say it was excessive leverage at the investment banks. Some blame Fannie and Freddie. Nearly everyone points at greedy bankers and clueless borrowers taking out no-income, no-job, no asset loans on D-class properties via sub-prime mortgages. And of course, there’s Greenspan, Geithner, Bernanke, Barney Frank, Hank Paulson, and George W. Bush. But until now, no one has really blamed the Chinese. A recent study notes that the Chinese trade surplus of mid-decade led to massive savings that, combined [...]

Phone(y) Wars?

By | 2014-09-09T12:55:08+00:00 August 29th, 2012|Global Market Update|

The phone wars are heating up. When Apple entered the consumer electronics business with the iPod 10 years ago, a lot of skeptics said, come on in, the water’s warm. They noted that consumer electronics is littered with failed brands and obsolete hardware: the boom box, walkman, and transistor radio speak to the faddish, temporary nature of consumer taste. But they underestimated how revolutionary Apple’s plan would be, with the iPod, iTunes Store, iPhone, and iPad. Originally Apple was a computer hardware company; increasingly [...]

The Guts Value of Money

By | 2014-09-09T12:54:23+00:00 August 27th, 2012|Global Market Update|

An old saw says that a cynic knows the price of everything and the value of nothing. Nowhere is this more true than in investing. In the investment world, prices are everywhere. Stock prices combine to form indices; bond prices determine yield. Price-action is the main determinant of investment performance. Hundreds of millions of investors interact every day to buy and sell tens of thousands of securities and determine their prices. But the price is not the value. The value of a stock or [...]

Chinese Bubblenomics?

By | 2014-09-09T12:53:47+00:00 August 24th, 2012|Global Market Update|

Is China in an economic bubble? From some reports it looks that way. Three decades of torrid growth fed by inexpensive exports to America and Europe have led managers to plan for continued growth, where construction managers build plants to satisfy the demand from other plants opening. Eventually the music stops and you end up with overcapacity and excess inventory. That seems to be happening now as unsold cars, solar panels, and bedsheets fill showrooms and clog factory floors. Because of initiatives called for [...]

NY Fed Flacks

By | 2017-07-17T12:34:47+00:00 August 23rd, 2012|Global Market Update|

Is “Munigeddon” upon us and we just didn’t know it? A recent New York Fed article examined the difference between defaults on rated municipal bonds and unrated bonds. They found, unsurprisingly, that unrated bonds default at a higher rate than rated bonds. But the level of defaults was alarming—in fact, so alarming that the New York Times discussed the Fed’s obscure blog post in recent story. Instead of there being only a few dozen defaults over the past 30 years, as Moody’s and S&P [...]

The Rise of the Machines

By | 2014-09-09T12:52:38+00:00 August 22nd, 2012|Global Market Update|

It used to be that we had rogue traders. Now we have rogue programs. Not so many years ago rogue traders could bring down a bank, or at least a bank’s trading floor. In 1996 Nick Leeson lost about $1.3 billion, forcing Barings Bank into the arms of Dutch giant ING. In 2002 John Rusnak lost about $700 million for Allied Irish Banks trading foreign exchange options. Societe Generale Bank and Union Bank Switzerland both lost billions when two of their traders—Jerome Kerviel and [...]

The Search for Safety

By | 2014-09-09T12:51:53+00:00 August 20th, 2012|Global Market Update|

For many, safety means credit risk, full stop. Johnson & Johnson bonds are less risky than Ford bonds—the company has less leverage, stronger cashflow, and more steady revenue growth. But safety is more than just having a AAA rating. In August the US was downgraded from AAA to AA by S&P and interest rates still fell sharply. Clearly, the market was looking at something other than credit risk. Liquidity risk is real as well. In that regard, nothing can rival the US Treasury market. [...]

What Do Investors Want?

By | 2014-09-09T12:50:53+00:00 August 19th, 2012|Global Market Update|

Everyone wants to make money. The question is how. Once upon a time, a college endowment was managed by a famous investor. The investor did well; sometimes very well. But a time came when that investor underperformed. He didn’t lose a lot of money, but he didn’t do as well as his peers. During the late ‘90s, while the world was going all techie, he was busily investing in infrastructure and finance. After a very bad year, they hired someone else. Eventually, his approach [...]

Three Crises in One

By | 2012-08-17T10:44:27+00:00 August 17th, 2012|Economics, Global Market Update, Investing|

Do bad things come in threes? The European crisis isn’t just one crisis, but three interlocking ones. A banking crisis, a sovereign debt crisis, and a growth crisis all connect and make it difficult to find a comprehensive solution. The banking crisis is pretty straightforward: the major European banks are undercapitalized and face liquidity issues. This has been an issue for a long time, but it was worsened by our mortgage crisis. The losses that large European banks took on mortgage bonds that were [...]