How Preferred is Preferred?

By | 2017-07-17T12:21:51+00:00 August 15th, 2016|Global Market Update|

What are preferred stocks? “Preferred Stock Cologne” by Coty. Source: 99perfume Preferred stocks are hybrid securities that fit between equity and bonds in a firm’s capital structure. Most of the time, if a company goes through bankruptcy, the preferred shares get wiped out. During the financial crisis, the owners of the preferred shares of Fannie Mae and Washington Mutual got nothing for their shares, while the bondholders received 100 cents on the dollar. So in what sense are they preferred? They are preferred as [...]

Failing Upwards

By | 2017-07-17T12:21:56+00:00 May 26th, 2016|Global Market Update|

What drives US markets? Source: Bloomberg Over the years the stock market in the US has generated significant real returns – better than most other markets around the world. Since 1994, US equity markets have returned 5.4% above inflation, while the rest of the world has averaged only 2.3%. Why? One reason has to do with the way we treat failure. The US has a very liberal bankruptcy regime. When companies can’t pay their debts, we allow them to stay payments to their creditors [...]

The Gift of Failure

By | 2017-07-17T12:22:06+00:00 March 23rd, 2016|Global Market Update|

Many people talk about the successes of the market. But what it really allows is failure. Photo: Dodgerton Skillhause. Source: Morguefile Centuries ago, if you couldn’t pay your bills, you went to debtor’s prison where you rotted until you could get someone to bail you out. In ancient Rome, if you pledged yourself as collateral and couldn’t pay your loan you would become your lender’s slave. Colonial Virginia was settled by thousands of indentured (i.e. indebted) servants paying off their debts with their labor. [...]

Not So Puerto Rico

By | 2017-07-17T12:22:21+00:00 November 4th, 2015|Global Market Update|

What can Puerto Rico do about its debt? Capital building, San Juan. Photo: M Melendez. Source: Wikipedia Puerto Rico’s debt burden is unsustainable. It’s over 100% of their economy. By contrast, the most indebted states—Connecticut and Illinois—have debt-to-GDP ratios that are a little less than 30% of their gross state product. And this doesn’t even include PR’s unfunded pension obligations, which total another 65% of GDP. Lately, the size of their debt has stabilized, but that’s only because they’ve been selling assets and delaying [...]

Greece on the Caribbean?

By | 2017-07-17T12:22:43+00:00 July 1st, 2015|Global Market Update|

Are the lights going out in Puerto Rico? Photo: Joao Pacheco. Source: Picjumbo Today the Puerto Rico Electric Power Authority (PREPA) is scheduled to pay $400 million in principal and interest to bondholders. It’s unlikely that they have cash to do this. They drew down their reserve account a year ago, and haven’t built it back up. In fact, the bond’s trustee issued a notice a couple weeks ago, warning that they don’t have the funds to make the payment. The default is likely [...]

Greek Debt and The Music Man

By | 2017-07-17T12:22:44+00:00 June 16th, 2015|Global Market Update|

Are negotiations over Greek debt serious? Dick Van Dyke playing Harold Hill. Source: Wikipedia When I was growing up one of my favorite plays (and movies) was Meredith Wilson’s “The Music Man.” It tells the story of a smooth-talking travelling salesman who plans to swindle the natives of River City, Iowa by posing as a travelling band instructor–selling them marching band instruments, uniforms and music. Once he collects their money he plans to hop the next train out of town, leaving them without money [...]

Twinkie Town?

By | 2017-07-17T12:22:57+00:00 May 8th, 2015|Global Market Update|

It seems like Twinkies really can last forever. Image Source: Wikipedia Three years ago, the iconic brand ran into financial trouble. Sales were down 20% from the year before. The parent company claimed that consumers had migrated to healthier foods. Twinkies just weren’t relevant in the baked-kale / chia-seed era. In November 2012 Hostess wound down operations and sold off its assets. It looked like Twinkies had finally hit their expiration date. […]

Detroit Renaissance?

By | 2017-07-17T12:23:11+00:00 November 25th, 2014|Global Market Update|

What can investors learn from Detroit? Source: Wikipedia Detroit was the worst of the worst. A city whose population had fallen almost 2/3rds over the last half century. A place where whole neighborhoods have been turned into urban prairie. It’s bankruptcy proceedings have been epic. What can we learn? […]

Fast and Slow

By | 2017-07-17T12:23:15+00:00 October 30th, 2014|Uncategorized|

Why is US growth faster than Europe? Source: drdianahoppe.com In 2008 and 2009, the global economy collapsed, brought down by a credit crunch that started in here but quickly spread around the world. Since then, the US economy, while weak, is moving back towards normal. Europe, on the other hand, looks like it’s about to enter its third recession in six years. Why the difference? […]