Very cool look at recent decades and the fluctuations in public and private debt loads around the globe.
Click to see how global economic forces have affected debt-to-GDP ratios
Source: Real Time Economics
Interactive by Andrew Garcia Phillips, Phil Izzo and Pat Minczeski/The Wall Street Journal
...more
The market finally sold off a bit last week, no surprises there, it was very overbought. The surprise was how sharply new highs declined. Fed is still throwing $85 billion a month at the markets so nothing very bad is likely to happen.
Read More...
...more
The key reports this week are the second estimate of Q1 GDP on Thursday, the April Personal Income and Outlays report on Friday, and the Case-Shiller house prices for March on Tuesday.
The FDIC will probably release the Q1 Quarterly Banking Profile this week (no scheduled date).
----- Monday, May 27th -----
All US markets will be closed in observance of Memorial Day.
----- Tuesday, May 28th -----
9:00 AM: S&P/Case-Shiller House Price Index for March. Although this is the March report, it is really a 3 month average of January, February and March.
This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through February 2012 (the Composite 20 was started in January 2000).
The consensus is for a 10.2% ye...more
Readers suggested a topic on interest rates. “How much higher will thirty-year Treasury yields go up from here in the near future? And btw, in the absence of extreme intervention, long-term Treasury yields are roughly about 99% correlated with 30-year mortgages. 30-yr T-bond yields, 5/01/13 2.83, 5/23/13 3.20, + 37 bps increase over 22 days. It doesn’t look like a big deal until you run the numbers on how much somebody who bought a 30-year T-bond on 5/01/2013 had already lost by yesterday. Answer: 7.1% and growing.”
One said, “FNMA is up 892% and FMCC 822% over the last three months. Why now?”
A reply, “Of cours they’re profitable, considering that they pay nothing for the government-backed insurance that they sell to others, and have a...more
We cannot control the markets, but we can control how to respond to what they are saying. The paper market has been turned into a circus, thanks to JP Morgan, and abetted by the exchanges, COMEX and LME. Focus has to remain on the physical market ...
Read More...
...more
This is an unofficial list of Problem Banks compiled only from public sources.
Here is the unofficial problem bank list for May 24, 2013.
Changes and comments from surferdude808:
This week the Unofficial Problem Bank List declined to 767 institutions with assets of $283.7 billion after four removals and one addition. A year ago, the list held 931 institutions with assets of $358.0 billion. The removals were all from unassisted mergers including Centennial Bank, Fountain Valley, CA ($546 million); The Washington Savings Bank, FSB, Bowie, MD ($357 million); First National Bank of Baldwin County, Foley, AL ($187 million); and Kinderhook State Bank, Kinderhook, IL ($18 million). The addition was The Talbot Bank of Easton, Easton, MD ($713 million Ticker: SHBI).
Th...more
The weekend is a great time to catch up on some long form items that we passed up on during the week. Thanks for checking in.
Investing
There is a moralistic streak in those calling today’s market a bubble. (Felix Salmon)
An interview with Vlad Jelisavcic at Bowery Investment Management. (Distressed Debt Investing)
Finance
How Benjamin Graham revolutionized shareholder activism. (Bloomberg)
Vanguard is owned by its shareholders: why it matters. (Morningstar)
“Recommendations for Equitable Allocation of Trades in High Frequency Trading Environments” by John McPartland. (Chicago Fed)
Economics
Want to put your college degree to work? Move to a big city. (Liberty Street Economics)
Should we mourn the destruction of retail jobs? (The Atlantic)
...more
My longer form 3 day weekend reading! Pull up a cup of coffee and get ready to have your mind expanded:
• Slaves to the algorithm: Our age elevates the precision-tooled power of the algorithm over flawed human judgment. This may not be such a good thing (aeon)
• Facebook, One Year Later: What Really Happened in the Biggest IPO Flop Ever (Atlantic)
• The Pseudo-Business of the NCAA (priceonomics)
• Mandelbrot Conceived the Mathematics of Roughness (New York Review of Books) see also Unknown Mathematician Proves Elusive Property of Prime Numbers (Wired)
• Left Behind: No break for the wounded America does a terrible job of caring for its war veterans (The Gazette)
• Philosopher Daniel Dennett: Seven Tools For Critical Thinking (Open Culture)
• Bret, Unbr...more
Source: MarketWatch
The numbers:
• 545 horsepower, 3,829 pounds, 196 miles per hour, zero to 60 mph under 3 seconds
• 3.8-liter twin-turbo V6
• Six-speed, dual-clutch transaxle
• GT-R—heir to the Skyline 2000 GT
• Base price of $99,590 for the GT-R Premium.
• GT-R Black edition ($109,330
• GT-R bolts to 60 mph in 2.7 seconds
2014 Nissan GT-R Track Pack squares off against Audi R8 V10 Plus
...more
Apologies for thin links. I’m on Melissa Harris-Perry’s MSNBC show at around 11:30 on Saturday, which entails some prep and turning in earlier than usual. I’ll catch up in tomorrow’s links.
Cockroaches quickly lose sweet tooth to survive R&D Magazine (furzy mouse)
Whey Too Much: Greek Yogurt’s Dark Side Modern Farmer (Carol B)
5 Most Horrifying Things About Monsanto—Why You Should Join the Global Movement and Protest on Saturday Alternet
Physicists Create Quantum Link Between Photons That Don’t Exist at the Same Time Science Now (furzy mouse)
Weinstein’s theory of everything is probably nothing New Scientist (Lambert). Countering an enthusiast link from yesterday
Veteran fears ‘beginning of the end’ for Japan as ...more
CompaniesDelta Sees S&P 500 in Reach as Credit Ratings Rise http://stks.co/rEBE I would b cautious here, airlines have destroyed a lot of capital $$Berkshire’s Weschler Holds Almost $150 Million of DaVita http://stks.co/pEIf FD: + $BRK.B | The slow takeover of Davita continues $$The real Apple tax scandal http://stks.co/gWz1 Scrap the corporate income tax & raise taxes on realized capital gains & dividends $$Berkshire Hathaway Seeks Release of ResCap, Ally Financial Report http://stks.co/dVOD Wants 2c if there was any fraudulent conveyance $$Oil Revolt Generates $35 Billion as Icahn-Singer Agitate http://stks.co/jWnd Many activist investors trawling in energy stocks $$Inside Google’s Secret Lab http://stks.co/qE31 “Since its creatio...more
Yves here. While it may seem a bit unfair to make an example of Mark Thoma, since the statement he makes about bank reserves is conventional, Kervick’s post is a useful reminder of why this sort of thinking is misleading.
By Dan Kervick, who does research in decision theory and analytic metaphysics. Cross posted from New Economic Perspectives
Mark Thoma, writing in the Fiscal Times, has called for the Federal Reserve to take “bold, creative moves” to alleviate unemployment. Thoma’s suggestions contain nothing novel, and I suspect Thoma is fully aware that what our economy really needs is a fiscal expansion from the federal government. But perhaps these tired calls for additional central bank string-pushing deserve some sympathy. Many have concluded that...more
This Bill Moyers segment gives a welcome view of Gretchen Morgenson recapping the sorry state of the “too big to fail” problem. She’s more of a believer than yours truly on the Brown Vitter bill as a potential solution, although correctly pessimistic as to the odds of its passing.
...more
After the big falls on Thursday, stocks were mostly stable on Friday.
The S&P 500 fell 0.1 percent, the STOXX Europe 600 fell 0.2 percent and the MSCI Asia Pacific Index fell 0.3 percent.
The Nikkei 225, which fell 7.3 percent on Thursday to trigger the turbulence in global markets, actually managed a 0.9 percent gain after a volatile trading session.
Economic data on Friday were mostly positive.
In the US, durable goods orders rose 3.3 percent in April after falling 5.9 percent in March.
The increase was driven by an 18.1 percent jump in aircraft orders. However, even excluding transportation equipment, orders increased 1.3 percent.
Orders for non-defense capital goods excluding aircraft rose 1.2 percent in April after a 0.9 percent increase the prior month.
The...more
This morning I posted some comments from Michelle Meyer at Merrill Lynch on the likely path of the labor force participation rate. She wrote:
[W]e forecast the LFPR will slip slightly this year, but with a stronger recovery under way next year, the LFPR should start to level off some and potentially increase beginning in 2015.
The following table is an estimate of the unemployment rate in December 2013 and December 2014 assuming the LFPR stays close to the current level of 63.3% (I looked at 63.0%, 63.3% and 63.6%). The current unemployment rate is 7.5%.
I also looked at three rates of payroll job growth, 167 thousand per month, 185 thousand per month and 200 thousand per month. I think it is possible that employment growth will pick up later this year, and i...more
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A.G. Lafley is hoping that his management skills, along with a bit of Febreze, can get rid of the stench of mediocrity in Procter & Gamble’s C-suite. After a rough four years at the consumer goods conglomerate, Lafley is returning to the top spot after outgoing CEO Bob McDonald announced his resignation on Thursday night.
It’s far from assured that Lafley can bring back his magic touch. The record of CEO second acts is quite mixed, as Matthew Bishop points out: for every Steve Jobs, there’s a Paul Allaire; for every Howard Sch...more
Quote of the day
Charles Rotblut, “(S)ome investments are often pitched to benefit the seller or the company facilitating the transaction, not the investor. This is why just because you can buy an investment, does not mean you should.” (AAII)
Chart of the day
Year-to-date asset class returns. (@matthewphilips)
Markets
The long awaited correction is here. (Charts etc.)
Jeff Miller, “Blaming the Fed is a fig leaf for bad analysis.” (A Dash of Insight)
Hedged country funds, now Germany, are a hot new thing. (IndexUniverse)
Strategy
What you need to do to claim you are an accomplished trader. (Price Action Lab via @reformedbroker)
On the ridiculous nature of asset-based fees. (Bason Asset)
Paul Tudor Jones steps in it. (Washington Po...more
Yesterday, the U.S. Census Department released its monthly New Residential Home Sales Report for April showing a improvement with sales climbing 2.25% from March and rising 28.98% above the level seen in April 2012 but still remaining at an historically low level of 454K SAAR units. It's important to recognize that the inventory of new homes appears to be mounting as unsold units totaled 156K, still though near the lowest level seen in in at least 47 years while the median number of months for sale increased to 4.0. The monthly supply went flat at 4.1 months while the median selling price increased 14.89% and the average selling price increased 14.90% from the year ago level. The following chart show the extent of sales decline to date (click for full-larger v...more
Yesterday, the Federal Housing Finance Agency (FHFA) released the latest results of their monthly house price index (HPI) showing that in March, nationally, home prices increased a notable 1.28% from February and rose 7.23% above the level seen in March 2012.The FHFA monthly HPI are formulated from home purchase information collected from mortgages that have been sold to or guaranteed by Fannie Mae and Freddie Mac.
...more
It’s Friday desk clearing time for this blogger. “Is it a bubble? Not yet, say some Southern Nevada observers. ‘We may be building a foundation for what would become one [a speculative real estate bubble] in the future, but even the price increases we have seen would not bring us to parity,’ says Jack LeVine, a Southern Nevada real estate agent. By parity, he means the housing prices we would expect to see if we had continued a healthy, moderate growth rate of 2 or 3 percent from 2003 to the present.”
“It will take several years even at the startling rate of appreciation in today’s market to correct for the last six years of recession, he says. ‘We’re just undoing the extraordinary bust that happened,’ LeVine says. ...more
May 24th, 2013 will remain in the annals of the Circle Bastiat as an infamous day of self-promotion. There is indeed a second publication which yours truly is most happy to announce: the Russian edition of the Last Knight of Liberalism: Последний рыцарь либерализма: Биография Людвига фон Мизеса (Chelyabinsk: Социум, 2013), 893 pp. Translated by Alexander Kuryaev, Tatiana Danilova, Elena Vasilyeva, Marina Oborina, Yuri Nurmeev, Vasily Koshkin, and Natalia Avtonomova.
My Bielorussian doctoral student, Olga Peniaz, sent me the picture of the book-cover, which seems to be identical with the Amercian edition except for the Cyrillic letters. How truly astonishing that the first translation of this book (and possibly th...more
Yours truly is happy to announce a new book publication : Krise der Inflationskultur (Munich: Finanzbuch-Verlag, 2013), 320 pp.
The strongest criticisms of fiat money and central banking have been based on monetary considerations and on the theory of capital. By contrast, the repercussions of an inflationary monetary system on financial markets and on the use of wealth has been somewhat neglected. The present essay on the political economy of finance fills this gap. The central thesis is that, in a fiat money system, financial markets tend to turn into engines of destruction; they absorb excessive amounts of savings, facilitate the consumption of savings, and reinforce a culture of inflation that saps and undermines the economic foundations of civilisation.
Th...more
The trouble with VAR and other mathematical models of risk is that if it becomes the dominant paradigm, and everyone begins to use it, it creates distortions in the market, because institutions gravitate to asset classes that the model makes to appear artificially cheap. Then after a self-reinforcing cycle that boosts that now favored asset class to an unsupportable level, the cashflows underlying the asset can no longer support it, the market goes into reverse, and the VAR models encourage an undershoot. The same factors that lead to buying to an unfair level also cause selling to an unfair level.Benchmarking and risk control through VAR only work when few market participants use them. When most people use them, it becomes like the portfolio insurance debacle of ...more
Everyone who has been wrong about the market has now joined in a familiar refrain:
The Fed is printing money. It is the only thing holding up stocks. It will all end badly.
Background
A little research on these sources shows that – as of a few months ago – their take on the Fed included the following:
The Fed is irrelevant
The Fed is pushing on a string
The Fed is in a box
The effectiveness of QE has declined with each new round.
When the various bearish predictions have not played out, the same sources come up with a NEW VERSION of the theory. In this revised story, no one could possibly have predicted the effect of the Fed's money printing and debasement of the currency. Wow!
Once again this flies in the face of facts:
While the Fed's balance shee...more
The big market news on Thursday was the plunge in Japanese stocks. The Nikkei 225 dived 7.3 percent, the most since the aftermath of the March 2011 earthquake and tsunami.
Other Asian markets fell as well, with the Hang Seng in particular falling 2.5 percent.
European stocks were also hit hard, the STOXX Europe 600 losing 2.1 percent on Thursday.
However, the selling pressure on Thursday dissipated during the US trading session. The S&P 500 fell just 0.3 percent after having fallen as much as 1.2 percent earlier in the day.
The fall in Japanese stocks was mostly attributed to rising government bond yields. The Bank of Japan responded by announcing on Thursday that it was injecting 2 trillion yen into the financial system to stem volatility.
Not helping markets was ...more
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Japan’s Nikkei index plunged more than 7% on Thursday. Investors and economists spent the last 12 hours obsessing over possible explanations. Weak Chinese manufacturing data and comments from the Fed were both identified as possible culprits. Most likely Neil Irwin is right and there “wasn’t really any news overnight that would justify a swing of that magnitude”.
To put the fall in perspective, the Nikkei is now back at the level it was merely two weeks ago. And it is still up over 68% in the last year. That performance did ...more
It’s safe to say that reading filings isn’t the type of thing that typically sparks witty cocktail party conversations, such as the type footnoted readers are likely to have this upcoming Memorial Day weekend. But the 8-K that Expeditors International filed yesterday afternoon is clearly an exception to the rule.
We’ve footnoted before about Expeditors, which has practically made an art form out of filing with the SEC. And yesterday’s filing didn’t disappoint. While the filing was a routine Q&A response to questions that Expeditors says it has received from investors, it was hardly the usual dry affair that these sorts of filings typically are. In a filing that answered 45 questions — purportedly from investors — the company...more
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Quote of the day
Simon Lack, “There217;s not a lot of money to be made in telling people not to invest in hedge funds. Eventually persistently poor performance will drive people out, but it takes time.” (Fortune)
Chart of the day
Check out the growing divergence between lumber and the homebuilders. (StockCharts Blog)
Markets
Signs that investors are still exceedingly fearful of the stock market. (Joe Fahmy)
Where market stand today. (The Reformed Broker)
How to approach an overbought market. (Big Picture)
On the prospect of a big bond sell-off. (Money Game)
The utilities sector is pulling back. (MoneyBeat)
...more
There is probably money to be made in analyzing the foibles of money managers, to create new strategies by taking on the opposite of what they are doing.What errors do most money managers make today?Chasing performanceOver-diversificationBenchmarking / Hugging the indexOver-tradingRelying too heavily on earnings growthAnalyzing the income statement onlyRefusing to analyze industriesBuy newsy companiesRelying on the sell-sideTrusting management too much Let me handle these one-by-one:Chasing performanceIn writing this, I am not against using momentum. I am against regret. Don’t buy something after you have missed most of the move, as if future stock price movement is magically up. Unless you can identify why the stock is underappreciated after a strong move ...more
Federal Reserve Chairman Ben Bernanke gave no clear indication of when tightening of monetary policy is likely to begin in his testimony to the US Congress on Wednesday. From Reuters:
The Federal Reserve's monetary stimulus is helping the economy recover but the central bank needs to see further signs of traction before taking its foot off the gas pedal, Fed Chairman Ben Bernanke said on Wednesday...
"If we see continued improvement and we have confidence that that's going to be sustained then we could in the next few meetings ... take a step down in our pace of purchases," he said...
"A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing i...more
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America got more great news on housing today. In April, existing home sales — which exclude newly built homes — hit their highest level in more than three years.
We’ve heard the larger story of America’s housing recovery before, on splashy magazine covers, from the Fed minutes, and consistently from the folks at Case-Shiller. Beyond the headline figures, there are other bits of good news for housing:
Homes are selling faster: Homes are now sitting on the market for a median of 46 days. That’s down from a median of 83 ...more
Another bit of interesting market triva: Johnson & Johnson (JNJ) has climbed for the past 20 consecutive weeks. Of the current S&P 500 members, only two other names have even come close to such a streak since 1982. Home Depot...
...more
Another day, another “Is Warren Buffett is Irreplaceable?” article. Today’s version, however, carries the imprimatur of the New York Times’ “DealBook” column, and it’s written by a professor to boot. The gist of the professor’s case appears right in the first two paragraphs, as follows: Acquisitions usually come with a nice premium for the seller. But when Warren E. Buffett is the buyer, there is typically something of a discount. The ability to make acquisitions on favorable terms is a testament to Mr. Buffett’s personality and skills as a deal maker. It also highlights an almost unsolvable problem for his company, Berkshire Hathaway, and its shareholders. When its 82-year-old chief executive...more
Today, the National Association of Realtors (NAR) released their Existing Home Sales Report for April showing an increase in sales with total home sales rising 0.6% since March and climbing 9.7% above the level seen in April 2012. Single family home sales also improved climbing 1.2% from March rising 9.0% above the level seen in April 2012 while the median selling price increased a notable 11% above the level seen a year earlier. Inventory of single family homes increased from March to 1.92 million units but still remained 11.9% below the level seen in April 2012 which, along with the sales pace, resulted in a monthly supply of 5.3 months. The following charts (click for full-screen dynamic version) shows national existing single family home sales, median home...more
The DJIA has been up 19 Tuesdays in a row. Need some trivia? Records for consecutive positive days of the week (since 1930). Monday 13 (2/1/10) Tuesday 19 (5/21/13) Wednesday 13 (9/3/86, 4/26/06) Thursday 12 (2/4/82, 6/19/08) Friday 13 (7/22/55)
...more
By Michael Pettis
One of the reasons that it is been so hard for a lot of analysts, even trained economists, to understand the imbalances that were at the root of the current crisis is that we too easily confuse national savings with household savings. By coincidence there was recently a very interesting debate on the subject involving several economists, and it is pretty clear from the debate that even accounting identities can lead to confusion.
The difference between household and national savings matters because of the impact of national savings on a country’s current account, as I discuss in a recent piece in Foreign Policy. In it I argue that we often and mistakenly think of nations as if they were simply very large households. Because we know that the more...more
Out of all the names in the S&P 500, analysts are the most bullish (in terms of price target) on BTU (+38.4%), NFX (+37.7%) and CTSH (+30.2%) over the next twelve months.
Last year, we saw a sea change in official German policy regarding the euro crisis and inflation. The German government came out in favour of accepting higher inflation domestically in Germany as a sacrifice for eurozone wage and price adjustments to help alleviate crisis. The question is whether this matters. I believe it does, but only in part.
I am writing this in part because of a back and forth between Ryan Avent on Free Exchange and Paul Krugman at the New York Times and Tyler Cowen and Alex Tabarrok at Marginal Revolution where I think some of the assumptions made about German policy views on inflation are incorrect.
The general consensus about the euro crisis is that it involves three separate adjustments beyond bank and private sector balance sheets. And thes...more
“The first panacea for a
mismanaged nation is inflation of the currency; the second is war. Both bring a
temporary prosperity; both bring a permanent ruin. But both are the refuge of
political and economic opportunists.”
-
Ernest Hemingway.
“Recovery in sight, says departing Bank of England governor
Mervyn King..”
-
The Daily Telegraph.
In one of the most powerful and
memorable metaphors in finance, Charles Ellis, the founder of Greenwich Associates,
cited the work of Simon Ramo in a study of the strategy of one particular
sport: ‘Extraordinary tennis for the ordinary tennis player’. Ellis’ essay is
titled ‘The loser’s game’, which in his view is what the ‘sport’ of investing
had become by the time he w...more
When David Tepper speaks, the market listens.
In Autumn, 2010, Tepper, the highly successful billionaire hedge fund manager, explained that for stock investors, the Fed had your back. Using options jargon he said that there was a "put" (downside protection) regardless of what the economy did. While causation is always hard to prove, the comments came on a 2% rally day in the market and the rally continued from there.
Today Tepper went public again, with a very bullish prognosis. A key part of his analysis was that the Fed purchases under QE, even if tapered off, would be greater than the net new issuance of debt by the Treasury. You can check out CNBC's site to see the entire interview.
Tepper goes on to discuss the historic highs in the equity risk premium and w...more
Ready or not, we should expect a week dominated by an even greater focus on Fed policy. There are four reasons:
The economic data calendar is very light;
Earnings season has ended;
Many will be heading for the exits early, anticipating a holiday weekend; and finally
Bernanke testifies on the economy before the Congressional Joint Economic Committee. There will also be other Fed speeches and the minutes of the last FOMC meeting.
What should we expect?
Fedspeak is described by former Fed Vice-Chair Alan Blinder as "a turgid dialect of English." In the Greenspan era, the Fed Chair was intentionally ambiguous. (Blinder, who favored a more open exchange, did not last long in the Greenspan era). In the Bernanke era there is supposed to be more transparency. The...more
It was never easy being a central banker and the job has become much more difficult over the course of the last five years or so, but right now the task of guiding monetary policy and juggling the myriad of threats to economic stability is particularly daunting. Take the Fed, for instance. The current policy statement calls for $85 billion of bond purchases each month, until the unemployment rate is below 6.5%, as long as inflation expectations do not rise above 2.5%. At some point, however, the Fed will have to taper its bond purchases and ultimately begin selling some of its bond holdings. The big questions surround when to begin reversing course and how dramatic the increments will be in those policy changes. With the unemployment rate and rate of inflation highli...more
Editors note: Moody’s released the following press release yesterday in conjunction with a ratings action it took on Turkish sovereign debt.
Moody’s Investors Service has today upgraded Turkey’s government bond ratings by one notch to Baa3 from Ba1, and has assigned a stable outlook.
The key drivers for today’s rating action are:
1. Recent and expected future improvements in key economic and public finance metrics.
2. Progress on structural and institutional reforms that Moody’s expects will reduce existing vulnerabilities to shocks to international capital flows over time.
Moody’s decision to assign a stable outlook on Turkey’s ratings reflects the rating agency’s expectation of continued prudence in the management of...more
Not long after I penned The Options and Volatility ETPs Landscape, Credit Suisse (CS) added another buy-write / covered call ETP to the mix: the Credit Suisse Silver Shares Covered Call ETN (SLVO). With SLVO, Credit Suisse is essentially extending the methodology they pioneered with the Credit Suisse Gold Shares Covered Call ETN (GLDI). In the case of both GLDI and SLVO, the ETPs are selling covered calls against the underlying commodity ETF for gold (GLD) and silver (SLV) in an effort to generate some income, and in so doing, choosing to forego some upside potential. In both instances, the ETP starts selling covered calls with 39 days until expiration and completes the sales with 35 days to expiration. One month later, the ETP buys these covered calls back over a peri...more
I am proud to say I learned my econometric from Art Goldberger, who had little use for R-squared.Anyway, a smart friend of mine (who works in industry and therefore might not want to be named) pointed out that he could probably fit the brushstrokes of a Jackson Pollack painting with a 17 degree polynomial and get an excellent R-squared. But he still couldn't predict what a next brush stroke might look like....more
Northrup Grumman has been something of a frequent flyer here at footnoted. All the way back in 2005, we wrote about its thrice (now quadruple-retired) CFO Charles Noski. There̵7;s also been overly generous consulting deals for other top executives, elite health benefits for former executives, and other lavish retirements.
So when we came across this 8-K that the company filed on Monday, we couldn’t help but take a closer look. In the filing, the company notes that it made mistakes on several calculations for post-retirement benefits for several executives. The errors aren’t a few dollars here or there. Rather, they range from $2.3 million to $2.7 million.
In the 8-K, as well as the amended proxy that Northrup Grumman filed on Monday, the company describe...more
The future never resembles the past – as we well know. But, generally speaking, our imagination and our knowledge are too weak to tell us what particular changes to expect. We do not know what the future holds. Nevertheless, as living and moving beings, we are forced to act. – John Maynard Keynes
Discussions of the population problem have always had the capacity to stir up public sentiment much more than most other problems.
- Gunnar Myrdal
Last Thursday the yen broke through the psychological threshold of 100 to the US dollar. On Friday the slide continued (see chart), even dropping very close to 102 to the USD at one point before strengthening slightly on the run in to the G7 finance ministers meeting.
The ostensible source of the sudden shift was a ne...more
“When the cover of a major
financial magazine features a cartoon of a bull leaping through the air on a
pogo stick, it’s probably about time to cash in the chips.”
-
John Hussman of Hussman Funds in his April letter.
Amsterdam, March 1637 (Ruyters): The
latest Dutch tulip harvest is in, and experts confidently predict another
bumper year for tulip growers and tulip investors alike. Billionaire hedge
farmer Jon Paulsen is rumoured to have added hyacinths to his multi-strategy
offering and has just launched a fund denominated in daffodils. Tulip stocks
climbed by a few millimetres, as they are prone to every day if they grow at
their normal organic rate; Couleren
bulbs rallied another 2 guilders in heavy Antwerp trading; Rosen and Violetten...more
In a number of posts recently I have highlighted the impact of declining workforces on economic growth (here, for example, or here, or here) and the way the policies persued to address the Euro debt crisis are having the impact of accelerating the movement of young people away from the periphery and towards the core (here, or here) thus accelerating the decline in their working populations and exacerbating their growth problem. This issue has been already highlighted strongly in Japan’s ongoing crisis, and has to some extent come to be known as the “shortage of Japanese” problem following Paul Krugman’s memorable use of this expression to explain why Japan’s economic performance seemed so poor to so many.
Recently I ca...more
Well props to ‘CD 105.9’ is all I can think, driving east on Dodge Street in a cold rain to the Berkshire Hathaway shareholder meeting early on a dark Saturday morning. The reason for my good mood? The Omaha “classic rock” station I’ve had my rental car radio set to the last three days is playing “Back in the USSR,” making this the first time I’ll have been to a Berkshire meeting with Paul McCartney’s Beatles-era send-up of communist Russia ringing in my ears. “Let me hear your balalaikas ringing out/come and keep your Comrade warm/I’m back in the USSR/You don’t know how lucky you are, boy/Back in the USSR.” What better way to get ready for Warren Buffett’s “Woodstock for Capitalists” than that? &nbs...more
We’re never REALLY surprised at the things that wind up in what we’ve come to call the Friday Night Dump — that 90 minute period after the markets close on a Friday, but the SEC remains open for filings. Our own research shows that nearly 9% of all 8Ks filed in a given week are filed after 4 pm on a Friday, which depending on your view of the world is either due to companies rushing to get things in before the weekend or hoping to bury them in plain sight.
Most of what we find in the Friday Night Dump, we publish for Pro subscribers. In fact, we have a separate category just for those disclosures for Pro subscribers. But now that a few days have passed, we decided to share one particularly juicy find from last Friday night’s dump.
At 5:01 pm on F...more
Introductory Statement by Jörg Asmussen, Member of the Executive Board of the ECB, in exchange of views with the Economic and Monetary Affairs Committee of the European Parliament on financial assistance to Cyprus –
If the sovereign had shouldered these massive recapitalisation needs, debt would have risen to 145% of GDP. This would have critically endangered public debt sustainability. At the same time, traditional ways of burden sharing by the private sector bank creditors were limited, given little junior debt outstanding in banks.
The Eurozone has an effective* traditional way of burden-sharing with non-depositor creditors?
In particular, it was decided to cover the capital needs of the two largest banks exclusively through the own contributions of uninsured ...more
“We have Stone Age emotions. We
have medieval institutions.. And we have god-like technology.”
-
Edward O. Wilson.
The BBC reported last week
that researchers from IBM had created the world’s smallest motion
picture after manipulating individual atoms with a scanning
tunnelling microscope. They separately reported the proposals of two Dutch engineers to
introduce self-lighting weather warnings on motorways, and a dedicated driving
lane that could recharge electric cars as they passed over it. As artist Daan
Roosegarde pointed out, auto manufacturers spend billions of dollars on car
design, research and development,
“but somehow the roads.. are completely immune to that process. They are
still stuck in the Middle Ages, so to speak.”
A...more
Little pre-abstract primer for this paper: Detective Del Spooner: Human beings have dreams. Even dogs have dreams, but not you, you are just a machine. An imitation of life. Can a robot write a symphony? Can a robot turn a canvas into a beautiful masterpiece? Sonny: Can you? AbstractA sea change is happening in finance. Machines appear to be on the rise and humans on the decline. Human endeavors have become unmanned endeavors. Human thought and human deliberation have been replaced by computerized analysis and mathematical models. Technological advances have made finance faster, larger, more global, more interconnected, and less human. Modern finance is becoming an industry in which the main players are no longer entirely human. Instead, the key players are now cybor...more
Fascinating paper from Robert Treue III’s Barnegat Fund documenting what has been called in the popular press the largest arbitrage ever recorded. In the financial upheaval around the opening of this trade in late 2008 the fund was down 37%. But he had the room to absorb the vagaries of timing and come good.A pic of the arb is below and some interesting background on Mr. Treue, in his own words, is here.Most interesting, though, is that Barnegat do exactly what Long Term Capital Management did. Only with less leverage/more collateral. (HT: ArbMaker)
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The Future Fund’s creator, former Treasurer Peter Costello, does not have much faith in the ability of sovereign wealth funds to promote fiscal responsibility:
Now I put aside $60 billion in the Future Fund. People say “oh well you could have put aside 70 or $80 billion or something like that.” But I make this point. If we’d put aside more they’d probably just have borrowed more.
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I thought I’d quickly highlight a point made recently by two great posts. First, here’s J.W. Mason:
There is increasing recognition in the mainstream of the importance of hysteresis — the negative effects on economic potential of prolonged unemployment. There’s little or no discussion of anti-hysteresis — the possibility that inflationary booms have long-term positive effects on aggregate supply. But I think it would be easy to defend the argument that a disproportionate share of innovation, new investment and laborforce broadening happens in periods when demand is persistently pushing against potential. In either case, the conventional relationship between demand and supply is reversed — in a world where (anti-)hysteresis is import...more
A useful way to understand the pickle we’re in, I think, is that we are suffering from the so-called “resource curse”. If you are unfamiliar with the phrase, R20;resource curse” refers to the regularity with which countries “blessed” with abundant natural resources end up as dystopian polities with dysfunctional economies. Nigeria has a lot of oil but no one wants to live there.
The resource curse is pretty easy to understand. It’s not associated with just any sort of natural resource. Switzerland has beautiful mountains and stuff that people would pay a lot of money for, but it is still well-governed. Accursed resources are of a very particular type. They are valuable tradable goods the extraction of which requires a smal...more
Today’s guest column at The Striking Price on behalf of Steven Sears at Barron’s marks the tenth time I have had the opportunity to write a column for Barron’s and this time around I even managed to suppress the impulse to write about the VIX and volatility – at least directly. In How to Insure Your Stock Portfolio I drill down on an element of hedging I cited in one of my hall of fame posts, Cheating with Partial Hedges. Specifically, I talk about bear put spreads, which I like to think of as “gap hedges” due to the fact that they offer protection should the underlying fall in between two strikes. The Barron’s article talks about a specific SPY gap hedge strategy involving buying puts that are 5% out-of-the-money and offsetting some of the cost of the...more
My two cents:Within the past day or so, economics conversations have been all about Rogoff and Reinhart and their critics, Herndon, Ash and Pollin. The Rogoff and Reinhart (RR) paper purported to show that countries with more debt grow more slowly than countries with less; Herndon, Ash and Pollen (HAP) show that Rogoff and Reinhart’s data contains mistakes, and there is not much dispute about whether Herndon, Ash and Pollin’s corrections are right–they are.HAP also do a pretty good job of showing that connections between debt to gdp ratio are not robust–they are sensitive to time period and country. But they do not ask the question about direction of causality between debt and growth (page 3):For the purposes of this discussion, we fol...more
I have an op-ed in the Business Spectator arguing that foreign exchange market intervention is a risk to taxpayers who would be better served if the RBA matched its foreign currency assets and liabilities. I also debunk the notion that Australia is a victim of a ‘currency war’:
It has been argued that Australia is somehow a victim of a ‘currency war’ being waged between foreign central banks engaged in quantitative easing. Yet there is nothing unusual about the effects of quantitative easing on exchange rates.
Quantitative easing is simply a change in the operating instrument of the central bank, from a price variable (the official interest rate) to a quantity variable (base money).
In itself, quantitative easing tell us nothing about whether ...more
Richard Hell—look him up, kids—aspired to be a writer, became one of the originals of the 1970s New York punk scene, and is now a writer. And he is a very good writer if “I Dreamed…” is any indication. In fact, it’s probably the best rock and roll memoir you can find out there—and we here at NotMakingThisUp read them all (he’s not kidding—ed.) By way of comparison, Gregg Allman’s recent “My Cross to Bear” is one of those as-told-to memoirs whose primary focus is on the hair-raising amount of drug intake that ruined him (not to mention graphic details concerning the other aspect of rock and roll that goes hand-in-hand with drugs, if you get our drift—ed.) Tommy Iommi’s two-year-old “Iron Man” is a mor...more
Steve Roth (1, 2), Scott Sumner (1, 2, 3), Bill Woolsey, and Matt Yglesias have been debating questions of saving versus investment and paradoxen of thrift. See also JW Mason in the comments here, and Simon Wren-Lewis a while back. Cullen Roche reminds us that, even under conventional definitions, the accounting identity S≡I only holds for a closed economy without government spending, and of JKH’s useful tautology S=I+(S-I). [See Update below.] I think the recent recrudation of these issues owes something to Garett Jones’ and my conversation on capital taxation, which Jones has continued and on which Matt Bruenig has weighed in.
As is often the case, I think that the protagonists agree more than we think we do. Our various allegiances — to sch...more
To me, the central issue raised by this week's Cyprus debacle is how it has affected confidence across the eurozone. To what degree has the possibility of insured depositors at a eurozone bank losing a portion of their deposits affected the mindset of depositors? To what degree has ECB acquiescence to this possibility undermined the notion that deposit insurance in the eurozone means the same thing in all countries? And to what degree has the ECB's direct threat to end support for Cyprus's banking system in the event that the government of Cyprus can not arrange sufficient funds to meet its conditions made a farce of its earlier promise to "do whatever it takes to preserve the euro"?These, to me, are the interesting questions prompted by this week's ev...more
President Truman famously called for a one handed economist. The Carolingian kings of France would have accommodated him. They realised that a kingdom required a common currency under the control of the king and well regulated markets to sustain the confidence of the people. At first mints were established widely, spread across the kingdom. Local barons began to profit from debasing the coinage, undermining confidence in the monetary system. So Charles the Bald established mints under his direct control and regulated the issue of coins: C.12. Following the custom of our predecessors, just as it is found in their capitularies, we decree that in no other place in all our kingdom shall money be made except in our palace, and in St. Josse and Rouen, which right in th...more
You are not a machine.
Your natural genetic design does not tolerate 2 to 4 hours of travel per day, 8 to 12 hours of slave labor 5 to 6 days per week.
For whatever monetary compensation.
On 5 to 6 hours of sleep.
In a system built on penalistic principle and a life under judgmental surveillance.
Like it or not your are human.
Stress, harassment, constant financial worries, fear and a sense of inadequacy destroys the health of any human being.
This is a scientific fact.
So why is it that we accept and tolerate a system that in actual reality demands that you erase your needs and in effect commit a slow joyless suicide for someone elses profit?
Click here to go to the The Prudent Investor homepage for more interesting posts.
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Byron Wien, Vice Chairman of Blackstone Advisory Partners, yesterday issued his list of “The Ten Surprises for 2013″. This is the 28th year Byron has given his predictions of a number of economic, financial market and political surprises for the coming year. Click through ... [...]
Please visit the Investment Postcards blog (by clicking on the heading above) for the full article, as well as other interesting investment snippets.
...more
As part of my daily routine, I publish all my reading (including snippets from other well-known commentators) in an Internet newspaper, “Investment Postcards Daily”. Click through to read the latest edition and register for a free subscription. I publish the paper even when traveling for extended periods when blogging takes a backseat. This is therefore a sure way of staying in touch [...]
Please visit the Investment Postcards blog (by clicking on the heading above) for the full article, as well as other interesting investment snippets.
...more
Wall Street "gurus" come and go, but in the case of Bob Farrell legendary status was achieved. He retired in 1992, but his famous "10 Market Rules to Remember" have lived on and are summarized in this post. The words of wisdom are timeless and are especially appropriate as investors grapple with the difficult juncture at which stock markets find themselves at this stage. [...]
Please visit the Investment Postcards blog (by clicking on the heading above) for the full article, as well as other interesting investment snippets.
...more
Twitter user @poorbystandard mailed these lyrics, looking for artists to turn this into a Youtube hit.
Would be great to have an artist perform it on youtubethere are many talented people out there! Feel free to fix bugs!Acknowledgements and thanks for inspiration: Chris Duane, Trace Mayer, Mike Maloney, Doug Casey, James Rickard, Peter Boehringer, Sven Polleit, Hans J. Bocker, Longwave Group et aliasalute to: Max Keiser, hartgeld.com, Zerohedge, Satoshi Nakamoto, Juliana Richer, Jens Weidmann, the Austrian school and Nikolai Kondratiev Viva panem et circensesalternative lyrics best sung to Coldplay - Viva La Vidaby "poor by standard" (poorbystandard@gmail.com) CC-BY license[Jan - Sept 2012, v1.08]
We used to rule the world
call a mighty empire our own
now in the...more
The big economic news of the week was, in fact, big economic news: the Fed's announcement of significant changes from past practice in the the quantity of its next round of large scale asset purchases ("unlimited"), and in the timing of any future reversal of this expansionary policy ("a considerable time after the economic recovery strengthens").I view this as a pretty fundamental shift in how the Fed hopes to affect the economy. Rather than trying to push economic activity one way or the other through its management of interest rates (which can alter economic activity through its portfolio-rebalancing and wealth effects, for example), the Fed is now quite explicitly trying to affect economic activity by altering interest rate and inflation expectations. As...more
Imagine a great ship dominating the skyline on a distant sea. Imagine the complexity of that ship: keel, ribs, planks, masts, spars, and an infinite number of less readily named components. Each component was hand-crafted by a craftsman skilled in his trade, to precise requirements, and secured in position to take the stress and strain of a life at sea.Now imagine a crew. They didn't build the ship. The crew are told that the one and only purpose of the ship is to realise a profit for every man jack aboard. Any hand not contributing a profit will be turned ashore. Down below in the ship are nails. Thousands and thousands of nails. Nails are useful. Nails are much sought after in every port the ship enters. Nails can be readily sold and never traced. The crew h...more
I've been hesitant to write about the LIBOR scandal because what I want to say goes so much further. We now know that Barclays and other major global banks have been manipulating the calculation of LIBOR through the quotation data they provided to the British Bankers Association. What I suspect is that this is not a flaw but a feature of modern financial markets. And if it was happening in LIBOR for between 5 and 15 years, then the business model has been profitably replicated to many other quotation-based reference prices.Price discovery is not a sexy function of markets, but it is critical to the efficient allocation of scarce capital and resources, and to the preservation of the long term wealth of investors and the economy as a whole. If price discovery is compr...more
Another jobs report in the US, another month where part of the private sector's job creation was undone by continued job destruction by the government sector. The 15,000 additional jobs lost in April brings total job losses in the government sector since January 2010 to over 500,000. While the US has not quite been experiencing European-style austerity over the past two years, that's still a pretty tough headwind to fight as it emerges from recession. ...more
We just got our latest look at existing home sales from the National Association of Realtors. Sales rose 1.4% to a seasonally adjusted annual rate of 4.97 million in October from 4.9 million a month earlier. That topped expectations for a reading of 4.8 million. We saw strength in most of the country, with sales up 2.1% in the South, 2.8% in the Midwest, and 4.4% in the West. Sales fell 5.1% in the Northeast.Single family transactions led the way with a gain of 1.6%, while condo and coop sales were flat on the month. The supply of homes for sale dipped to 3.33 million from 3.406 million in September. That was equal to 8 months of supply at the current sales pace, down from 8.3 a month earlier. Meanwhile, the median price of a used home fell to $162,500 from $165,800 in ...more
We just got the latest data on home sales and pricing, and it was a mixed bag. New home sales rose 5.7% to a seasonally adjusted annual rate of 313,000 in September from 296,000 in August. That topped forecasts, and it leaves sales at the highest level since April. Sales rose in two of four regions (the West and South), and fell in the other two (the Northeast and Midwest).But the median price of a home fell off the table, dropping 3.1% on the month, the third straight decline. Prices were also down 10.4% from a year ago, the biggest monthly drop in more than two years. At $204,400, median prices haven't been this low since last October. The raw number of homes for sale remained at a multi-decade low of 163,000, while the "months supply at current sales pace" indicator ...more
We just got a look at September existing home sales figures. Total sales fell 3% to a seasonally adjusted annual rate of 4.91 million from 5.06 million in August. That was right in line with the estimates of economists polled by Bloomberg. Single-family sales dropped 3.6%, while condo sales rose 1.8%.The "months supply at current sales pace" indicator of inventory inched up to 8.5 from 8.4, while the raw number of homes for sale dipped 2% to 3.48 million. Meanwhile, the median price of an existing home fell sharply to $165,400 from $171,200 a month earlier. That was down 3.5% from a year ago.September was another lackluster month for the housing sector, with used home sales falling slightly and home prices slipping a bit. Tighter lending standards and ongoing weakness i...more
Altos Research has published their September 2011 housing report.
Quote:
"Since a peak in early July, we've seen week over week cooling of the housing market."
"The loss of momentum from the summer market activity is unmistakable."
...more
Testimony of Michael A.J. Farrell, Chairman, Chief Executive Officer and President Annaly Capital Management, Inc. Before the U.S. House of Representatives Insurance, Housing and Community Opportunity Subcommittee of the Committee on Financial Services Hearing on “Are There Government Barriers to the Housing Market Recovery?” (February 16, 2011 in Washington, DC)Good afternoon, Chairwoman Biggert, Ranking Member Gutierrez, and Members of the Committee. My name is Michael Farrell, and I run Annaly Capital Management, the largest residential mortgage Real Estate Investment Trust (or REIT) on the New York Stock Exchange. I also oversee the management of Chimera Investment Corporation, the second largest mortgage REIT. Annaly and our subsidiaries and affiliates together...more
By Pierre L. Siklos, Martin T. Bohl and Arne Klein Abstract: In the literature on short selling restrictions, their impact on pricing efficiency liquidity and trading costs is mostly investigated. Surprisingly little is known about the effects of short selling restrictions on institutional investors' herding behavior. If short selling bans hinder institutional investors from herding during stock market downturns, regulators have a successful tool to prevent further stock price declines. However, our empirical findings for six stock markets do not support this hypothesis.Download: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1744365...more
By Koralai KirabaevaAbstract: This paper studies the interaction between adverse selection, liquidity risk and beliefs about systemic risk in determining market liquidity, asset prices and welfare. Even a small amount of adverse selection in the asset market can lead to fire-sale pricing and possibly to a market breakdown if it is accompanied by a flight-to-liquidity, a misassessment of systemic risk, or uncertainty about asset values. The ability to trade based on private information improves welfare if adverse selection does not lead to a market breakdown. Informed trading allows financial institutions to reduce idiosyncratic risks, but it exacerbates their exposure to systemic risk. Further, I show that in a market equilibrium, financial institutions overinvest into ...more
Edward is a macro economist, who specializes in growth and productivity theory, demographic processes and their impact on macro performance, and the underlying dynamics of migration flows.
Edward is based in Barcelona, and is currently engaged in research on aging, longevity, fertility and migration, and the impact of all of these on economic growth. He is currently working on a book "Population, The Ultimate Non-renewable Resource?" He is a regular contributor to a number of economics weblogs, including India Economy Blog, A Fistful of Euros, Global Economy Matters and Demography Matters. He was, in fact, a founding member of all these weblogs.
Edward follows in detail the Indian, Italian, Spanish, German and Japanese economies. He has a more than a passing interest in the economies of Turkey and Brazil and in the emerging economies of Eastern Europe.
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