Monday, June 28, 2010
G 20 Perspective Creditor vs Debtor
Let's compare and contrast quotes from the world's largest Creditor and Debtor nations:
1.) China's President Hu Jintao - "The deeper impact of the global financial crisis has yet to be overcome, and systemic and structural risks remain very serious."
2.) US President Barack Obama - "We can't all rush to the exits at the same time. What we have to recognize is that the recovery is still fragile."
One can only walk away with the idea that the structural and systemic problems still exist.
1.) China's President Hu Jintao - "The deeper impact of the global financial crisis has yet to be overcome, and systemic and structural risks remain very serious."
2.) US President Barack Obama - "We can't all rush to the exits at the same time. What we have to recognize is that the recovery is still fragile."
One can only walk away with the idea that the structural and systemic problems still exist.
Wednesday, June 16, 2010
U.S. Money Supply Plunges to Levels Unseen Since the Great Depression While Housing Index Dives
Advice is what we ask for when we already know the answer but wish we didn’t -- Erica Jong
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history. The M3 figures – which include a broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever. "It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
Seeking Alpha link
The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history. The M3 figures – which include a broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever. "It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.
Seeking Alpha link
Wednesday, June 9, 2010
Do Universities Share The Blame For The Financial Crisis?
The linked article says "yes". But more importantly it points to the bigger issue; long-term investment portfolios are now focus on gambling behaviors. They lost sight of the short-term risk. But should this be corrected through additional regulations or the Free Market? My vote - the Free Market.
Do Universities Share The Blame For The Financial Crisis???
Do Universities Share The Blame For The Financial Crisis???
Tuesday, June 8, 2010
Interesting Perspective on Korea
We recently had the opportunity to listen to Professor Charles Hill, a political science professor from Yale University who came by our office to lead a discussion with our clients on the emerging risks in the Korean peninsula.
Charlie's ultimate conclusion was that despite saber rattling, the North Koreans would continue to be rational actors. While the recent sinking of a South Korean warship was an act of war, it was a well thought out action, with expected responses. North Korea pushed the envelope, and while the response has been negative, the likely expected outcome will be some sort of appeasement of the North Koreans by the world community.
After walking us through the history of the Korean conflict and probabilities of increased conflict between the two Koreas (which according to Charlie is less than 10% and would only occur in a scenario where an action was grossly misunderstood), Professor Hill began describing an emerging Geopolitical Risk Zone in the waters of Asia. He described a scenario in which the U.S. would have to reassert itself and its domination of the global shipping lanes to protect its allies against rogue attacks such as the North Korean submarine attack, but also reassert its strength vis-à-vis China in the Asian waters.
Obviously this type of new strategy would not come without a cost for the United States, and could require a massive build up and redeployment of the Navy. As George Friedman from Stratfor noted in his recent book, "The Next 100 Years":
"The U.S. only emerged as the decisive global power after World War II and is still immature. The U.S.'s power is based on its Navy and ability to control both
oceans, the Atlantic and the Pacific, which no other power has been able to do."
Over the coming year, we will be contemplating more of these Geopolitical Risk Zones as war, historically, has been a great way to outgrow sovereign debt burdens.
Source: HEDGEYE, daily e-mail alert.
Charlie's ultimate conclusion was that despite saber rattling, the North Koreans would continue to be rational actors. While the recent sinking of a South Korean warship was an act of war, it was a well thought out action, with expected responses. North Korea pushed the envelope, and while the response has been negative, the likely expected outcome will be some sort of appeasement of the North Koreans by the world community.
After walking us through the history of the Korean conflict and probabilities of increased conflict between the two Koreas (which according to Charlie is less than 10% and would only occur in a scenario where an action was grossly misunderstood), Professor Hill began describing an emerging Geopolitical Risk Zone in the waters of Asia. He described a scenario in which the U.S. would have to reassert itself and its domination of the global shipping lanes to protect its allies against rogue attacks such as the North Korean submarine attack, but also reassert its strength vis-à-vis China in the Asian waters.
Obviously this type of new strategy would not come without a cost for the United States, and could require a massive build up and redeployment of the Navy. As George Friedman from Stratfor noted in his recent book, "The Next 100 Years":
"The U.S. only emerged as the decisive global power after World War II and is still immature. The U.S.'s power is based on its Navy and ability to control both
oceans, the Atlantic and the Pacific, which no other power has been able to do."
Over the coming year, we will be contemplating more of these Geopolitical Risk Zones as war, historically, has been a great way to outgrow sovereign debt burdens.
Source: HEDGEYE, daily e-mail alert.
Thursday, June 3, 2010
Warren Buffett's comments on Moody's
The following is an excerpt from Hedgeye e-mail, titled "EARLY LOOK: TRIPLE-A USA".
Never before has the US portfolio patriarch, Warren Buffett, been forced to answer questions about his market positioning against his own will.
If any of us Buffett fans thought the man was going to be forthright and transparent about what it is that the ratings agencies actually do, we should think again. I felt like I was listening to a professional politician when Buffett excused Moody's by suggesting that they simply "made a mistake that 300 million other Americans made."
We get what Buffett gets - politicians created and perpetuated a ratings system that could be gamed. What Buffett is really doing is playing the game that's in front of him. Current conflicts, compromises, and constrains aside, his mandate is to make money - not to make you believe how he is making money is "right."
To contextualize Buffett's aforementioned quote about whether or not the states of America should be rated AAA, let's take a quick step back and understand where this designated ratings system of Perceived Wisdom comes from.
In 1909 a gentleman by the name of John Moody (who is currently rolling in his grave) started selling independent research like Hedgeye's (he was paid by subscription, not by the issuers of bonds he was rating). Over the course of time, independent research became a profitable business and it, predictably, found competition with firms like Poor's Publishing.
By the time the 1970s rolled around and the USA was newly minted with its endowment of the world's reserve currency (1971), the SEC "decided to penalize brokers for holding bonds that were less than investment grade. The SEC then faced the question of investment grade according to whom? The agency decided to create a new category of officially designated ratings agencies and grandfathered the big three - S&P, Moody's, and Fitch." (Roger Lowenstein, The End of Wall Street, page 39).
This, of course, created the kind of business that I, the Saudis, and Warren Buffett love - cartels who have a lock on supply and pricing via government mandate. All you needed to make this the "bubble that none of us saw coming" (Buffett) was more and more government intervention and price supports. Enter Greenspan and some moneys from the heavens and you can all of a sudden see how, from 2002 to 2006, that a conflicted firm like Moody's saw profits triple and MCO stock go to $74/share.
"Given the agencies profits were soaring it paid for them to stay on good terms with Wall Street. Moreover, when Lehman took a mortgage pool to Moody's, it paid the fee only if it was pleased with the rating." (Lowenstein, The End of Wall Street, page 41).
Sure, even though some of us actually did see this coming... Mr. Buffett, with all due respect, maybe it was because we weren't being paid to be willfully blind to the problems, in principle, that are obvious here...
So, after another great low-volume rally to lower-highs in the US stock market yesterday - fully trusting in the good faith of the USA's Triple-A rating, we should chase stocks higher here on the open, right? C'mon. Let's get serious here folks. This time there will be no finger pointing at 300 million Americans. No one will be allowed to say they didn't see this US Sovereign Debt crisis coming with a straight face.
Never before has the US portfolio patriarch, Warren Buffett, been forced to answer questions about his market positioning against his own will.
If any of us Buffett fans thought the man was going to be forthright and transparent about what it is that the ratings agencies actually do, we should think again. I felt like I was listening to a professional politician when Buffett excused Moody's by suggesting that they simply "made a mistake that 300 million other Americans made."
We get what Buffett gets - politicians created and perpetuated a ratings system that could be gamed. What Buffett is really doing is playing the game that's in front of him. Current conflicts, compromises, and constrains aside, his mandate is to make money - not to make you believe how he is making money is "right."
To contextualize Buffett's aforementioned quote about whether or not the states of America should be rated AAA, let's take a quick step back and understand where this designated ratings system of Perceived Wisdom comes from.
In 1909 a gentleman by the name of John Moody (who is currently rolling in his grave) started selling independent research like Hedgeye's (he was paid by subscription, not by the issuers of bonds he was rating). Over the course of time, independent research became a profitable business and it, predictably, found competition with firms like Poor's Publishing.
By the time the 1970s rolled around and the USA was newly minted with its endowment of the world's reserve currency (1971), the SEC "decided to penalize brokers for holding bonds that were less than investment grade. The SEC then faced the question of investment grade according to whom? The agency decided to create a new category of officially designated ratings agencies and grandfathered the big three - S&P, Moody's, and Fitch." (Roger Lowenstein, The End of Wall Street, page 39).
This, of course, created the kind of business that I, the Saudis, and Warren Buffett love - cartels who have a lock on supply and pricing via government mandate. All you needed to make this the "bubble that none of us saw coming" (Buffett) was more and more government intervention and price supports. Enter Greenspan and some moneys from the heavens and you can all of a sudden see how, from 2002 to 2006, that a conflicted firm like Moody's saw profits triple and MCO stock go to $74/share.
"Given the agencies profits were soaring it paid for them to stay on good terms with Wall Street. Moreover, when Lehman took a mortgage pool to Moody's, it paid the fee only if it was pleased with the rating." (Lowenstein, The End of Wall Street, page 41).
Sure, even though some of us actually did see this coming... Mr. Buffett, with all due respect, maybe it was because we weren't being paid to be willfully blind to the problems, in principle, that are obvious here...
So, after another great low-volume rally to lower-highs in the US stock market yesterday - fully trusting in the good faith of the USA's Triple-A rating, we should chase stocks higher here on the open, right? C'mon. Let's get serious here folks. This time there will be no finger pointing at 300 million Americans. No one will be allowed to say they didn't see this US Sovereign Debt crisis coming with a straight face.
Wednesday, June 2, 2010
Per Warren Buffett
"Anyone who believes a growth rate in excess of 15% per annum over the long term is attainable should pursue a career in sales, but avoid one in mathematics"
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