This is an enjoyable time of the year. It's when families gather together to share a wonderful holiday meal and exchange presents. After all, who doesn't love to tear the wrapping off their presents to see what's inside? It is especially nice to see the excitement of small children as they open their presents.
I can only imagine the excitement as little Ben Bernanke unwraps his present from his uncle, Lloyd Blankfein, CEO of Goldman Sachs. It can only bring a tear to everyone's eye as they see the sheer joy on little Ben's face as he gazes at his present - a shiny brand-new helicopter!
Little Ben Bernanke will yell out, "Mommy, mommy, look at my new helicopter!" Now I can dump all the money I want out of my new helicopter and make everyone on Wall Street happy!"
His uncle, Lloyd Blankfein, will be smiling broadly as he tells little Ben "You see the nice things that happen when you do God's work, like fleecing Main Street?"
And he added, "Now just make sure, Ben, that NONE of that money you dump out of your helicopter falls onto Main Street - it must ALL go to the people on Wall Street who are doing God's work."
I wanted to leave everyone with some holiday cheer - a poem. And my apologies to the original author, who most believe is Clement Clarke Moore.
Twas the night before Christmas, when all through Wall Street
Not a creature was stirring, not even a greedy rat;
The stockings were hung by the chimney with care,
In hopes that Santa Ben with sacks full of money would soon be there;
The bankers were nestled all snug in their beds,
While visions of perks and bonuses danced in their head;
When out on the lawn there arose such a clatter,
The bankers sprang from their beds to see what was the matter.
When, what to their wandering eyes should appear,
But a miniature limo with eight cyclinders under the hood,
With a bald, bearded driver, so lively and quick,
The bankers knew in a moment that it must Santa Ben.
Down the chimney came Santa Ben with a bound.
A bundle of money he had flung on his back,
And he looked like a peddler just opening his pack.
He spoke not a word, but went straight to his work,
And filled all the bankers' stockings with billions of dollars;
And, giving a nod, up the chimney the person of the year rose;
He sprang to his limo, and away he flew.
As he drove out of sight, he was heard to exclaim,
"Merry Christmas to all, and to all a good night!"
Happy Holidays to everyone!
Tuesday, December 22, 2009
Saturday, December 19, 2009
Ben Bernanke - Person of the Year?
This past week we saw the chairman of the Federal Reserve, Ben Bernanke, chosen as the Time magazine "Person of the Year." By the way, is it me or does the bearded Mr. Bernanke looks a lot like Vladimir Lenin?
No matter...I think that the selection of Mr. Bernanke says a lot about the state of our country.
It seems that our society has turned into a culture which rewards 'bad' behavior which feels good in the short term.
No other Federal Reserve chairman has received accolades such as the Time "Person of the Year".
Yet Mr. Bernanke, who first supported and then implemented policies that inflated the largest housing bubble in US history - which caused a major global financial disaster - is given Time's nomination?
And he has continued his reckless policies - instituting quantitative easing, i.e. printing money out of thin air.
And yes, the stock market is up since Mr. Bernanke began this policy but the US dollar is also down substanially since then and for perhaps the first time in history, nations globally are talking about the "end" of the US dollar.
So why is Mr. Bernanke pursuing this reckless policy of money printing?
The answer is simple - to help his two 'masters' - Washington and Wall Street.
By printing money out of thin air and giving it to Wall Street basically for free, he is helping both bankers and politicians.
First, Wall Street gets "free" money which they can invest into anything and get a return on it. Thus you see most asset markets - stocks, commodities and bonds - all up nicely this year.
But the biggest beneficiary of Bernanke's policies has been the US Treasury. There has been a "wink-wink" silent agreement that much of the 'free' money given to the banks would be plowed into buying US Treasuries to keep interest rates ultra low.
Sounds good...what's wrong with that?
The problem is that you can only go so far in printing money before you run the risk of turning into the modern-day version of Weimar Germany and having a currency which is "just paper."
As I mentioned earlier, foreigners are growing more concerned with US monetary policy each day and are buying only the shortest-term Treasuries.
Most of the longer-term Treasuries are being bought by banks with the Fed's 'free' money. In fact, there is even talk that banks will be "required" to have much of their capital tied up in "safe" long-term US Treasuries!
I can tell you from my decades of experience in the financial markets that the US Treasury market is already in a "bubble." It is perhaps the biggest bubble in financial markets history.
And we have Ben Bernanke to thank for that - trying to fix a broken housing bubble by inflating another bubble in the Treasury market.
If that bubble bursts (and it will eventually), the prices of US Treasuries will drop steeply in value.....
And look who will be left holding the bag (again) with "bad" assets - Wall Street banks, which will be in worse shape than they were in late 2008. And they will again have their hands out for help from US taxpayers.
Bernanke's Time magazine cover will rank up there with the February 15, 1999 Time cover which showed Alan Greenspan, Robert Rubin and Larry Summers - the blowers of the 'tech bubble' among other financial bubbles - as "The Committee to Save the World" and who saved the world from an economic meltdown - temporarily.
Bernanke will be remembered (badly) by the next generation as a man mesmerized by the memory of the Fed's mistakes at a single point in history - 1930-1932 - for whom printing more money was the right answer in every economic situation.
No matter...I think that the selection of Mr. Bernanke says a lot about the state of our country.
It seems that our society has turned into a culture which rewards 'bad' behavior which feels good in the short term.
No other Federal Reserve chairman has received accolades such as the Time "Person of the Year".
Yet Mr. Bernanke, who first supported and then implemented policies that inflated the largest housing bubble in US history - which caused a major global financial disaster - is given Time's nomination?
And he has continued his reckless policies - instituting quantitative easing, i.e. printing money out of thin air.
And yes, the stock market is up since Mr. Bernanke began this policy but the US dollar is also down substanially since then and for perhaps the first time in history, nations globally are talking about the "end" of the US dollar.
So why is Mr. Bernanke pursuing this reckless policy of money printing?
The answer is simple - to help his two 'masters' - Washington and Wall Street.
By printing money out of thin air and giving it to Wall Street basically for free, he is helping both bankers and politicians.
First, Wall Street gets "free" money which they can invest into anything and get a return on it. Thus you see most asset markets - stocks, commodities and bonds - all up nicely this year.
But the biggest beneficiary of Bernanke's policies has been the US Treasury. There has been a "wink-wink" silent agreement that much of the 'free' money given to the banks would be plowed into buying US Treasuries to keep interest rates ultra low.
Sounds good...what's wrong with that?
The problem is that you can only go so far in printing money before you run the risk of turning into the modern-day version of Weimar Germany and having a currency which is "just paper."
As I mentioned earlier, foreigners are growing more concerned with US monetary policy each day and are buying only the shortest-term Treasuries.
Most of the longer-term Treasuries are being bought by banks with the Fed's 'free' money. In fact, there is even talk that banks will be "required" to have much of their capital tied up in "safe" long-term US Treasuries!
I can tell you from my decades of experience in the financial markets that the US Treasury market is already in a "bubble." It is perhaps the biggest bubble in financial markets history.
And we have Ben Bernanke to thank for that - trying to fix a broken housing bubble by inflating another bubble in the Treasury market.
If that bubble bursts (and it will eventually), the prices of US Treasuries will drop steeply in value.....
And look who will be left holding the bag (again) with "bad" assets - Wall Street banks, which will be in worse shape than they were in late 2008. And they will again have their hands out for help from US taxpayers.
Bernanke's Time magazine cover will rank up there with the February 15, 1999 Time cover which showed Alan Greenspan, Robert Rubin and Larry Summers - the blowers of the 'tech bubble' among other financial bubbles - as "The Committee to Save the World" and who saved the world from an economic meltdown - temporarily.
Bernanke will be remembered (badly) by the next generation as a man mesmerized by the memory of the Fed's mistakes at a single point in history - 1930-1932 - for whom printing more money was the right answer in every economic situation.
Saturday, December 12, 2009
ETFs Are a Great Tool for Asset Allocation
Here is a question investors should be asking themselves more often.....
Why pay expensive fund managers if they cannot protect your money when it most needs protecting?
One way to avoid paying high fees to managers that do NOT perform is through the use of index funds, which passively follow an index. But until recently index funds were pretty much limited to ones which track the performance of the major stock market indices, such as the S&P 500 index.
However, the growth of exchange traded funds (ETFs) has radically changed the face of index investing, giving investors low-cost access to a wide range of investment opportunities across a suite of asset classes. These asset classes include: equities, fixed income, international stocks and bonds, real estate, currencies, commodities and gold.
Investors should bear in mind, however, that investing in an ETF does not remove the risk of losing money, as an ETF will simply follow whichever index it tracks up and down. But ETFs do remove the risk of paying high fees for terrible performance.
The low cost of ETFs is one of their biggest attractions. In the United States, investors pay an average of 0.17 per cent of assets under management a year for an ETF following a broad equity market index.
Other advantages that ETFs have include transparency, simplicity, flexibility and liquidity. ETFs can be bought and sold at a specific price (very near the net asset value) on a stock exchange at any time the exchange is open, much like a stock. This is sharp contrast to a mutual fund, which is only priced at day's end and investors can't be sure what price they paid for the shares.
ETFs are therefore a very useful tool for investors, as ETFs allow investors to easily gain exposure to a sector or asset class with the purchase of a specific ETF. However, ETFs are just a tool – the key to positive investment performance still remains the decision by investors as to which asset classes should be in their portfolio.
I have discussed in prior articles some of the asset classes that should be a part of every investor's portfolio. Of course, there will be varying percentages allocated to each asset class due to differences between each investor – age, risk tolerance, goals, etc.
In my humble opinion, the problem with many investors' portfolios has been too many 'eggs' in one basket – that is, far too much money devoted solely to the US assets denominated in US dollars.
I firmly believe that most investors should have at least some exposure to the following:
1) International stocks, particularly the emerging markets such as China and Brazil
2) International bonds, to diversify out of the US dollar for your fixed income holdings
3) Commodities – in other words, real assets as opposed to paper assets, either through commodities themselves (ETFs) or stocks in commodity firms
4) Currencies (again with ETFs) – the US dollar is in long-term decline, having lost nearly 70% of its value since it was taken off the gold standard
5) Real estate, but real estate like farm land or timber – again real assets
6) Gold – this is a whole separate category – gold should be treated as financial insurance, to protect against financial calamities, much as you use your health or homeowners insurance
Please feel free to contact me directly at investing@bellaonline.com with any questions you may have.
Why pay expensive fund managers if they cannot protect your money when it most needs protecting?
One way to avoid paying high fees to managers that do NOT perform is through the use of index funds, which passively follow an index. But until recently index funds were pretty much limited to ones which track the performance of the major stock market indices, such as the S&P 500 index.
However, the growth of exchange traded funds (ETFs) has radically changed the face of index investing, giving investors low-cost access to a wide range of investment opportunities across a suite of asset classes. These asset classes include: equities, fixed income, international stocks and bonds, real estate, currencies, commodities and gold.
Investors should bear in mind, however, that investing in an ETF does not remove the risk of losing money, as an ETF will simply follow whichever index it tracks up and down. But ETFs do remove the risk of paying high fees for terrible performance.
The low cost of ETFs is one of their biggest attractions. In the United States, investors pay an average of 0.17 per cent of assets under management a year for an ETF following a broad equity market index.
Other advantages that ETFs have include transparency, simplicity, flexibility and liquidity. ETFs can be bought and sold at a specific price (very near the net asset value) on a stock exchange at any time the exchange is open, much like a stock. This is sharp contrast to a mutual fund, which is only priced at day's end and investors can't be sure what price they paid for the shares.
ETFs are therefore a very useful tool for investors, as ETFs allow investors to easily gain exposure to a sector or asset class with the purchase of a specific ETF. However, ETFs are just a tool – the key to positive investment performance still remains the decision by investors as to which asset classes should be in their portfolio.
I have discussed in prior articles some of the asset classes that should be a part of every investor's portfolio. Of course, there will be varying percentages allocated to each asset class due to differences between each investor – age, risk tolerance, goals, etc.
In my humble opinion, the problem with many investors' portfolios has been too many 'eggs' in one basket – that is, far too much money devoted solely to the US assets denominated in US dollars.
I firmly believe that most investors should have at least some exposure to the following:
1) International stocks, particularly the emerging markets such as China and Brazil
2) International bonds, to diversify out of the US dollar for your fixed income holdings
3) Commodities – in other words, real assets as opposed to paper assets, either through commodities themselves (ETFs) or stocks in commodity firms
4) Currencies (again with ETFs) – the US dollar is in long-term decline, having lost nearly 70% of its value since it was taken off the gold standard
5) Real estate, but real estate like farm land or timber – again real assets
6) Gold – this is a whole separate category – gold should be treated as financial insurance, to protect against financial calamities, much as you use your health or homeowners insurance
Please feel free to contact me directly at investing@bellaonline.com with any questions you may have.
Friday, December 4, 2009
Wall Street Leopard
There was hope that after last year's near collapse in the financial markets that perhaps Wall Street had learned its lesson. But as the old saying goes, a leopard doesn't change its spots.
Wall Street's tendency toward reckless myopia, reinforced by the bull market which ran from the early 80s until the tech bubble burst, returned full force at the first signs of even temporary stability.
The temporary stability was brought about both by Uncle Sam 'giving' Wall Street trillions of taxpayers' dollars and also the temporary lull in the mortgage reset schedule between March 2009 and November 2009.
The eagerness of investors, large and small, to chase prevailing trends (momentum investing) and their unwillingness to concern themselves with very PREDICTABLE longer-term risks shows that nothing was learned from last year's near meltdown.
This myopic behavior, along with encouragement from the Federal Reserve, drove a series of speculative bubbles and crashes during the past decade - the tech bubble, the mortgage bubble, the private equity bubble, etc.
And here we are again in bubble land - with stocks dependent on an "expected" record rebound not only in the economy as a whole, but in corporate revenues and profits. In other words, we are right back into dangerously over-valued territory for stocks once again.
According to one of the analysts who actually foresaw the implosion of the credit markets and who turned bullish in March, Andrew Smithers, the stock market is right now overvalued by 40%! Needless to say, he has turned bearish.
A rare economist who got things right over the past few years is Gluskin Sheff chief economist, David Roseberg. He recently said, "The historical record shows that downturns induced by asset deflation and credit contraction (like now) are different than a garden-variety recession."
He waxes eloquently about how the credit deflation induced downturns typically induce a secular shift in behavior and attitudes toward debt, savings, asset allocation, spending and home ownership. We have yet to see any of these secular changes.
Mr. Rosenberg went on, "That is why people didn't figure out it was the Great Depression until two years after the worst point in the crisis in the 1930s, and why it took decades, not months, quarters or even years, for the complete transition to the next sustainable economic expansion and bull market."
There are many bumps in the road ahead for the US economy, such as unemployment - which is of NO concern to Wall Street. Do not be blindsided by all of the Wall Street optimism!
Wall Street's tendency toward reckless myopia, reinforced by the bull market which ran from the early 80s until the tech bubble burst, returned full force at the first signs of even temporary stability.
The temporary stability was brought about both by Uncle Sam 'giving' Wall Street trillions of taxpayers' dollars and also the temporary lull in the mortgage reset schedule between March 2009 and November 2009.
The eagerness of investors, large and small, to chase prevailing trends (momentum investing) and their unwillingness to concern themselves with very PREDICTABLE longer-term risks shows that nothing was learned from last year's near meltdown.
This myopic behavior, along with encouragement from the Federal Reserve, drove a series of speculative bubbles and crashes during the past decade - the tech bubble, the mortgage bubble, the private equity bubble, etc.
And here we are again in bubble land - with stocks dependent on an "expected" record rebound not only in the economy as a whole, but in corporate revenues and profits. In other words, we are right back into dangerously over-valued territory for stocks once again.
According to one of the analysts who actually foresaw the implosion of the credit markets and who turned bullish in March, Andrew Smithers, the stock market is right now overvalued by 40%! Needless to say, he has turned bearish.
A rare economist who got things right over the past few years is Gluskin Sheff chief economist, David Roseberg. He recently said, "The historical record shows that downturns induced by asset deflation and credit contraction (like now) are different than a garden-variety recession."
He waxes eloquently about how the credit deflation induced downturns typically induce a secular shift in behavior and attitudes toward debt, savings, asset allocation, spending and home ownership. We have yet to see any of these secular changes.
Mr. Rosenberg went on, "That is why people didn't figure out it was the Great Depression until two years after the worst point in the crisis in the 1930s, and why it took decades, not months, quarters or even years, for the complete transition to the next sustainable economic expansion and bull market."
There are many bumps in the road ahead for the US economy, such as unemployment - which is of NO concern to Wall Street. Do not be blindsided by all of the Wall Street optimism!
Friday, November 27, 2009
Thanksgiving Thoughts
The Thanksgiving holiday is a wonderful time to reflect on the many things we have always had reason to be grateful for as Americans. One of those things was, of course, the enduring strength of the American economy.
But when it comes to the economy, are Americans reflecting on past glories, not today's reality?
One thing Americans take for granted is that they will always be the richest, most successful people on the planet. Most Americans think that because that is all they have ever known.
And Americans had just what it took to become the richest people on the face of the earth.
They worked hard. They saved their money. They had little government interference. They had the industrial revolution at their backs. And they had a US dollar that was 'as good as gold.'
Free enterprise 'guaranteed' new wealth which was generated from new innovations. And our political system always adapted to the needs of an evolving global economy.
By the time the baby boomers were born, the United States had such a big lead over the rest of the world that it seemed nothing could stop America.
But nothing lasts forever.....
As it matured, the US economy and its political system became more and more rigid and more and more costly.
Look at the US economy today - there are handouts and bailouts everywhere.
Large companies are protected - especially the financial industry which is dipped in honey (taxpayer money).
And the whole population is encouraged to spend, not to save.....
Why save for retirement...there's Social Security!
Why save for Health care emergencies...we'll soon have national health care!
Why bother to save at all...when the Federal Reserve has pushed interest rates to near zero!
All of these government programs are massively inflating our debt which in turn is weakening our dollar...
Just in the past 6 years, the government's unfunded obligations (Social Security, Medicare, etc.) have increased by almost 50% from $79 trillion to about $115 trillion!
During this same time frame, government revenues have increased by only 12%...the numbers just do not add up for the long term.
At some point, the foreign capital which is so necessary currently to keep the country afloat will question whether the US ever intends to pay back its debt.
If that that foreign capital flees, the US dollar will plunge.
And there are already questions being asked by our creditors.....
Ever since the Federal Reserve began 'quantitative easing' (printing money out thin air) earlier this year, the US dollar has already dropped by nearly 15% in value. And the price of gold has shot higher.
If the United States does not get its economic house in order soon, there may be little to be thankful for when future Thanksgiving days come around.
But when it comes to the economy, are Americans reflecting on past glories, not today's reality?
One thing Americans take for granted is that they will always be the richest, most successful people on the planet. Most Americans think that because that is all they have ever known.
And Americans had just what it took to become the richest people on the face of the earth.
They worked hard. They saved their money. They had little government interference. They had the industrial revolution at their backs. And they had a US dollar that was 'as good as gold.'
Free enterprise 'guaranteed' new wealth which was generated from new innovations. And our political system always adapted to the needs of an evolving global economy.
By the time the baby boomers were born, the United States had such a big lead over the rest of the world that it seemed nothing could stop America.
But nothing lasts forever.....
As it matured, the US economy and its political system became more and more rigid and more and more costly.
Look at the US economy today - there are handouts and bailouts everywhere.
Large companies are protected - especially the financial industry which is dipped in honey (taxpayer money).
And the whole population is encouraged to spend, not to save.....
Why save for retirement...there's Social Security!
Why save for Health care emergencies...we'll soon have national health care!
Why bother to save at all...when the Federal Reserve has pushed interest rates to near zero!
All of these government programs are massively inflating our debt which in turn is weakening our dollar...
Just in the past 6 years, the government's unfunded obligations (Social Security, Medicare, etc.) have increased by almost 50% from $79 trillion to about $115 trillion!
During this same time frame, government revenues have increased by only 12%...the numbers just do not add up for the long term.
At some point, the foreign capital which is so necessary currently to keep the country afloat will question whether the US ever intends to pay back its debt.
If that that foreign capital flees, the US dollar will plunge.
And there are already questions being asked by our creditors.....
Ever since the Federal Reserve began 'quantitative easing' (printing money out thin air) earlier this year, the US dollar has already dropped by nearly 15% in value. And the price of gold has shot higher.
If the United States does not get its economic house in order soon, there may be little to be thankful for when future Thanksgiving days come around.
Friday, November 20, 2009
Retirement Blues
There was an interesting quiz called "Have You Learned Your Lessons?" which appeared in last weekend's Wall Street Journal. It was based on a recent report that included surveys of those planning for or already in retirement.
The answers to the surveys emphasized the point that unless US policy makers can get another asset bubble going in stocks and housing, many people, ages 55 and older are in deep trouble.
That "bubble" strategy is exactly what the government has been trying to do - the problem with that strategy is that asset bubbles always burst and when they do - they leave a terrible mess.
According to the National Retirement Risk Index, published by the Center for Retirement Research at Boston College, 44% of US households could find themselves unable to maintain their current standard of living.
I strongly believe that these people will NOT be able to maintain their standard of living because of poor retirement planning.
Let's look at 401k plans, which makes up a large portion of many people's retirement plans. A report from the University of Michigan took a look at a group of 1.2 million workers in more than 1,500 401k plans over a two-year period. The report showed that an incredible 80% of workers made NO changes at all during the two-year period.
This is, to put it mildly, incredibly stupid.....
Individual circumstances probably changed during this time period - age, risk tolerance, overall finances, etc. I cannot emphasize enough - a 401k should be adjusted as your financial circumstances change.
And on top of that, the financial markets certainly changed. Most of these people were probably still locked in to the 'conventional investing wisdom' and had far too many of their assets invested in US stocks.....
And this in a period when US stocks are no higher than they were a decade ago...what a waste of time and hard-earned money!
What is really scary is the statistic showing that the end of 2007, on the eve of the 2008 market meltdown, nearly half of the workers surveyed (ages 56-65) had 70% or more of their 401k in equities...22% had more than 90% of their 401k in equities!
What were they thinking?? Or maybe they weren't thinking?
What ever happened to raising your allocation to fixed income investments as you get older? I guess people just got too greedy.....
Now many of them will have to go back into the workforce in what should have been their golden years.
The answers to the surveys emphasized the point that unless US policy makers can get another asset bubble going in stocks and housing, many people, ages 55 and older are in deep trouble.
That "bubble" strategy is exactly what the government has been trying to do - the problem with that strategy is that asset bubbles always burst and when they do - they leave a terrible mess.
According to the National Retirement Risk Index, published by the Center for Retirement Research at Boston College, 44% of US households could find themselves unable to maintain their current standard of living.
I strongly believe that these people will NOT be able to maintain their standard of living because of poor retirement planning.
Let's look at 401k plans, which makes up a large portion of many people's retirement plans. A report from the University of Michigan took a look at a group of 1.2 million workers in more than 1,500 401k plans over a two-year period. The report showed that an incredible 80% of workers made NO changes at all during the two-year period.
This is, to put it mildly, incredibly stupid.....
Individual circumstances probably changed during this time period - age, risk tolerance, overall finances, etc. I cannot emphasize enough - a 401k should be adjusted as your financial circumstances change.
And on top of that, the financial markets certainly changed. Most of these people were probably still locked in to the 'conventional investing wisdom' and had far too many of their assets invested in US stocks.....
And this in a period when US stocks are no higher than they were a decade ago...what a waste of time and hard-earned money!
What is really scary is the statistic showing that the end of 2007, on the eve of the 2008 market meltdown, nearly half of the workers surveyed (ages 56-65) had 70% or more of their 401k in equities...22% had more than 90% of their 401k in equities!
What were they thinking?? Or maybe they weren't thinking?
What ever happened to raising your allocation to fixed income investments as you get older? I guess people just got too greedy.....
Now many of them will have to go back into the workforce in what should have been their golden years.
Friday, November 13, 2009
Tell Me Lies...Tell Me Sweet Little Lies
In a news item that was (unsurprisingly) largely ignored by US media outlets, it was revealed this week that the statistics on global oil reserves put together by the International Energy Agency(IEA) have been "fudged" for years. The IEA is considered to be a very highly-respected agency and they were thought to be THE source for information on the oil markets.
The UK's Guardian newspaper spoke to two whistleblowers at the IEA and what a story they told - According to the whistleblowers, the world is much closer to running out of relatively cheap and accessible oil than what the agency's numbers show.
The agency publicly maintains that oil supplies are plentiful and that production can "easily" be ramped up from the current 83 million barrels of oil per day to 105 million barrels.
Skeptics outside the agency doubt whether even 90 million barrels of oil per day can be acheived due to many major oil fields, such as in Mexico, being in a state of rapid decline. The skeptics expect global oil production to actually begin declining with the next 5-10 years.
And the skeptics may have a point...for example, the IEA is taking Saudi Arabia at its word about its oil reserves. The Saudi reserve numbers have remained constant for many years even though obviously the Saudis have been pumping lots of oil out of the ground for all those many years. Perhaps more telling is the fact that the Saudis have not permitted an independent verification of the Saudis' oil reserves literally for decades.
But why would the IEA risk ruining its reputation and "fudge" their numbers?
According to the whistleblowers, "the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves."
And the whistleblowers go on to say the imperative at the agency "was not to anger the Americans". After all, the US doesn't want Wall Street to lose money in a stock market decline.....
The whistleblowers said, "Many inside the organization believe that maintaining oil supplies at even 90-95 million barrels a day would be IMPOSSIBLE." This is not good news in the light of the rapidly increasing demand for oil coming from the emerging markets. No wonder China has snapped up every oil field they could in recent years...
The whistleblowers went on, "There are fears that panic could spread on the financial markets if the figures were brought down further." And no one wants a financial panic...but won't there be one if we wake up one day and oil is trading at $500 a barrel?
It's just another case of past and current American governments "kicking the can down the road"...hoping a miracle will happen before the country has to face harsh reality.
The UK's Guardian newspaper spoke to two whistleblowers at the IEA and what a story they told - According to the whistleblowers, the world is much closer to running out of relatively cheap and accessible oil than what the agency's numbers show.
The agency publicly maintains that oil supplies are plentiful and that production can "easily" be ramped up from the current 83 million barrels of oil per day to 105 million barrels.
Skeptics outside the agency doubt whether even 90 million barrels of oil per day can be acheived due to many major oil fields, such as in Mexico, being in a state of rapid decline. The skeptics expect global oil production to actually begin declining with the next 5-10 years.
And the skeptics may have a point...for example, the IEA is taking Saudi Arabia at its word about its oil reserves. The Saudi reserve numbers have remained constant for many years even though obviously the Saudis have been pumping lots of oil out of the ground for all those many years. Perhaps more telling is the fact that the Saudis have not permitted an independent verification of the Saudis' oil reserves literally for decades.
But why would the IEA risk ruining its reputation and "fudge" their numbers?
According to the whistleblowers, "the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves."
And the whistleblowers go on to say the imperative at the agency "was not to anger the Americans". After all, the US doesn't want Wall Street to lose money in a stock market decline.....
The whistleblowers said, "Many inside the organization believe that maintaining oil supplies at even 90-95 million barrels a day would be IMPOSSIBLE." This is not good news in the light of the rapidly increasing demand for oil coming from the emerging markets. No wonder China has snapped up every oil field they could in recent years...
The whistleblowers went on, "There are fears that panic could spread on the financial markets if the figures were brought down further." And no one wants a financial panic...but won't there be one if we wake up one day and oil is trading at $500 a barrel?
It's just another case of past and current American governments "kicking the can down the road"...hoping a miracle will happen before the country has to face harsh reality.
Tuesday, November 10, 2009
Obama Administration Continues to Back Wall Street Banksters 100%
There was a move afoot at the recently concluded G20 finance ministers meeting to slap a version of the so-called Tobin Tax on major financial institutions around the globe. This tax would be imposed on each and every financial transaction.
I normally do not support new taxes, but this tax was so small it would not be noticeable to individuals traders, but it would be noticeable to the big financial players who trade madly like Goldman Sachs.
British Prime Minister Gordon Brown advocated the tax on financial transactions to support inevitable future bank rescues. I agree with Mr. Brown's statement:
"It cannot be acceptable that the benefits of success in this sector are reaped by the few, but the costs of its failures are borne by all of us. There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards."
Many European nations, such as Germany and France, are in favor of such a tax. The emerging nations such as China and Brazil have no real objection to it.
But - you guessed it - the tax proposal was shot down by the United States. Treasury secretary Tim-the tax cheat-Geithner nearly had a hissy-fit as he voiced his strong opposition to the tax.
And once again, we see that US economic policies are run by Wall Street. Gawd forbid Tim, that a tax be imposed on Goldman and the boyz -- instead of executives getting a $50 million bonus, they may have to settle for a $49.9 million bonus. Poor babies!
This attitude of the United States toward any sort of meaningful financial reform continues to lower the status of the country daily in the eyes of the rest of the world.....
Just follow the dollar on its downward path into the abyss.....
I normally do not support new taxes, but this tax was so small it would not be noticeable to individuals traders, but it would be noticeable to the big financial players who trade madly like Goldman Sachs.
British Prime Minister Gordon Brown advocated the tax on financial transactions to support inevitable future bank rescues. I agree with Mr. Brown's statement:
"It cannot be acceptable that the benefits of success in this sector are reaped by the few, but the costs of its failures are borne by all of us. There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards."
Many European nations, such as Germany and France, are in favor of such a tax. The emerging nations such as China and Brazil have no real objection to it.
But - you guessed it - the tax proposal was shot down by the United States. Treasury secretary Tim-the tax cheat-Geithner nearly had a hissy-fit as he voiced his strong opposition to the tax.
And once again, we see that US economic policies are run by Wall Street. Gawd forbid Tim, that a tax be imposed on Goldman and the boyz -- instead of executives getting a $50 million bonus, they may have to settle for a $49.9 million bonus. Poor babies!
This attitude of the United States toward any sort of meaningful financial reform continues to lower the status of the country daily in the eyes of the rest of the world.....
Just follow the dollar on its downward path into the abyss.....
Friday, November 6, 2009
The Treasury Market Bubble
Recall how the US banks bolstered their balance sheets by swapping the putrid toxic mortgage backed debt for US Treasuries?
To me it seemed like a bad idea at the time, but now it seems like a looming disaster.
It looks quite possible that the price of the Treasuries could head south quite dramatically, taking the banks' capital positions down there with it. Aside from seeing more insolvent banks, the real problem is that this would reduce credit flow to business, risking a double dip recession.
The Fed has been propping up the wobbly-looking US Treasury market by purchasing over $750 billion of Treasuries so far. The problem now is that the Fed plans to stop its shopping spree at the end of the month, taking away a substantial amount of support for the price.
Don't forget too that the Chinese are losing their appetite for the stuff as well. If both parties were to stop buying bonds then prices would fall fast.
John Paulson, the owner of hedge fund Paulson and Co has made billions from successfully shorting the US housing market and the UK banks. He has a good eye for something that is about to implode. He told Bloomberg that, "shorting long-term US debt is the only attractive bet going at the moment".
He went on to say, "I always like to think about assets that are likely to experience a breakdown; the only thing I am really comfortable with right now is US treasury securities and US agency mortgage-backed securities...I think they are overpriced and make attractive shorts."
By keeping the Fed funds rate at close to 0%, banks have virtually no choice but to borrow cheap dollars to buy Treasuries and other assets. Traders within the banks have been having a party with it.
Gillian Tett, the assistant editor of the Financial Times wrote this week about a recently retired banker who gave her an interview about what's going on behind banking's pinstriped exterior. He said, "Highly leveraged short term trades are back in vogue as players jostle to load up. When money is virtually free, they feel stupid of they don't leverage up. Any sense of control has been thrown out of the window."
US banks now have nearly 15% of their bank holdings in Treasuries. This has risen rapidly in the last eighteen months from $1.1 trillion to $1.5 trillion. Interest rates will have to start rising at some point, and when they do the banks will be stuck between a rock and a hard place. Their Treasury assets fall in value as the amount they have to pay on their deposits rises.
Despite this conundrum, banks are still leveraged an amazing 10 times the value of their equity. So a 2% fall in the price of Treasuries would be amplified ten times. Bear in mind that US banks have a stack of money in other less "safe" investments as well, such as commercial property. These could fall even faster. On top of this, 43% of total bank assets are in the form of real estate loans, which are not exactly bomb-proof either.
In an article in SafeHaven, Daniel Aaronson and Lee Markowitz discuss this situation really well, and sign off their article with the chilling conclusion. They wrap it up by saying "It is feasible that even without loan losses, the entire banking system would be insolvent if Treasury yields rise high enough."
To me it seemed like a bad idea at the time, but now it seems like a looming disaster.
It looks quite possible that the price of the Treasuries could head south quite dramatically, taking the banks' capital positions down there with it. Aside from seeing more insolvent banks, the real problem is that this would reduce credit flow to business, risking a double dip recession.
The Fed has been propping up the wobbly-looking US Treasury market by purchasing over $750 billion of Treasuries so far. The problem now is that the Fed plans to stop its shopping spree at the end of the month, taking away a substantial amount of support for the price.
Don't forget too that the Chinese are losing their appetite for the stuff as well. If both parties were to stop buying bonds then prices would fall fast.
John Paulson, the owner of hedge fund Paulson and Co has made billions from successfully shorting the US housing market and the UK banks. He has a good eye for something that is about to implode. He told Bloomberg that, "shorting long-term US debt is the only attractive bet going at the moment".
He went on to say, "I always like to think about assets that are likely to experience a breakdown; the only thing I am really comfortable with right now is US treasury securities and US agency mortgage-backed securities...I think they are overpriced and make attractive shorts."
By keeping the Fed funds rate at close to 0%, banks have virtually no choice but to borrow cheap dollars to buy Treasuries and other assets. Traders within the banks have been having a party with it.
Gillian Tett, the assistant editor of the Financial Times wrote this week about a recently retired banker who gave her an interview about what's going on behind banking's pinstriped exterior. He said, "Highly leveraged short term trades are back in vogue as players jostle to load up. When money is virtually free, they feel stupid of they don't leverage up. Any sense of control has been thrown out of the window."
US banks now have nearly 15% of their bank holdings in Treasuries. This has risen rapidly in the last eighteen months from $1.1 trillion to $1.5 trillion. Interest rates will have to start rising at some point, and when they do the banks will be stuck between a rock and a hard place. Their Treasury assets fall in value as the amount they have to pay on their deposits rises.
Despite this conundrum, banks are still leveraged an amazing 10 times the value of their equity. So a 2% fall in the price of Treasuries would be amplified ten times. Bear in mind that US banks have a stack of money in other less "safe" investments as well, such as commercial property. These could fall even faster. On top of this, 43% of total bank assets are in the form of real estate loans, which are not exactly bomb-proof either.
In an article in SafeHaven, Daniel Aaronson and Lee Markowitz discuss this situation really well, and sign off their article with the chilling conclusion. They wrap it up by saying "It is feasible that even without loan losses, the entire banking system would be insolvent if Treasury yields rise high enough."
Tuesday, November 3, 2009
Gold Is King Everywhere But in the US, Where Goldman Is King
There was major news out this week as the International Monetary Fund (IMF) announced that they were selling 200 tons of gold to the Reserve Bank of India. India has joined China and other nations around the globe in diversifying out of the US dollar.
There are only 203.3 tons of gold left that the IMF wants to sell. Look for China, who is trying to get rid of dollars as fast as they can, to be an anxious buyer and step up to the plate and purchase the remaining gold.
The key takeaway here is that many nations, particularly in Asia, realize that the US dollar is quickly turning to toilet paper as the Fed continues to print trillions of dollars out of thin air.
It seems that the only people who don't "get" the appeal of gold are the economists and the numbskulls on Wall Street and in Washington, who still consider gold to be a "barbarous relic". Obviously the Asians do NOT think so.
Instead of doing something wise and prudent in the US, instead here we have the "every man for himself, get rich quick mentality" and just f___ everybody else.
The poster child for the "new" America is once again Goldman Sachs. Traders at Goldman Sachs made $100 million in profits on 36 of the 65 days of the third quarter. And - they recorded only one daily trading loss in the third quarter. This is an impossibility in a normal, non-rigged market!
According to the investigative report from McClatchey, in 2006 and 2007 Goldman Sachs KNOWINGLY distributed $40 billion in supposed AAA mortgage-backed securities that their 'snake oil salesmen' sold to investors such as pensions funds and foreign banks around the globe.
Meantime, Goldman KNEW these securities were really worth something between dead carp and dog s___. And they "bet" massively against their own customers in the CDS (credit default swaps) market without telling the clients who bought that junk they were doing that.
In the old America, this would be considered out and out fraud.
But in the new America, luckily for Goldman Sachs, it has run the executive branch of the US government (and much of the legislative branch) for years. So there is nothing to fear.
What the hell has happened to this country?
There are only 203.3 tons of gold left that the IMF wants to sell. Look for China, who is trying to get rid of dollars as fast as they can, to be an anxious buyer and step up to the plate and purchase the remaining gold.
The key takeaway here is that many nations, particularly in Asia, realize that the US dollar is quickly turning to toilet paper as the Fed continues to print trillions of dollars out of thin air.
It seems that the only people who don't "get" the appeal of gold are the economists and the numbskulls on Wall Street and in Washington, who still consider gold to be a "barbarous relic". Obviously the Asians do NOT think so.
Instead of doing something wise and prudent in the US, instead here we have the "every man for himself, get rich quick mentality" and just f___ everybody else.
The poster child for the "new" America is once again Goldman Sachs. Traders at Goldman Sachs made $100 million in profits on 36 of the 65 days of the third quarter. And - they recorded only one daily trading loss in the third quarter. This is an impossibility in a normal, non-rigged market!
According to the investigative report from McClatchey, in 2006 and 2007 Goldman Sachs KNOWINGLY distributed $40 billion in supposed AAA mortgage-backed securities that their 'snake oil salesmen' sold to investors such as pensions funds and foreign banks around the globe.
Meantime, Goldman KNEW these securities were really worth something between dead carp and dog s___. And they "bet" massively against their own customers in the CDS (credit default swaps) market without telling the clients who bought that junk they were doing that.
In the old America, this would be considered out and out fraud.
But in the new America, luckily for Goldman Sachs, it has run the executive branch of the US government (and much of the legislative branch) for years. So there is nothing to fear.
What the hell has happened to this country?
Friday, October 30, 2009
The US Economy Is Still Struggling
The government yesterday released the third quarter GDP number for the US. The headline figure showed that the United States economy grew at an 3.5% annualized rate in the months of July, August and September.
Hooray! That's great, isn't? We are out of the recession, right? The media was celebrating the number and telling everyone to party. The stock market was up about 200 points...happy days are here again!
So then why did the stock market sell off on Friday? Part of the reason is simply that yesterday's up move was just the boyz - aka Goldman Sachs, etc. - pushing the market up, hoping that together with the media hype, they would get lots of "suckers" - aka small investors - to jump in, blindly euphoric. When that did not happen, they sold.
But the main reason the stock market sold off on Friday was that the 3.5% GDP growth figure was not all that it seemed.
Almost all of the 3.5% 'improvement' came from areas where the government is spending, incentivizing, or bailing out various sectors: autos, residential real estate, and Fed spending.
A large chunk of the gain - 1.66% - came from car sales in the form of the now-defunct Cash for Clunkers program. Unfortunately, car showrooms are now back to where they were before the Cash for Clunkers program, with cobwebs gathering on most of the vehicle inventory.
Another nearly two-thirds of a per cent came from the residential real estate market thanks to low mortgage rates and the government's $8,000 tax credit for new homebuyers.
So basically, if you took out the government-stimulated sectors, the "real" economy is still flat on its back and nearly comatose.
A side note -- according to many estimates, when the Cash for Clunkers program cost is spread out over the number of incremental cars sold, the cost came to $24,000 per vehicle.
And similar estimates made on the $8,000 new homebuyer tax credit showed that it cost $42,000 for each home sale the program spurred.
The bottom line is that the government has spent trillions of dollars on programs such as these and on bailing out Wall Street - the Federal Reserve has bought $2.2 trillion of "garbage" assets from Wall Street with money printed out of thin air.
Yet, we don't have much to show for it - a three month up-blip in an otherwise comatose economy. The worry is that our economy will need constant dosages of trillions of dollars just to keep afloat.
Hooray! That's great, isn't? We are out of the recession, right? The media was celebrating the number and telling everyone to party. The stock market was up about 200 points...happy days are here again!
So then why did the stock market sell off on Friday? Part of the reason is simply that yesterday's up move was just the boyz - aka Goldman Sachs, etc. - pushing the market up, hoping that together with the media hype, they would get lots of "suckers" - aka small investors - to jump in, blindly euphoric. When that did not happen, they sold.
But the main reason the stock market sold off on Friday was that the 3.5% GDP growth figure was not all that it seemed.
Almost all of the 3.5% 'improvement' came from areas where the government is spending, incentivizing, or bailing out various sectors: autos, residential real estate, and Fed spending.
A large chunk of the gain - 1.66% - came from car sales in the form of the now-defunct Cash for Clunkers program. Unfortunately, car showrooms are now back to where they were before the Cash for Clunkers program, with cobwebs gathering on most of the vehicle inventory.
Another nearly two-thirds of a per cent came from the residential real estate market thanks to low mortgage rates and the government's $8,000 tax credit for new homebuyers.
So basically, if you took out the government-stimulated sectors, the "real" economy is still flat on its back and nearly comatose.
A side note -- according to many estimates, when the Cash for Clunkers program cost is spread out over the number of incremental cars sold, the cost came to $24,000 per vehicle.
And similar estimates made on the $8,000 new homebuyer tax credit showed that it cost $42,000 for each home sale the program spurred.
The bottom line is that the government has spent trillions of dollars on programs such as these and on bailing out Wall Street - the Federal Reserve has bought $2.2 trillion of "garbage" assets from Wall Street with money printed out of thin air.
Yet, we don't have much to show for it - a three month up-blip in an otherwise comatose economy. The worry is that our economy will need constant dosages of trillions of dollars just to keep afloat.
Friday, October 23, 2009
A "Jobless Recovery" is a Myth
The story we are getting from the government and the mainstream media is that the United States will experience a "jobless" economic recovery. This is a myth! A jobless recovery means no economic recovery in the United States
.
By definition, an economic recovery means a net increase in economic activity, which also dictates positive wealth generation. When an economy is expanding and producing real wealth, this must also result in job creation.
The phrase "jobless recovery" fails the test of rationality. Why?
When the very wealthiest members of society have most of the disposable income, it is impossible to have a robust economy.
The reason for this revolves around the economic concept of "marginal propensity to consume". The very poorest people have a marginal propensity to consume of 1 or 100%, since they are forced to spend their money as fast as they receive it just to survive. Conversely, a billionaire may have a propensity to consume of (at most) 0.1 or 10%.
When nations have a strong middle class, it means they have a large proportion of its citizens with a decent "marginal propensity to consume" and a large fraction of each new dollar of wealth produced is spent, which produces economic activity.
Conversely, in a society where wealth is concentrated in a small percentage of the population, only a small fraction of each new dollar of wealth produced gets spent.
Nowhere are these economic principles more true than in a consumer-based economy like the United States. More than 70% of the nation's GDP revolves around consumer spending.
For well over two decades, the US economy has become totally dependent on ultra-high levels of consumption in order to sustain the economy. We had bubbles in the economy - tech, housing, etc. - which produced illusory wealth and temporary jobs related to the bubbles.
The problem now is that the bubbles have burst, jobs are being lost and the middle class has little wealth (savings) left and they have hit the limit as to how much debt they can incur in an attempt to sustain their spending.
The wealth in the United States has become too concentrated in too few hands in order to sustain the economy the way the economy is currently constructed.
There was an interesting analysis, conducted by economists Emmanuel Saez of the University of California, Berkeley and Thomas Piketty of the Paris School of Economics, which showed that in the US the rich are indeed getting richer.
Their report revealed that two-thirds of the US's total income gains from 2002-2007 went to the top 1% of households, with this top 1% holding a larger slice of income in 2007 than at any time since 1928.
The findings, released by the Center on Budget and Policy Priorities, show that during those years in the study, the inflation-adjusted income of the top 1% of households increased than 10 times faster than the income of the bottom 90% of households.
The last time such a big share of the income gain during an economic expansion went to the top 1% - and such a small share went to the bottom 90% - was in the 1920s.
I'm sure many of you will recall reading about that era (The Great Gatsby, etc.) and what followed in the 1930s.
Without a larger portion of the populace having significant spending power, you cannot have a healthy economy - only "jobless recoveries" where Americans mortgage their futures and their children's on more and more debt.
This has been true for thousands of years. The Greek philosopher Plutarch said "An imbalance between rich and poor is the oldest and most fatal ailment of all republics."
.
By definition, an economic recovery means a net increase in economic activity, which also dictates positive wealth generation. When an economy is expanding and producing real wealth, this must also result in job creation.
The phrase "jobless recovery" fails the test of rationality. Why?
When the very wealthiest members of society have most of the disposable income, it is impossible to have a robust economy.
The reason for this revolves around the economic concept of "marginal propensity to consume". The very poorest people have a marginal propensity to consume of 1 or 100%, since they are forced to spend their money as fast as they receive it just to survive. Conversely, a billionaire may have a propensity to consume of (at most) 0.1 or 10%.
When nations have a strong middle class, it means they have a large proportion of its citizens with a decent "marginal propensity to consume" and a large fraction of each new dollar of wealth produced is spent, which produces economic activity.
Conversely, in a society where wealth is concentrated in a small percentage of the population, only a small fraction of each new dollar of wealth produced gets spent.
Nowhere are these economic principles more true than in a consumer-based economy like the United States. More than 70% of the nation's GDP revolves around consumer spending.
For well over two decades, the US economy has become totally dependent on ultra-high levels of consumption in order to sustain the economy. We had bubbles in the economy - tech, housing, etc. - which produced illusory wealth and temporary jobs related to the bubbles.
The problem now is that the bubbles have burst, jobs are being lost and the middle class has little wealth (savings) left and they have hit the limit as to how much debt they can incur in an attempt to sustain their spending.
The wealth in the United States has become too concentrated in too few hands in order to sustain the economy the way the economy is currently constructed.
There was an interesting analysis, conducted by economists Emmanuel Saez of the University of California, Berkeley and Thomas Piketty of the Paris School of Economics, which showed that in the US the rich are indeed getting richer.
Their report revealed that two-thirds of the US's total income gains from 2002-2007 went to the top 1% of households, with this top 1% holding a larger slice of income in 2007 than at any time since 1928.
The findings, released by the Center on Budget and Policy Priorities, show that during those years in the study, the inflation-adjusted income of the top 1% of households increased than 10 times faster than the income of the bottom 90% of households.
The last time such a big share of the income gain during an economic expansion went to the top 1% - and such a small share went to the bottom 90% - was in the 1920s.
I'm sure many of you will recall reading about that era (The Great Gatsby, etc.) and what followed in the 1930s.
Without a larger portion of the populace having significant spending power, you cannot have a healthy economy - only "jobless recoveries" where Americans mortgage their futures and their children's on more and more debt.
This has been true for thousands of years. The Greek philosopher Plutarch said "An imbalance between rich and poor is the oldest and most fatal ailment of all republics."
Friday, October 16, 2009
Dow 10,000 - So What?
There were a number of interesting financial news stories this week including:
1) The billions of dollars in profits the Wall Street banks made using taxpayers' money. Goldman Sachs alone is paying out $23 billion in bonuses this quarter to their employees!
2) Some of Tim Geithner's closest aides in the Treasury department reaped millions of dollars working for Wall Street banks and hedge funds - part of that revolving door that needs to be slammed shut between Wall Street and Washington DC.
3) It was reported that major banks and financial firms spent $114.2 million in contributions toward the 2008 election campaign. In addition, they spent $77 million on lobbying and $37 million on federal campaign contributions.
In return, these political activities have yielded them $295.2 billion from all the various government bailouts. That a return of 258,449%! Wow - these guys are brilliant "investors"! And let's not forget that financial "reform" is now a dead issue for both the Congress and the Obama administration.
4) With the current job losses due to the financial crisis, employment levels in the United States are now back to the same levels they were a decade ago. It has been a "lost decade" for jobs.
DOW 10,000
Yet the media could only talk about the Dow Industrials hitting the 10,000 level again.
I say - so what? The Dow Industrials hit 10,000 back in March 1999 - there has been zero progress for a decade!
And if you adjust for inflation, the Dow has actually lost 23.5% during the past decade. In terms of the Euro currency, it has lost 28%.
And in terms of that long-term store of purchasing power - gold - the Dow has nose-dived by 73.5%!
So where does the 60% rally since the March lows put the stock market now?
The stock market is now at its most expensive level in seven years. It is trading at 26 times operating profit and an incredible 180 times reported profit!
On a reported basis, this market is nearly times as overvalued, as it was during the tech bubble.
History has shown that when the stock market reaches these valuation levels, the odds of it being lower a year later are in excess of 60%.
Caveat Emptor!
1) The billions of dollars in profits the Wall Street banks made using taxpayers' money. Goldman Sachs alone is paying out $23 billion in bonuses this quarter to their employees!
2) Some of Tim Geithner's closest aides in the Treasury department reaped millions of dollars working for Wall Street banks and hedge funds - part of that revolving door that needs to be slammed shut between Wall Street and Washington DC.
3) It was reported that major banks and financial firms spent $114.2 million in contributions toward the 2008 election campaign. In addition, they spent $77 million on lobbying and $37 million on federal campaign contributions.
In return, these political activities have yielded them $295.2 billion from all the various government bailouts. That a return of 258,449%! Wow - these guys are brilliant "investors"! And let's not forget that financial "reform" is now a dead issue for both the Congress and the Obama administration.
4) With the current job losses due to the financial crisis, employment levels in the United States are now back to the same levels they were a decade ago. It has been a "lost decade" for jobs.
DOW 10,000
Yet the media could only talk about the Dow Industrials hitting the 10,000 level again.
I say - so what? The Dow Industrials hit 10,000 back in March 1999 - there has been zero progress for a decade!
And if you adjust for inflation, the Dow has actually lost 23.5% during the past decade. In terms of the Euro currency, it has lost 28%.
And in terms of that long-term store of purchasing power - gold - the Dow has nose-dived by 73.5%!
So where does the 60% rally since the March lows put the stock market now?
The stock market is now at its most expensive level in seven years. It is trading at 26 times operating profit and an incredible 180 times reported profit!
On a reported basis, this market is nearly times as overvalued, as it was during the tech bubble.
History has shown that when the stock market reaches these valuation levels, the odds of it being lower a year later are in excess of 60%.
Caveat Emptor!
Tuesday, October 13, 2009
More Wall Street Propaganda
All one has to do is visit an investing website like Seeking Alpha and read the articles there from financial professionals and other investors to see one of the major problems facing America.
People refuse to look in the mirror and face the fact that indeed all is not well with America's economy and that other nations are doing better than we are currently.
There are a good number of articles on Seeking Alpha from the same handful of authors that are constantly bashing our main economic competitor, China. All the articles read the same - lots of flag-waving, calling the Chinese evil and other unflattering adjectives - but never any hard facts.
These articles mouth the US government line that says that Americans and Wall Street aren't to blame for the economic crisis. It was all caused by "global imbalances" - too much saving and not enough spending by those "clever" Chinese who are doing this solely to bring down the US.
So there is a lot of table-pounding about "global imbalances" and anyone who brings up the fact that Chinese consumption is growing nicely is obviously a communist sympathizer.
For all of those flag-wavers, here are some hard economic FACTS for you:
During the past 30 years, personal spending has accounted for 60% of China's aggregate growth in GDP. Recently, spending has accelerated further - between 2006 and 2008 consumption grew at more than 8% a year - Asia's highest rate.
Compared to the US, China's consumption is still relatively small at only 41% of GDP. But consider the trend. China's incremental consumption of tradable goods last year, at about $275 billion, was nine times as great as the US's.
But, go ahead, ignore the facts and continue blaming other countries for the US's problems.....
People refuse to look in the mirror and face the fact that indeed all is not well with America's economy and that other nations are doing better than we are currently.
There are a good number of articles on Seeking Alpha from the same handful of authors that are constantly bashing our main economic competitor, China. All the articles read the same - lots of flag-waving, calling the Chinese evil and other unflattering adjectives - but never any hard facts.
These articles mouth the US government line that says that Americans and Wall Street aren't to blame for the economic crisis. It was all caused by "global imbalances" - too much saving and not enough spending by those "clever" Chinese who are doing this solely to bring down the US.
So there is a lot of table-pounding about "global imbalances" and anyone who brings up the fact that Chinese consumption is growing nicely is obviously a communist sympathizer.
For all of those flag-wavers, here are some hard economic FACTS for you:
During the past 30 years, personal spending has accounted for 60% of China's aggregate growth in GDP. Recently, spending has accelerated further - between 2006 and 2008 consumption grew at more than 8% a year - Asia's highest rate.
Compared to the US, China's consumption is still relatively small at only 41% of GDP. But consider the trend. China's incremental consumption of tradable goods last year, at about $275 billion, was nine times as great as the US's.
But, go ahead, ignore the facts and continue blaming other countries for the US's problems.....
Thursday, October 8, 2009
Welcome to Zombieland USA
The recent financial stories not covered by the mainstream media have been interesting to say the least.
First, we have Neal Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP) saying that the feds - Ben Bernanke and Hank Paulson - may have "stretched" the truth a bit about the supposed health of the nine major financial institutions which received $125 billion in capital infusions from the TARP program.
Secondly, we thought we had something 'good' that came from the recent G20 summit in Pittsburgh. The 'good' was the agreement among all the participants to have strict global guidelines on bankers' compensation.
But the United States and Treasury secretary Tim Geithner have now said that they will take a "flexible approach" to interpreting these compensation guidelines. In other words, these guidelines on bankers' compensation will be ignored. The Wall Street banksters win again! And the other nations are not pleased with US economic policies that are emanating from Wall Street.
In their rush to help their Wall Street friends, the federal government seems to forgotten the fact that small busineeses employ 50% of the country's workforce and contribute 38% of the nation's GDP. The middle class continues to be left behind......
So what exactly has TARP and the litany of other government bailout plans accomplished? It has propped up large institutions that have troubled assets which are still troubled and bad debts that are still bad.
On top of this, the Wall Street banksters have used these past six months to get back to 'business as usual' and incredibly increase their leverage even more. In other words, to make even bigger bets - with other peoples' money (taxpayers) - of the type that got them into trouble in the first place.
While this has been going on, at the regional and local level real businesses with real customers and real need for capital cannot get access to credit.
So what was the whole idea behind TARP? It was meant merely as a delaying tactic. The people (Wall Street) invested heavily in the old system of debt-based asset appreciation are stalling for time.
They are HOPING that time will somehow allow for a miraculous alchemy and turn the leaden assets and debts they have into gold. And the government went along with this dream of Wall Street and gambled the future of the country on it.
Welcome to Zombieland USA
The new movie - Zombieland - about a group of survivors in a world of zombies did fairly well at the box office. I can already picture the sequel......
Welcome to Zombieland USA - starring Ben Bernanke, Tim Geithner, Hank Paulson, and a cast of thousands of Wall Street banksters.
Survivors of the US economic bubble of 2002-2007 must defend themselves from the zombies!
Survivors are being attacked in the streets, in their homes, and in their workplaces. Zombie banks - kept alive only by artificial stimulants provided by the feds - take the survivors' money and their homes.
Meanwhile other zombies at the Federal Reserve and the Treasury department gnaw at survivors' savings by debasing the dollar and thus encouraging inflation. The only goal of these zombies is to allow the US to repay their debts with nearly worthless dollars.
All kidding aside, what we have done in this country is that we have saved zombie companies with zombie assets (debts that must be repaid for generations to come) at the expense of the living, breathing engine of the true free market capitalist system - small businesses and the middle class.
First, we have Neal Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP) saying that the feds - Ben Bernanke and Hank Paulson - may have "stretched" the truth a bit about the supposed health of the nine major financial institutions which received $125 billion in capital infusions from the TARP program.
Secondly, we thought we had something 'good' that came from the recent G20 summit in Pittsburgh. The 'good' was the agreement among all the participants to have strict global guidelines on bankers' compensation.
But the United States and Treasury secretary Tim Geithner have now said that they will take a "flexible approach" to interpreting these compensation guidelines. In other words, these guidelines on bankers' compensation will be ignored. The Wall Street banksters win again! And the other nations are not pleased with US economic policies that are emanating from Wall Street.
In their rush to help their Wall Street friends, the federal government seems to forgotten the fact that small busineeses employ 50% of the country's workforce and contribute 38% of the nation's GDP. The middle class continues to be left behind......
So what exactly has TARP and the litany of other government bailout plans accomplished? It has propped up large institutions that have troubled assets which are still troubled and bad debts that are still bad.
On top of this, the Wall Street banksters have used these past six months to get back to 'business as usual' and incredibly increase their leverage even more. In other words, to make even bigger bets - with other peoples' money (taxpayers) - of the type that got them into trouble in the first place.
While this has been going on, at the regional and local level real businesses with real customers and real need for capital cannot get access to credit.
So what was the whole idea behind TARP? It was meant merely as a delaying tactic. The people (Wall Street) invested heavily in the old system of debt-based asset appreciation are stalling for time.
They are HOPING that time will somehow allow for a miraculous alchemy and turn the leaden assets and debts they have into gold. And the government went along with this dream of Wall Street and gambled the future of the country on it.
Welcome to Zombieland USA
The new movie - Zombieland - about a group of survivors in a world of zombies did fairly well at the box office. I can already picture the sequel......
Welcome to Zombieland USA - starring Ben Bernanke, Tim Geithner, Hank Paulson, and a cast of thousands of Wall Street banksters.
Survivors of the US economic bubble of 2002-2007 must defend themselves from the zombies!
Survivors are being attacked in the streets, in their homes, and in their workplaces. Zombie banks - kept alive only by artificial stimulants provided by the feds - take the survivors' money and their homes.
Meanwhile other zombies at the Federal Reserve and the Treasury department gnaw at survivors' savings by debasing the dollar and thus encouraging inflation. The only goal of these zombies is to allow the US to repay their debts with nearly worthless dollars.
All kidding aside, what we have done in this country is that we have saved zombie companies with zombie assets (debts that must be repaid for generations to come) at the expense of the living, breathing engine of the true free market capitalist system - small businesses and the middle class.
Friday, October 2, 2009
The New World Economic Order
The G-20 summit occurred last week right here in my backyard of Pittsburgh, Pennsylvania. And no, I was not one of the black-scarved anarchists that was arrested for breaking windows!
Nothing much happened at the meeting as world leaders only met for a short time. The biggest news from the meeting had to be the announcement that the annual summit of the G-8 (the top 8 developed countries) will now be replaced by a meeting of the G-20 (which includes the major developing countries).
This passing of the baton signals an important change in the world economy. The days of US hegemony have ended, the peak of US power probably came somewhere between the fall of the Berlin Wall and the fall of Lehman Brothers. Economic and political power are slowly shifting from the US, Europe and Japan to Asia, South America and other developing nations.
The economy of the entire developing world now equals that of the entire developed world. One example - in terms of produced goods, the economy of Chindia (China and India) has surpassed that of the United States. Given the huge population of the developing world, it is easy to conclude that its potential for economic growth far exceeds ours.
What does such a change imply for us? One definite change for us is that the developing world's voracious appetite for commodities will act as a tax on us, pushing up prices for key commodities (oil,etc.) and choking off economic growth. So expect prices on most commodities to continue to head higher and to stay at elevated levels for years to come.
Such a change in the global economy also means that you should change the emphasis in your investment portfolio away from slow growing economies like the United States to the faster growing economies of the emerging world.
That's not to say that the United States is not home to many great companies. There are many fabulous American companies, but I would put an emphasis on the companies that sell a lot of their goods into the emerging economies. Companies such as Apple, Coke, McDonald's, Johnson & Johnson, Intel, Microsoft, Boeing, etc.
But the real emphasis should be on investing directly into those emerging market economies. This can be done by buying mutual funds, ETFs or individual stocks. Many individual companies do trade here on US stock exchanges in the form of ADRs - American Depositary Receipts.
My last piece of advice is to forget about those fancy long-term charts your advisor may show you that point out the fabulous long-term performance of the US stock market (although it has returned nothing for the last 10 years).
What your advisor will neglect to tell you is that much of those gaudy statistics were compiled when the United States went from being a developing economy, like China, to becoming the king of the developed nations after World War II. That scenario is impossible to repeat in the future.
So don't keep all of your investment eggs in the United States basket. Doing so and getting a great long-term return on your investment will be as likely as Muhammad Ali coming out of retirement and becoming the heavyweight boxing champ again.
Nothing much happened at the meeting as world leaders only met for a short time. The biggest news from the meeting had to be the announcement that the annual summit of the G-8 (the top 8 developed countries) will now be replaced by a meeting of the G-20 (which includes the major developing countries).
This passing of the baton signals an important change in the world economy. The days of US hegemony have ended, the peak of US power probably came somewhere between the fall of the Berlin Wall and the fall of Lehman Brothers. Economic and political power are slowly shifting from the US, Europe and Japan to Asia, South America and other developing nations.
The economy of the entire developing world now equals that of the entire developed world. One example - in terms of produced goods, the economy of Chindia (China and India) has surpassed that of the United States. Given the huge population of the developing world, it is easy to conclude that its potential for economic growth far exceeds ours.
What does such a change imply for us? One definite change for us is that the developing world's voracious appetite for commodities will act as a tax on us, pushing up prices for key commodities (oil,etc.) and choking off economic growth. So expect prices on most commodities to continue to head higher and to stay at elevated levels for years to come.
Such a change in the global economy also means that you should change the emphasis in your investment portfolio away from slow growing economies like the United States to the faster growing economies of the emerging world.
That's not to say that the United States is not home to many great companies. There are many fabulous American companies, but I would put an emphasis on the companies that sell a lot of their goods into the emerging economies. Companies such as Apple, Coke, McDonald's, Johnson & Johnson, Intel, Microsoft, Boeing, etc.
But the real emphasis should be on investing directly into those emerging market economies. This can be done by buying mutual funds, ETFs or individual stocks. Many individual companies do trade here on US stock exchanges in the form of ADRs - American Depositary Receipts.
My last piece of advice is to forget about those fancy long-term charts your advisor may show you that point out the fabulous long-term performance of the US stock market (although it has returned nothing for the last 10 years).
What your advisor will neglect to tell you is that much of those gaudy statistics were compiled when the United States went from being a developing economy, like China, to becoming the king of the developed nations after World War II. That scenario is impossible to repeat in the future.
So don't keep all of your investment eggs in the United States basket. Doing so and getting a great long-term return on your investment will be as likely as Muhammad Ali coming out of retirement and becoming the heavyweight boxing champ again.
Friday, September 25, 2009
Women Drive China's Booming Economy
China's economy keeps humming along nicely, growing at about an 8% annual rate. And so far in 2009, retail sales in China have been rising at a brisk 15% rate. Much of this economic growth has been driven by a purchasing powerhouse - Chinese women under the age of 35.
That growth looks set to continue. A recent study surveyed female consumers in China and 80% of them said they expected to spend more in the next six months than in the last six months. Sounds like the United States before the Wall Street "bomb" blew up the US economy.
Chinese women are not only exerting influence on decision-making in their own homes but they are also making purchase decisions for their parents when they live in the same house or neighborhood.
Women in China now contribute about half of household income, up from 20% in the 1950s. Their educational opportunities have greatly grown, and they have entered the white-collar force in large numbers.
Female consumers in China are becoming less price sensitive and more sophisticated about the brands and products they buy. These female consumers are similar to female consumers elsewhere and do things such as conducting research online before buying items.
Chinese women have another similarity - they are also greatly concerned about the safety of the products they buy for their children. At times, American shoppers worry about a 'Made in China' label and safety issues. These women have to deal with this every day. Many choose where to shop based on whether they think they can find genuine and non-toxic products.
In fact, affluent Chinese women have been known to fly to Taiwan just to buy products for their babies. They are willing to spend more for their children's safety and buy the safer foreign products.
This huge body of confident consumers has investment implications. It bodes well for the continued rapid growth of the Chinese economy and for the long-term growth in investments in Chinese stocks, mutual funds and ETFs.
It can also bode well for large American companies that have a large presence in China. Some of the best-known American brands would include: Coca-Cola, Pepsico, McDonald's, Yum Brands, Johnson & Johnson and Walmart.
That growth looks set to continue. A recent study surveyed female consumers in China and 80% of them said they expected to spend more in the next six months than in the last six months. Sounds like the United States before the Wall Street "bomb" blew up the US economy.
Chinese women are not only exerting influence on decision-making in their own homes but they are also making purchase decisions for their parents when they live in the same house or neighborhood.
Women in China now contribute about half of household income, up from 20% in the 1950s. Their educational opportunities have greatly grown, and they have entered the white-collar force in large numbers.
Female consumers in China are becoming less price sensitive and more sophisticated about the brands and products they buy. These female consumers are similar to female consumers elsewhere and do things such as conducting research online before buying items.
Chinese women have another similarity - they are also greatly concerned about the safety of the products they buy for their children. At times, American shoppers worry about a 'Made in China' label and safety issues. These women have to deal with this every day. Many choose where to shop based on whether they think they can find genuine and non-toxic products.
In fact, affluent Chinese women have been known to fly to Taiwan just to buy products for their babies. They are willing to spend more for their children's safety and buy the safer foreign products.
This huge body of confident consumers has investment implications. It bodes well for the continued rapid growth of the Chinese economy and for the long-term growth in investments in Chinese stocks, mutual funds and ETFs.
It can also bode well for large American companies that have a large presence in China. Some of the best-known American brands would include: Coca-Cola, Pepsico, McDonald's, Yum Brands, Johnson & Johnson and Walmart.
Tuesday, September 22, 2009
Another First for China
Circle September 28th on your calendars. It will be a momentous day in financial markets history. That is the day that China will issue its first sovereign bonds denominated in its own currency - the renminbi - to offshore investors.
The amount of bonds to be sold will be small - only $879 million. But as the Chinese proverb says - "even the longest journey must start with a small step."
This first sale of renminbi bonds is another step taken by China to turn the renminbi into a global currency someday. Developing an offshore bond market will be an important step if the renminbi is to become a global cuurency, as bonds would provide foreign institutions with an attractive means by which to hold the renminbi.
Beijing has already taken a number of steps in the past year to encourage greater use of the renminbi in international transactions. The aim is, of course, to decrease China's dependence on the falling US Dollar.
For example - in the past year, China has signed deals with Malaysia, South Korea, Indonesia, Argentina and Belarus that allow it to receive renminbi instead of dollars for its exports to those countries. There are similar deals expected soon with other countries such as Brazil, etc.
The amount of bonds to be sold will be small - only $879 million. But as the Chinese proverb says - "even the longest journey must start with a small step."
This first sale of renminbi bonds is another step taken by China to turn the renminbi into a global currency someday. Developing an offshore bond market will be an important step if the renminbi is to become a global cuurency, as bonds would provide foreign institutions with an attractive means by which to hold the renminbi.
Beijing has already taken a number of steps in the past year to encourage greater use of the renminbi in international transactions. The aim is, of course, to decrease China's dependence on the falling US Dollar.
For example - in the past year, China has signed deals with Malaysia, South Korea, Indonesia, Argentina and Belarus that allow it to receive renminbi instead of dollars for its exports to those countries. There are similar deals expected soon with other countries such as Brazil, etc.
Friday, September 18, 2009
Contrarian Investing
Some of the most successful investors of all time have been contrarian investors. The list of most famous contrarian investors would include the likes of Warren Buffet, Jim Rogers and John Templeton.
What exactly is contrarianism? What it means is developing your OWN approach to investing and working toward LONG-TERM investing goals. I'm sure the late John Templeton would be appalled by today's emphasis on the short-term such as day trading or Wall Street's high frequency trading.
Contrarians are aware that short-term movements in the markets are caused almost entirely by 'investor psychology' - that is what the majority of investors happens to be thinking at the moment. We see it all the time on Wall Street - everyone in the "herd" is invested in the same things. Another applicable term may be 'momentum investing' - chasing what is 'hot' at the moment.
A contrarian investor NEVER entrusts their money to others for precisely this reason. If they do, their money will most likely go into 'popular' investments and when the 'popularity' fades, so will the asset value of their portfolio.
Small investors who entrusted their money to others experienced this last fall until the spring of this year.
My favorite contrarian investor has to be John Templeton of whom I wrote about recently in my article titled "Investing Lessons from John Templeton".
As I discussed in the article, Sir John Templeton pioneered the idea of global investing in this country. He invested the monies in his Templeton Growth Fund into foreign markets when it was considered "nuts" to do so.
The fund grew at about a 16% per year rate. So if someone invested $10,000 into the fund when it was launched in 1954, by 1999 that $10,000 would have been worth an incredible $5.5 million!
Templeton's focus was always on the fundamentals of the company he was investing into. He could care less about currency movements, or what the charts 'said'.
John Templeton's investment maxims were very simple and they were just basic common sense. Here are some maxims that he published:
1) NEVER follow the crowd.
2) Avoid the popular.
3) Search worldwide.
4) Buy during times of pessimism.
5) Hunt for value and bargains.
6) Keep an open mind.
7) Learn from your mistakes.
8) No one knows everything.
9) Everything changes.
10)Invest for real returns.
Just by following some of these investment maxims from Sir John Templeton should help improve your long-term investment performance.
What exactly is contrarianism? What it means is developing your OWN approach to investing and working toward LONG-TERM investing goals. I'm sure the late John Templeton would be appalled by today's emphasis on the short-term such as day trading or Wall Street's high frequency trading.
Contrarians are aware that short-term movements in the markets are caused almost entirely by 'investor psychology' - that is what the majority of investors happens to be thinking at the moment. We see it all the time on Wall Street - everyone in the "herd" is invested in the same things. Another applicable term may be 'momentum investing' - chasing what is 'hot' at the moment.
A contrarian investor NEVER entrusts their money to others for precisely this reason. If they do, their money will most likely go into 'popular' investments and when the 'popularity' fades, so will the asset value of their portfolio.
Small investors who entrusted their money to others experienced this last fall until the spring of this year.
My favorite contrarian investor has to be John Templeton of whom I wrote about recently in my article titled "Investing Lessons from John Templeton".
As I discussed in the article, Sir John Templeton pioneered the idea of global investing in this country. He invested the monies in his Templeton Growth Fund into foreign markets when it was considered "nuts" to do so.
The fund grew at about a 16% per year rate. So if someone invested $10,000 into the fund when it was launched in 1954, by 1999 that $10,000 would have been worth an incredible $5.5 million!
Templeton's focus was always on the fundamentals of the company he was investing into. He could care less about currency movements, or what the charts 'said'.
John Templeton's investment maxims were very simple and they were just basic common sense. Here are some maxims that he published:
1) NEVER follow the crowd.
2) Avoid the popular.
3) Search worldwide.
4) Buy during times of pessimism.
5) Hunt for value and bargains.
6) Keep an open mind.
7) Learn from your mistakes.
8) No one knows everything.
9) Everything changes.
10)Invest for real returns.
Just by following some of these investment maxims from Sir John Templeton should help improve your long-term investment performance.
Tuesday, September 15, 2009
Dylan Ratigan Comes Clean
Former CNBC star Dylan Ratigan, now toiling at MSNBC, wrote an interesting piece for the Huffington Post. Since he no longer works directly under the oppressive thumb of Wall Street and their propangda machine, Dylan Ratigan spoke the truth about Wall Street. I urge everyone to read the article at the Huffington Post - www.huffingtonpost.com/dylan-ratigan/americans-have-been-taken_b_285225.html.
Mr. Ratigan says that Americans have been taken hostage to a broken financial system that remains in place to this day. And he adds "a system where bank lobbyists have been spending in record numbers to make sure it stays that way." I firmly believe that our government has been bought and paid for by the monied interests of Wall Street.
He says the system corrupts the most basic principles of competition and fair play upon which this country was built. Mr. Ratigan adds, "A system partially built by the very people who currently advise our President, run our Treasury department and are charged with its reform." In other words, do NOT expect any financial market reforms since the financial industry actually runs some portions of the government.
Mr. Ratigan also offers up somewhat of a mea cupla for his days at CNBC, the Wall Street propaganda channel.
I wish the public were as fired up about reforming our financial system as they are about health care reform. I am sad to see that the public is ignoring the entire fiasco that is our financial system. But the attitiude right now seems to be "Hey, stocks are going up again. I made some money back in my retirement plan. Things must be ok - let's just forget about what happened a year ago." This attitude WILL come back to bite the American public hard in their collective behinds sometime in the near future.
Mr. Ratigan says that Americans have been taken hostage to a broken financial system that remains in place to this day. And he adds "a system where bank lobbyists have been spending in record numbers to make sure it stays that way." I firmly believe that our government has been bought and paid for by the monied interests of Wall Street.
He says the system corrupts the most basic principles of competition and fair play upon which this country was built. Mr. Ratigan adds, "A system partially built by the very people who currently advise our President, run our Treasury department and are charged with its reform." In other words, do NOT expect any financial market reforms since the financial industry actually runs some portions of the government.
Mr. Ratigan also offers up somewhat of a mea cupla for his days at CNBC, the Wall Street propaganda channel.
I wish the public were as fired up about reforming our financial system as they are about health care reform. I am sad to see that the public is ignoring the entire fiasco that is our financial system. But the attitiude right now seems to be "Hey, stocks are going up again. I made some money back in my retirement plan. Things must be ok - let's just forget about what happened a year ago." This attitude WILL come back to bite the American public hard in their collective behinds sometime in the near future.
Thursday, September 10, 2009
A Crisis Wasted
It looks like the brain trust in the Obama White House has made a tactical error in pushing health care reform ahead of reform of the financial system.
Key advisor to the President, Rohm Emmanuel, likes to say one should "never waste a crisis." But it looks like the White House has done just that.
There was a narrow window of opportunity earlier this year to effect a full regulatory reform of Wall Street, the banking industry and other financial institutions which caused the economic crisis.
It should have been made a top priority to get financial reforms done in the first six months of the new Obama Administration, but it wasn't. I suspect that it was not a top priority due the influence of economic advisors like Tim Geithner and Larry Summers who are stout defenders of the status quo.
Instead of reform, what we got was the usual, well-financed lobbying efforts by the finance industry. They own Congress completely, so they have throttled any hope of reform of the financial industry.
Instead of reform, what we have seen are literally trillions of taxpayer dollars being transferred to the Wall Street elite - inept, corrupt, incompetent bankers - to keep the status quo.
Wall Street is back to business as usual - making "bets" which are leveraged at outrageous and dangerous 40-to-1 ratios. The only difference is that now Goldman Sachs and others are using taxpayer money to place these "bets" instead of using their own money.
Reforms that should have occurred include the following:
1) The reinstatement of the Glass-Stegall Act, which separated normal, conservative banking practices of decades ago from the "Casino" where all types of leveraged bets are made.
2) Overturning the SEC exemption which allows Goldman Sachs and other "casino" firms to exceed the "traditional", conservative leverage level of 12-to-1.
3) Repeal the Commodity Futures Modernization Act of 2000 which really opened the flodgates to Wall Street's "casino" gambling - it prevented the regulation of swaps and other derivative products by the SEC and the CFTC.
4) Stop the practice of continuing to reward high-risk trades and traders, regardless of profitability and add in clawback provisions to bonuses.
Such reforms would have fulfilled the campaign promise of CHANGE. And it may have then created legislative momentum for health care reform.
It could have provided a healthy outlet for the "tea parties" anger and raucous town hall meetings. This may even led to a "throw the bums out" mentality in the mid-term elections which would have gotten rid of many of the people in power who are quite pleased with the status quo.
Presient Obama should have been able to force the greatest set of Wall Street and banking regulatory reforms since the Great Depression of the 1930s. Instead, it looks like this country has missed the greatest opportunity to clean up Wall Street in five generations.
Key advisor to the President, Rohm Emmanuel, likes to say one should "never waste a crisis." But it looks like the White House has done just that.
There was a narrow window of opportunity earlier this year to effect a full regulatory reform of Wall Street, the banking industry and other financial institutions which caused the economic crisis.
It should have been made a top priority to get financial reforms done in the first six months of the new Obama Administration, but it wasn't. I suspect that it was not a top priority due the influence of economic advisors like Tim Geithner and Larry Summers who are stout defenders of the status quo.
Instead of reform, what we got was the usual, well-financed lobbying efforts by the finance industry. They own Congress completely, so they have throttled any hope of reform of the financial industry.
Instead of reform, what we have seen are literally trillions of taxpayer dollars being transferred to the Wall Street elite - inept, corrupt, incompetent bankers - to keep the status quo.
Wall Street is back to business as usual - making "bets" which are leveraged at outrageous and dangerous 40-to-1 ratios. The only difference is that now Goldman Sachs and others are using taxpayer money to place these "bets" instead of using their own money.
Reforms that should have occurred include the following:
1) The reinstatement of the Glass-Stegall Act, which separated normal, conservative banking practices of decades ago from the "Casino" where all types of leveraged bets are made.
2) Overturning the SEC exemption which allows Goldman Sachs and other "casino" firms to exceed the "traditional", conservative leverage level of 12-to-1.
3) Repeal the Commodity Futures Modernization Act of 2000 which really opened the flodgates to Wall Street's "casino" gambling - it prevented the regulation of swaps and other derivative products by the SEC and the CFTC.
4) Stop the practice of continuing to reward high-risk trades and traders, regardless of profitability and add in clawback provisions to bonuses.
Such reforms would have fulfilled the campaign promise of CHANGE. And it may have then created legislative momentum for health care reform.
It could have provided a healthy outlet for the "tea parties" anger and raucous town hall meetings. This may even led to a "throw the bums out" mentality in the mid-term elections which would have gotten rid of many of the people in power who are quite pleased with the status quo.
Presient Obama should have been able to force the greatest set of Wall Street and banking regulatory reforms since the Great Depression of the 1930s. Instead, it looks like this country has missed the greatest opportunity to clean up Wall Street in five generations.
Friday, September 4, 2009
The 'New' Normal
The 'old' normal is the way things were before the financial markets fell apart. In the 'old' normal view - still preached by politicians of both parties and amplified by a compliant media and a greedy financial industry - you should back to doing what you were doing before.
Have a short memory. Buy stocks because they "always" go up, buy houses because they "always" go up, and spend like mad because there are "always" plentiful jobs available.
However, there are some key problems with the 'old' normal. These problems were exposed in the last two years. But they are being swept under the proverbial rug of rising stock prices since March. These problems include too much household debt, unaffordable home prices, and an entire economy geared to consumption over production.
But that is all changing according to Bill Gross of PIMCO. PIMCO is THE company when it comes to bonds and bond mutual funds. And Bill Gross is perhaps the best bond mutual fund manager ever.
Mr. Gross says that we have entered a world of slower economic growth, a world defined by deleveraging (paying off debts) and re-regulation. It's a world he calls the 'new' normal. He wrote the following in a recent note to PIMCO clients:
"If you are a child of the bull market, it's time to grow up and become a chastened adult; it's time to recognize that things have changed and they will continue to change for the next - yes, the next 10 years and maybe even the next 20 years."
What Mr. Gross said makes sense. Bear markets do NOT end quickly - the last bear market lingered for 14 years. And bear markets do not end with stocks still trading at well above their historical norms, currently at nearly 20 times earnings. And at 20 times still declining earnings, I might add. Bear markets also do not end when investor optimism is high. They end when investors are disillusioned and disappointed.
Mr. Gross went on in his missive to PIMCO clients and spoke about five "strategic conclusions" which he reached. They are:
1) Global interest rates will remain very low for an extended period of time.
2) The extent and duration of quantitative easing (printing money out of thin air), term financing and fiscal stimulation efforts are the keys to future investment returns across most asset categories.
3) Investors should continue to anticipate and, if necessary, "shake hands" with government policies,using government guarantees to their benefit.
4) Asia and Asian-connected economies (Brazil, Australia,etc.) will dominate future global economic growth.
5) The US Dollar is very vulnerable (down) on a long-term basis.
I agree with most of the conclusions made by Mr. Gross. I believe we will see near-zero interest rates in the United States for a VERY long time due to the weakness of the US economy brought on by an excess of debt at all levels.
I also agree with Mr. Gross that the US Dollar will decline in value substantially (it's already down 40%+ this decade) in the coming years, which will in turn raise the price of most commodities (which are priced in US dollars).
Finally, I agree with Mr. Gross that most future economic (and stock market) growth will occur in Asia and other areas of the so-called emerging world.
Have a short memory. Buy stocks because they "always" go up, buy houses because they "always" go up, and spend like mad because there are "always" plentiful jobs available.
However, there are some key problems with the 'old' normal. These problems were exposed in the last two years. But they are being swept under the proverbial rug of rising stock prices since March. These problems include too much household debt, unaffordable home prices, and an entire economy geared to consumption over production.
But that is all changing according to Bill Gross of PIMCO. PIMCO is THE company when it comes to bonds and bond mutual funds. And Bill Gross is perhaps the best bond mutual fund manager ever.
Mr. Gross says that we have entered a world of slower economic growth, a world defined by deleveraging (paying off debts) and re-regulation. It's a world he calls the 'new' normal. He wrote the following in a recent note to PIMCO clients:
"If you are a child of the bull market, it's time to grow up and become a chastened adult; it's time to recognize that things have changed and they will continue to change for the next - yes, the next 10 years and maybe even the next 20 years."
What Mr. Gross said makes sense. Bear markets do NOT end quickly - the last bear market lingered for 14 years. And bear markets do not end with stocks still trading at well above their historical norms, currently at nearly 20 times earnings. And at 20 times still declining earnings, I might add. Bear markets also do not end when investor optimism is high. They end when investors are disillusioned and disappointed.
Mr. Gross went on in his missive to PIMCO clients and spoke about five "strategic conclusions" which he reached. They are:
1) Global interest rates will remain very low for an extended period of time.
2) The extent and duration of quantitative easing (printing money out of thin air), term financing and fiscal stimulation efforts are the keys to future investment returns across most asset categories.
3) Investors should continue to anticipate and, if necessary, "shake hands" with government policies,using government guarantees to their benefit.
4) Asia and Asian-connected economies (Brazil, Australia,etc.) will dominate future global economic growth.
5) The US Dollar is very vulnerable (down) on a long-term basis.
I agree with most of the conclusions made by Mr. Gross. I believe we will see near-zero interest rates in the United States for a VERY long time due to the weakness of the US economy brought on by an excess of debt at all levels.
I also agree with Mr. Gross that the US Dollar will decline in value substantially (it's already down 40%+ this decade) in the coming years, which will in turn raise the price of most commodities (which are priced in US dollars).
Finally, I agree with Mr. Gross that most future economic (and stock market) growth will occur in Asia and other areas of the so-called emerging world.
Saturday, August 29, 2009
The American Way - Rewarded for Failure
It was "business as usual" for Wall Street Banksters this week as President Obama reappointed Wall Street's best friend, Ben Bernanke, as chairman of the Federal Reserve.
It looks like rewarding someone for short-run success, no matter how fleeting, has become the American way. This is true with regard to Wall Street bonuses and is apparently true with regard to the Federal Reserve chairman. Apparently Mr. Bernanke is being rewarded for continuing to give the "money addicts" on Wall Street all the money they need, no matter how many trillions of dollars it is.
No one seems to care anymore about what the consequences will be 5 or 10 or 20 years down the road of poorly thought actions. Apparently most Americans just live from episode to episode of their favorite "reality" program and ignore actual reality. Reminds me of how the Roman emperors kept the masses happy with bread and circuses.
The Federal Reserve under Ben Bernanke has made numerous mistakes. Ome mistake is to focus solely on inflation as measured by the Consumer Price Index or CPI which is "adjusted" by the government. The Fed has completely ignored the truly dangerous type of inflation - asset price inflation.
Housing and stock prices earlier this decade were rising too far, too fast and the rise was all due to borrowed money. But the Fed ignored it - apparently the Fed believed the debt would never have too be repaid.
In another example of Mr. Bernanke's muddled thinking, he has also put the entire blame for the financial crisis not on Wall Street and/or Washington, but elsewhere.
Mr. Bernanke puts the blame for the financial crisis squarely on the "global savings glut." It wasn't the US financial system which caused the problem, but savers around the world which caused the problem.
Yep, it wasn't United States that is to blame, it was some poor farmers in rural China who are saving meager amounts for their families' futures who caused all this financial chaos. Amazing!
And Mr. Bernanke continues making mistakes. What he is doing by monetizing massive amounts of US Treasury debt (and hiding it) will have dire consequences for the US Dollar and the economy down the road.
Here is the latest "game" being played by Ben Bernake and the Federal Reserve:
1) Foreign central banks sell US government agency debt out of their account.
2) The Federal Reserve buys those US government agency bonds with "funny money" created out of thin air.
3) Foreign central banks then use that very same "funny money" to buy US Treasuries at the next government auction.
4) Then the Fed and the financial media proclaim to everyone - "Look, all is well - look at the tremendous global demand for US Treasuries at the auction!
The numbers for global demand at US Treasuries auctions is as phony as a $3 bill. But it "looks" good and so Wall Street plays along and kicks the problem down the road.
Is it any wonder that both the Fed and Treasury secretary Tim Geithner are so dead-set against having a public audit of the Fed's books. Who knows what else will be discovered?
It looks like rewarding someone for short-run success, no matter how fleeting, has become the American way. This is true with regard to Wall Street bonuses and is apparently true with regard to the Federal Reserve chairman. Apparently Mr. Bernanke is being rewarded for continuing to give the "money addicts" on Wall Street all the money they need, no matter how many trillions of dollars it is.
No one seems to care anymore about what the consequences will be 5 or 10 or 20 years down the road of poorly thought actions. Apparently most Americans just live from episode to episode of their favorite "reality" program and ignore actual reality. Reminds me of how the Roman emperors kept the masses happy with bread and circuses.
The Federal Reserve under Ben Bernanke has made numerous mistakes. Ome mistake is to focus solely on inflation as measured by the Consumer Price Index or CPI which is "adjusted" by the government. The Fed has completely ignored the truly dangerous type of inflation - asset price inflation.
Housing and stock prices earlier this decade were rising too far, too fast and the rise was all due to borrowed money. But the Fed ignored it - apparently the Fed believed the debt would never have too be repaid.
In another example of Mr. Bernanke's muddled thinking, he has also put the entire blame for the financial crisis not on Wall Street and/or Washington, but elsewhere.
Mr. Bernanke puts the blame for the financial crisis squarely on the "global savings glut." It wasn't the US financial system which caused the problem, but savers around the world which caused the problem.
Yep, it wasn't United States that is to blame, it was some poor farmers in rural China who are saving meager amounts for their families' futures who caused all this financial chaos. Amazing!
And Mr. Bernanke continues making mistakes. What he is doing by monetizing massive amounts of US Treasury debt (and hiding it) will have dire consequences for the US Dollar and the economy down the road.
Here is the latest "game" being played by Ben Bernake and the Federal Reserve:
1) Foreign central banks sell US government agency debt out of their account.
2) The Federal Reserve buys those US government agency bonds with "funny money" created out of thin air.
3) Foreign central banks then use that very same "funny money" to buy US Treasuries at the next government auction.
4) Then the Fed and the financial media proclaim to everyone - "Look, all is well - look at the tremendous global demand for US Treasuries at the auction!
The numbers for global demand at US Treasuries auctions is as phony as a $3 bill. But it "looks" good and so Wall Street plays along and kicks the problem down the road.
Is it any wonder that both the Fed and Treasury secretary Tim Geithner are so dead-set against having a public audit of the Fed's books. Who knows what else will be discovered?
Tuesday, August 25, 2009
Obama's Idea of Change - Bernanke Reappointed
For a President who was voted in promising change, it sure looks like business as usual for the Wall Street banksters and their cronies, when it comes to the Obama Administration. It was "more of the same" today as President Obama announced he was reappointing Ben "Helicopter" Bernanke as chairman of the Federal Reserve.
What this country needed was a return to the "good old days" of the Federal Reserve when it was headed by William McChesney Martin, the longest serving chairman of the Federal Reserve. He believed that the job of the Fed was to take away the punchbowl just as the party gets going.
This is stark contrast to the Federal Reserve under Alan Greenspan and Ben Bernanke, who believe in always keeping the punchbowl full, no matter how "drunk" people get at the party and how dangerous their behavior becomes toward society at large.
The curious thing to me is how little or no debate took place over such a dramatic change in Federal Reserve policy. This shift in policy coincided with the replacement in the monetary policymaking process of old-style, market-savvy central bankers (often without formal economic training) with academics like Ben Bernanke.
By the way, William McChesney Martin was a career stockbroker who graduated from Yale in English, not Economics!
This new breed of economists in central banks have little real-life financial markets experience. And they are wedded to the crazy idea that markets are efficent, despite the recurrence of bubbles throughout history - a phenomenon that makes nonsense of this belief. Kind of like still believing that the Earth is flat.
On top of that, these acadmic central bank economists keep their focus solely on consumer prices and the phony CPI index. And they completely ignore the truly dangerous type of inflation - asset price inflation.
Expect more of the same -- horrendous monetary policy, blowing larger and larger bubbles (can you say Treasury market bubble?). The consequences will indeed be dire for the future of the United States.
What this country needed was a return to the "good old days" of the Federal Reserve when it was headed by William McChesney Martin, the longest serving chairman of the Federal Reserve. He believed that the job of the Fed was to take away the punchbowl just as the party gets going.
This is stark contrast to the Federal Reserve under Alan Greenspan and Ben Bernanke, who believe in always keeping the punchbowl full, no matter how "drunk" people get at the party and how dangerous their behavior becomes toward society at large.
The curious thing to me is how little or no debate took place over such a dramatic change in Federal Reserve policy. This shift in policy coincided with the replacement in the monetary policymaking process of old-style, market-savvy central bankers (often without formal economic training) with academics like Ben Bernanke.
By the way, William McChesney Martin was a career stockbroker who graduated from Yale in English, not Economics!
This new breed of economists in central banks have little real-life financial markets experience. And they are wedded to the crazy idea that markets are efficent, despite the recurrence of bubbles throughout history - a phenomenon that makes nonsense of this belief. Kind of like still believing that the Earth is flat.
On top of that, these acadmic central bank economists keep their focus solely on consumer prices and the phony CPI index. And they completely ignore the truly dangerous type of inflation - asset price inflation.
Expect more of the same -- horrendous monetary policy, blowing larger and larger bubbles (can you say Treasury market bubble?). The consequences will indeed be dire for the future of the United States.
Friday, August 21, 2009
The Coming Oil Crisis
The world may be headed for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production.
The scenario may come true according to Dr. Fatih Birol, the chief energy economist at the respected International Energy Agency (IEA). The IEA is charged with the task of assessing future global energy supplies by countries of the OECD – the Organization for Economic Cooperation and Development.
Recently, the IEA conducted a study of the global energy situation. The IEA study concluded that the global energy system was at a crossroads and that the era of cheap oil was over. Dr. Birol said that both the public and global governments seem oblivious to the fact that oil is running out faster than previously thought.
The study was the first-ever assessment of the world's major 800 oil fields, which cover three quarters of global reserves. The IEA found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago (6.7% versus 3.7%).
One example of a major oil field in decline is Mexico's Cantartell oil field. In June, Mexico's oil production fell 11.1% to 2.52 million barrels of oil per day. This was the first time since 1990 that Mexico's production has fallen below the 2.6 million barrel per day mark. Mexico is a major exporter of oil to the United States, but estimates are that within a couple years, Mexico will become an importer of oil.
On top of this, there is a problem of chronic under-investment by both oil companies and oil-producing countries. This problem has only been exacerbated by the financial crisis and the credit crunch. The IEA reckons that the credit crunch led to the cancellation of $170 BILLION worth of oil and energy projects worldwide. Thanks, Wall Street!
Dr. Birol is warning that global oil production is likely to peak in about ten years, much earlier than most governments had estimated. He also said that we may see an “oil crunch” within five years. This “crunch” will be caused not only by decreased production of oil but also by lower exports of oil from oil producing countries.
Much more of the oil produced, for example, by the emerging countries in the Middle East, the Near East and Africa will be required to meet the needs of their own booming economies.
And speaking of demand, let's look at China. In July, China imported a record 4.6 million barrels of oil per day, up 42% from last July. This amount is the equivalent of half of Saudi Arabia's daily output.
This amount is well above the previous record of 4.1 million barrels of oil per day set in the spring of 2008. Remember? That figure was fluffed off by Wall Street and the American media as "only" China stockpiling oil ahead of the Olympics. Wrong again, Wall Street!
Dr. Birol estimates that even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030.
It's not a pretty picture. But what really strikes me is the lack of response by the media, the financial markets, and the policy makers. All of them seem to be sleeping blissfully, unaware of the problem.
The scenario may come true according to Dr. Fatih Birol, the chief energy economist at the respected International Energy Agency (IEA). The IEA is charged with the task of assessing future global energy supplies by countries of the OECD – the Organization for Economic Cooperation and Development.
Recently, the IEA conducted a study of the global energy situation. The IEA study concluded that the global energy system was at a crossroads and that the era of cheap oil was over. Dr. Birol said that both the public and global governments seem oblivious to the fact that oil is running out faster than previously thought.
The study was the first-ever assessment of the world's major 800 oil fields, which cover three quarters of global reserves. The IEA found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago (6.7% versus 3.7%).
One example of a major oil field in decline is Mexico's Cantartell oil field. In June, Mexico's oil production fell 11.1% to 2.52 million barrels of oil per day. This was the first time since 1990 that Mexico's production has fallen below the 2.6 million barrel per day mark. Mexico is a major exporter of oil to the United States, but estimates are that within a couple years, Mexico will become an importer of oil.
On top of this, there is a problem of chronic under-investment by both oil companies and oil-producing countries. This problem has only been exacerbated by the financial crisis and the credit crunch. The IEA reckons that the credit crunch led to the cancellation of $170 BILLION worth of oil and energy projects worldwide. Thanks, Wall Street!
Dr. Birol is warning that global oil production is likely to peak in about ten years, much earlier than most governments had estimated. He also said that we may see an “oil crunch” within five years. This “crunch” will be caused not only by decreased production of oil but also by lower exports of oil from oil producing countries.
Much more of the oil produced, for example, by the emerging countries in the Middle East, the Near East and Africa will be required to meet the needs of their own booming economies.
And speaking of demand, let's look at China. In July, China imported a record 4.6 million barrels of oil per day, up 42% from last July. This amount is the equivalent of half of Saudi Arabia's daily output.
This amount is well above the previous record of 4.1 million barrels of oil per day set in the spring of 2008. Remember? That figure was fluffed off by Wall Street and the American media as "only" China stockpiling oil ahead of the Olympics. Wrong again, Wall Street!
Dr. Birol estimates that even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030.
It's not a pretty picture. But what really strikes me is the lack of response by the media, the financial markets, and the policy makers. All of them seem to be sleeping blissfully, unaware of the problem.
Tuesday, August 18, 2009
China, Commodities and the Financial Media
The financial media here in the United States, bought and paid for by Wall Street, continues to bamboozle the investing public. They continue to perpetuate the "global recession means lower demand for commodities" fairy tale among others.
The investing public for the most part has believed this story much as a small child will believe fairy tales. Investors have to realize that the United States is no longer THE economic superpower as the US once was 50 years ago.
In fact, when it comes to most commodities, the United States is a rather insignificant player. The demand for commodities is coming mainly from the emerging economies of the world - China, India, Brazil,etc.
Let's look at China. China's coal imports are nearly three times higher this year than they were last year. China's iron ore imports are up 32% from a year ago as Chinese steel production surged to all-time high.
And let's not forget about oil. In July, China imported 4.6 million barrels of oil per day, up 42% from last July. This figure is a new record and equivalent to half of Saudi Arabia's daily output. This figure is well above the previous high of 4.1 million barrels of oil per day which was set back in March 2008.
You remember that, right? The US financial media at that time fluffed off those figures as merely China stockpiling oil ahead of the Olympics. After all, China really isn't growing... They would never dare to challenge us in the US.
In July, China also imported a record 4.82 million tons of soybeans. Yes, Wall Street, people around the world do not want to live in mud huts and eat dirt just to please the arrogant, greedy "Masters of the Universe" on Wall Street.
And China is putting those natural resources to good use. For example, China has spent $50 billion this year on high-speed rail systems in China, creating over 100,000 jobs. They will spend another $250 billion over the next decade. By 2020, China will have laid nearly 16,000 miles of high-speed track. By comparison, America has only 457 miles of high-speed track.
You won't see that data appear anywhere in the US financial media. After all, China is just a bubble, right?
The investing public for the most part has believed this story much as a small child will believe fairy tales. Investors have to realize that the United States is no longer THE economic superpower as the US once was 50 years ago.
In fact, when it comes to most commodities, the United States is a rather insignificant player. The demand for commodities is coming mainly from the emerging economies of the world - China, India, Brazil,etc.
Let's look at China. China's coal imports are nearly three times higher this year than they were last year. China's iron ore imports are up 32% from a year ago as Chinese steel production surged to all-time high.
And let's not forget about oil. In July, China imported 4.6 million barrels of oil per day, up 42% from last July. This figure is a new record and equivalent to half of Saudi Arabia's daily output. This figure is well above the previous high of 4.1 million barrels of oil per day which was set back in March 2008.
You remember that, right? The US financial media at that time fluffed off those figures as merely China stockpiling oil ahead of the Olympics. After all, China really isn't growing... They would never dare to challenge us in the US.
In July, China also imported a record 4.82 million tons of soybeans. Yes, Wall Street, people around the world do not want to live in mud huts and eat dirt just to please the arrogant, greedy "Masters of the Universe" on Wall Street.
And China is putting those natural resources to good use. For example, China has spent $50 billion this year on high-speed rail systems in China, creating over 100,000 jobs. They will spend another $250 billion over the next decade. By 2020, China will have laid nearly 16,000 miles of high-speed track. By comparison, America has only 457 miles of high-speed track.
You won't see that data appear anywhere in the US financial media. After all, China is just a bubble, right?
Friday, August 14, 2009
Wall Street's Newest Casino Game
The casino operators on Wall Street have found a new way, called High Frequency Trading, to skim more of the cream off the top of US economic activity. It is part of the reason Goldman Sachs was able to have 46 "$100 million trading days" last quarter.
High frequency trading uses the speed of supercomputers to trade faster than a human trader ever could. Owners of supercomputers, such as Goldman Sachs, program them to take advantage of information milliseconds faster than other computers and whole seconds faster than human traders.
This a major recent development. High Frequency Trading now accounts for about 70 PERCENT of ALL the trading volume in the US stock market. This is another reason I personally do not believe the recent rally in stock prices.
High Frequency Trading computers are able to beat other computers because they are actually located AT the exchanges. These computers take advantage of the finite speed of light and switching systems to FRONT-RUN the market. This is supposed to be ILLEGAL. They also gain information on orders and market movements sooner than the market as a whole.
This becomes a bit technical but there are several ways that High Frequency Traders make out like bandits:
1) Some of the traders take advantage of volume rebates of about 0.25 cents per share offered by the exchanges to brokers who post orders and provide liquidity. When the traders spot a large order, they fill part of it, then re-offer the shares at the same price, collecting the exchange fees along the way.
2) Some of the programmed trading systems take advantage of the institutional computers that chop up large orders into many small orders. They make the institutional trader, such as pension funds, bid up the price of shares by fooling its computer, by placing small buy orders which they then withdraw.
3) These programs also automatically "ping" stocks to identify large orders by issuing an order and then very quickly withdrawing it. Once this information is obtained, they buy the shares themselves and sell them on to the institutional buyers (suckers) at a higher price.
4) Program traders can buy large numbers of stocks at the same time to fool institutional computers and triggering very large buy orders. By doing this, program traders like Goldman Sachs can trigger sharply higher market moves.
The bottom line for us ordinary market participants is that insiders are using supercomputers to game the system, extracting billions of dollars from the rest of the market.
In effect, they are trading on insider knowledge about market order flow. Yet, government regulators look away and let them get away with it.
High frequency trading uses the speed of supercomputers to trade faster than a human trader ever could. Owners of supercomputers, such as Goldman Sachs, program them to take advantage of information milliseconds faster than other computers and whole seconds faster than human traders.
This a major recent development. High Frequency Trading now accounts for about 70 PERCENT of ALL the trading volume in the US stock market. This is another reason I personally do not believe the recent rally in stock prices.
High Frequency Trading computers are able to beat other computers because they are actually located AT the exchanges. These computers take advantage of the finite speed of light and switching systems to FRONT-RUN the market. This is supposed to be ILLEGAL. They also gain information on orders and market movements sooner than the market as a whole.
This becomes a bit technical but there are several ways that High Frequency Traders make out like bandits:
1) Some of the traders take advantage of volume rebates of about 0.25 cents per share offered by the exchanges to brokers who post orders and provide liquidity. When the traders spot a large order, they fill part of it, then re-offer the shares at the same price, collecting the exchange fees along the way.
2) Some of the programmed trading systems take advantage of the institutional computers that chop up large orders into many small orders. They make the institutional trader, such as pension funds, bid up the price of shares by fooling its computer, by placing small buy orders which they then withdraw.
3) These programs also automatically "ping" stocks to identify large orders by issuing an order and then very quickly withdrawing it. Once this information is obtained, they buy the shares themselves and sell them on to the institutional buyers (suckers) at a higher price.
4) Program traders can buy large numbers of stocks at the same time to fool institutional computers and triggering very large buy orders. By doing this, program traders like Goldman Sachs can trigger sharply higher market moves.
The bottom line for us ordinary market participants is that insiders are using supercomputers to game the system, extracting billions of dollars from the rest of the market.
In effect, they are trading on insider knowledge about market order flow. Yet, government regulators look away and let them get away with it.
Tuesday, August 11, 2009
World's Top Brands Set to Rise in the East
Forget all the "bubble" talk about the emerging markets from the US financial media. They are just trying to get more money into the US casino known as Wall Street, instead of having people invest into a great place for their hard-earned money - into areas that have true long-term growth, the emerging markets.
There were two recent and very interesting studies conducted by consultants Wolff Olins and US-based Bain & Co. One study estimated that one-third of the FT Global 500 companies will come from the emerging markets by 2015.
A partner with Bain & Co. said that established western consumer brands were being forced to "battle it out" with emerging market brands as they moved eastwards to take advantage of rising demand for branded products. Many western firms are buying prominent local brands. Others are either taking stakes in or forming joint ventures with local brands.
An example of the joint venture approach is SABMiller's joint venture with China Resource Enterprise to brew Snow Beer in China. Snow Beer is the world's best-selling beer with more than 6.1 billion kiloliters sold in 2008, up 19.1% from 2007
A strategist at Wolff Olins hit the nail on the head and stated "It used to be possible to be a global brand by dominating the US market. That's changing rapidly. Now you have to be number one in Asia."
Wolff Olins believes that the world's next top global consumer brands are set to rise in the east. They named five fruit and drink brands from emerging markets that they believe are ready to become global brands:
ChangYu, China's biggest wine producer; United Spirits, India's largest liquor group; Almarai, a Saudi dairy and fruit juice company; Patchi, a Lebanese boutique chocolate chain; and Juan Valdez Cafe, a Columbian coffee chain.
I don't know how well their picks will fare but I do know that investors looking for profitable long-term investments should look toward the emerging markets that are home to the vast majority of the world's consumers.
There were two recent and very interesting studies conducted by consultants Wolff Olins and US-based Bain & Co. One study estimated that one-third of the FT Global 500 companies will come from the emerging markets by 2015.
A partner with Bain & Co. said that established western consumer brands were being forced to "battle it out" with emerging market brands as they moved eastwards to take advantage of rising demand for branded products. Many western firms are buying prominent local brands. Others are either taking stakes in or forming joint ventures with local brands.
An example of the joint venture approach is SABMiller's joint venture with China Resource Enterprise to brew Snow Beer in China. Snow Beer is the world's best-selling beer with more than 6.1 billion kiloliters sold in 2008, up 19.1% from 2007
A strategist at Wolff Olins hit the nail on the head and stated "It used to be possible to be a global brand by dominating the US market. That's changing rapidly. Now you have to be number one in Asia."
Wolff Olins believes that the world's next top global consumer brands are set to rise in the east. They named five fruit and drink brands from emerging markets that they believe are ready to become global brands:
ChangYu, China's biggest wine producer; United Spirits, India's largest liquor group; Almarai, a Saudi dairy and fruit juice company; Patchi, a Lebanese boutique chocolate chain; and Juan Valdez Cafe, a Columbian coffee chain.
I don't know how well their picks will fare but I do know that investors looking for profitable long-term investments should look toward the emerging markets that are home to the vast majority of the world's consumers.
Friday, August 7, 2009
The Culture of Greed on Wall Street
As sure as the sun rises in the east and sets in the west every day, the Greed culture continues unabated on Wall Street.
And why not? If something goes wrong, Uncle Sam will force taxpayers to bail them out.
New York Attorney General Andrew Cuomo recently issued a scathing report on Wall Street bonuses. He said employee pay "has become unmoored from the banks' financial performance."
No kidding.
Here are some examples of banks which received billions in TARP money from US taxpayers last year and the enormous bonuses they paid to employees: JP Morgan Chase earned $5.6 billion and paid $8.69 billion in bonuses, while Morgan Stanley earned $1.7 billion and paid $4.475 billion in bonuses.
Here are two even more outrageous examples: While Citigroup and Merill Lynch (bought by Bank of America)lost more than $27 billion each, Citigroup paid $5.33 billion in bonuses and Merill Lynch paid $3.6 billion in bonuses. The two banks combined received over $55 billion in taxpayer-funded TARP money.
Attorney General Cuomo summed it up nicely stating "When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well."
Amazing - huge money paid for failure. Only in America and only on Wall Street.
GOLDMAN SACHS
The poster child for greed and what is wrong with economic policies in this country has to be Goldman Sachs.
In my previous article - "Goldman Sach(s) America" - I spoke about the company's trading programs which I believe are nothing more than what is called in the industry "frontrunning" and which is illegal.
The "saching" by Goldman continues unabated, aided and abetted by the US government. Not only did the government save Goldman from possible bankruptcy with TARP money and the AIG bailout, but they are intentionally ignoring possible illicit behavior.
Goldman Sachs' trading activity numbers from the 2nd quarter were beyond belief. In the 2nd quarter, Goldman Sachs made over $100 MILLION on 46 of the 65 trading days, 70% of the total! Goldman made over $50 MILLION on 58 of the 65 trading days, 89.2% of the total! And they only had 2 trading days where they lost money!
Sorry, but fair markets do NOT work that way and no one is that good at trading. Not without a lot of "help" - like having the government look away while you are frontrunning the Federal Reserve in the bond market and frontrunning stock trades from large pension funds like Calpers (with the help of the stock exchanges)using your software trading program.
Heck, you don't even see baseball players hitting .700 with the extra "help" of steroids and other illicit drugs!
But I guess that is the type of markets you get when Goldman Sachs alumni have been in the halls of government for decades running economic policy.
And why not? If something goes wrong, Uncle Sam will force taxpayers to bail them out.
New York Attorney General Andrew Cuomo recently issued a scathing report on Wall Street bonuses. He said employee pay "has become unmoored from the banks' financial performance."
No kidding.
Here are some examples of banks which received billions in TARP money from US taxpayers last year and the enormous bonuses they paid to employees: JP Morgan Chase earned $5.6 billion and paid $8.69 billion in bonuses, while Morgan Stanley earned $1.7 billion and paid $4.475 billion in bonuses.
Here are two even more outrageous examples: While Citigroup and Merill Lynch (bought by Bank of America)lost more than $27 billion each, Citigroup paid $5.33 billion in bonuses and Merill Lynch paid $3.6 billion in bonuses. The two banks combined received over $55 billion in taxpayer-funded TARP money.
Attorney General Cuomo summed it up nicely stating "When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well."
Amazing - huge money paid for failure. Only in America and only on Wall Street.
GOLDMAN SACHS
The poster child for greed and what is wrong with economic policies in this country has to be Goldman Sachs.
In my previous article - "Goldman Sach(s) America" - I spoke about the company's trading programs which I believe are nothing more than what is called in the industry "frontrunning" and which is illegal.
The "saching" by Goldman continues unabated, aided and abetted by the US government. Not only did the government save Goldman from possible bankruptcy with TARP money and the AIG bailout, but they are intentionally ignoring possible illicit behavior.
Goldman Sachs' trading activity numbers from the 2nd quarter were beyond belief. In the 2nd quarter, Goldman Sachs made over $100 MILLION on 46 of the 65 trading days, 70% of the total! Goldman made over $50 MILLION on 58 of the 65 trading days, 89.2% of the total! And they only had 2 trading days where they lost money!
Sorry, but fair markets do NOT work that way and no one is that good at trading. Not without a lot of "help" - like having the government look away while you are frontrunning the Federal Reserve in the bond market and frontrunning stock trades from large pension funds like Calpers (with the help of the stock exchanges)using your software trading program.
Heck, you don't even see baseball players hitting .700 with the extra "help" of steroids and other illicit drugs!
But I guess that is the type of markets you get when Goldman Sachs alumni have been in the halls of government for decades running economic policy.
Tuesday, August 4, 2009
Americans Have 'China Envy'
I can't take it any more! Over the past several months, all I see are articles about how China will fail and how China is in a bubble. Most of the articles are written by people who know nothing about China and little about financial markets in general.
Chinese markets, like most other stock markets, are high right now and I'm sure will have a decent correction. But that does not mean the China story is over. Not by a long shot.
Many of the articles I've read are just a bunch of immature jingoistic rubbish. It looks to me like a bad case of 'China envy' - "Our American economy is bigger and better than your economy, China!"
Many of these article writers are the same people who completely missed the Credit Bubble, the Housing Bubble, the Stock Market Bubble and are currently ignoring the Treasury Bubble.
I have a question to ask these people. Following the sort of "advice" you are giving made you how much money in the past decade? Oh, that's right - you probably lost a bundle. I suspect the same will hold true in the next decade too.
Let's look at some facts - China and India have a combined population of nearly 2.5 billion people. Per capita consumption in these countries remains far below the worldwide average and is extremely small compared to the US.
These countries can (and will) maintain a high rate of economic growth for many years to come before their markets become saturated with consumer products that even poor Americans take for granted.
The middle class in China already has reached a total of 330 million people - greater than the entire population of the United States. And it continues growing rapidly.
Just one example of the growth of consumer demand in these countries came from Coca-Cola's latest report - volume growth in China was 14% and volume growth in India was 33%.
And here is an important point about Coke's sales in China. Coke pointed out that there had been a geographical shift in demand away from the coastal cities to the center and west of the country.
Wall Street isn't even aware of that part of China - they still think China is a few large coastal cities totally dependent on US exports. Meantime the majority of the growing consumer demand in China is coming from the center and west of the country. What a surprise - Wall Street is again asleep and missing a major investment theme!
My advice to the doubters about China is to get informed and if you want to make money going forward - grow up and get over your 'China envy.'
Chinese markets, like most other stock markets, are high right now and I'm sure will have a decent correction. But that does not mean the China story is over. Not by a long shot.
Many of the articles I've read are just a bunch of immature jingoistic rubbish. It looks to me like a bad case of 'China envy' - "Our American economy is bigger and better than your economy, China!"
Many of these article writers are the same people who completely missed the Credit Bubble, the Housing Bubble, the Stock Market Bubble and are currently ignoring the Treasury Bubble.
I have a question to ask these people. Following the sort of "advice" you are giving made you how much money in the past decade? Oh, that's right - you probably lost a bundle. I suspect the same will hold true in the next decade too.
Let's look at some facts - China and India have a combined population of nearly 2.5 billion people. Per capita consumption in these countries remains far below the worldwide average and is extremely small compared to the US.
These countries can (and will) maintain a high rate of economic growth for many years to come before their markets become saturated with consumer products that even poor Americans take for granted.
The middle class in China already has reached a total of 330 million people - greater than the entire population of the United States. And it continues growing rapidly.
Just one example of the growth of consumer demand in these countries came from Coca-Cola's latest report - volume growth in China was 14% and volume growth in India was 33%.
And here is an important point about Coke's sales in China. Coke pointed out that there had been a geographical shift in demand away from the coastal cities to the center and west of the country.
Wall Street isn't even aware of that part of China - they still think China is a few large coastal cities totally dependent on US exports. Meantime the majority of the growing consumer demand in China is coming from the center and west of the country. What a surprise - Wall Street is again asleep and missing a major investment theme!
My advice to the doubters about China is to get informed and if you want to make money going forward - grow up and get over your 'China envy.'
Friday, July 31, 2009
This Is a Rally in a Bear Market
One of the most fascinating things about the financial markets this year has been to see the vast majority of the pundits and so-called analysts proclaim the birth of a new bull market.
These pundits can easily be dismissed. They are cheerleaders, market worshippers and perma-bulls who are always singing the only tune they know. They believe that in the long run stocks (and houses too)will come back. True, but will we still be alive?
These same people missed all of the warning signs of the recession, the credit crisis, the housing bust, the stock bear market. They seem to have suffered a 'mental recession'!
I want to visit the question whether the recent low was a once-in-a-generation stock market low or merely a cyclical, short-term low. Ned Davis of Ned Davis Research has identified seven factors to determine if a market low is a secular low, setting up the next long-lasting bull market.
The seven factors identified by Ned Davis are:
1) Money, cheap and amply available
2) Debt structure that's been deflated
3) Large pent-up demand for goods and services
4) Stocks that are clearly cheap
5) Investors who are deeply pessimistic
6) Major investor groups with below average stock holdings
7) Fully oversold, longer-term market conditions
Here are my thoughts on each of these factors:
1) Huge Positive. The Federal Reserve is absolutely flooding the system with trillions of dollars.
2) Negative. The debts that both consumers and businesses has barely been begun to be unwound. Credit market debt load is nearly four times the size of the country's gross domestic product.
3) Neutral. I really don't see much pent-up demand in the US at all.
4) Neutral to Negative. At best, US stocks are at an ok valuation. They were more reasonably valued before the recent large rally.
5) Huge Negative. Most investors I see are dancing in the street that the recession is over and that a new bull market has already begun. Perhaps they should quit listening to CNBC and the like.
6) Neutral to Negative. Most institutional investors' holdings are back to an average weighting historically. However, household holdings of stocks are not close to the low levels seen at the bottom of prior bear markets.
7) Neutral. Some of the excesses of the bubble have been worked off. There are still more excesses to be worked off.
Bottom Line? This is a cyclical bull market or a rally in a long-term bear market, whatever term you prefer.
These pundits can easily be dismissed. They are cheerleaders, market worshippers and perma-bulls who are always singing the only tune they know. They believe that in the long run stocks (and houses too)will come back. True, but will we still be alive?
These same people missed all of the warning signs of the recession, the credit crisis, the housing bust, the stock bear market. They seem to have suffered a 'mental recession'!
I want to visit the question whether the recent low was a once-in-a-generation stock market low or merely a cyclical, short-term low. Ned Davis of Ned Davis Research has identified seven factors to determine if a market low is a secular low, setting up the next long-lasting bull market.
The seven factors identified by Ned Davis are:
1) Money, cheap and amply available
2) Debt structure that's been deflated
3) Large pent-up demand for goods and services
4) Stocks that are clearly cheap
5) Investors who are deeply pessimistic
6) Major investor groups with below average stock holdings
7) Fully oversold, longer-term market conditions
Here are my thoughts on each of these factors:
1) Huge Positive. The Federal Reserve is absolutely flooding the system with trillions of dollars.
2) Negative. The debts that both consumers and businesses has barely been begun to be unwound. Credit market debt load is nearly four times the size of the country's gross domestic product.
3) Neutral. I really don't see much pent-up demand in the US at all.
4) Neutral to Negative. At best, US stocks are at an ok valuation. They were more reasonably valued before the recent large rally.
5) Huge Negative. Most investors I see are dancing in the street that the recession is over and that a new bull market has already begun. Perhaps they should quit listening to CNBC and the like.
6) Neutral to Negative. Most institutional investors' holdings are back to an average weighting historically. However, household holdings of stocks are not close to the low levels seen at the bottom of prior bear markets.
7) Neutral. Some of the excesses of the bubble have been worked off. There are still more excesses to be worked off.
Bottom Line? This is a cyclical bull market or a rally in a long-term bear market, whatever term you prefer.
Wednesday, July 29, 2009
China Plans Global Role for Their Currency
Once again Wall Street is asleep and missing a major economic story coming out of China. Wall Street continues to fluff off China as a "bubble" economy. If Wall Street is looking for bubbles, they should look closer to home.
I see bubbles in Treasuries, the Dollar, tech stocks and financial stocks. Almost everything where the government and/or Wall Street has their greedy hands.
CHINESE CURRENCY
The big news out of China is that the Chinese have kick-started a plan to internationalize the yuan or renminbi. And it is likely to be a faster process than the sleepy-heads on Wall Street realize.
If the Chinese plan is successful, by 2012 as much as 50 percent of China's annual trade flows will be settled in their own currency, not the US dollar. This totals nearly $2 trillion!
Most of the trade flows where the Chinese currency will be used in settlement is with other Asian countries and with other emerging markets. These countries are China's major trading partners, not the US. Another fact which has escaped the notice of sleepy Wall Street.
Someone not investing in China today is making the same mistake "smart" European investors made in the late 1800s, when they fluffed off the emerging market called the United States as too risky and with poor business and working practices.
Yes, China still has lots of bumps and warts, but it is emerging as a global economic power very rapidly.
What's that sound I hear? Oh yeah, just Wall Street snoring in blissful ignorance.
I see bubbles in Treasuries, the Dollar, tech stocks and financial stocks. Almost everything where the government and/or Wall Street has their greedy hands.
CHINESE CURRENCY
The big news out of China is that the Chinese have kick-started a plan to internationalize the yuan or renminbi. And it is likely to be a faster process than the sleepy-heads on Wall Street realize.
If the Chinese plan is successful, by 2012 as much as 50 percent of China's annual trade flows will be settled in their own currency, not the US dollar. This totals nearly $2 trillion!
Most of the trade flows where the Chinese currency will be used in settlement is with other Asian countries and with other emerging markets. These countries are China's major trading partners, not the US. Another fact which has escaped the notice of sleepy Wall Street.
Someone not investing in China today is making the same mistake "smart" European investors made in the late 1800s, when they fluffed off the emerging market called the United States as too risky and with poor business and working practices.
Yes, China still has lots of bumps and warts, but it is emerging as a global economic power very rapidly.
What's that sound I hear? Oh yeah, just Wall Street snoring in blissful ignorance.
Friday, July 24, 2009
Investing Lessons From John Templeton
Sir John Templeton was a legendary investor who used a value approach to investing and who was THE pioneer of global investing. Templeton took value investing to an extreme, picking entire nations, industries and companies hitting rock bottom or what he called “points of maximum pessimism.”
John Templeton was also a very spiritual man who gave much of his life and money to matters other than purely monetary matters. He was known for starting his mutual fund's annual meeting with a prayer. Somehow I don't picture Goldman Sachs and other Wall Street firms today starting any of their meetings with a prayer.
He entered the mutual fund business in 1954 when he established the Templeton Growth Fund. The fund averaged a 14% annualized gain over the next 50 years, while he managed the fund. In other words, each $10,000 invested into this fund in 1954, with dividends reinvested, would have grown to $2 million in 1992 when he sold the Templeton Funds to the Franklin Group.
This performance over five decades is absolutely remarkable! How did Templeton do it?
BE A VALUE INVESTOR
Most of all, John Templeton was a value investor. He used a fundamentals-driven, 'bargain-hunting' approach to investing. He would look for shares selling well below their asset values due to temporary circumstances and hold those stocks for years. In John Templeton's words “The long-range view requires patience.” His Templeton Growth Fund held stocks for an average of six to seven years.
John Templeton urged investors to focus on value because most investors made the mistake of focusing on outlooks and trends. Therefore, he rejected the “technical” method for choosing stocks. He believed that technical analysis using charts was a waste of time. He believed that “You must be a fundamentalist to be really successful in the market.”
BE A CONTRARIAN INVESTOR
Another of John Templeton's key investment principles is that outperforming the majority of investors requires doing what they are NOT doing. In other words, to go against the grain – to be what is called a contrarian. As a contrarian, he didn't just bet against the crowd – he liked to invest at “the point of maximum pessimism.”
One of John Templeton's quotes sums it up nicely. He said that “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.”
Mr. Templeton also liked to point out that many investors tend to repeat their mistakes or the mistakes of others and warned against investing along with the supposed safety of the Wall Street “herd.” He believed that simply hoping bad things won't ever happen again is not a sound investment strategy.
When speaking about this danger to investors, John Templeton uttered one of his most famous quotes. He said that “The four most dangerous words in investing are: 'this time it's different.'”
INVEST WORLDWIDE
Taking a less-traveled route in investing, John Templeton showed Americans the path to investing worldwide through his fund. He was THE pioneer of global investing - at that time he established his fund, most Americans rarely considered investing in foreign markets. As to why Americans were not investing outside the United States, Sir John was quoted as saying, “That is very egotistical. Why be so short-sighted or near-sighted as to focus only on America?”
In order to follow in John Templeton's footsteps, one needs to:
1) Be a bargain-hunter on a long-term fundamental basis and ignore the short-term trends;
2) Sit back and take a look at the big picture – the macroeconomic trends;
3) Go against the crowd and buy where others are selling and sell where others are buying;
4) Spread your purchases around the globe – wherever you can find the most for your money – as Templeton said “See the investment world as an ocean and buy where you can get the best value for your money”.
John Templeton was also a very spiritual man who gave much of his life and money to matters other than purely monetary matters. He was known for starting his mutual fund's annual meeting with a prayer. Somehow I don't picture Goldman Sachs and other Wall Street firms today starting any of their meetings with a prayer.
He entered the mutual fund business in 1954 when he established the Templeton Growth Fund. The fund averaged a 14% annualized gain over the next 50 years, while he managed the fund. In other words, each $10,000 invested into this fund in 1954, with dividends reinvested, would have grown to $2 million in 1992 when he sold the Templeton Funds to the Franklin Group.
This performance over five decades is absolutely remarkable! How did Templeton do it?
BE A VALUE INVESTOR
Most of all, John Templeton was a value investor. He used a fundamentals-driven, 'bargain-hunting' approach to investing. He would look for shares selling well below their asset values due to temporary circumstances and hold those stocks for years. In John Templeton's words “The long-range view requires patience.” His Templeton Growth Fund held stocks for an average of six to seven years.
John Templeton urged investors to focus on value because most investors made the mistake of focusing on outlooks and trends. Therefore, he rejected the “technical” method for choosing stocks. He believed that technical analysis using charts was a waste of time. He believed that “You must be a fundamentalist to be really successful in the market.”
BE A CONTRARIAN INVESTOR
Another of John Templeton's key investment principles is that outperforming the majority of investors requires doing what they are NOT doing. In other words, to go against the grain – to be what is called a contrarian. As a contrarian, he didn't just bet against the crowd – he liked to invest at “the point of maximum pessimism.”
One of John Templeton's quotes sums it up nicely. He said that “Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria.”
Mr. Templeton also liked to point out that many investors tend to repeat their mistakes or the mistakes of others and warned against investing along with the supposed safety of the Wall Street “herd.” He believed that simply hoping bad things won't ever happen again is not a sound investment strategy.
When speaking about this danger to investors, John Templeton uttered one of his most famous quotes. He said that “The four most dangerous words in investing are: 'this time it's different.'”
INVEST WORLDWIDE
Taking a less-traveled route in investing, John Templeton showed Americans the path to investing worldwide through his fund. He was THE pioneer of global investing - at that time he established his fund, most Americans rarely considered investing in foreign markets. As to why Americans were not investing outside the United States, Sir John was quoted as saying, “That is very egotistical. Why be so short-sighted or near-sighted as to focus only on America?”
In order to follow in John Templeton's footsteps, one needs to:
1) Be a bargain-hunter on a long-term fundamental basis and ignore the short-term trends;
2) Sit back and take a look at the big picture – the macroeconomic trends;
3) Go against the crowd and buy where others are selling and sell where others are buying;
4) Spread your purchases around the globe – wherever you can find the most for your money – as Templeton said “See the investment world as an ocean and buy where you can get the best value for your money”.
Tuesday, July 21, 2009
Wall Street Performance Is Ruining Investors
With more than two decades experience in the investment industry, I am more than qualifed to give an informed opinion on what is wrong with Wall Street professionals.
So what is wrong with Wall Street professionals?
Wall Street professionals are concerned solely with the preservation of their cushy jobs and having better "performance" than their peers so they can receive more compensation. They don't give a rat's ass about whether their clients make money or not, only how they can make money from their clients.
It is perverted as to the way Wall Street calculates "performance". Wall Street looks ONLY at realtive performance - how various professionals stack up against each other. Wall Street NEVER looks at absolute performance - whether the professionals actually made money for their clients.
A friend of mine went to see his 'other' financial advisor recently. The value of the portfolio held with this 'advisor' fell by 25% in the past year. When he asked about the poor performance, he was told - "What poor performance? You greatly outperformed the averages - a decline of about 40% from the peak."
That 'advisor' is considered to be a 'star' in the Wall Street universe! After all, he outperformed the average by 15%. That type of "outperformance" will have my friend living on the street in his old age.
Another example of this "Wall Street think" was pointed recently by Tim Iacono of the Greenspan Mess blog. He pointed out ads where the Putnam mutual fund company was boasting about their mutual funds.
Putnam was boasting about how their funds had "outperformed" and moved up in the Lipper rankings of funds for various categories of funds. Yet every one of the funds had negative returns: 1-year returns of -15%, -27%,etc. and 3-year returns of -5%, -13%,etc.
Wow - thanks guys! Instead of paying exorbitant management fees to these mutual fund managers for their "hard work" and suffering a loss, one could have had positive returns by simply putting your money into bank CDs or money market funds.
So what is wrong with Wall Street professionals?
Wall Street professionals are concerned solely with the preservation of their cushy jobs and having better "performance" than their peers so they can receive more compensation. They don't give a rat's ass about whether their clients make money or not, only how they can make money from their clients.
It is perverted as to the way Wall Street calculates "performance". Wall Street looks ONLY at realtive performance - how various professionals stack up against each other. Wall Street NEVER looks at absolute performance - whether the professionals actually made money for their clients.
A friend of mine went to see his 'other' financial advisor recently. The value of the portfolio held with this 'advisor' fell by 25% in the past year. When he asked about the poor performance, he was told - "What poor performance? You greatly outperformed the averages - a decline of about 40% from the peak."
That 'advisor' is considered to be a 'star' in the Wall Street universe! After all, he outperformed the average by 15%. That type of "outperformance" will have my friend living on the street in his old age.
Another example of this "Wall Street think" was pointed recently by Tim Iacono of the Greenspan Mess blog. He pointed out ads where the Putnam mutual fund company was boasting about their mutual funds.
Putnam was boasting about how their funds had "outperformed" and moved up in the Lipper rankings of funds for various categories of funds. Yet every one of the funds had negative returns: 1-year returns of -15%, -27%,etc. and 3-year returns of -5%, -13%,etc.
Wow - thanks guys! Instead of paying exorbitant management fees to these mutual fund managers for their "hard work" and suffering a loss, one could have had positive returns by simply putting your money into bank CDs or money market funds.
Friday, July 17, 2009
Goldman Sac(h)s America
The stock market recently enjoyed a huge rally on the back of the latest earnings statement from Wall Street's premier company - Goldman Sachs. Goldman Sachs is also known among its critics as 'Government Sachs' for the firm's close ties to the Treasury department and the Federal Reserve.
Wall Street was celebrating the return of "business as usual" for them as evidenced by Goldman's results. Goldman Sachs "earned" $3.44 billion for their fiscal second quarter, up 65% from last year.
One should recall that Goldman Sachs was "bailed out" with $10 billion of taxpayers' money last fall. Goldman Sachs also received directly another $13 billion of taxpayers' money from the government's bail out of AIG. Goldman Sachs also had $28 billion of their debt insured by the FDIC - Federal Deposit Insurance Corporation - that normally insures bank deposits.
So what does Goldman Sachs give the taxpayers as a "thank you"? A hard slap in the face! The company has set aside 33% more (as compaed to last year) for compensation to its employees.
Goldman Sachs set aside $6.6 billion for employee compensation for this quarter and a total of $11.3 billion for employee compensation for the first six months of 2009. Goldman Sachs can do this legally now because they paid back the $10 billion government TARP "loan" last month.
Estimates are that Goldman Sachs will set aside enough to reward its 28,000 employees about $700,000 per employee. Obviously, the top producers will earn much more. Where is the "change", when it comes to Wall Street?
Besides being extremely well connected to the US government, what other factors allow Goldman Sachs to always do so well? A recent news story may shed light on that.
An ex-Goldman Sachs computer programmer, Sergey Aleynikov, was arrested for theft of a software trading program from Goldman Sachs. He intended to sell it to Goldman Sachs' competitors.
U.S. attorney Joseph Facciponti said in a statement "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could manipulate markets in unfair ways."
Yet no one in the media has questioned Goldman Sachs about this sophisticated software trading program that the company admits could to be used "to manipulate markets".
Why? Do they think everyone who works at Goldman Sachs is a saint who would not even think about manipulating markets? That they are of a high moral standing? The company's bonus structure is evidence that this is not so.
Don't worry - Goldman Sachs will NEVER be investigated. The company has too many influential friends in too many high places.
Wall Street was celebrating the return of "business as usual" for them as evidenced by Goldman's results. Goldman Sachs "earned" $3.44 billion for their fiscal second quarter, up 65% from last year.
One should recall that Goldman Sachs was "bailed out" with $10 billion of taxpayers' money last fall. Goldman Sachs also received directly another $13 billion of taxpayers' money from the government's bail out of AIG. Goldman Sachs also had $28 billion of their debt insured by the FDIC - Federal Deposit Insurance Corporation - that normally insures bank deposits.
So what does Goldman Sachs give the taxpayers as a "thank you"? A hard slap in the face! The company has set aside 33% more (as compaed to last year) for compensation to its employees.
Goldman Sachs set aside $6.6 billion for employee compensation for this quarter and a total of $11.3 billion for employee compensation for the first six months of 2009. Goldman Sachs can do this legally now because they paid back the $10 billion government TARP "loan" last month.
Estimates are that Goldman Sachs will set aside enough to reward its 28,000 employees about $700,000 per employee. Obviously, the top producers will earn much more. Where is the "change", when it comes to Wall Street?
Besides being extremely well connected to the US government, what other factors allow Goldman Sachs to always do so well? A recent news story may shed light on that.
An ex-Goldman Sachs computer programmer, Sergey Aleynikov, was arrested for theft of a software trading program from Goldman Sachs. He intended to sell it to Goldman Sachs' competitors.
U.S. attorney Joseph Facciponti said in a statement "The bank has raised the possibility that there is a danger that somebody who knew how to use this program could manipulate markets in unfair ways."
Yet no one in the media has questioned Goldman Sachs about this sophisticated software trading program that the company admits could to be used "to manipulate markets".
Why? Do they think everyone who works at Goldman Sachs is a saint who would not even think about manipulating markets? That they are of a high moral standing? The company's bonus structure is evidence that this is not so.
Don't worry - Goldman Sachs will NEVER be investigated. The company has too many influential friends in too many high places.
Monday, July 13, 2009
Financial Advisors - How Dumb Are They?
There was an shocking story on gold recently in the Personal Journal section of the Wall Street Journal. It was shocking in that I did not know that the Wall Street Journal was even aware of gold's existence.
To me, there was one outstanding feature of the story. The highlight of the story was when the author of the article turned to the so-called experts on personal wealth management - financial advisors. In my view, it really showed how out of touch these people are with financial reality and painted today's financial advisors as the dumbest guys in the room.
Remember these people are the same people who have completely missed the trade of the decade - sell stocks and buy gold. They have been wrong about gold for almost 10 years now and have been steadily losing money for their clients while continuing to "earn" fees for their efforts.
Why don't most financial advisrors recommend gold as a component for clients' portfolios? Simple - if they tell clients to go out and buy gold coins and stick them in a safe deposit box, they can't make any money!
Remember that old saying about liars figure? A financial advisor was quoted in the article as stating that over the past four decades, the annualized return for gold was only 8.4% versus a return of 9.1% for the S&P 500.
Huh? The figures I look at over the past 40 years show that the S&P 500 index has gained only about 7.5% annually. Meanwhile gold over the past 40 years has climbed from $40 per ounce to about $920 per ounce, an annual gain in excess of 11%.
Never let the truth get in the way of a great sales pitch! If only financial advisors could figure out a way to make money regularly from recommending gold.....
To me, there was one outstanding feature of the story. The highlight of the story was when the author of the article turned to the so-called experts on personal wealth management - financial advisors. In my view, it really showed how out of touch these people are with financial reality and painted today's financial advisors as the dumbest guys in the room.
Remember these people are the same people who have completely missed the trade of the decade - sell stocks and buy gold. They have been wrong about gold for almost 10 years now and have been steadily losing money for their clients while continuing to "earn" fees for their efforts.
Why don't most financial advisrors recommend gold as a component for clients' portfolios? Simple - if they tell clients to go out and buy gold coins and stick them in a safe deposit box, they can't make any money!
Remember that old saying about liars figure? A financial advisor was quoted in the article as stating that over the past four decades, the annualized return for gold was only 8.4% versus a return of 9.1% for the S&P 500.
Huh? The figures I look at over the past 40 years show that the S&P 500 index has gained only about 7.5% annually. Meanwhile gold over the past 40 years has climbed from $40 per ounce to about $920 per ounce, an annual gain in excess of 11%.
Never let the truth get in the way of a great sales pitch! If only financial advisors could figure out a way to make money regularly from recommending gold.....
Thursday, July 9, 2009
Stocks as Long Term Investments
Despite many of the so-called green shoots in the economy turning brown, the propaganda machine on Wall Street keeps churning. Wall Street is telling the public to buy, buy, buy....
Here is something they aren't telling you. There is some interesting data complied by Barry Ritholtz of The Big Picture blog. The data shows what would have happened if someone invested $10,000 every January 1st from 1994 to 2009 in either the S&P 500 index with dividends re-invested or into bank CDs.
The money invested into bank CDs would now be worth $207,509 while the money invested into the S&P 500 would now be worth only $178,253. Other studies have shown that in the period from 1968 to 2009, bonds outperformed stocks. Stocks for the long term?
And let's not forget that during the past 10 years, the S&P 500 index has lost 37 per cent before dividends. On the other hand, during the past 10 years, gold has returned 325%. Stocks for the long term?
The decision on where to invest one's money - stocks, bonds, commodities - is extremely important. After all, the average person has only about a 40 year time frame at most to save for their retirement. They can't wait decades for the stock market to just get back to breakeven.
How does the average person figure out where to put their money? One has to identify where we are in the "secular market cycle." History has shown that many financial markets go through a cycle, from peak to trough, of approximately 17-20 years.
For investors, one key problem is that an overall "secular cycle", from peak to trough, and back to trough, can take 35 years. That is a big chunk of a person's wage-earning years, leaving little room for any missteps in getting the stage of the cycle right.
So it's essential to determine where we are in the cycle, because that will likely affect returns over the next decade or so. And since people spend at most 40 years of their lives saving for retirement, not knowing where we are in the cycle leads to mistakes and losses.
Recent examples of these cycles include the period from 1966 to 1983 when the US stock market did nothing while commodities soared; the period from 1983 to 2000 when US stocks soared and commodities fell steeply; and the period from 2000 to the present where stocks have fallen and commodities have risen.
So where are you now in the cycles here in the US? If we define the current bear market in stocks as having started in 2000, we may only be half way through the whole bear market cycle.
Bonds? The bull market there is VERY extended (thanks to Federal Reserve interference), having started roughly in 1981 when Paul Volcker crushed inflation. With foreign investors seeming to be ready sellers, the bear market in bonds may be close at hand.
Commodities? If we look strictly at the cycle, it's just the opposite of the stock cycle - we seem to be about half way through the bull market cycle.
Here is something they aren't telling you. There is some interesting data complied by Barry Ritholtz of The Big Picture blog. The data shows what would have happened if someone invested $10,000 every January 1st from 1994 to 2009 in either the S&P 500 index with dividends re-invested or into bank CDs.
The money invested into bank CDs would now be worth $207,509 while the money invested into the S&P 500 would now be worth only $178,253. Other studies have shown that in the period from 1968 to 2009, bonds outperformed stocks. Stocks for the long term?
And let's not forget that during the past 10 years, the S&P 500 index has lost 37 per cent before dividends. On the other hand, during the past 10 years, gold has returned 325%. Stocks for the long term?
The decision on where to invest one's money - stocks, bonds, commodities - is extremely important. After all, the average person has only about a 40 year time frame at most to save for their retirement. They can't wait decades for the stock market to just get back to breakeven.
How does the average person figure out where to put their money? One has to identify where we are in the "secular market cycle." History has shown that many financial markets go through a cycle, from peak to trough, of approximately 17-20 years.
For investors, one key problem is that an overall "secular cycle", from peak to trough, and back to trough, can take 35 years. That is a big chunk of a person's wage-earning years, leaving little room for any missteps in getting the stage of the cycle right.
So it's essential to determine where we are in the cycle, because that will likely affect returns over the next decade or so. And since people spend at most 40 years of their lives saving for retirement, not knowing where we are in the cycle leads to mistakes and losses.
Recent examples of these cycles include the period from 1966 to 1983 when the US stock market did nothing while commodities soared; the period from 1983 to 2000 when US stocks soared and commodities fell steeply; and the period from 2000 to the present where stocks have fallen and commodities have risen.
So where are you now in the cycles here in the US? If we define the current bear market in stocks as having started in 2000, we may only be half way through the whole bear market cycle.
Bonds? The bull market there is VERY extended (thanks to Federal Reserve interference), having started roughly in 1981 when Paul Volcker crushed inflation. With foreign investors seeming to be ready sellers, the bear market in bonds may be close at hand.
Commodities? If we look strictly at the cycle, it's just the opposite of the stock cycle - we seem to be about half way through the bull market cycle.
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