Martin Lowy

Long only, value, contrarian, portfolio strategy
Martin Lowy
Long only, value, contrarian, portfolio strategy
Contributor since: 2011
Another useful paper, Scott, thank you. But when people/institutions/in... get out of one currency, they have to get into another--in the current climate, into the dollar. Getting into the dollar means either dollars in a bank or securities. In either event, U.S. Treasuries are a prized asset, either directly or through banks maintaining liquidity. Thus, it might be that although Saudi Arabia and China may be selling Treasuries, buying is matching that selling.
Interesting and useful paper, Scott, but I wonder whether you have adequately dealt with the correlation/causation issues.
Disney would not have done that if it had not made the judgment that the foreign workers would be more productive per dollar paid. There are two factors: Price and productivity. But you know that.
I explored the stagnant wage problem extensively in The Education Solution (see my website, the-education-solution... as well as the events of the 1970s that seem to have influenced it and the stagnation of men's educational achievement beginning with the 1948 age cohort and the rise of single parenthood. I could not summarize all that here. Suffice it to say that I do think there are some issues that are unique to the U.S. and that they can be dealt with by better long-run policies regarding education and families. Please take a look, SU, and tell us what you think. I and your other readers respect your analyses.
Cause and effect?
David, please permit me to modify slightly: (1) It is not the lowest wage rate; it is the lowest cost per unit of production that capital seeks. And modern communications, including transportation, have made it possible to seek that lowest cost more widely. Thus greater efficiency can overcome lower wages. (2) Lowering corporate tax rates could make a difference because that is a potential cost differential. At the extreme, look at the potential of eliminating corporate income taxation altogether. (Tax the would be paid at ordinary rates on dividends and capital gains.) (3) Putting less economic burden on hiring employees also could make a difference in the cost structure.
I am not disagreeing with your basic point about where capital goes. Juts adding some flavor.
What is the relationship between Fed RRPs and reserve balances?
Well done. Thanks. From whom did the Fed buy the $3T or so of securities, if you have an idea?
There are things that the private sector does not do well or does not do at all. Some of those even are things that in the long run benefit the private sector. The public sector therefore should do them, despite the usual political vagaries.
I think it is a mistake to conflate all sovereign wealth funds. A few of them that have been around a long time have been pretty good investors that did not invest domestically and that did not stupidly invest in oil--which would be pro cyclical if the source of wealth is oil. The Abu Dhabi and Norway funds have amounts of money that can be a meaningful cushion for their nations. Abu Dhabi has from time to time owned large parts of premier companies such as Saks Fifth Avenue and Tiffany. Of course the Abu Dhabi sovereign is not the people.
Please read The Education Solution. It answers your concerns.
For most loans, there are no market prices. Thus, it might be feasible to determine the effect of a general change of interest rates on a particular loan, but one would need market prices to take account of credit risk--and it is credit risk that causes the loan losses.
If loans did have active markets, then a regime similar to that used for securities (flawed though it is) might be appropriate instead of a loan loss reserve.
Interesting thought. But each of those claims effectively stopped a business that the bank thought profitable--for example, fixing LIBOR or laundering money. Maybe the bank thought it had to do such things in order to be profitable.
Many global banks have been reconfiguring their business--possibly because what appeared to be profitable turned out not to be when conducted more openly, legally and prudently.
I confess that I am not a fan of regulatory jaw-boning about loans. For the large banks, it seems to me that stress testing has made it unnecessary--yet it continues, mostly I think because the regulatory apparatus is held to account by the Congress, the press, and the public when banks fail. If that is the case, how can regulators sit by and watch banks take risks that they think are dangerous? But getting Congress, the press and the public not to look for scapegoats is pretty difficult, no?
You are correct. Getting the number "right" is impossible.But counter-cyclical policies are preferable to pro-cyclical policies, especially since banks play an important role in reinforcing the cyclicality. There are theories that can help to make the estimates, based on types of loans and internal stress testing.
Banking is a sort of unrealistic business in that it makes loans that are longer dated than liabilities (usually), that are illiquid, and that are to credits that are inferior to the bank's own credit. Getting caught in one of the possible squeezes happens fairly frequently. The only protection is lots of equity capital--and whether that capital is a realistic number depends to some extent on the Loan loss reserve. I would rather see it too high than too low.
Very interesting summary. Thanks. The issue for investors is that the opportunities you enumerated require foresight and the ability to distinguish between those companies that will succeed in the space and those that will not. In addition, we ordinary investors get the opportunity to invest only a bit late in the game. "Post venture" investing requires faith that the overpriced stock coming to market represents huge future volumes and profits.
Thanks, you are correct.
Thanks for this comment. The blog post that you reference is interesting and on point. However, it does not take account of the leverage used by the holders of the debt. High debt levels do imply future losses. We are seeing them already. But if the holders of the bad debts are not themselves over-leveraged, then the cascading effect does not take place, and I think it is the cascading effect that causes the conflagration. Please take a look back at the green graph in the middle of my post. I think it is the most important piece of information.
If I am right, then a good deal of wealth may be wiped out, and consumer spending will be impacted negatively, but the economy can withstand that kind of negative event. Growth is likely to slow and maybe even turn negative for a time, but the doomsday scenario seems to me quite unlikely.
Closed end funds do not offer to redeem shares. Therefore they and their boards do not have the same pricing concerns regarding illiquid securities, and they do not have to sell portfolio securities to meet redemptions. What usually happens to CEFs in times of stress is that they tend to sell at a greater discount to NAV. in good times, a fund may have traded near its NAV. In a time of stress, the fund might trade at a 20% discount. That might give stockholders a desire to have the fund liquidate, but that occurs infrequently.
Often a fund trading at a substantial discount to NAV is a good buy. The market may improve. Or the board may take steps to bring market price closer to NAV, for example by offering to redeem a percentage of outstanding shares for a price at NAV or close to it. I own one fund where for several years I was able to tender all my shares into an offer to redeem at close to NAV, then to buy back whatever shares I was successful in selling for about 10% less than I sold for. It was a nice gig while it lasted.
Thanks. I did not get a chance to look at the prospectus and SAI. Certainly I was not intending to say they were misleading.
I can see institutions investing in order to gain exposure to what is, in effect, a different asset class. That was my intention in 2009, along with the thought of investing in a fund run by a great value investor. That I decided after a while that the asset class did not suit my investment style is not to say that no one should have embraced it as part of a portfolio.
Excellent article, Brian, I hope you won't mind if i cadge from it (with attribution) for my column on
Mark, you are not focusing on the reserves or the deposits that large banks have been turning away because they could not earn anything on them without incurring risk and capital charges. If the Fed pays 1% on reserves and the bank can get new deposits for 50 bp, then it has a riskless 50 bp spread that also has almost no cost (except deposit ins). Its risk-based capital requirement also is nil. The bank should want to do that all day, bounded only by the regulatory capital requirement on total assets.
Thanks for clarity, as usual, Cullen. Some questions: Suppose over x quarters the Fed wants to raise the benchmark rate to 1%. Do I assume correctly that it then raises the IEOR to 1% and the reverse repo rate for the chosen to something like that? Why does that not spur the big banks to accept the large deposits they have been turning away and invest them in more excess reserves or reverse repos? If loan demand has not moved (and higher rates should not, I guess theory would say, increase loan demand), what is the benefit of giving the banks a free spread? And what does the Fed do with the new money?
Probably I am missing something here.
june1234, the BIS article you cited is very interesting--and like most things Dr. Shin is involved in, well done. But I do not see anything about CDS in it. I read it quickly, then took the PDF and put in a search for "CDS". "not found" was the result. Do you have some other citation for your contention regarding CDS?
Thanks for your thoughts. The Education Solution is out. You can buy it at Amazon--print or Kindle version.
Nice idea, Brill!
PopsL, I think a lot about the world in which my grandchildren, and their generation in general, will live. That is the subject of my book, The Education Solution. It is the way forward.
My grandchildren will be fine. They are blessed with talent and parents who help them tho develop their talents. But there are large numbers of Americans who do not have those advantages and who, therefore, do not get to develop their talents to the full. They need our help very early in their lives.
One of the Econ 101 (it was Econ 1 where I went to school) things that has stuck with me is "the fallacy of the static pie". The pie can grow to the benefit of everyone. Competition from China and elsewhere is a challenge for American workers, but gradually, the resources available do grow. And markets help growth because they encourage people to make the most of their talents.
The cotton gin and the steam drill were robots in their time. John Henry, he drilled 15 feet an' the steam drill only did 9, Lord, Lord, the steam drill only did 9. John Henry died from the effort. And the steam drill took the place of the John Henry's. But economic progress continued. Let's not make the mistake that old people have made since time immemorial and think that stuff that is new is bad. It is just different.
Thanks, Pixel, nice charts. I am not a trader, but for those of us thinking about adding to our positions, a nice drop after a two-cents earnings miss would a good thing. I will be watching on Monday and Tuesday.
Keefe Bruyette, you may have noticed, made little of the miss and raised its rating.
Good points, Wm. The idea should not be to raise revenue but to deter HFT, which has no social utility and lives off getting ahead of institutional algorithms. Unlike Bernie Sanders, I am a market guy, but markets need policing to prevent abuses.
Good call, Mark. My instinct was to sell, but I got convinced to keep half.