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Madoff's Investors Don't Deserve Compensation or Sympathy

Every Madoff investor who lost money is deserving of sympathy, but being compensated under the law by having some right to pro rata forced rebates from those who had earlier withdrawn their investments is not justice -- it seems to me to be a socialistic response to i an investment loss due to poor timing. And we have all done that, haven't we. Of course, if it can be proven that any of those those who made earlier withdrawals knew Madoff was running a Ponzi game, in effect having inside information about fraud, deserve, at a minimum, to have their withdrawals put in the pot for those who did not cash in early.

There's No Lying in Government Statistics: The Labor Market Is Still Down

Mr. Frankel, you have given many of us a ray of statistical sunlight in the otherwise murky cloud of unemployment statistics. Thank you for your analysis and insights.

Jim Rogers Shares His Thoughts on the Market

Good questions to Rogers. Responses too long range and dogmatic given all the non-anticipated events that always occur affecting the future course of economic conditions always change. However, given the rapidly growing national debt along with future entitlement obligations in an aging U.S., Rogers is probably correct regarding no way to come out of this without the transformation of our great country into an impoverished former world power -- indeed, a "de-merging nation."

Donald Luskin: Gold and the Upside-Down Bell Curve

Madcow2, many econiomists and intelligent investors understand, and likely agree with, Luskin's above analysis. Moreover, yourand Luskin's point I believe is sound -- a rising gold price trend line indicates the FED's anti-deflation plan appears to be working. No doubt a country can survive inflation (up to a point), but serious deflation sets the stage for another, perhaps even deeper and longer "Greater" Depression in the future. Washington officials are right in pulling all stops to prevent that from happening.

High Yield Market Jumps the Shark on Record Low Recoveries

The HY11 Index seems to reveal the latest collective effort of blindly chasing yields. Good article with a timely warning for high yield bond investors who think the worst is over.

Considering the Widespread Suppression of Free Markets

Yes, it is the time to ask the big questions, but it is not capitalism versus socialism, it is about restoring responsible capitalism.

How GE Compares to Other Banks

Unlike the CEO's of Wall Street's mega banks, the GE CEO today showed us that morality still has a place in the corporate headquarters -- when you haven't earned it, you have no moral right to it.Doing what's right trumps contract rights when it counts.

Manufacturing Collapse Reminiscent of Great Depression's Beginning

Well said, axelrod608!


On Jan 05 11:26 AM axelrod608 wrote:

> >> "an equal number of blogs which tell us that today is 'the investment
> opportunity of a lifetime.'" >>
>
> It is important to keep in mind that it's not an either/or proposition.
> Many fortunes were made during the Great Depession. In ALL market
> conditions there are winners as well as losers.
>
> Even if the economy tanks, there will be companies that do well.
> The challenge is to find the gems in the multitude of losers. The
> process never changes but the odds get slimmer as the economy gets
> weaker.

Gold: Recycling Threatens Demand-Supply Equation

Gold primarily has psychological when value looking at long intervals, clearly goes through periodic manic and depressive phases: either mass worry about the future (creating buying spurts) and mass euphoria sbout the current and future economy (creating hold or sell behavior).

Having said that, this article by Mr. Saxena is an excellent analysis of short term supply and demand factors which clearly affect short term cycles. His point that the downfall in demand in India is not a positive sign for gold bugs seems logically based. In any event, those who play short term cycles may profit or lose, but for long-term investors, gold is one poor investment, one that history has well-established is a lost economic opportunity.

For those in difficult economic times who believe that gold is a safe haven for a feared econmic implosion, perhaps they do not understand that a total golbal economic collapse would destroy the value of all investment assets, including gold. Faith in the future is what life and investing comes down to.

The Riskiness of Bonds

Felix, this time I agree with you on about every point, especially regarding being cautious about buing investor-grade corporate bonds of more than four or five years maturities. Your inflation scenario resulting from massive monetary expansion is credible, but I have one caveat: the timing of the deflation/inflation switch. No one knows, of course, but my guess. for what's its worth, is that the inflationary cycle will begin at more likely than not at least two years or three years out. So, money in investment grade corporates of three to five years do not to me appear to be putting one's capital in these assets at much risk. (Please, however, don't ask me about my AIG bonds).

GE's Dilemma: Sensible Business vs. Rating at Any Cost

I think p4jain makes a good point about shorting a high dividend flow, even should GE cut its dividend below 7%. Moreover, Mr. Saxena's argument about shorting the stock, of course is based on assumptions of a worsening global economy and he probably is right. But short sellers at the current levels of GE stock, in my opinion, taking a high risk. True, if the short selling is a judgement call on the company causing it to transform itself into a learner and more efficient comapny, that is the economic (vis-a-vis individual investor) benefit for shorts. In GE's case, it might cause management to transform the company in ways to make it more competitive.

However, speculators in shorts often get burned badly and shorting GE might be one of those situations. The good news is that Mr.Saxena is not advocating investors run to Treasuries and jump over a cliff.

By the way I have no troouble with Mr. Saxena being a short seller in GE and writing this article. It is very helpful for investors to know that those who write articles often are explaining their own investment moves.


On Jan 02 06:51 AM p4jain wrote:

> Rakesh, I agree with shorting GE and staying short. But shorting
> GE with a dividend of 7% and holding shorts till mid 2009 means you
> are going to PAY significant dividend shorting GE. However, shorting
> SPY and ETF are good idea or buying SKF is better. No dividends.
> How do you deal with paying the dividends for the shorts you hold?

Three Views of Three Big Failures

David, an excellent commentary on the downfall of giants, correctly pointing out that many people share in the blame game. You included yourself for not warning people louder begfall the collapse. Many investors, myself included, also must share the blame. Here's my story in brief.

I wish you had been working for Moodys and Standard & Poor who through last summer rated AIG "AAA." I did not do my homework this past July and August when I decided to purchase AIG then prime-rated bonds. I bought them based on their comparative high yields to maturity, never thinking for a moment the issuer might be in deep distress. I should have done a thorough investigation, knowing that ratings tned to be much more accurate retrspectivly than prospectively. Given the ratings and the notion that the world's largest global insurance company cannot go under (or need a bailout that probably will not work) I chased yields as it turned out were too good to be true. . I assumed without any checking that AIG had a reasonably good balance sheet, further assuming that new cash would be flowing in as is typical in most insurance underwriting businesses. And finally, knowing that Buffet has favored insurance companies in his BH portfolios, I kidded myself in thinking "I could be like Warren." Not this time. In any event, you comments on AIG in particular were enlightening fopr me. Reading the piece was humbling.

Is Buying Bonds Really a Good Idea?

Felix, it would be helpful if you did not write about the bond market as if it were an either or situation, considering them regardless of type or issuer as having essentially the same risks. The differences between treasuries, investment grade bonds, and distressed (or junk) bonds are, and traditionally have been through historical financial crises, enormous.

When you write that conventional wisdom is that bonds have been safer than stocks, then add, "this may no longer be the case," you are assuming that today's global financial crisis is transformative unlike any other in history. I think not. We have short memories and great financial havoc has besat this country many times before, not just in the 1930s. True, each recession and depression is different, but one thing they have in common is that each ends and the normal rules of investing and safety return.

That being said, consider that a few insightful and far-looking buyers in the Great Depression purchased defaulted general obligation municipal bonds. They understood that at some point the issuers had to pay off those obligations. New York City, Florida, etc., could not be liquidated. Consequently, fortunes were made by investors who understood the difference between short and long term risk and who, above all else, had the means and the PATIENCE to wait it out. To invest in U.S. Treasuries right now, I agree, may be the worst possible time. But it is wrong to tie long-term Treasury investments in investment grade (versus distressed) bonds. Both general obligation municipal bonds and investment grade bonds may ebe the best long-term investments (vis-a-vis speculations) available today.

Yes, I know most of us have serious doubts about Moody's and Standard & Poor ratings, but they assess the financial risks of companies on the whole very well, with a few huge exceptions notwithstanding such as AIG. Still, when one invests in bonds in companies such as CT or GE and holds them until maturity, that would be be more prudentfor a conservative investor (more than ever will be around for the than in vesting in stocks and holding them for the next decade.

Nonetheless, your article expressing investors be cautious when it comes to bonds is correct, but the thesis does not extend to the entire class as you have suggested.

Australian Dollar Preparing to Break Out

Mr. Patel's articles are often on the money (sorry about pun). After a recent trip to Australia, I came away with a feeling that the world recession has so far has not have a strong of impact on the Austrailian economy as it has in most other countries. As he says, Australia with its abundant natural resources having great exportable valuable is situated to profit from the inevitable rebound in the world economy. Moreover, given the country's relative healthy balance sheet,the Australian dollar is set to rise and likely remain high in comparison to the dollar as it deflates. Yes, this may cause most fiat currencies to in time deflate as well, but in the case of Australia, it will be backed not by gold or services, but by hard assets other than precious metals. Having said this, often when I have been long in a specific currency I have not done particularly well. Thus, I think it might be better to invest in the the equity and investment grade bonds of the the country's strong, commodity based companies to reap the values of both the likely devaluation in the U.S. dollar and foreseeable increase in the Aussie dollar.

The Great Depression vs. Today's Economic Crisis

Mr. Patel's summary of the similarities and differences between the Great Depression of the '30s and today's global financial crisis is excellent. However, a few other comparisons can be made. Central banks could do little to support the banking system then unlike today. One thing is the same, however: a pervasive and to extend unjustifiable fear about the future that obscures global economic realities for the future, one result of which is people with money closing their pocket books. It remains to be seen if the new administration in Washington will be able, through their market interventions, can get people to start spending at a higher level than they are now.

I agree with Mr. Patel that a major difference is the government's ability to create more infusion of dollars through bailouts not hampered by any gold standard. I think he is right in pointing out that printing dollars that have and will continue to take place over the foreseeable furtue will increase significantley the risk of deflation of the dollar which in turn will lead to inflation and continued difficult economic times for the world economy -- especially the U.S. for extended period of time.