Crocodilian

Charlie Gasparino: Another Crash 'Has to Happen Again'

Oh woe is us, "another crash has to come".

Sure.

"I don’t know when it’s going to happen, but if history is any guide, it has to happen again"

It will. So what?

Amid all the people being blamed, I don't see the feckless and ignorant American voter, who has consistently made clear to the people that he elects that he wants "more stuff, and someone else should pay for it, some other time, but no, not me, not now".

The root of our trouble was the collusion of voters and leaders in the biggest fudge of them all, the "implicit guarantee". What is an implicit guaranty? You think anyone would let you sign for a loan with an "implicit guarantee"?

Agency-Backed Mortgage REITs at a Crossroads

Thank you for the post. I'd be curious to hear more. I've listened to the NLY and AGNC conference calls, and they've both been profitable investments for me, but I confess to being fuzzy on the differences in strategies.

Can you point to the way you look at reports to discern strategy? These are not the most transparent of entities.

Inflation by Stealth

author writes:
"So for now, inflation is like a ninja stalking our economy. It's lurking in the shadows but can't easily be seen."
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Yes, because we're busy fighting off the far more pressing danger of a deflationary depression. Is there a risk of inflation from the measures taken to keep our economy from imploding? Sure there is: but we have good tools for fighting inflation if it occurs., and right now, we have a much more pressing problem.

The world is generally beset with too much industrial capacity, too much debt, asset prices that still look too high, and end user demand that's very suspect.

In that circumstance, the immediate risks of inflation are quite low-- what's going to drive it?

Remember, its not just money supply that determines the risk of inflation, its (money supply)*(velocity of money), which stands equal to (price of goods)*(quantity of goods). This is called the "Exchange Equation" in economics, and what it tells you is that if velocity of money has collapsed (and it has), even a large increase in money supply won't have an impact on prices.

Are Investors Seeking Protection from the Wrong Currency?

The fault lies in Beijing. Freeze one part of a three body system, and you'll get what we've got: a dollar that falls sharply against the only other currency trading in volumes sufficient to absorb flows, the Euro. This is bad for the Europeans, not great for the US, and not a long term solution for the Chinese either (because as they redeploy into Euros, they're doing so at valuations that are clearly too high)

The world is stuck with Beijing's policy preference: they want massive exports in order to sop up excess labor supply at home, and will keep their currency too cheap in order to achieve this.

So if the dollar can't fall against its Yuan peg, it will fall against the only other currency where China might sock away export revenues.

Spectrum Pharma: Zevalin Has Blockbuster Potential

Very hard to have a new blockbuster drug for NHL . . . given that the current first line therapy, Rituxan, works very well, has been used for a decade.

author writes: "If there is a SHIFT in the STANDARD OF CARE treatment for NHL, then a majority of doctors will likely implement RIT into the first-line treatment."

That's a big "if".

Oncologists use what they know. At this point, they have a good drug, which they know well. The most likely scenario for Zevalin is as a second line drug for relapsing patients. Each addition to a drug regimen adds considerably to cost and to the potential for complications. Most community oncologists avoid the the complicated multidrug protocols common at research hospitals if they can . . . in this case, they can.

Here's Why Asia Must Eventually Ditch the Dollar

"China is set to use the ASEAN meet to sell the idea of making the Yuan an international currency. "
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No, they're not. The PRC leadership has shown zero interest in losing control over their own currency. Being a reserve currency means that massive amounts are held by foreign central banks, and these foreign banks have an associated power.

The Chinese are not willing to let the Renminbi be fully convertible, much less a reserve currency.

Moreover, they're not willing to let the Renminbi float, either. Its obvious to anyone looking at purchasing power parity that the Yuan is dramatically undervalued, but the Chinese have been steadfast in preventing its appreciation. As a fully convertible currency, they'd have to let the Yuan float-- meaning the loss of millions of export jobs, a political risk they are as yet unwilling to run.

6 Dividend Stocks for Current Income

what Kinder Morgan pays out are not _dividends_ they are distributions. That's not just a semantic difference, it reflects a different legal structure (MLP) and a different tax treatment (its a pass through entity).

I hold KMP, but you can't analyze their payouts as "dividends" -- they're not.

The Return of Japan's Zombie Finance

Japan is a very odd case of a nation with a giant fiscal deficit, financed by a giant current account surplus. That is, Japan has earned vast amounts of dollars through its exports, and its citizens spend very little, and save at interest rates close to %0.

So there's an enormous pool for savings from which the Government can borrow, and they borrow and spend, in the absence of domestic secular demand.

The entire nation is a painful irony: the "paradox of thrift" writ large. Its also worth observing that even though public indebtedness is very high, private indebtedness is quite low . . . the Japanese have essentially done what we're doing, but ten years ago.

Peak Private Indebtedness (1996)
%273 of GDP (today %113)

Peak Government Indebtedness (today)
%170 of GDP (up from %45 or so in 1996)

So private sector debt has fallen by half, and public sector debt has quadrupled (as % of GDP).

Hands Off Goldman Bonuses

Kudos to author for using a simplistic title to lead into a more complex discussion-- most of the time, people writing on complex issues make them simple,

Author Harrison doesn't do the "its very simple" punt . . . he says its complicated, which is exactly right: it is.

I would add that there's an issue here beyond fairness: efficiency. Some argue that restraints on pay and risk taking are inimical to the efficiency of the system . . . but I'd say that a system which, absent government intervention, ran itself into insolvency is inherently inefficient, and the problem is the nature of the compensation.

Goldman, and everyone else in the financial industry, is highly incentivized to see enormous leveraged bets made, bets which are so large that if they fail, they risk doing systemic damage. Their bonuses come when those bets go well . . . and everyone else picks up the tab when those bets go poorly.

It seems to me that what is needed in financial services compensation is a tax on profits that reflects that added risk that a particular activity has added to the system. A stock broker? Adds little or no risk to the system. Same with an insurance salesman, a mutual fund portfolio manager . . . but someone who constructs complex interest rates swaps (as for example, JP Morgan did for Jefferson County, Alabama) . . .this kind of financial engineering brings with it massive risks assumed by others, which should be reflected in the compensation of the financial engineers, this adjustment would make the system _more_ not less efficient (it would be "fairer" too, but that's less important)

There Is Nothing Wrong with Price Deflation

Author glides over the important distinction between an asset price deflation and price declines in manufactured goods brought about by productivity improvements: they are completely different things.

Price reductions in manufactured goods due to increased productivity are almost entirely beneficial-- they represent a genuine and durable increase in national wealth.

Price declines in fixed assets both signal trouble (indicating that the market expects that their future productivity will be less than that today) and _cause_ trouble (because asset price declines can cause the real interest rates to grow to levels that will cause defaults).

Author is correct in observing that high debt levels in and of themselves are the issue today-- deflation is of little concern to a net creditor.

As it happens, the United States is a massive net debtor-- not a comfortable position in which to have a deflation.

Canada's Rising Dollar: Benefits of a Strong Loonie

Living in Seattle, and traveling frequently to Vancouver, I'll say that "bigbear4511" (above) is right: from a purchasing power parity perspective, there's no way that the Loonie is worth $1 US. At that exchange ratio, it pays Canadians to drive across the border to buy . . . anything and everything, and they do. On a weekend at Cascade Mall, near Bellingham, Wa, you'll see far more BC license plates than Washington ones, and the trash bins are filled with tags getting pulled off garments (so as not to pay duty when the day tripping Canadians return home).

Canadian papers are filled with stories of the devastating effects of a strong loonie on their industrial economy. There's an interesting regional aspect to this: the Canadian oil patch is presumably content with a strong C$ . . . but that doesn't help Ontario, which is heavily dependent on manufacturing exports.

Jim Rogers on the Next 10 Years

"1. The Chinese want to live like we do;"

Unfortunately, they can't.

The US, with %5 of the world's population, requires about %25 of the world's energy to live as we do. China has about %18 of the world's population . . . there simply is no way that China can come anywhere near the US consumes.

US energy consumption (2006)
334 million BTU per capita

China energy consumption (2006)
56 million BTU per capita

Because of China's giant population even small increases in per capita energy consumption will crash into supply/price constraints.

Barron's' 'Miller Time' Completely Misses the Math - and the Mark

One might add-- this return is on a _much_ smaller asset base.

Value Trust had $20 Billion in assets in March 2007.

Value Trust has about $4 Billion in assets today.

So that %72 decline is off of a much larger amount of money, representing about $14 Billion in losses. This year's gain amounts to about $1 Billion.

Lose $14 Billion, gain $1 Billion = not so good

The Power of Unintended Consequences: SuperFreakonomics, by Steven D. Levitt and Stephen J. Dubner

@ed233
"Misrepresented and or fraudulent lender's statements were produced creating false gross debt ratios and valuations.Mortgage brokers routinely misrepresented the fine print of contractual documents to the detriment of the borrower. Credit rating agencies accepted supporting documentation without making background checks"
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Yes. This point should be underlined. We constructed a system whose rules were "write down some numbers in some boxes and the Government will guarantee you hundreds of thousands of dollars in mortgage loans. buyers and their collaborating bankers, realtors, appraisers, mortgage brokers just put down "numbers that work" in the boxes . . . since no one was checking, or had any incentive to check, it is also not surprising that many of these "numbers in boxes" turned out to be "not quite right".

In the latter part of the mortgage/real estate bubble, the extent of fraud was huge. One of the most common was "owner occupancy". Lots of speculators took "free money" in a "heads I win, tails I walk away" bet, made possible by a far-too-generous program of mortgage guarantees.

The FBI produces an annual "Mortgage Fraud Report". Read it here:
www.fbi.gov/publicatio...

The Power of Unintended Consequences: SuperFreakonomics, by Steven D. Levitt and Stephen J. Dubner

As to author's question about the mortgage crisis, its fairly evident where the fault lies: the completely unnecessary moral hazard of the "implicit guarantee" of the Federal Government to FNMA and FRE, and their decision to guarantee private mortgages on very speculative terms.

What's particularly bizarre about the behavior in 2002-2007 is that there was tremendous liquidity and credit availability-- without a Federal guaranty, implicit or explicit, you were still being bombarded with offers for credit cards . . . clearly, credit availability was high, without any Federal guaranty.

So for no good reason, the Federal government acted to guarantee real estate lending. Small wonder that there was a lot of it.

The tragedy of the "implicit guarantee" will haunt us for a long time, and its as clear a case of "unintended consequences" as one needs to have.