pacman1947

How Much Extra Money Is Really in the G20 Package?

Felix,
Our Alpha commentors here have it right. Brown and Obama got their headline, the leaders go home with a feather in their cap and proof that they are doing something to help, and a show of solidarity has been staged.

Old trader, a bug in the martini glasses or a fly on the wall would have been a nice touch!

Taleb's Necessary and Impossible Wish List

Felix,
I love this type of clarity and honesty in a person describing their belief system. Taleb has developed some axioms from experience that are at once reality and fantasy. The ironic humor is displayed in Dr. Janecka's post above. The debt question may resolve itself inevitably in time. Someday, no one will have ever heard of a dollar. What was the currency used in ancient Sumeria or in the Mayan culture?

We shall have our turn some day.

Alabama to JPMorgan: We Won't Pay

Tyler,
This is just another example of state's rights vs. federal law. The state, one of the poorest in the US, was just trying to save money on a swaption (a type of credit default swap on interest payments). Unfortunately, the dealmakers broke Alabama state law in drawing the contract. Since no money has changed hands, maybe they will dodge the bullet. Meanwhile, Moody's will punish the perpetrators.

AIG CDS: The Unwinding Begins

Tyler,
You know from your earlier post that FT challenged Citi's CEO memo leak on the grounds that Citi's profitability might be a sham. This investigation may uncover the truth of the matter, ironically a month after the markets roared to life on what might have been phony news.

Consumer Credit Drops: Good News and Bad News

Tyler,
These data may reflect belt tightening by the middle class, a necessary first step in recovery at home. It also reflects a first step in survival. We may face harder times ahead.

Barney Frank Has Declared War on Moody's

Barney should not be so worried, after all, our government-issued paper is receiving the same treatment as Berkshire Hathaway from Moody's. Barney will be pleased to know that he and Warren Buffett are in the same company!

Insurers to Receive TARP Funds

Rolfe,
Your article flags the possible existence of another shoe in the top of the closet about to drop on the heads of the taxpayers and investors: Insolvency of the insurance industry.

Insurers, in attempts to increase the yield on investment portfolios in recent years to both enhance profits while lowering rates for coverage, have become susceptible to excessive holdings in derivatives.

We know where that will lead from our experience with the banks and AIG. These companies will be in trouble, and face bailout or bankruptcy. There may not be enough money in the entire world to bail out all these risk takers.

Price and Return: Bonds vs. Stocks

Don,
I really liked this article, especially the famous quote from Sir Greenspan. Note that the S&P500 was higher that day 13 years ago than at the trough last month. What would be interesting is to plot the inflation-adjusted values of the DJIA, S&P500, and NASDAQ over these periods to see if there has been any substantive gain whatsoever in real present value in these indices for the past 25 years.

I doubt it.

The Death of Mortgage Banking and the Shadow Banking System

Michael,
I agree with your conclusion, "The shadow banking system was a black swan in the history of banking and should never be resurrected."

We need to find a means to control the back room banking, and illuminate the opaque deals made that caused this disaster. Banking should have never been a Black Op.

Tough Times for Dividend Investors

Market Ace is so right. The only downside is the added currency risk and political risk of dealing abroad. However, the returns are orders of magnitude richer. It certainly provides a kick to the portfolio.


On Apr 07 06:34 PM market ace wrote:

> I think if you limit yourself to US stocks you will have to settle
> for 2-3% yields being called "dividend aristocrats". If you are serious
> about real dividends you will need to go to foreighn stocks such
> as Canadian trusts. There are numerous trusts in every imaginable
> industry that pay substantial monthly dividends of 10% or more. Sure
> they are not big movers and the Candian currency differential reduces
> your yield as does the foreign withholding tax which makes them unsuitable
> for IRA's, but right now the US $ strength gives you superior buying
> power on the front end and you could get a nice gain when the dollar
> falls.
>
> Obviously many of these are small volume and you need to do your
> own DD, and especially check the dividend record for contimuity and
> future projections, but their appear to be many gems out there for
> those willing to search for them and they could substantially increase
> your annual dividends.

Energy Policies May Lead to Carbon Crack-Up by 2012

Gregor,
As an energy person, you know how huge is the problem of changing America's love of the automobile and its fuel. The biofuel experiment of ethanol and its various mixtures has failed. The compressed air system that aquaculture touts depends on electricity or fossil-fueled generators in every home, not a reasonable solution. There are many other ideas, Like T. Boone Pickens' plan for CNG autos and trucks as a home-grown transition strategy.

Biofuels can meet some of the transition requirements through biodiesel technology, but only in a transitory mode. Some see the ultimate transportation fuel as ammonia, since it does not have so many of the faults of pure hydrogen, stores, handles, and transports like fossil fuels, as clean as hydrogen, and can be used for other purposes. Others shout their support for electrics, but as we all know, the battery is its Achilles -- a range too limited. Try flying an airplane on batteries.

What do you see as the solution?

Letting the Zombie Banks Fail: A Viable Plan

Excellent article, William.

The counterexample to the author's approach is to use taxpayer money to cover the bad assets and bad decisions of the financial institutions. This is TARP and TARF, or the TARx experiment as I call it.

Our money was never intended by law to be used for such a purpose, but to back depositors' savings accounts and to some extent, their money market funds and CDs up to $100k (now $250k).

The TARx experiment continues at our expense, with our money being used to cover gambling losses and interfere with the capitalist system in place. It subsidizes the losers so that they can compete with honest institutions. It raises the cost of capital, causes greater disparity, greater mistrust, greater uncertainty, and rewards dishonesty. The policy also fails the anti-trust test for all corporations. These companies were too big in the first place and should have been broken apart under existing law.

This experiment has failed, lastly, on moral grounds. It must end.

Wall Street Breakfast: Must-Know News

Michael Gerson reported in his national column today that Obama had managed to become the "most polarizing president in history", with a 61 percent difference between Democratic and Republican perceptions of his performance. This was even greater than Bush's spread on polarity. The TARP oversight panel, in your first story, also suffers on this polarization issue if you read the Bloomberg story. Both Pubs on the panel dissented from the group opinion.

Centrists have no place in government if the two-party system has settled on a black and white stand on all issues. In a democracy, the middle ground should be the place of deal making. It will not work if these two sides cannot seek commonality.

We've Bounced Too High, Too Fast: Time to Short Financials

Picking the peaks and valleys reflects very optimistic thinking about one's abilities. My old timing service from the 80s produced many predictions.

All it took was the Crash of '87 to change my mind. The Fed dramatically interfered with the free market then. It's doing it again, with the Treasury in tow.

You can't beat the printing press at the counterfeiters. Don't even try.

That being said, your analysis of the data is a valid exercise, and the rebound we have seen this last few weeks has been overplayed as you observe. Good article, TA.

U.S. Market Returns by Year

I agree with retiredengineer (we have something in common!)

We diversified our portfolio over the years to include some index funds (the TSP only had a few such options) equivalent to EFA, S&P500, and QQQQ. They all got brutalized these last 18 months. The only salvation was treasuries, which paid about 4%.

We sit in treasuries and a few high-dividend foreign stocks now, awaiting the end of the bear market. It's too hard on the nerves to watch the falling knife and reach out your hand to catch it. Occasionally it's worth the risk for sticking your foot in the water, but there are bear traps set everywhere.

2008 is gone. Good riddance.