swissfrank

The Case for an International Portfolio: The Last Ten Years

If you want companies with great revenue streams in non US currency, good presence in both developed and emerging international markets and bulletproof sales even in recessionary times then look at stocks like MCD, KO, NESN (Nestlé) or even AAPL.

Sure, they'll fall to some extent when everything else does but they remove many of the risks associated with emerging markets, from political instability to governance and transparency and give you much of the of the dynamism of international exposure.

If, like me, your long-term investment thesis points to 'decoupling' and rapid growth in SE Asia, then go for more direct exposure through country or sector ETFs. (Remember that Australia - which is taken today as a proxy for commodity strength - is really a play on these same SE Asian markets. ) If you do, you must accept higher volatility: you'll fall more in a downturn and maybe wait longer for the rebound.

Why a Market Crash Doesn’t Matter

One's weekend is made just a little brighter by this sort of thing. A truly dreadful, vacuous article provoking some spirited and entertaining reactions. (A ploy by SA editors to keep our spirits up in difficult times or did they really find some merit in this infantile submission?) I could choose 8 companies which have spectacularly underperformed the market index over the same period and come to the opposite conclusion: that it pays to follow the index rather than target individual companies.

Such a conclusion would be equally asinine - based on the same logical flaw of handpicking a few supporting data points and trying to generalise from them. Markets matter, for all the reasons given above. If the author wants to come on SA and flag up future great growth stocks before they become well-known then I'm sure we'd all like to hear him.

Global Markets in Review: Share Prices Too Far Ahead of Economic Reality

Clemenceau died in 1929. He might have well have said something during World War 1, though.


On Nov 22 10:50 AM LKofEnglish wrote:

As Clemenceau
> of France said during World War II, "war is too important for the
> generals."

Delinquent Mortgages Equal to Three Times the Balanced For-Sale Inventory

Many thanks for the detailed analysis. How many years will it take cleanse big bank balance sheets of this garbage? Working through the inventory and returning to mark to market valuations on the housing loan book seem remote prospects right now. Particularly as Bernanke is doing everything he can to help banks conceal their debt rather than deal with it.

As Gross Says, The Fed Provides 'Return-Free' Risk

That's got to be a personal call, surely. Apparently the Fed aims to get thru at least 2010 with zero interest rates (its 'extended period'), which would push investors to seek better than zero returns in riskier asset classes. As money flows into stocks and commodities there will be an increasing disconnect between those values and the sluggish performance of the real world economy. That could give you your 'massive asset crash' well before your longer-term 'massive inflation' scenario plays out.


On Nov 19 10:47 PM DougM wrote:

> Great article, but could you close with some possible courses of
> action? Ends badly as in massive inflation may still argue for grabbing
> all the assets you can, now, even with borrowed money. Ends badly
> as in massive asset crash when interest rates start back up, argues
> for just sitting tight and taking the punishment BB's laying down.

The Other Side of the Argument: Deflationist Hugh Hendry's Market Commentary

Asset inflation is what the Fed and the big banks are TRYING to achieve. If they make it - house prices recover - the toxic real estate debt pile grows less toxic; banks become more solvent, more able to lend. That is the game plan, involving any amount of trickery to get there, from deferred foreclosures to financial help for move-up buyers etc.

But Hendry's point surely is that despite the firehose of stimulus, asset prices ARE NOT reflating much. And he speculates about a time when artificial stimulus might produce no increases at all (in GDP or in asset prices).

Fake asset prices is where we are coming from and where the Fed wants to return. Japan (with housing today worth half of 1989 values) is where Hendry sees us heading.


On Nov 17 12:03 PM Gary A wrote:

> It appears that the Federal Reserve is trying to sweep asset inflation
> under the rug, hoping that the US consumer won't notice. America
> cannot afford a weak dollar this time. He is vulnerable to asset
> inflation. Asset inflation is the weak link in Federal Reserve and
> Larry Summers weak dollar policy. It will bite us big time. And Obama
> will be voted out for war mongers if this continues.

Chance of a Depression Now 5 Percent

Totally agree with Mr Big's comments and conclusions.

Truth, the first casualty in war, was also an early faller in this meltdown. Once you strip out mark to market honesty and disguise the toxicity of impaired assets, what options remain for the guilty parties going forward?

1. When denial stops working, hope that time improves things. Desperately try and reinflate the impaired housing asset values by government stimulus, money for first-time buyers, foreclosures not recognized etc.

2. Risk new bubbles by turning on the cheap money and stimulus firehose and indiscriminately pointing it towards the flames.

3. Pay no attention to how long the water supply will last or where it comes from (the taxpayer).

Some honesty at the start, about the real value of the big banks, publicly acknowledged, might have led to a more considered public policy response about how best to deal with the crisis.

A chance was definitely wasted by the incoming administration to put an end to the Main St/Wall St nonsense, get the banks to fess up and work out a more equitable sharing of the pain.

Sure, money would have been spent and debts run up for future generations just the same but more rational outcomes could have been achieved for the taxpayer.

Instead it called in the Bernanke fire brigade. But he loads his truck with kerosene not water...

On Nov 17 10:17 PM Mr. Big wrote:

> Why recapitalize the banks when the simple change in accounting rules
> earlier this year solved the solvency problem?
>
> Fact is, the big banks are dead....they just haven't realized it
> yet. Literally speaking. Contrary to popular belief, MBS's, CDO's,
> complex securitized assets and other toxic assets haven't disappeared
> from bank balance sheets. In truth, they're still being held at
> the banks, but at BOOK VALUE, despite the fact that these things
> may be valued at 50 cents to the dollar. But the Piper will be paid
> when these assets mature and they are FORCED to write down the hundreds
> of billions in bad assets.
>
> The banks SHOULD be dead. America SHOULD already be in a depression.
> But lies and financial shenanigans have disguised our depression
> as a severe recession. Banks are not lending... because they know
> they can't lend. They know the true value of the assets that they
> hold and only by the good graces offered by the change in accounting
> rules that they bought themselves some time. Bernanke and Geithner
> know this too. And they contribute to this scam by keeping interest
> rates low.....and engaging in quantitative easing..... because in
> doing so, they can artificially prop up asset prices..... and give
> a helping hand to these dead banks (recall Goldman Sachs and its
> $2 billion+ in trading gains). Maybe these toxic assets become less
> toxic if underlying asset values increase, thus giving the zombies
> a window to unload them? Alas, I fear that the mark-to-market values
> are so far in the red that it wouldn't matter in the end. The big
> banks cannot afford to offload these assets on the markets. Not
> at the current marks...
>
> No....it looks like good 'ol Ben will just have to keep interest
> rates low for another "extended period" and just ignore the fact
> that he's creating another gargantuan bubble. Besides, it's "not
> obvious" to him that there's anything wrong with the markets.....because
> for it to be right would require the decimation of the U.S. financial
> sector.
>
> 5% of a Depression? It's probably more like we are 100% in a Depression
> already.....but with a 5% probability that the general public will
> be made aware of it.

Lunatic Bubble Warning for U.S. Treasuries

Sound logical. Pre-2007 the bubble was ostensibly in privately-held assets (house values). Ostensibly, because of course these inflated assets merely hid the securitization mess below. The amount of the housing overvaluation that has not been drained by simple falls in real estate prices has largely been passed on intact to the public sector, through endless government borrowing and stimulus. This now shows up in the absurd mispricing of long-dated paper.

The many ways in which the government has helped the banks to conceal their losses - from free money to self-serving rule changes - have not reduced the bubble, merely displaced it from the private wallet to the public purse.

Today in Commodities: Potential Reversal Looming

'looming' - may be coming but not definite - is also pretty good. So we have a maybe yes/maybe no 'potential' reversal which is 'looming' i.e. may be/may be not coming. Yup, we've got the bases covered.

The New Normal: A Secular Bear Market

You say "... some foreign markets are beginning to de-couple from the US cycle."

That really is the question. Will it be different next time or will everything come down together? I might now be persuaded that gold bullion will do well so long as the US and UK show no political will to tackle their respective debt mountains (in other words, quite a while) but I'm less convinced that my BRIC ETFs have really decoupled or will offer shelter from the storm.

The Good, Bad and the Ugly: Australian, U.S. and U.K. Economies

There has never been a cheaper time to take out a mortgage (or maintain a variable rate one) in the UK. Inevitably, this has stimulated activity. Wait till the bar tab is finally presented for payment post the May 2010 election and post the end of government stimulus. Most Brits for the moment seem deluded and very ill-informed about what is coming if that country is ever going to deal with its debt.


On Nov 08 12:58 PM Dave Wrixon wrote:

> Given the choice I would sooner take a 0.4% contraction under the
> BOE rather than a 3.5% expansion under the FED. In the UK, house
> prices are moving forward as very substantial rate, and my brother
> who is a Building Surveyor tells me business is booming. Funny really
> seeing there is absolutely no tax relief on mortgages or house purchases
> this side of the pond.

Wells Fargo's Mortgage Conversion Scheme: Delaying the Inevitable

You're missing the point, surely. If someone owes me $1000 for an ASSET and fails to repay, then I'll take back the ASSET when the repayment stops. This would happen with a car loan. What we are talking about here is a loan secured on an asset, not an unsecured cash loan. With an unsecured cash loan, sure, $10 a month is better than write-off.

Imagine millions of newish cars being driven around by Americans who have largely stopped repaying their car loans while the finance companies offer cheap new payment options SO THAT THEY CAN KEEP THE CARS ON THEIR BOOKS AT ORIGINAL COST PRICE rather than have to account for the depreciated asset. That's where we are now.

On Nov 06 09:05 PM fcharlie wrote:

> WFC now has the ability to continue to generate cash rather than
> not, has the ability to maintain the balance sheet rather than write
> it down, the ability to to space out whatever remains of losses that
> would have all been taken today over a four year period, and take
> advantage of future appreciation in prices from this point on. Six
> years from now the original homeowner may still be underwater, but
> WFC, even if they "kick the can down the road" can perhaps receive
> tens of thousands more dollars from foreclosure in 2014 simply by
> waiting for some appreciation in prices. How is this a bad idea?
> What's the alternative? If someone owed me $1,000 and they told me
> they couldn't pay me $50 a month anymore, would I say oh well I just
> accept it as lost, or would I allow them to pay $10 a month and see
> what happens? It's not a hard decision to make.

What's Up with Gold Inventories?

Try Zurich Kantonal Bank Gold ETF. You buy units of 100 grams, paying in euro, US dollar or CHF. ZKB is one of the largest holders of physical gold in Switzerland. The paper ETF can be sold back into the currency you bought in or simply taken to Zurich and exchanged for physical gold. Ditto for silver which is denominated in 3kg bars.


On Nov 06 11:58 PM PastTense wrote:

> Are any of the gold ETFs safer than the rest?

Congratulations to Apple's Steve Jobs, Fortune's CEO of the Decade

A well-justified accolade. What stands out over the last 25 years is Apple's success in devising - again and again - an intuitive interface between a technology and a human user. I imagine that Apple's engineers are at least as good as those of any other tech firm (and Steve Wozniak was clearly in a class apart) but engineering brilliance alone doesn't get you to Apple. That final step - replicated by so very few - involves a team leader with a strong aesthetic/functional vision for the product with enough tech knowledge to motivate and drive the engineers beyond their comfort zone towards a higher goal.

Such single-mindedness may not make for a pretty personality but it has indeed produced incredible results. A rare bird, indeed.

U.K.: Individual Liability for Government Debt

Nice article. I agree that the likelihood of taking PFI liabilities onto the government books - where they belong - is vanishingly small. Just answer this question. Would PFI have ever come to pass if the government had had to account for it honestly? Not a chance, as the borrowing costs for the private sector were always higher than those the government would have obtained for financing the project, and as such it would always have been reckoned bad value by scrutiny committees. It has been a scam, whose only - but huge - saving grace in government's eyes was keeping the public sector borrowing requirement artificially low.

Don't expect much deep cleansing or honesty post May 2010 election. What is required financially is probably not doable politically. The UK had the money from North Sea oil to modernise and reposition its economy but it blew it.