"Well, my first misadventure with gold was standing in a queue in front of the Nicholas Deak currency and coin shop, which was on lower Broadway. And it might have been January of 1980 at the very peak but if not then, it was late 1979. I almost top ticked it. That was before I learned never to stand in line to buy an asset. You always want to go where nobody else is in line."
Jim Grant, May 20th 2011
Below are articles/reports I have found interesting over the last week:
1. Jim Grant – Q&A: refutes the fallacy of counterfactual statements that the world would end if the Fed had not intervened to prevent a systemic collapse in 2008, why a gold standard in our lifetimes is coming, on whether he is buying gold currently, on inflation, on corporate valuation, and where (and more importantly when) investors should be putting money to work. Here is also a 30 minute interview with Jim on Gold Money with James Turk.
2. “The Hidden State Financial Crisis” - by Meredith Whitney. After 25 weeks of consecutive and material outflow from municipal funds, Whitney doubles down focusing on state finances.
3. “Straight from the Horse’s Mouth” – May commentary from Ice Cap Asset Management. Page 4 is a nice touch.
4. “Commodity Prices, Inflation Measures, and Inflation Targeting”: presentation by James Bullard of the St. Louis Fed. To contextualize his views on core inflation, here is his latest speech given recently in New York: “Measuring Inflation: The Core is Rotten”.
5. “Why Facebook Needs Sheryl Sandberg”: profile of Mark Zuckerberg’s COO. Coincidentally, she is a cousin of David Einhorn.
6. “Now is not the time to raise interest rates”: superb article by Adam Posen (external member of the BOE MPC) in the FT. Note you need to be subscribed.
7. Ira Sohn Conference Notes: Hedge Fund Manager Presentations: Part 1 (Sabretooth, TPG, Centerbrige, KKR, Harbinger and Kynikos) and Part 2 (Frontpoint, Pershing Square, Gotham, Greenlight, Icahn, Corriente, DoubleLine, Marc Faber, Cerberus and Trian). Here is David Einhorn’s speech where he goes through his investment thesis for Delta Lloyd and Microsoft. Please send on any presentations or speeches from this conference you come across.
8. Here is a recent Bloomberg interview of Mark Faber: “in front of far too many luxury hotels there are far too many Ferraris, Maseratis, Bentleys... I see a boom everywhere, except for the working class, except for the lower, middle class. But among the well to do people the wealth that is floating around and the prices you pay for high end properties is incredible, and I think that will come to an end, and a lot of people will lose a lot of money... I was in La Jolla, Laguna Beach, Newport Beach, I was in front of a restaurant smoking and I've never seen so many Ferraris, Maseratis, Bentleys and fancy cars anywhere in the world, and this is in America. I am not saying this is wrong, but there is an opulence among a small group of people that is huge when there are lots of people that are struggling. This gives me a bad feeling because I've seen so many emerging economies when they were booming, that was the time to get out." This week's must watch.
9. “Update After PCAR, Troika Visit and SPU” - Bank recapitalisation an important watershed in recovery from crisis; focus will be on fiscal aggregates from now on – a recent NTMA presentation on Ireland. Attachment available on request.
10. “President's Fine Words May Not Address the Middle East's Real Needs”: Robert Fisk discusses what Obama should have said in his recent speech.
http://ccmacromusings.blogspot.com/
Friday, June 3, 2011
The Real Housewives of Wall Street
“The Real Housewives of Wall Street” – by Matt Taibbi in Rolling Stone magazine (article recommended to readers of Jeremy Gratham’s latest quarterly letter, both below).
Below are articles/reports I have found interesting over the last week:
1. Oaktree founder Howard Marks discussed interest rate rises in a recent CNBC interview.
2. “Part 2: Time To Be Serious (and probably too early) Once Again”: Jeremy Grantham’s Q2 Investor Letter, May 11: “"I do not feel the same degree of confidence that I did, which was considerable, that the Fed could carry all before it until October 1 of this year. A third round of quantitative easing would very probably keep the speculative game going. But without a QE3, there seem to be too many unexpected (indeed unexpectable) special factors weighing against risk-taking in these overpriced times. I had recommended taking a little more risk than was justified by value alone in honor of Year 3, QE2, and the Fed in general. Risk now should be more reflective of an investment world that has stocks selling at 40% over fair value (about 920 on the S&P 500) and fixed income, manipulated by the Fed, also badly overpriced. Although the taking of some “extra” risk by riding the Fed’s coattails has been profitable for six months, I admit to being a bit disappointed: I really felt the market had the Fed’s wind in its sails and would move up deep into the 1400 to 1600 range by October 1, where it would be, once again, over a 2-sigma 1-in-44-year event, or, officially, a bubble. (At least in a world where GMO is the official.) At such a level, I was ready to be a real hero and absolutely batten down the hatches, become extremely conservative, and be prepared to tough out any further market advance (which, with my record, would be highly likely!). The market may still get to, say, 1500 before October, but I doubt it, especially without a QE3, although the chance of going up a little more by October 1 is probably still better than even. And whether it will reach 1500 or not, the environment has simply become too risky to justify prudent investors hanging around, hoping to get lucky. So now is not the time to float along with the Fed, but to fight it. Investors should take a hard-nosed value approach, which at GMO means having substantial cash reserves around a base of high quality blue chips and emerging market equities, both of which have semi-respectable real imputed returns of over 4% real on our 7-year forecast. The GMO position has also taken a few more percentage points of equity risk off the table." This week’s must read.
3. Here is the “The Real Housewives of Wall Street” article Grantham recommends reading by Matt Taibbi in Rolling Stone magazine.
4. “QE2 has transformed commodity markets into liquidity-driven markets”- recent report by Richard Koo: He makes the point that the relationship between monetary indicators breaks down during balance sheet recession i.e. velocity is in declining trend.
5. “How to Make Ireland Solvent” – by Daniel Gros. Here is Daniel Gros speaking at the IIEA on “Ireland and the Euro Crisis - Is There Light at the End of the Tunnel?". He thinks the external adjustment is key for solvency, and Ireland has adjusted from that perspective but he believes Ireland’s biggest opportunity lies in finding private sector-owned foreign assets to de-lever i.e. contrary to current EU directives, forcing the pension funds (who are the main holders of large foreign assets) to buy Irish government bonds. My understanding is that as a country we have a small net foreign debt, comprising large net foreign debt of the government and slightly less large net foreign assets of the private sector. These assets are held by pension funds and insurance companies. If the government can direct these (quite low yielding) assets to government debt (much higher yielding), we can avoid default. I am not convinced our new coalition government will be able to pull of what The Fidesz has managed to do already this year. [thanks AC]
6. “The Full Brady” – by Barry Eichengreen writing for Project Syndicate.
7. Profile of Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, who in 2010, made more profit (c.$15bn) than Google, Amazon, Yahoo, and eBay combined.
8. “Extreme Conditions and Typical Outcomes” – latest market valuation piece from Hussman Funds.
9. “Will Aussie housing go bust?” - “Eventually people are going to realise that taking a 2 per cent pre-tax yield from renting a house that isn’t going up in value doesn’t make any sense, if you’re paying 7 or 8 per cent for the associated loan”, Mark Joiner, CFO of National Australia Bank.
10. Russell Napier interview with John Authers of the FT. As he pointed out in his recent note which I included in Macro Musings a few weeks ago, "whether equities will fall further depends on how flexible and successful the Fed’s next monetary package will be. Given the risk, investors are better off watching from the sidelines." He further explained: "A risk to reflation would send equities sharply lower. The failure of QEII will undermine investor faith in a monetary solution. With equities near bubble valuations, based on cyclically adjusted PE, a failure to reflate risks major downside. The Fed will try again with a new package, but investors would do best by waiting to see how it plays out." His outlook is that first we will see another major deflationary shock, following which the Fed, already boxed in a corner, will have two choices: let major financial institutions fail, or proceed to monetize outright. Regardless of which outcome is picked, Napier's target for the S&P, which just happens to coincide with that of Albert Edwards is 400 (or somewhere in that vicinity).
Below are articles/reports I have found interesting over the last week:
1. Oaktree founder Howard Marks discussed interest rate rises in a recent CNBC interview.
2. “Part 2: Time To Be Serious (and probably too early) Once Again”: Jeremy Grantham’s Q2 Investor Letter, May 11: “"I do not feel the same degree of confidence that I did, which was considerable, that the Fed could carry all before it until October 1 of this year. A third round of quantitative easing would very probably keep the speculative game going. But without a QE3, there seem to be too many unexpected (indeed unexpectable) special factors weighing against risk-taking in these overpriced times. I had recommended taking a little more risk than was justified by value alone in honor of Year 3, QE2, and the Fed in general. Risk now should be more reflective of an investment world that has stocks selling at 40% over fair value (about 920 on the S&P 500) and fixed income, manipulated by the Fed, also badly overpriced. Although the taking of some “extra” risk by riding the Fed’s coattails has been profitable for six months, I admit to being a bit disappointed: I really felt the market had the Fed’s wind in its sails and would move up deep into the 1400 to 1600 range by October 1, where it would be, once again, over a 2-sigma 1-in-44-year event, or, officially, a bubble. (At least in a world where GMO is the official.) At such a level, I was ready to be a real hero and absolutely batten down the hatches, become extremely conservative, and be prepared to tough out any further market advance (which, with my record, would be highly likely!). The market may still get to, say, 1500 before October, but I doubt it, especially without a QE3, although the chance of going up a little more by October 1 is probably still better than even. And whether it will reach 1500 or not, the environment has simply become too risky to justify prudent investors hanging around, hoping to get lucky. So now is not the time to float along with the Fed, but to fight it. Investors should take a hard-nosed value approach, which at GMO means having substantial cash reserves around a base of high quality blue chips and emerging market equities, both of which have semi-respectable real imputed returns of over 4% real on our 7-year forecast. The GMO position has also taken a few more percentage points of equity risk off the table." This week’s must read.
3. Here is the “The Real Housewives of Wall Street” article Grantham recommends reading by Matt Taibbi in Rolling Stone magazine.
4. “QE2 has transformed commodity markets into liquidity-driven markets”- recent report by Richard Koo: He makes the point that the relationship between monetary indicators breaks down during balance sheet recession i.e. velocity is in declining trend.
5. “How to Make Ireland Solvent” – by Daniel Gros. Here is Daniel Gros speaking at the IIEA on “Ireland and the Euro Crisis - Is There Light at the End of the Tunnel?". He thinks the external adjustment is key for solvency, and Ireland has adjusted from that perspective but he believes Ireland’s biggest opportunity lies in finding private sector-owned foreign assets to de-lever i.e. contrary to current EU directives, forcing the pension funds (who are the main holders of large foreign assets) to buy Irish government bonds. My understanding is that as a country we have a small net foreign debt, comprising large net foreign debt of the government and slightly less large net foreign assets of the private sector. These assets are held by pension funds and insurance companies. If the government can direct these (quite low yielding) assets to government debt (much higher yielding), we can avoid default. I am not convinced our new coalition government will be able to pull of what The Fidesz has managed to do already this year. [thanks AC]
6. “The Full Brady” – by Barry Eichengreen writing for Project Syndicate.
7. Profile of Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, who in 2010, made more profit (c.$15bn) than Google, Amazon, Yahoo, and eBay combined.
8. “Extreme Conditions and Typical Outcomes” – latest market valuation piece from Hussman Funds.
9. “Will Aussie housing go bust?” - “Eventually people are going to realise that taking a 2 per cent pre-tax yield from renting a house that isn’t going up in value doesn’t make any sense, if you’re paying 7 or 8 per cent for the associated loan”, Mark Joiner, CFO of National Australia Bank.
10. Russell Napier interview with John Authers of the FT. As he pointed out in his recent note which I included in Macro Musings a few weeks ago, "whether equities will fall further depends on how flexible and successful the Fed’s next monetary package will be. Given the risk, investors are better off watching from the sidelines." He further explained: "A risk to reflation would send equities sharply lower. The failure of QEII will undermine investor faith in a monetary solution. With equities near bubble valuations, based on cyclically adjusted PE, a failure to reflate risks major downside. The Fed will try again with a new package, but investors would do best by waiting to see how it plays out." His outlook is that first we will see another major deflationary shock, following which the Fed, already boxed in a corner, will have two choices: let major financial institutions fail, or proceed to monetize outright. Regardless of which outcome is picked, Napier's target for the S&P, which just happens to coincide with that of Albert Edwards is 400 (or somewhere in that vicinity).
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