Thursday, June 30, 2005

Out of business

The End of Europe
A few countries (Britain, Ireland, the Netherlands) have acted, and there are differences between Eastern and Western Europe. But in general Europe is immobilized by its problems. This is the classic dilemma of democracy: Too many people benefit from the status quo to change it; but the status quo isn't sustainable. Even modest efforts in France and Germany to curb social benefits have triggered backlashes. Many Europeans -- maybe most -- live in a state of delusion. Believing things should continue as before, they see almost any change as menacing. In reality, the new E.U. constitution wasn't radical; neither adoption nor rejection would much alter everyday life. But it symbolized change and thereby became a lightning rod for many sources of discontent (over immigration in Holland, poor economic growth in France).

Buying shit

The Onion | Chinese Factory Worker Can't Believe The Shit He Makes For Americans
"Sometimes, an item the factory produces resembles nothing I've ever seen," Chen said. "One time, we made something that looked like a ladle, but it had holes in its cup and a handle that bent down 90 degrees. The foreman told us that it was a soda-can holder for an automobile. If you are lucky enough to own a car, sit back and enjoy the journey. Save the soda beverage for later."

Wednesday, June 29, 2005


If the recent optimism on the dollar's fortunes extends beyond merely a technical bounce in an otherwise bearish cycle, confirmation must be forthcoming in upcoming economic reports. If today's final revision in first-quarter GDP is a sign, there is hope that the dollar rally will last beyond tomorrow's lunch break. Indeed, the economy rose by a real 3.8% in the first three months of this year, up slightly from the previous estimate of 3.7%, the Bureau of Economic Analysis reported today. That's the second time running that the final GDP number was substantially higher than the preliminary estimate.

Printing money

Safe Haven | Is Restrictive Monetary Policy What Ails The Eurozone?
Although it is not clear that the ECB will be able to withstand the political pressure being applied to it to cut its policy interest rate, the indicators of monetary policy discussed above send the message that it is not an overly restrictive ECB monetary policy that ails the eurozone economy.

Short capitulation

Parabolic moves are almost impossible to trade from the short side. I've tried looking at Fibbonacci projections, DeMark indicators, fan lines, etc. Nothing really gives a good indication on a precise top - and if your wrong, you could lose a ton before you know what hit you.

Rome is on fire

The Fed may soon be out of fuel, despite hints of Bernanke-style helicopter money. Stocks and houses are already at low yields and high prices reflective of European economies nearing Japan-style liquidity traps.


The Endgame
Steeped in denial, the Fed is trying to deflect attention away from its role in this sad state of affairs -- choosing, instead, to focus the debate on the so-called interest rate conundrum. The central bank can only do so much, goes the plea -- it’s up to the markets to do the rest. So far, with the federal funds rate basically at zero in real terms when judged by forward-looking inflationary expectations, the Fed has hardly done much at all. But that hasn’t stopped Alan Greenspan from going on at length in considering and then dismissing many of the factors that may account for this puzzle -- namely, faltering growth prospects, subdued business credit demand, foreign central bank purchases of dollar-denominated fixed income assets, and reduced inflationary expectations. Interestingly enough, the excess policy accommodation of the Fed has been conveniently left out of this discourse -- a rather shocking omission given the key role played by the policy anchor at the short end of the yield curve in shaping intermediate to longer-term rates through the so-called term structure of interest rates. It may well be that the real conundrum lies with the Federal Reserve, itself.

Tuesday, June 28, 2005

Saving your life

Extreme saver: True wealth is time
His utility costs stay low; he uses no cell phone, hangs wash outside, sets the thermostat at 61 on winter nights, and subscribes to basic cable. The climate of Corvallis, Oregon, where he lives -- and a well-insulated house -- eliminate the need for air conditioning.

Low interest rates can point to deep-rooted weaknesses

But, if UK rates have peaked at 4.75 per cent, and fall back to the previous trough of 3.5, the average level of base rates will have been a lot lower than nominal growth. A lot of economists, brought up on the tough monetary medicine of the 1980s, would be tempted to argue this is simply not possible: surely, they would argue, interest rates at these "accommodating" levels will only, in time, lead to inflation.

This argument is in danger of confusing cause and effect. Low interest rates are not the cause of high inflation; they are a consequence of low inflation and, for that matter, low inflationary expectations.

Entering in the tramp

The Mortgage Trap: Your Money - Yahoo! Finance
To finance her loft purchase, Randolph took out a mortgage that lets her pay only interest for the first five years -- a tactic that helps her ease into the hefty monthly payments. "Fears that the market is going to crash are way overstated," she says confidently. "It's a seven-mile-by-seven-mile city and a premier place people want to live. You have to be more aggressive here because the prices are so high."

Monday, June 27, 2005

14.000 cars a day

The Looming New Superpower
Some forecasters worried last year that China’s boom would soon collapse and threaten the economics of Asia and perhaps the rest of the world. That didn’t happen, but concerns of Chinese overheating have persisted. The Chinese authorities have had some success in cooling growth, but not before the overall economy posted a growth rate of about 9% in the first quarter. In that quarter, despite strong consumer spending, Chinese exports were still twice the level of imports. This occurred even as capital investment slowed somewhat, commodity prices slipped, and sky-high shipping rates eased

Spend it now

Expert: Don't Save Too Much for Retirement
Traditional financial-planning strategies often assume retirement spending rises over time due to inflation. In reality, spending goes down with age and inflation pulls it back up, leaving most people with retirement spending that remains fairly constant from the start of retirement until death, Bernicke said.

Net International Investment

Has The Fed Lost Control Over Interest Rates?
"There is a wide-spread misconception that the United States relies on the savings or other countries to finance its current account deficit. This is incorrect. During recent years, at least, the US current account deficit is financed primarily by money newly created by the central banks of other countries. Newly issued paper money is not the same thing as a county's savings. The companies that earned money by exporting to the US keep their savings. It is only that they keep them in their domestic currencies after having sold the dollars they earned from exporting to their central bank. In fact, the banking systems of the export-oriented economies all across Asia are burdened by too much savings. Excess deposits are increasing more quickly than viable lending opportunities and, consequently, interest rates have fallen to historic lows."

Individual action

Lloyd's Investment Blog: Sustainability
At the other extreme, Professor Diamond mentions Japan, which (as I learned to my surprise) today has the highest percentage of forested land (74%, versus some 20% for the U.S.) among all First World countries in the world today.

Sunday, June 26, 2005

Short dresses

Safe Haven | Backstreet's Back (Time to Sell)
At the top of a bull market, a sense of optimism & giddiness prevails with popular culture spitting out bubblegum music, short dresses and boybands. At market bottoms, the chart-topping music turns depressing, dresses are longer and cultural optimism cannot be found.

Maybe next week or in five years

Buffett: Still bearish on dollar long-term
Asked when he felt these imbalances might be corrected, Buffett said: "It may be a month from now, it may be five years from now, who knows. It's not without consequences."

Friday, June 24, 2005

Being early

BBC NEWS | Business | Lessons from Silicon Valley
Google did not go for the big spenders. Google's squads of PhDs wrote algorithms that would make it viable for the company to take hundreds of thousands of ads from hundreds of thousands of small (or big) companies, and pop the ads up in highly relevant spaces close to the search lists.

Rate sensible

Housing boom to continue
"Typically, home-ownership peaks at about age 60," he says, " when 80 percent of Americans own their own homes." That means boomers should do a lot of homebuying in the near future.

Capitalist dream

MSN Money - Forbes: What the good life costs
More urban requires more income
Our totals ranged from about $215,000 (for Portland, Maine) to a whopping half-million dollars (for, not surprisingly, New York City). And that's the net after local, state and federal taxes, and includes very little savings. Less-urban upper New England tended to be the least expensive place to live well, while medium-sized cities such as Baltimore and Philadelphia ranked in the middle, and the big metropolises and surrounding areas, such as New York, Boston and Greenwich, Conn., were tops when it came to costs.

Vacancy: We need an energy minister

The Prudent Investor - seeing too many bubbles: China's BIG Problem Goes by the Name of Energy The government must either find a way to dramatically reduce the country's dependence on coal, or it must adopt the best available technologies and practices to enhance the efficiency and cleanliness with which coal is mined and transformed into energy. Both options necessarily involve huge costs. Given the large size of China's coal resources, it is most likely that the government will prefer the second option.

Thursday, June 23, 2005

Empire currency

Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?
What would it take to elevate the euro to the top of the currency mountain? A recently updated academic paper ponders the question and finds that toppling the almighty buck depends on two things: 1) the United Kingdom and enough other EU members join euroland so that it becomes larger than the U.S. economy; and 2) U.S. macroeconomic policy eventually undermine confidence in the value of the dollar, in the form of inflation and depreciation.

Small debts

U.S. National Debt Clock

Press it every minute and figure the difference


Wednesday, June 22, 2005


Use the "Cone of Silence" When Buying Stocks?
In summary, individual investors tend to limit buying consideration, detrimentally, to those stocks that grab their attention via unusual trading or other news.

If you can not change the data, change the interpretarion

The Big Picture: Its Different This Time Redux
Its worth pointing out that the yield curve is actually more than one variable; its a combination of two factors: short interest rates, which reveal the Central Bank's economic expectations. And, its a function of long rates, which embodies the Bond Market's economic expectations

I didn`t need gold

The Prudent Investor - seeing too many bubbles: Euro Area CB's Sold about 180 Tons of Gold in 2005
In Portugal, where the budget deficit is approaching 7 percent of GDP, there is a working English version of the website of the Banco do Portugal, alas they only provide you with quarterly net changes of the BdP's reserve positions - latest data from March. Gold is not given an extra line in the table. But they tell you the number of consumed bednights in Portugal's hotels. Yes, I know I'm being cynic. I just can't help it.

The mother of all bubbles

Biggest Global RealEstate Boom of All Time
Jeremy Grantham, chairman of investment firm Grantham Mayo van Otterloo is intently watching the Australian residential real estate market, which he believes could be "the canary in the coalmine" and be the harbinger of an eventual world wide downturn.

Just a small debt

FSO Editorials: "The Bottom Line: A Debt Summary" by Michael W. Hodges 06/19/2005
If we include several un-funded liabilities, then total debt (private plus government) is $84.1 Trillion — equivalent to $286,258 per person, which is equivalent to $1.1 million per family of 4.

On sale: 3 rooms = $90 millions

The Prudent Investor - seeing too many bubbles: 3 Bedrooms, 3 Baths - $90 Million Cheque
Booming US properties seem to have priced themselves out of the local market

Tuesday, June 21, 2005

Karma Yoga

How to survive that tough first year
This is a flaw that takes newbies a very long time to overcome. For some reason, new players want to be smarter than the market. Rather than taking the low-hanging fruit being offered at the time, they fight the ticker tape at every juncture. Part of the problem comes from a type-A mindset that tries to force its will on the equity account.

Spring's rally

The Trouble With This Spring's Rally
"The last-hour indicator compares price action during the first and last hours of trading. This calculation exposes institutional participation because of the tendency of big players to be most active at the end of the day. The persistent downtrend of the last-hour indicator is quite disturbing to say the least."

68% of GDP

Mish's Global Economic Trend Analysis: Why are interest rates low?
We have not yet had our bust. When we do, why should the expectation be any different that what happened in Japan? That is: a crushing blow to housing prices, falling stock prices, falling demand for credit and falling interest rates.

Saturday, June 18, 2005


The Capital Spectator: The kingdom of hope
Bucking conventional wisdom, the Saudi peninsula has been widely explored, and so the odds of any great new discovery of oil remains unlikely, Simmons warns. Meanwhile, the still-copious flow of oil from the Kingdom relies on aging super-giant oilfields. "There is a genuine probability that Saudi Arabia is now overproducing some or all of its key giant oilfields, and this introduces a risk of accelerated decline," he writes. Indeed, oilfields have a finite life. For a time, output increases, then peaks, then declines. Saudi fields must ultimately live, and die, by this law of oil drilling. The fact that the main wells that make up the bulk of Saudi output were abused in the 1970s suggests that time is running out.

Tuesday, June 14, 2005


Should I try to 'flip' some real estate? - Answer Desk -
Flipping is just a term for speculative real estate investing — when the buyer has no intention of occupying (or even renting) the property. The idea is to buy at a price that gives you the opportunity to profit by holding that property for only a short period of time.

Buying Europe

The United States of Europe Is Dead, Long Live EMU!
As a card-carrying euro-skeptic, I have certainly expressed my doubts over the years about the hopes and dreams of Euroland. From the start, I worried that “one size did not fit all” -- that Europe was still a heterogeneous combination of diverse nation-states that would not take well to a single currency, a single interest rate, and a fiscal rule.

Massive capital misallocation

Triple Waterfalls: excerpt from Basic Points
In the biology of markets, a Triple Waterfall (TW) is a spectacular metamorphosis which takes all or part of three decades. The process is asymmetric: the easy money phase takes close to a decade, followed by two decades of decline, disappointment, and despair.

What a TW gives investors is a set of bookends for the market. In each TW plunge, the precisely-opposed asset classes outperform on a secular basis. One knows what both the best and worst asset classes will be--for years and years.

The new tax

Los Angeles Times: Cost of Moving Up Keeps Many From Selling Homes
James Joseph, owner of a Century 21 realty franchise in Whittier, calls it the "golden jail" of homeownership. Even though they are sitting on a ton of equity, "a lot of people aren't selling … because they can't afford to move up," he said.

If a single Californian who has lived in her home at least two of the last five years sells her house, she gets to keep the first $250,000 of gain free of income tax, but any amount above that will be taxed. (For a couple, the tax-free amount is $500,000.) In addition, if she decides to buy another home, she would have to pay annual property tax equal to at least 1% of the assessed value, which in nearly all cases is the purchase price.

So, if she buys a median-priced home in Southern California, which today is about $450,000, she will be on the hook for at least $4,500 in yearly property taxes. (The median is the price at which half of all homes sell for more and half for less.)

It's not just higher taxes and higher prices that are persuading many homeowners to sit it out. Brokers' commissions, escrow fees and other closing costs also are based on a percentage of a home's sale price. So as prices rise, so do the costs associated with the transaction.

Sunday, June 12, 2005


Safe Haven | From Misallocations of Resources to Further Misallocation!
But nor to worry, we know by now that the US economy is a service economy and does not need to produce anything to prosper except printing machines to keep increasing the supply of money (most printing machines are probably imported too). Needless to say that the quality of US services is "the envy of the world", as Mr. Bush, Rumsfeld, Cheney & Co. might articulate and - according to the Census Bureau's Economic Census - with the fastest growth being registered not in "mundane" businesses such as biotechnology, nanotechnology and high tech industries but in high value added and intellectually highly demanding sectors such as lawn care, childcare providers, janitorial services and nail and hair salons!


The Big Picture: Why Investors Fail

The real problem seems to be that the cycle is not really so perfect.


Bad payer

Cafe Hayek: Talk About an Ungrateful Patient!
But if the labor theory of value were correct, the physician’s services would be more valuable to the patient the longer the time the physician devotes to treatment. If the physician had taken a week rather than a mere three days to bring about the cure, the patient should be willing to pay more – and to pay more still if the physician had taken an entire month to cure the patient.

I have been wondering why should anyone try to do the work in time. The real problem seems to be that most of the human labour is measured by time not by eficacy.



Stop loss Q&A
Question: Where do I place my stop loss when shorting a stock that gaps down?

Answer: The most obvious place is just above the price level where the gap would be filled. But that's a generic answer. It's more effective to place the stop loss on top of converging resistance, such as highs, Fibonacci retracements and moving averages. A bouncing stock will have a very hard time getting through those levels.

Global rise




18 years


Saturday, June 11, 2005

The women and the child first

Whither Europe and the Euro?
Quite simply, you can't fight demographics. Strikes against demographics have no effect. The European nations have promised hundreds of trillions of dollars in social benefits over the coming decades. They simply do not have the money. There are a very limited number of things they can do, none of them easy. They can cut the subsidies. They can raise taxes. They can promote aggressive immigration (but from where would be the issue). They can leave the currency union and inflate their way out of the debt problem, which of course would destroy their currency. As I have noted before, farm subsidies are dead in a few years. There will be vastly more retirees who want their checks than farmers. Politicians can count votes, if nothing else.

Different places, similar problems

Do China and U.S. Face Same Woes? - New York Times
TRADITIONAL large employers - the very foundations of the economy - are in trouble. They have debts they may not be able to pay, and are having great difficulty making any money. So they continue to borrow and look to the government for help.

The government could just let them fail, saying that those who cannot make the grade in the new era of globalization should make way for those who can. But there are costs to such a strategy, over and above the fact that those companies have friends in high places.

Millions of people rely on the companies for more than jobs. They have promised to provide the most basic of needs, including health care and old-age pensions. If they are allowed to fail, the costs could be large.

Crisis. What crisis?

Volcker: U.S. Economic Crisis Imminent
"This is the first time in history the textbook economic policy ... was used, and worked. The problem is, once you finish that chapter of the economic texts, you turn the page and the page is blank - because no one has gone through the process before."


Economic View: A long-vanished theory proves worthy after all - Business - International Herald Tribune
Any successful consumption theory must accommodate three basic patterns: The rich save at higher rates than the poor; national savings rates remain roughly constant as income grows; and national consumption is more stable than national income over short periods. The first two patterns appear contradictory: If the rich save at higher rates, savings rates should rise over time as everyone becomes richer. Yet this does not happen.


Aniversary lessons from Ebay
The fact that the biggest web firms such as eBay, Yahoo!, Google and Amazon are so keen to invade each other's turf shows that none of them feels secure in their niche, or considers the others as well-protected from new competition.

Dinosaur era

Got Oil?
Until the pattern of higher highs and higher lows is broken, long-term investors with a tolerance for volatility can ride the secular bull market in oil.
| | News for Dallas, Texas | Business Columnists

Are stock buybacks truly bad?
Firms buy back shares for a number of reasons:

•To have stock on hand to fund a merger or acquisition.

•To give stock to employees who exercise options.

•To reduce the number of shares outstanding and force up the value of remaining shares.

Cheap fuel

Gasoline: One of the best bargains around - Automotive -
U.S. drivers might feel like they’re being robbed at the gas pumps, but a gallon of gasoline may be one of the best bargains around, a recent study from an oil industry research firm found.

Last call

Breaking Waves
Don’t short a dull market.

Low volume equals low conviction.

The damage has already been done

Mish's Global Economic Trend Analysis: Upside Down and in Deep Trouble
1. AUG 2004, we paid $445,000 for a Pulte model in the community of Aliante, North Las Vegas.
2. 100% financed and still owe roughly the same.
2. Payment is $3000/month.
3. Currently could only sell for about $360,000.
4. Finally found tenants to lease out for $1100/month in APR to reduce neg cash flow to $1900/month.

College is a bad investment

Safe Haven | Tomorrow's College Grads Face Uncertain Future
He adds, however, that "College is still a decent individual investment." This may be true for some areas of study, but for others (think English, political science, psychology and business, for instance) it probably isn't. There was a time when attending college was a worthwhile investment, but such is no longer the case, at least for some disciplines. As we'll see in the paragraphs below, the prospects of obtaining a worthwhile return on the investment of a 4-year college degree is going to rapidly diminish in the next few years ahead.

Thursday, June 09, 2005

Why so rich after all

The perfect level of 'rich'
Since the definition of "rich" depends largely on your social and professional circles, where you live, what really makes you happy and how much financial responsibility you have, it's likely your own ideal level of wealth will differ from the next guy's.


"It all means having enough financially to have simple things (and) to spend time with family," she said.


A house to smile


Gas, more gas - Drivers use more gas despite prices
The four-week average for U.S. gasoline demand was up 2.9% from a year ago last week, which included Memorial Day, the unofficial start to the summer driving season, the Energy Department said Wednesday. That's the strongest year-over-year increase in four months and the sixth-consecutive weekly gain.

Big China

Random Gleanings: A Falling Tide?
In the last 30 years, China’s economy has grown three times over, and is currently growing three times faster than the U.S.’s, which itself is the fastest-growing in the industrialized world. The country’s population comprises one-fifth of humanity and is carrying out the biggest migration in history, with 300 million having left the countryside for cities, which in turn are growing at an amazing rate. There are now between 100 and 160 cities in China that have populations of one million or more, compared with nine in the United States.

Wednesday, June 08, 2005


Alchemy Of Trading: 'Round Midnight: Notorious
Ok, first I determine how much I am willing to lose on a trade if I'm wrong, and that is almost always not more than 1.00% of Equity.

Property tax

States try to ease property-tax rise |
Across the country, homeowners are waging revolts as property taxes post massive gains. Faced with these protests, legislatures are considering ways to provide relief


MSN Money - Play the market like a hedge-fund pro
Hedge-fund managers find ETFs especially useful because they can short them, meaning that they can use them to bet that an industry or market sector is about to drop.

Better do not watch

InvestorsInsight : Thoughts From The Frontline | Peering into the Next Ten Years
Buy and hold strategies and indexing will probably deliver sub-par returns. In contrast, astute stock picking and concentrating the number of stocks held in portfolios should provide the best opportunity to enhance returns in future years.

Full, please Striking while oil is hot
"You don't get up high on a high day and you don't get your chin on the table on a low day," said Mr. Pickens, who declines to disclose publicly the precise day-to-day changes in his funds.

We sell steel, you can pay with oil

Mish's Global Economic Trend Analysis: Steel Revisited
"Everybody is horrified...They can barely cover the costs," said a senior iron ore trader at a major Chinese trading house. "They are trying to arrange (iron ore) shipments for later months. The situation is really bad. Prices for international market are not very good either. It's terrible."

Mittal Steel Co, the world biggest steel maker, said in May that consumption in the United States was suffering from an inventory overhang. The recent deferrals come as spot iron ore orders from China have been at a virtual standstill since April. The dearth of orders has led to a slump in Indian ore prices and international dry-bulk freight rates, which hit an all-time high in December.

4-8 months

Mish's Global Economic Trend Analysis: Buy to Rent
Is the housing slowdown in the UK a harbinger of what is about to happen in the US?

See it coming

Mish's Global Economic Trend Analysis: Foreclosures on my Mind
A West Virginia bill passed in the Legislature this year requires high schools to start teaching students the basics of personal finance, initiating them into the mundane world of balancing checkbooks, paying off loans and sweating out investments. Just seven other states have such a requirement.

These courses have long been offered as high school electives in West Virginia, but now they’ll be covered in the core curriculum, mandatory for graduation starting with the class of 2008.


Mish's Global Economic Trend Analysis: What's Supporting the US Dollar?
Many people (in fact nearly everyone) thought that the fundamentals of the US$ could hardly be worse. Was that really the case? One of the biggest factors in currency moves is interest rate differentials and expectations of future rate hikes or rate cuts.

Energy crisis

Resource Investor - Energy - Oil Forecasting Legend Paints Dire Energy Picture
Groppe says his accurate forecasting record is “based on two fundamentals – and our view is that given enough time the fundamentals always prevail. That has enabled us to relatively accurately identify all of the major turning points in the last 30 or 40 years. Petroleum fundamentals are first - depletion. From the moment you drill your first well into a field and begin producing, you are physically depleting that finite source, and it is just a question of time until you’ve produced it all. The second is that exploration is a very rational process. Experienced people use the best technology, go after the biggest deposits first, the easiest to find, most profitable, and it always gives you the classic production history curve.”

A totally new paradigm

The Prudent Investor - seeing too many bubbles: Real Estate - Debt Funded by Debt
Eventually, most of the US labor force will be employed in one of a few types of work: real estate developer, building contractor, appraisers, real estate broker, and real estate agent. Their work will consist of the construction, financing (and re-financing), purchase, and sale of residential real estate. Day traders who now trade NASDAQ issues may be able to day trade residential real estate if sufficiently liquid markets and continuous price quotes are available.

Tuesday, June 07, 2005

Selling your house

How to Avoid Losses in the U.S. Home-Price Bubble: John Wasik
And it's unlikely that housing prices will continue to outpace personal-income growth and consumer-price inflation (by a factor of four) indefinitely.

Old and rich

Tackling the bears-with no bull - Deirdre McMurdy - Sympatico / MSN Finance
So what are the best bets for achieving that kind of dazzling return? Mr. Jarislowsky staunchly advocates “individual, high-quality stocks”-and avoiding certain pitfalls.

He dismisses real estate, for example, as being too cyclical. Furthermore, he notes that houses are assets with attached liabilities such as mortgages interest, taxes, utilities, repairs and insurance. In fact, he adds, renting could actually be a much more prudent alternative in an overheated residential real estate market.


Safe Haven | Same Data / Different Interpretation
Well I am going to hazard a guess that Jim agrees with me that rising home prices do not make people "wealthy" since current replacement costs are high and nothing is really gained by escalating housing prices unless and until one takes that profit out and decides to rent. Obviously it would be impossible for everyone to sell their houses and rent. This subject is in fact so complicated that I want to devote some time to discuss credit vs. money, as well as the various Mx definitions of money in a later blog.

Little gain

Safe Haven | Death of the Carry Trade
Indeed, the engine driving financial profits is quite simple: borrow at low short-term interest rates, and lend at higher longer-term interest rates. In the Carry Trade, to enhance returns and make them exciting, leverage is used. For liquid assets like Treasuries and Agency Securities, leverage of over 25 to 1 is possible.

Keep everything


Little lies

Brad DeLong's Website: Why Oh Why Are We Ruled by These Liars? (Bush Tax Cuts Edition)
I remembered the days of the 2000 campaign, when Bush claimed, 'The vast majority of my tax cuts go to the bottom end of the spectrum.' It wasn't true then. And it's not true now. Does anyone care that Bush misrepresented his plan and continues to downplay his relieve-the-rich actions? Not much, it seems.

Defining richness

Brad DeLong's Website: The Super-Rich
But some of the wealthiest Americans, including Warren E. Buffett, George Soros and Ted Turner, have warned that such a concentration of wealth can turn a meritocracy into an aristocracy and ultimately stifle economic growth by putting too much of the nation's capital in the hands of inheritors rather than strivers and innovators.

Deep pockets

Brad DeLong's Website: Deep Pockets
But--if you are well enough capitalized--a widening differential between 29 and 30 year Treasury bonds is not a risk but an opportunity. You're long the 29-year and short the 30-year because the 29-year was underpriced.

¿Buy or sell yuan?

Bill Cara: Cara Investment Reports: Chinese Yuan Revaluation
As readers are aware, some U.S. politicians and market strategists are pushing hard to put more pressure on China for appreciating its currency. Many economists have blamed the undervalued Chinese Yuan for the huge trade deficit in the U.S., and have called for an immediate and substantial appreciation of the Yuan to fix the imbalances in the world economy.

The problem with the above views is that they fail to fully appreciate the growth dynamic of the world economy, and the very grave possibility that a sharp appreciation of the Chinese Yuan may lead to a disaster for the Chinese economy, and even the world economy.

Additional voices urging yuan peg to USD
The Kingston-Ont. native argued any change by China — a one-off revaluation of the exchange rate or a shift to a floating rate — wouldn't be in China's own interests, and wouldhave little effect on the root causes of U.S. dissatisfaction.

"Behind this there is a real phenomenon: China's competitive shock," Mundell said, comparing the recent growth of low-cost manufacturing in China to Japan's economic rise in the 1950s and 1960s. He said this shock "isn't a monetary issue and can't be addressed by monetary measures," such as the exchange rate.

Monday, June 06, 2005

Time Magazine



Safe Haven | Regulatory Suasion - An Attempt At Deflating The Housing Bubble
Ask the Japanese how an economy performs for a decade when its banking system is crippled.

Hoping is hopeless


22 principles

Templeton Investment Maxims
There is only one long term investment objective, maximum total after-tax return.

Sunday, June 05, 2005

Long bonds

From here to eternity
They found that it made sense to buy long bonds in almost all interest-rate scenarios but one: when rates are low (so the risk that they will revert to the mean, thus undercutting the value of the bond, is high) and the yield curve—a line drawn through the interest rates on government securities with different maturities—is flat (so there is little extra reward for taking that risk).

Saturday, June 04, 2005

¿United or Unified?

Can this union be saved? |
In Europe, by contrast, few mechanisms exist to bring the euro area’s widely divergent business cycles into sync.


If Europe’s economies do not drive forward towards a single market, with labour markets that are more flexible (and international), there is a growing risk that some of its members will eventually find the gulf between their economies and their monetary policies too wide to endure.



The Kirk Report : A Tide That Lifts All Boats
One major complaint I have about those who write about the stock market and stocks in general, is that after the rally we've just seen, more than a few of these folks like to pat themselves on the back for being so brilliant.

Laws and taxes

Cafe Hayek: The Laws of Economics are Universal
...But the effects on business of this rise in taxation make themselves felt. For business men are soon discouraged by the comparison of their profits with the burden of their taxes...Consequently production falls off, and with it the yield of taxation.


The Importance of Attitude
If you do not plan for success, you plan for failure: Before you make an investment, you should have a plan for what to do with that investment if it gains value or loses value. For example, in the popular William O'Neil system, if a stock loses more than 8% of its purchase price, you sell. You also look for an opportunity to take gains when you are up 20+%

Thursday, June 02, 2005

Talking in the elevator

Getting Crushed in a Housing Collapse
"You'd get on an elevator, and it would be quiet," recalls Dannis, president of appraisal firm Crosson Dannis in Dallas and a lecturer at Southern Methodist University's Cox School of Business. "No one would talk." "For sale" signs dotted neighborhoods, with families unable to sell simply mailing their keys to the bank and walking away from homes destined to go into foreclosure.

But there was also a pervasive change in mood, a shift that affected everyone -- even those secure in their ability to remain in their homes -- and which contrasted sharply with the euphoria that reigned from 1982 to 1985, says Dannis. Back then, "everyone was happy and optimistic about the future, and they'd talk to each other on elevators," he says. But after the real estate market fell, "everyone was morose," recalls Dannis. "It felt like there had just been a funeral."

Social creatures

Lloyd's Investment Blog: Herding, Helixes and a Hunch About Higher Prices The investment implication here is a simple prescription: Long term, invest where the herd is heading (which is not necessarily the same as where the herd is investing)--towards a Net-centric society, with population concentrated on the West and East Coasts.


Bill Cara: Stocks rally on hopes of Fed loosening, Wed., June 1, 2005, 11:45 AM
The consensus among economists ranged from 51.0 to 55.0, averaging 52.0 for May. The actual of 51.4 was down from that estimate, and down in consistent monthly steps from an index level of above 60 twelve months ago.

If an index level of 50 is a tipping point between economic expansion and contraction, then on a national level, the U.S. is falling perilously close to contraction. But the fact is that some of the regions of the country are already in economic contraction.

In these regions, net jobs are not increasing, but declining; net disposable income is not increasing, or increasing at a more modest rate, but in fact declining; and house prices are not increasing, and new home construction is not increasing. For a large part of America, things are not great.

Feeling well

Bill Cara: Keeping perspective, Wed., June 1, 2005, 8:07 AM
To position yourself for success in the market, you need to have positive thoughts and feelings. A depression, which is an emotional pain caused by one thing or another, is a danger to traders because it takes away from your ability to properly manage the inevitable financial losses.


Cafe Hayek: The Irrelevance of Income Inequality
The lesson, of course, is that money is not life’s be-all and end-all. (This, incidentally, is a lesson economists know better than non-economists.)

American Dream

The American Dream gains a harder edge |
Today, though, nearly 1 in 5 American households has zero net worth or actually owes more than it owns. And the odds of a son or daughter rising above their parents in such a financial predicament have shrunk.

"Income mobility has declined in the last 20 years," says Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago.

What that means is that the US is becoming less of a meritocracy, where skill and intelligence determine success, and becoming more of a class-bound society, where economic background, including the better education money can provide, matters more. There are still many rags-to-riches stories. But there's stagnation in the underclass.


The Prudent Investor - seeing too many bubbles: 63 percent of Dutch voters say "nee"
The problem with the national referendums was also that voters took them as an opportunity to protest national policies that have done too little to reduce unemployment. If there would have been an EU-wide referendum on the same day it would have lead to a "yes" vote as people would have stood together. Such a referendum would have been seen as a chance to further integration instead of an opportunity to protest against national policies. The idea of a common Europe is well received, but not the idea of a EU government interfering too much into national matters.

Wednesday, June 01, 2005

You can´t live in your stocks

Stocks or real estate?
It is -- in the short term. U.S. real estate sale prices increased more than 56% from the beginning of 1999 to the end of 2004, as tracked by the Office of Federal Housing Enterprise Oversight, part of the U.S. Department of Housing and Urban Development. The S&P 500 index ($INX) dipped nearly 6% during that same period.

But if you take a longer view -- say, 25 years -- you'll find that the S&P 500 has actually stomped the real estate market, from Boston to Detroit to Dallas. From the start of 1980 to the end of 2004, home sales prices increased 247%. A pretty sweet deal, it would seem. Over the same period, however, the S&P 500 shot up more than 1,000%.

Informed traders

Market Orders Versus Limit Orders
Informed traders prefer limit orders on average.
The probability that informed traders use limit orders can be so high that limit orders convey more information than market orders.

Floating dollars

The Prudent Investor - seeing too many bubbles: ECB and Bank of Canada warn of global imbalances, pressure on dollar
An underestimation of risk has pushed the prices of bonds and some other assets beyond their intrinsic value, it said further, adding that "some euro-area financial institutions, including banks, would likely endure losses - at least in the short term - from any upturn in long-term interest rates."

I don't undertand my professor

Latest fad in housing: Buy, then rent |
In some parts of the country, so many rentals are flooding the market that they are depressing monthly rental rates. That's good news for consumers. But it may portend something ominous for the housing market: If too many people decide to rent over buying, it could undercut the booming housing market.

Trading down

Most luxury consumers buy cheaper goods
Luxury consumers, the top 5 percent of households based upon an income of $150,000 or more a year, are cautious with their money and are strongly motivated to get maximum value for the money they spend, Danziger says.

¿Which of my houses should I sell first?

Hear a Pop? Watch Out - New York Times
Start with the so-called wealth effect. If people tend to spend more when their net worth increases, they'll spend less when it decreases. Economists use this rule of thumb: a $1 change in household wealth leads to a roughly 5-cent change in consumer spending. By that measure, a 10 percent decline in real estate prices would knock about half a percent off the gross domestic product.


Adding it all up, it's easy to see how a drop in real estate prices would spell trouble for the economy. To put that in perspective, the International Monetary Fund conducted a detailed study in 2003 that assessed the potential economic impact of a property slump. Reviewing the experience in the United States and 13 other industrialized countries, the I.M.F. found that a real estate bust is far more dangerous to the economy than a stock market bust.


Give me my money back

Are hedge-fund investors dashing for the exits?
"People were sold on the idea that hedge funds were investment products that had no down months and would perform all the time," said Cyril Delamare, a director at Tara Capital SA, a Swiss advisory firm. "Now they're waking up to the reality that this isn't true."

Buying your house

How much house can you afford?
The housing expense, or front-end ratio, shows how much of your gross (pretax) monthly income would go toward the mortgage payment. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income. To calculate your housing expense, multiply your annual salary by 0.28, then divide by 12 (months). The answer is your maximum housing expense.

Living crash

The Financial Endgame Slowly Plays Out by Nigel Maund -
For the average person in the US, Canada, Britain, Japan, Australia and New Zealand, not to mention much of the European Community, the quality of life is steadily declining amidst the illusion of paper wealth represented by assets such as houses, bonds and stocks. Since 1982, the money supply has been progressively pumped up at an ever expanding rate, whilst real earnings have been in steady decline, under steady erosion through real inflation as opposed to the statistically incorrect CPI as corrupted by manipulative 'jiggery pokery' by successive governments.
The prime instrument in this global economic game has been one fundamental to the lives of everyone; i.e., the house you live in. Unless the householder is rich enough to afford to own two or more houses, which most are not, then the paper gain in the steadily, but rapidly rising, price of his home can only be realized if he sells his home and move into a lesser house in the same area, or, one of similar quality and size in a less attractive or sought after location. Most people do not like moving home for obvious reasons. Therefore, the only benefit one gains from ever rising house prices, and property prices in general, is if one can use some of the increased equity in ones home to finance other consumption needs, such as: education; cars; consumer durables; holidays; home improvements and non-essential luxuries such as speed boats and jet skis. As many writers have pointed out, a home is a source of finance amidst falling real earnings, a veritable private bank ATM to be tapped into as deemed necessary.

Buy at close, Sell at Open

Thinking Of Selling Everything Before The Close? Don't Pull The Trigger Yet!
If one had bought the SPYs on the close over the past 12 years and sold them on the next day's open, they would have made 143 SPY points (plus, they would have also received all the quarterly dividends). And had one bought the SPYs on the open each day and sold the position on the close, how would they have done? They would have lost money! How much? A little more than 67 points. Yes, in spite of a solid upward move in SPY prices, the intraday move--on a net basis--was negative!

Spending for a living

Safe Haven | The US Trade Deficit is Unsustainable by Bud Conrad
The situation is even worse when looking not at what happened each year, but looking at the accumulated deficit of the US. This accumulated deficit over time that measures how big the US indebtedness has become. The even more dramatic chart below shows that we have accumulated a $4 trillion debt.