Clippings

[WishingWealth]

Economist:

All the money lost in the stock market and the housing crash never really existed, economist says

Would this pass a Reductio ad absurdum test.

Conclusion all the stock market money never really existed.

WW

[lilbit]

Okay, just to inject a note of humour... got this in an e-mail from a friend today -

How light-hearted do you really feel about this today?

Helium was up, feathers were down.
Paper was stationary.
Fluorescent tubing was dimmed in light trading.
Knives were up sharply.
Cows steered into a bull market.
Pencils lost a few points.
Hiking equipment was trailing.
Elevators rose, while escalators continued their slow decline.
Weights were up in heavy trading.
Light switches were off.
Mining equipment hit rock bottom.
Diapers were unchanged.
Shipping lines stayed at an even keel.
The market for raisins dried up.
Coca cola fizzled.
Caterpillar stock inched up a bit.
Sun peaked at midday.
Balloon prices were inflated.
Scott Tissue touched a new bottom

[lilbit]

The latest news from Korea - big trouble....

http://www.bloomberg.com/apps/news?pid= ... refer=home

[Taggart]

The Wall Street Journal

Keep your money in the market

By BURTON G. MALKIEL | October 17, 2008

[Goofyboy]

http://www.portfolio.com/views/blogs/da ... -and-f-you

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck.

[Taggart]

Wall Street Journal

OCTOBER 18, 2008

Take a Deep Breath, Turn Off the TV, Calm Yourself

With Stocks Swinging Wildly, It's Easy to Panic; Some Advice for Fighting the Herd Mentality


By JASON ZWEIG

[Taggart]

Financial Times (UK)

Man in the News: John Maynard Keynes

By Ed Crooks

Published: October 17 2008

“We have reached a critical point,” John Maynard Keynes wrote in March 1933. “We can ... see clearly the gulf to which our present path is leading.” If governments did not take action, “we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what ultimate outcome we cannot predict.”

As the world reels from a 1929-style stock market plunge and a 1931-style banking crisis, his words are a fair assessment of the dangers we face once again. Keynes, whose life’s mission was to save capitalism from itself, is more relevant than at any time since his death in 1946.

[bender]

Jeremy Grantham's Q3 commentary.

At under 1000 on the S&P 500, U.S. stocks are very reasonable buys for brave value managers willing to be early. The same applies to EAFE and emerging equities at October 10th prices, but even more so. History warns, though, that new lows are more likely than not.

[like_to_retire]

Thanks bender, really interesting read. I enjoy Grantham.

I liked his article in 2007 Fortune where he says, In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist.

ltr

[bender]

Yeah, Grantham is one of my favorite reads too. Here is a recent, but pre-crash, podcast of a Grantham presentation (scroll down). I'm sure he doesn't get invited to many Wall St. or Fed cocktail parties.

Also a good podcast from El Erian on the same page.

[Taggart]

On speculation - in a historical context have times really changed?

From Chapter 1 of The Life And Adventures Of Nicholas Nickleby by Charles Dickens - Year Published 1838-39.

[url=http://en.wikisource.org/wiki/Nicholas_Nickleby/Chapter_1]"As for Nicholas, he lived a single man on the patrimonial estate until he grew tired of living alone, and then he took to wife the daughter of a neighbouring gentleman with a dower of one thousand pounds. This good lady bore him two children, a son and a daughter, and when the son was about nineteen, and the daughter fourteen, as near as we can guess--impartial records of young ladies' ages being, before the passing of the new act, nowhere preserved in the registries of this country--Mr Nickleby looked about him for the means of repairing his capital, now sadly reduced by this increase in his family, and the expenses of their education.

'Speculate with it,' said Mrs Nickleby.

'Spec--u--late, my dear?' said Mr Nickleby, as though in doubt.

'Why not?' asked Mrs Nickleby.

'Because, my dear, if we SHOULD lose it,' rejoined Mr Nickleby, who was a slow and time-taking speaker, 'if we SHOULD lose it, we shall no longer be able to live, my dear.'

'Fiddle,' said Mrs Nickleby.

'I am not altogether sure of that, my dear,' said Mr Nickleby.

'There's Nicholas,' pursued the lady, 'quite a young man--it's time he was in the way of doing something for himself; and Kate too, poor girl, without a penny in the world. Think of your brother! Would he be what he is, if he hadn't speculated?'

'That's true,' replied Mr Nickleby. 'Very good, my dear. Yes. I WILL speculate, my dear.'

Speculation is a round game; the players see little or nothing of their cards at first starting; gains MAY be great--and so may losses. The run of luck went against Mr Nickleby. A mania prevailed, a bubble burst, four stock-brokers took villa residences at Florence, four hundred nobodies were ruined, and among them Mr Nickleby."[/url]

[bubbalouie]

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

http://www.portfolio.com/views/blogs/da ... -and-f-you

Goofyboy, did your bs detector go off too? People don't quit playing the game if they're winners. I just don't believe anything this guy wrote, let alone the credibility of his 833% return.

[WynnQuon]

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

http://www.portfolio.com/views/blogs/da ... -and-f-you

Goofyboy, did your bs detector go off too? People don't quit playing the game if they're winners. I just don't believe anything this guy wrote, let alone the credibility of his 833% return.

It does sound a little funny. But it turns out his numbers are bona fide. See http://ftalphaville.ft.com/blog/2008/03 ... -and-cmbs/

He shorted a whack of financials and then bailed.

I think he quit for the reasons he stated - namely he hated his job and he wants to spend more time with maryjane. Plus now that the bubble has deflated to a large extent, the potential for blowout profits are now reduced.

[WynnQuon]

On speculation - in a historical context have times really changed?

From Chapter 1 of The Life And Adventures Of Nicholas Nickleby by Charles Dickens - Year Published 1838-39.

Taggart, the last sentence in that Dickens' excerpt is one of my favorite bubble quotations.

The other would have to be Tennessee Williams' preface to the Glass Menagerie:

"To begin with, I turn back time. I reverse it to that quaint period, the thirties, when the huge middle class of America was matriculating in a school for the blind. Their eyes had failed them, or they had failed their eyes, and so they were having their fingers pressed forcibly down on the fiery Braille alphabet of a dissolving economy."

[Taggart]

On speculation - in a historical context have times really changed?

From Chapter 1 of The Life And Adventures Of Nicholas Nickleby by Charles Dickens - Year Published 1838-39.

Taggart, the last sentence in that Dickens' excerpt is one of my favorite bubble quotations.

The other would have to be Tennessee Williams' preface to the Glass Menagerie:

"To begin with, I turn back time. I reverse it to that quaint period, the thirties, when the huge middle class of America was matriculating in a school for the blind. Their eyes had failed them, or they had failed their eyes, and so they were having their fingers pressed forcibly down on the fiery Braille alphabet of a dissolving economy."

WynnQuon:

Thanks for another great quotation. Seems like the older I get, the more I want to learn from the voices of past generations.

[Taggart]

Cundill International Prize in History shortlist announced

Posted: October 21, 2008, 4:35 PM by Adam McDowell

[NormR]

Why stock picking is a losing game

[bubbalouie]

Why stock picking is a losing game

Very altruistic article. I see he had no ulterior motive other than the shameless promotion/exploitation of his book at a time when most people's stock picks are down and when they're probably beating themselves up right now.

Last time I checked, the indices were down too but that's irrelevant I guess.

[spazz]

Roubini Says `Panic' May Force Market Shutdown (Update2)

By Alexis Xydias and Camilla Hall

Oct. 23 (Bloomberg) -- Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.


http://www.bloomberg.com/apps/news?pid= ... 3ZRmJRccyo

Right about now, Mr. Smith would be rolling in his grave

[Gus]

Banks would normally be wary of lending to someone whose liabilities were 50 times their net assets, but they happily lent to each other on that basis – until, one day, they stopped. If you want a one sentence explanation of the present crisis, that is it.

In business, capital is the stuff you have to protect yourself, your customers and your creditors when things go wrong. In good times, you may feel you do not need it and may resent paying for it. In bad times, you can never have enough. If you do not have it already you will find it very expensive or impossible to obtain. You may then go broke. If you want a one paragraph explanation of the capitalist system, that is it.

It is reassuring that both financial economics and practical wisdom point to the same conclusions. Banks have come to the verge of collapse because they did not have enough capital to support their modern business model. There is no such thing as a bank with too much money.

John Kay in the FT

I liked this bit:

A bank might sell some branches, assisting the purchaser with a non-recourse loan, for which the borrower is not personally liable. At current rent levels and interest rates, the rent would service the debt. The financial effect of the transaction is that any future capital gain on the property is transferred from the bank to the buyer. At the same time, the capital base of the bank is reduced, impairing the security of depositors and lenders. But reducing capital is the point – the only point – of the transaction. Since the yield on property is less than the bank’s return on equity, the return on equity is increased.

I am not making this up. The executives who planned this and similar transactions were applauded for their financial acumen and focus on shareholder value. You can raise return on capital by increasing returns or by reducing capital. Reducing capital is easier. Such financial alchemy does not just apply to banks. You can increase earnings per share by increasing earnings or by reducing the number of shares. Reducing the number of shares is easier.

[Taggart]

A trading or buy-and-hold market? It's anyone's guess

JOHN HEINZL

October 24, 2008

[patriot1]

Deficit slayer sees his foe rise again

COWANSVILLE, QUE. — Paul Martin detests many of Stephen Harper's moves in government, but nothing gets a rise out of the former prime minister like the imminent prospect of Canada slipping into the red.

As finance minister, Mr. Martin balanced the federal budget in 1997-98 and set the stage for a long string of fat surpluses. But that legacy is about to be blown away, he says, because of shortsighted Tory fiscal management.

“The surplus has been virtually gutted,” Mr. Martin said, springing to the edge of an easy chair at his farmhouse in Quebec's Eastern Townships. “What the Conservatives did in two years was to virtually eviscerate, gut that surplus, so it isn't there when we need that margin of manoeuvre.”

Top of the list of the Harper government's imprudent moves, in Mr. Martin's view, is the GST cut that took some $12-billion out of government coffers.

Now leading economists predict annual deficits could reach $10-billion in the next four years. The government posted on Friday a monthly deficit for August.

And that folks, is the bottom line on the Harper government - red ink.

[parvus]

Why stock picking is a losing game

And DIY fashion-picking too, it appears.

[Taggart]

Found this interesting article regarding bond ETF's in the U.S.

You Can't Trust Bond ETFs for the Time Being

October 14, 2008

By Jim Wiandt

Add the bond discounts to the growing list of ETF debacles in the current market volatility.

An 8% daily discount to the NAV in the supposedly broadest bond index ETF (AGG) in the business? You've got to be kidding me. When it feels like you have no idea of what you are looking at in the markets, my inclination is to just stay away. Why would you use such a fund for safety when you've got no idea what's going on? Put it in an FDIC-insured savings account or a CD, maybe (zero-paying) Treasuries. But not in something that's trading all over the place like a lot of the bond ETFs are right now.

So the answer to Matt Hougan's "Can you trust bond ETFs?" question would appear to be "no" right now.

[WishingWealth]

This subject hijacked a couple of threads.

Somehow I ended up following a link to the book:
Strapped: Why America's 20- and 30-Somethings Can't Get Ahead
http://www.amazon.com/Strapped-Americas ... 0385515057

Amazon reviews.

From Publishers Weekly
It's hard to believe: "Today's college grads are making less than the college grads of thirty years ago." In fact, men aged 25 to 34 with bachelor's degrees are making just $6,000 more than those with high school diplomas did in 1972. This is just one of the many shocking statistics uncovered by Draut, a think-tank adviser and media pundit, in this incisive and revealing look at why today's young adults find financial independence so difficult. With catchy terms such as "debt-for-diploma" and "paycheck paralysis," Draut shows why this age group's ability to accomplish the traditional adult markers of school, career and family is stagnating. Her presentation features the one-two punch of well-sourced data and a series of stories from a diverse group of interview subjects to prove her thesis that depressed wages, inflated educational costs, soaring credit card debt and skyrocketing health and child-care expenses present nearly insurmountable obstacles to young adults' success. While Draut's conclusions take conservative politicians to task, they are hardly polemical, and her analysis and solutions are refreshingly free of glib how-to advice. Her book should be a jarring wake-up call to both the generation affected most by the current economic reality and the policy makers facing the consequences for decades to come. (Jan.)

I find still find this a bit of a shocker; during my last years at work (say 2002-2005), we would hire recent grads for very good money. Even taking inflation into account, for way way more money than my cohort peers had started for.
And when we (those who were hiring) were finding them kids quite expensive, our HR people would tell us we were just paying competitive wages.


WW (Mostly history for me by now)