by Peculiar_Investor » 13Mar2009 09:50
When I was in business school in the 1970s, my finance prof used a phrase that I often find useful in conversation with clients and investors - especially in markets such as we’re in today.
That phrase: “The pendulum never stops in the middle.”
by Taggart » 14Mar2009 05:05
by Peculiar_Investor » 14Mar2009 12:29
There is only one cure for terminal paralysis: you absolutely must have a battle plan for reinvestment and stick to it.
by DenisD » 16Mar2009 00:23
Barclays PLC has asked J.P. Morgan Cazenove to shop its exchange-traded-funds business as it seeks to shore up its capital cushion, according to a person familiar with the matter.
by Bylo Selhi » 16Mar2009 10:34
We all have bad habits: Biting our fingernails, for instance, or eating too much junk food. But when it comes to money and investing, our bad habits can mean the difference between achieving financial security and living on the edge of bankruptcy. That's especially true during recessions, when folks who stretched their finances during the good times, or made impulsive investing decisions, can be pushed over the edge by a sudden job loss or market meltdown.
Here are some of the most common bad habits with respect to money, and tips on how to break them.
• Spending more than you make
• Trying to hit home runs
• Trading too much
• Investing on impulse
• Reaching for yield
• Letting others make decisions for you
• Not managing risk
by squid » 16Mar2009 16:58
by skepticus » 17Mar2009 08:06
The problem has become the solution. Americans are now getting from their government what they got from their corporations.
From where I sit, management education appears to be a significant part of this problem.
Will Barack Obama be able to change that? I hope so. I fear not. A huge infusion of money may merely stave off the financial crisis while the management crisis continues to fester, masked by this very money.
by brucecohen » 17Mar2009 08:46
squid wrote:I find it disconcerting that the guy is so naive. Who wouldn't expect firms to meet their contractual obligations? Isn't that what firms in bankruptcy protection can do?
by squid » 18Mar2009 02:16
brucecohen wrote:No, just the opposite. Firms in bankruptcy protection are free to break contracts. They typically seek to negotiate lower payments but can walk away.
Cuomo's position is interesting. Could simply be political grandstanding. But his brief mention of possible fraud suggests a suspicion that leaders of the derivatives unit did not fully disclose to their bosses the extent of the damage incurred. If Cuomo can prove that, he might be able to successfully argue that the bonuses were negotiated under false pretenses.
by kcowan » 18Mar2009 06:58
brucecohen wrote:No, just the opposite. Firms in bankruptcy protection are free to break contracts. They typically seek to negotiate lower payments but can walk away.
Cuomo's position is interesting. Could simply be political grandstanding. But his brief mention of possible fraud suggests a suspicion that leaders of the derivatives unit did not fully disclose to their bosses the extent of the damage incurred. If Cuomo can prove that, he might be able to successfully argue that the bonuses were negotiated under false pretenses.
squid wrote:Yes, that's what I meant by my poorly worded statement... why wouldn't the govt negotiate the bonus issue before they gave them billions. The government saved AIG from bankruptcy so AIG could and probably had to pay their contractual obligations.
by Peculiar_Investor » 18Mar2009 08:29
by Taggart » 18Mar2009 17:12
by ghariton » 19Mar2009 01:51
We find a strong link between Congressional activity and stock market returns that persists even after controlling for known daily return anomalies. Stock returns are lower and volatility is higher when Congress is in session. This “Congressional Effect” can be quite large - more than 90% of the capital gains over the life of the DJIA have come on days when Congress is out of session. The Effect varies systematically with the public's opinion of Congress: returns are lower and volatility higher when a relatively unpopular Congress is active. Public opinion appears to play a fundamental role in market prices. This is consistent with a mood-based explanation that sees Congress as ‘depressing’ the average investor. Alternatively, our results can also be reconciled with rational explanations that view Congressional activity as a proxy for regulatory uncertainty or rent-seeking behavior.
by tidal » 20Mar2009 12:49
Dough, wonga, greenbacks, cash. Just words, you might say, but they carry an eerie psychological force. Chew them over for a few moments, and you will become a different person. Simply thinking about words associated with money seems to makes us more self-reliant and less inclined to help others. And it gets weirder: just handling cash can take the sting out of social rejection and even diminish physical pain.
This is all the stranger when you consider what money is supposed to be. For economists, it is nothing more than a tool of exchange that makes economic life more efficient. Just as an axe allows us to chop down trees, money allows us to have markets that, traditional economists tell us, dispassionately set the price of anything from a loaf of bread to a painting by Picasso. Yet money stirs up more passion, stress and envy than any axe or hammer ever could. We just can't seem to deal with it rationally... but why?
.
.
.
We are still a long from knowing why some people appear to go crazy over money, while others seem to pay it so little attention. Those chasing after it to the exclusion of almost everything else aren't necessarily "addictive". Some may be greedy, and others just needy - thirsty for status or using money to compensate for social shortcomings. What is clear is that money - supposedly a dispassionate tool of exchange - stirs up big emotions and mental strife. It's time economists' models took this into account.
by parvus » 20Mar2009 20:08
- We estimate Tobin’s Q at 0.43, well below parity and well below an adjusted average of 0.76 for the period 1900-2008. Our data shows that Q declined sharply in 2008 and again YTD, down from 0.89 at yearend 2007 to 0.55 at yearend 2008 and to 0.43 as of March 15, 2009. The numerator (market value) and denominator (replacement cost) of the Q ratio were down 49% and up 5%, respectively, from yearend 2007 through March 15, 2009.
- No evidence of deflation can be observed in replacement cost, with the denominator of the Q ratio rising 5% in 2008, in line with the increase recorded in 2007. Replacement cost increased 0.3% sequentially in 4Q08, reflecting a slower pace than for the full year but notably no decrease. Absent major deflationary pressure on replacement cost, we expect Q to return to parity through an increase in the numerator, i.e., a rise in the market value of equities and other assets. How long this process may take is obviously a crucial question but also one that cannot be answered reliably.
- Despite the low value of today’s Q ratio, it sends only a modestly bullish signal for investors. Of the six other instances since 1900 when Q fell to 0.43 or below, it was higher one year later in three instances. Four out of six times, it was higher three years after the drop. Ten years after the drop, it was higher in all but one instance.
- We cannot overemphasize the possibility of Q reaching extreme levels. The ratio hit a low of 0.29 twice over the course of the past century—in 1948 and 1974. The ratio was 0.33 or lower in 1918-1921, 1932, and 1949.
- Those who argue that today’s Q sends an extremely bullish signal appear to focus solely on the level of Q, ignoring the direction of change. A ratio of 0.43 is highly bullish if Q is on the upswing, but when the ratio is on the downswing, a value of 0.43 is only modestly bullish.
- Those who argue that today’s Q sends an extremely bearish signal appear to be making three cognitive errors: (1) Undue focus on historical lows. While the low of 0.29 is materially below today’s Q, attempting to buy equities at or close to Q’s lows would have caused investors to miss out on decades of strong equity returns. (2) Ignorance of the fact that the relationship between Q and stock prices is not quite linear. We estimate that a 50% drop in Q from current levels would be accompanied by a one-third drop in stock market indices. (3) Ignorance of the fact that replacement cost, the denominator of the Q ratio, has increased each year since 1946.
by Norbert Schlenker » 21Mar2009 15:06
In Rolling Stone, Matt Taibbi wrote:...People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.
The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.
The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers...
by Taggart » 22Mar2009 04:39
by Taggart » 23Mar2009 14:14
by brucecohen » 23Mar2009 19:44
Taggart wrote:I'm wondering if these guys in the White House really know what they're doing?
by Shakespeare » 23Mar2009 19:57
I'm beginning to suspect that, as I believe Georges suggested, what they are actually doing is a 'hide-the-pea' shell game waiting for prices to stabilize and the banks to earn their way out.Bottom line, though, is that everybody's blind and just feeling their way around.
by tidal » 23Mar2009 20:06
by parvus » 23Mar2009 20:28
brucecohen wrote:Taggart wrote:I'm wondering if these guys in the White House really know what they're doing?
I doubt that anyone anywhere really knows what to do; the situation's unprecedented. I would, however, feel better if Paul Volcker and those involved in managing the S&L crisis were playing prominent roles.
In the absence of a central bank, Morgan had for decades been acting as the country’s unofficial lender of last resort, gathering reserves and supplying capital to the markets in periods of crisis. For two harrowing weeks in 1907, with the whole world watching, he operated like a general, deploying three young lieutenants to do leg work and supply him with information, and bringing two other leading bankers, James Stillman of National City Bank and George Baker of the First National Bank, into a senior “trio” to make executive decisions. (First National and National City eventually combined to form what is now Citigroup — are the shades of Baker and Stillman writhing over what has become of their descendant institution?)
The Morgan teams ran “stress tests” on the unregulated trust companies, figuring out which were impossibly overleveraged and should be allowed to fail, and which were basically sound but crippled by the panic. Once they had determined that a trust was essentially healthy, the bankers supplied it with cash, matching their loans dollar-for-dollar with the trust’s collateral assets.
[...]
Trust in Morgan was by no means universal. In 1907, some of his critics charged that he had started the panic in order to scoop up assets at fire-sale prices and line his own pockets. In fact, the Morgan banks lost $21 million that year.
The difficulty today of assigning dollar values to “toxic” assets makes Morgan’s job look easy. Yet though the amount of money required for the 1907 bailouts is pocket change compared to the current trillions, at the time, the troubles and the numbers seemed enormous.
No single figure, much less a private banker, could wield the kind of power in today’s gargantuan collapsing markets that Morgan had a hundred years ago. And so far, not even the combined official powers of the Fed and Treasury have been able to stop the cascading disasters. Paul Volcker, the former Federal Reserve chairman, said recently that he couldn’t remember a time “maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world.”
Perhaps new economic leadership will emerge during this crisis, under our gifted, charismatic president. It seems likely to consist of people who have the kind of experience, judgment and authority Morgan had — possibly a new “trio” made up of the current Fed chairman, Ben Bernanke; Paul Volcker; and Warren Buffett.
by Taggart » 24Mar2009 05:01
brucecohen wrote:Taggart wrote:I'm wondering if these guys in the White House really know what they're doing?
I doubt that anyone anywhere really knows what to do; the situation's unprecedented. I would, however, feel better if Paul Volcker and those involved in managing the S&L crisis were playing prominent roles. FWIW, though, tonight on NPR Pimco's Bill Gross blessed the plan outlined today, calling it "a triple win" for all concerned. The interviewer asked how it could be a triple win for the taxpayers who are putting up so much of the money. Gross said the govt shares equally if there's a profit. If there's a loss, Treasury and the private investor share the pain up to their 14% exposure. FDIC eats the rest. (Gross didn't explain but FDIC is funded by premiums levied on all banks and would be on the hook anyway if there's failure of a bank holding toxic assets.) Gross agreed with Geithner that leaving the toxic assets on the bank balance sheets is not an option because it would really prolong the recession/depression. Bottom line, though, is that everybody's blind and just feeling their way around.
by brucecohen » 24Mar2009 09:41
Taggart wrote:Yes, but regarding the FDIC, their director said only a couple of weeks ago, words to the effect, that the FDIC's coffers were near empty.
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