Monthly Archives: March 2014

Hugh Hendry on the importance of social mood & failure

“I’d say 80% of my activity is engaged in the interpretation of social mood.” – Hugh Hendry. 

That quote taken from this September 2010 BBC Hardtalk interview with Hugh Hendry

When asked about the need for regulatory control of financial markets and curtailing of risk, Hugh replies, “The best form of regulation is, ‘If you mess things up, you fail.'”.  

Hat tip: Kevin Kaiser at Hedgeye.

On PPIP and Geithner’s amazing power grab

Well, where do we start?

On the subjects of the toxic-assets plan/public-private investment partnership (“PPIP”) and Treasury Secretary Tim Geithner’s latest power grab, it’s difficult to organize my thoughts and decide where to begin. There is almost too much information to absorb here.

Trying to catch up with all the latest news on not only the government’s toxic-assets plan, but Geithner’s proposal for sweeping regulatory changes over the financial industry, may seem like an overwhelming task.

Thankfully, there are a few people out there (bloggers, journalists) who seem up to the task of covering these events. I’ve organized a collection of some of the best articles and blog posts that I have found on these interrelated subjects. Select and read as you like.

Before we begin, I will say one thing about the ongoing financial crisis and government’s response to it: the officials (many of whom are unelected) at the helm have, rather predictably, decided to increase regulation and consolidate their power in response to a crisis that, in many respects, they helped create. Now, on with the show:

1. “Geithner proposes vast expansion of US oversight of financial system” – Washington Post.

2. “Geithner proposes to reinvent how the financial world is regulated” – US News & World Report.

3. “Geithner to seek power over hedge funds, derivatives” – Bloomberg.

4. “Geithner ‘power grab’ could worry creditors” – FT.com.

5. “Geithner testifies about new market rules (video)” – Bloomberg.

6. “Roubini says Geithner plan won’t prevent bank nationalizations (w/ video)” – Bloomberg.

7. “Geithner’s desperate power grab” – Economics Junkie.

8. “Geithner calls for power to blackmail companies” – Rossputin.com.

9. “Willem Buiter on toxic-assets plan/PPIP” – FT.com.

10. “It looks like Citi and Bank of America are already gaming the system” – Clusterstock.

11. “Geithner’s five big misconceptions” – Business Insider.

12. “Ignoring the Austrians got us into this mess” – Barron’s.

13. “Overview of the Public-Private Investment Program” & “Overview of PPIP, Part II” – Reggie Middleton.

14. “PPIP for Dummies” – Dr. Housing Bubble.

If you found this reading list useful, feel free to bookmark this post to your favorite social bookmarking site (Facebook, Delicious, StumbleUpon), or forward it to your friends and colleagues with the help of our “email post” button found in the post footer.

For more insight into the causes of the financial crisis and the build up towards increased regulation of the financial industry, read on at the related articles and posts below.

Related articles and posts:

1. The Fed leviathan grows – Finance Trends.

2. Hedge funds: regulations and redemptions – Finance Trends.

3. Jim Rogers: Geithner clueless (Bloomberg TV) – Finance Trends.

4. Jim Rogers doesn’t mince words about crisis – BusinessWeek.

5. Adding up all government interventions – NicolasRapp.com.

Market Shrinkology – Greatest Trade Ever

“Dr. Phil” Pearlman examines some of the important psychological trading themes at work in Greg Zuckerman’s book, The Greatest Trade Ever, in this latest episode of Market Shrinkology on Stocktwits TV.

This particular episode happened to come at an interesting time, given the recent uproar over Goldman Sach’s alleged impropriety in structuring and selling certain CDO deals to institutional clients, which Paulson & Co. (John Paulson is the central figure of Zuckerman’s book) helped structure as a subprime vehicle they could sell short.

I think Phil does a great job of addressing not only some of the ethical questions that have cropped up around Paulson’s trade in recent days, but the psychological factors (namely, “disposition effect”) that were at work for investors like Paulson, Michael Burry, Andrew Lahde, and others who made their foray into this subprime short trade.

What does it take to enter and hold on to a big longer-term winning trade when almost everyone (including some of your investors) tells you you’re wrong? Have a look as “(the real) Dr. Phil” deconstructs the psychology behind the Greatest Trade Ever.

Related articles and posts:

1. Interview: Greg Zuckerman (Greatest Trade Ever) – Fin. Trends.

2. Michael Burry: Betting the Blind Side – Vanity Fair.

3. FSN interview: Richard Eckert (Lahde Capital) – Finance Trends.

AIG funnels taxpayer funds to counterparties

The morning’s headline at MarketWatch reads, “AIG details $105 billion in payouts”, but it might as well read, “AIG funnels taxpayer funds to counterparties”.

Well, at least that’s the case as far as I can tell (and I’m far from an expert on the ever-growing AIG bailout story). Apparently, AIG’s payouts of bailout funds to its counterparties is great news; the “blue chip penny stock” is up over 60 percent (about 30 cents) in today’s trading.

Here’s more from MarketWatch:

“American International Group revealed on Sunday details of $105 billion of government funds that it paid to U.S. and international banks including Goldman Sachs, Deutsche Bank and Societe Generale.

The cash paid to AIG’s so-called counterparties was used to cover collateral payments, cancel derivatives contracts and meet obligations at its securities lending business.

Now majority-owned by the government, AIG (AIG) has received more than $170 billion in bailout funds to keep it in operation since mid-September, when it found itself on the verge of collapse. Most of the leading U.S. and European banks were represented on the list of recipients of AIG payouts. Goldman Sachs Group (GS) got the biggest single total, receiving $12.9 billion.”

Of course, no such story would be complete without an ex-government employee to vouch for the soundness of this ongoing AIG bailout. I mean, without it we’d all be totally screwed right?

Take it away Bloomberg:

“Banks that bought credit-default swaps or traded securities with AIG got $22.4 billion in collateral, $27.1 billion in payments from a U.S. entity to retire the derivatives, and $43.7 billion tied to the securities-lending program, AIG said yesterday in a statement. States, including California and Virginia, got $12.1 billion tied to guaranteed investment contracts.

“It puts a sour taste in the American taxpayer’s mouth, but you have to look at that in terms of the bigger picture,” said Donald Powell, chairman of the Federal Deposit Insurance Corp. from 2001 until 2005. “If you’re going to have any chance of recovery you probably have to stay with it.””

Government has delivered us from the market’s evil wrath. Prosperity is just around the corner!

As you may well know, this latest disclosure comes hot on the heels of yesterday’s outrage over executive bonuses (to be paid out with taxpayer funded bailout money) at AIG.

Links: Insider trading, minimalist traders, & more

Here’s what I’m reading and checking out today:

1. John Carney says, “The government’s insider trading rules are still insane!”

2. 47 mind-blowing, psychology-proven facts you should know about yourself.

3. Lew Rockwell interviews Jim Grant, of Grant’s Interest Rate Observer. Topics: the classical gold standard and Austrian economics.

4. Chicago Sean’s series on The Minimalist Trader is inspired reading.

5. A way to “play” Mongolia? Part of a very cool series of posts on global investing from Adventures In Capitalism.

Stop by tomorrow, we may have a very interesting interview to share with you ahead of the Thanksgiving holiday. Until then, you can catch us on Twitter and StockTwits. Ciao!

Marc Faber on Davos, “dishonest” Obama (Bloomberg TV)

Newsy: Marc Faber talks to Bloomberg TV about Davos, the disastrous 1st term of our dishonest President Obama, the illusion of deficit spending prosperity, and more.

If you’re a regular here, you already know how much we love the straight-shooting Dr. Faber. This latest chat is one more example of Faber’s natural ability to cut through the propaganda and nonsense and get straight to the heart of matters.

Have a listen and catch Marc’s latest thoughts on the US and emerging markets, the “global agenda setters” of Davos, bonds, inflation, and gold. Enjoy.

Related articles and posts:

1. Marc Faber: final crisis yet to come – Finance Trends.

2. Jim Rogers at Reuters 2011 Outlook Summit – Finance Trends.

Bogus bailout profits?

Market Talk blogger Steven Russolillo points out that a few noted finance bloggers are incensed over claims that the government is profiting from the legion of bank bailouts.

More details from, “TARP Profits?! Pfft!”:

A few bloggers were rather incensed today after The New York Times and Financial Times each published stories detailing how the government is supposedly profiting off of the hundreds of billions of dollars spent on bank bailouts.

Even if the Treasury is making money off the eight biggest banks that have repaid their TARP obligations, losses from AIG, Fannie Mae (FNM), Freddie Mac (FRE), GM and Chrysler can’t be ignored, bloggers say.

And other costs associated with TARP, such as lost tax revenues and stimulus plans, must be accounted for before discussing TARP profitability.

Nevertheless, NYT presents the case that taxpayers will benefit from the bailouts because Treasury is making money off the TARP, with Goldman Sachs (GS) and Morgan Stanley (MS) providing highest return on investment.

Steven goes on to quote the New York Times article’s on the government’s supposed bailout profits, while countering those claims with some swift responses from Yves at Naked Capitalism and Barry Ritholtz at Big Picture.

I suggest you read all three blog posts to get a full understanding of why counting up these early TARP repayments as profits ignores the much bigger picture of the full bailout costs. Good reading!

Nassim Taleb, Stan Druckenmiller talk crisis on Bloomberg TV

Our future may be a bit more fragile than “Anti-fragile”, if the latest warnings from Nassim Taleb and Stanley Druckenmiller prove correct. 

The pair recently sat down with Bloomberg TV to voice their concerns over America’s social and economic strains. Taleb believes we are still loaded down with the unsafe systemic risks and toxic leaders of our recent past. Druckemiller sees a crisis “worse than 2008” ahead. 

We have their full interviews for you here, so let’s jump right in. 

 

Nassim Taleb feels we are at a point where we have not learned or benefited from the mistakes of our recent financial crisis. This has made our society more susceptible to fragility and will deepen the effects of future crises.

Moral hazard has increased as bankers have paid themselves larger bonuses with our (taxpayers’) money. Quantitative easing has lifted asset prices. Median incomes, and the average person’s standard of living, have been dropping while the top tier of society (“the 1 percent of the 1 percent”) has been absorbing the lion’s share of recent economic growth.

As Taleb puts it, we are now paying for the bad debts and disastrous trades made by irresponsible, bailed-out parties in the last cycle. We have transferred private problems and failures into public problems by transforming private debt into public debt. 

In order to improve our situation and ensure future prosperity, we need to face our mistakes and make our regulations and tax codes less complex. Complex regulations are a boon to lawyers and big businesses who game the laws to their benefit. To quote Taleb, we need “sound, minimal regulations and more skin in the game (personal liability) for those who make mistakes.”.  

 

Recently retired from running public money, star hedge fund manager, Stanley Druckenmiller has stepped back into the spotlight to warn of a looming entitlement spending crisis in the USA. 

“Every once in a while, the world of investing and what’s going on in the country will intersect”. 

Druckenmiller recounts his conversations with US officials about previous storms on the financial horizon. Based on his past experiences, he figured it was better to keep quiet and manage his investors’ money than get caught up in public debates over politically sensitive issues, like the fallout from the 2000s housing bubble. 

He now feels he needs to speak out to warn citizens about a coming bust of America’s demographic bubble. Druckenmiller notes that in 2030, the average population of the USA will be older than the average Floridian is now. “I don’t know about the timing of when markets will respond to this, but I know it will happen based on the fundamentals.”. 

Stan also offers his thoughts on the valuation of the equity markets, bonds, risk assets and zero rates, and competitive currency devaluations. “Every single major country is now running stimulative monetary policies, basically modeled after the Fed.”. 

One great piece of investing advice from Stanley Druckenmiller (and a recurring theme in this interview): “You’ve got to think in an open minded fashion and look out into the future to judge companies [and stock prices]. Try and imagine the world 18-24 months from now and not the way it is today. Then think about where securities prices will be to reflect that view”.

Related posts:

1. Victor Sperandeo exclusive interview: gold, inflation, and trading the QE wave

2. Nassim Taleb on Antifragile at Google.

3. Jim Rogers on Street Smarts and outsized returns.

Russia Forum 2011 w/ Nassim Taleb, Marc Faber

Russia Forum 2011, which recently took place in Moscow, featured a global investing outlook panel discussion which included famed investors and commentators, Nassim Taleb, Marc Faber, and Hugh Hendry.

Also on hand at the forum were economist, Nouriel Roubini, strategist, Russell Napier, and a panoply of international investors and business leaders. You’ll find Roubini and Napier adding their thoughts in the outlook panel video above.

There was also a rather interesting panel, featuring Faber and Taleb, entitled, “Is Russia the Best or Worst in BRIC?”.

As you’ll surmise from the title, it’s a panel debate on the strengths and weaknesses of each of the large BRIC (Brazil, Russia, India, and China) nations, with added focus on host country, Russia. So is there a strong case for investment in Russia at this time?

This conversation is worthwhile not only for the contributions from the aforementioned panel stars, but also due to the comments from other panelists and some key questions from the audience.

Pay special attention to Mario Garnero’s comments on the effects of Brazil’s past inflation on its middle class (this is important for those of us in QE, deficit-land US), as well as the questions on Russia’s future from the native conference attendees.

If you’d like to take a look at last year’s lively panel discussion and judge the panelists’ comments against what took place in 2010, check out our related post links below.

Related articles and posts:

1. The Russia Forum 2011 – Russia Forum.

2. Panel discussion from Russia Forum 2010 – Finance Trends.

Big Picture: Closer look at Dow plunge

The Big Picture takes, “A Closer Look at the 1,000 Dow Plunge”:

I was at 30,000 feet when the crash hit on Thursday. When I landed in NY and saw what happened, the first thought was trader error. But the evidence for that remains lacking.

I spent a good part of the weekend trying to track down evidence that it was HFT, or a fat thumb, or a NYSE erroneous trade halt.To date, the best analysis I’ve seen came from a young analyst on an institutional desk. His forensic approach to piecing together what occurred is the best explanation I have come upon:

We’ll be taking a close look at this post, which ties the action in the US stock market together with the volume and selling patterns in the index futures and currency markets. As many of the more experienced market watchers suspected, there is much more to last Thursday’s story than a random “fat finger” error-driven decline.

Thanks to Bear Mountain Bull for sharing this post from Barry Ritholtz’ blog with us.