Monthly Archives: March 2015

Jim Chanos: “overheating” in China

Here’s what I’m currently watching: noted short-seller and hedge fund manager, Jim Chanos gives a talk on “Overheating & Overindulgence” in China at the London School of Economics Alternative Investments Conference (see also: Bloomberg video).

We’ve noted here before that Chanos is hugely bearish on the Chinese economy and looking to bet against its overheated real estate and construction businesses by shorting commodities and ancillary suppliers.

In this presentation Chanos offers his thoughts on China’s GDP growth, its credit excesses, and the interplay of its economic and political system. Very interesting stuff, even if Jim Rogers is skeptical over the recent findings of newly-minted China experts.

Is he right? Given my limited knowledge of the situation, I’m inclined to agree with Marc Faber (a friend of both Chanos and Rogers) who notes that Jim Chanos is “hyper smart” and willing to back his thesis, though it’s uncertain how the timing of a Chinese bust will play out.

Related articles and posts:

1. Pivot Capital Report: China’s Investment Boom – Finance Trends.

2. Is China Headed Towards Collapse? – Politico.

3. Marc Faber: China bubble bad for commodities – Tech Ticker.

Long bonds flying on Operation Twist – $ZB_F $TLT

Earlier this afternoon on Twitter, I noted that the long bond ETF, TLT was up over 10% (then quoted near $114.60) since S&P downgraded the USA’s debt rating to AA+ on August 5, 2011.

Well, it looks like we’ll have to update those stats already, thanks to the pop in 30 year bonds (ZB_F) and in TLT on news of Operation Twist, the Fed’s telegraphed scheme to sell $400bn of short maturity bonds and reinvest in longer (6 to 30 year) bonds by June 2012. 

Here’s how the market reacted to that news. Note the flagpole move up in TLT and the 30 year Treasury futures, ZB_F on the intraday charts. 

 Above: 5 minute chart of the 30 year Treasury futures, via Finviz.com.

Here’s an intraday chart of TLT, courtesy of freestockcharts.com.

The updated daily chart of the TLT, marking the August 5th closing price to today’s action on the Twist announcement. Chart via freestockchats.com.

So in the space of 20 minutes, we had to recalculate that 6 week return figure (post S&P debt downgrade): the long bond ETF TLT is now up 13% since its close on August 5th, based on an intraday price of $117.70

What a difference a day makes…

More Fed power vs. “Fed must die”

Some of you may have read Bloomberg’s article on the Federal Reserve this week entitled, “Bernanke may redefine Fed mission in financial-market stability”.

I found it to be an appallingly misleading piece of pro-Fed boosterism. If you’re looking for one more piece of mainstream writing that supports the idea of increased powers for the Fed in the wake of the global financial crisis, you’ve found it:

Ben S. Bernanke’s renomination allows him to redefine the Federal Reserve’s mission as he expands its power over financial markets and pulls back on a credit surge the central bank used to keep the economy from collapse, economists say.

Bernanke’s agenda during the next four years will include elevating the Fed’s role in reducing excessive risk in major financial institutions, figuring out how to curtail asset bubbles, and scaling back $1.2 trillion of monetary stimulus.

“He will have the opportunity to permanently change the structure of the Federal Reserve system,” said Vincent Reinhart, a former director of the Fed’s Monetary Affairs Division who’s now a resident scholar at the American Enterprise Institute, a Washington-based research group.

President Barack Obama nominated Bernanke, 55, for a second term yesterday, lauding the Fed chairman for helping “put the brakes on our economic free fall.”… “

The article goes on to laud Ben Bernanke for his efforts in bringing greater “transparency” to the Fed, while also citing him as “a steward…of Paul Volcker’s legacy of establishing a regime of low inflation”. Well, I think Ron Paul may have a few things to say about that.

Meanwhile, I’d like to point you to an incredible article from James Quinn at FSO entitled, “The Federal Reserve Must Die”. If you’d like to get a rather unconventional (and enlightening) historical view of the Fed and its ever-expanding powers over our economy, give this one a careful look.

Related articles and posts:

1. Ron Paul: bringing transparency to the Fed – Fora.tv

2. Obama’s plan could boost Fed’s power – Finance Trends

Features of the week

Some Friday reading (and viewing) for ya.

1. Obama challenges financial industry to join regulatory overhaul – Bloomberg.

2. Marc Faber says China exhibits ‘Danger Signals’, symptoms of bubble building (w/ video) – Bloomberg.

3. Jeremy Grantham on bubbles – FT.com.

4. Renegonomics: are deadbeat borrowers fueling consumption? – Laurence Hunt’s Blog.

5. Rail traffic recovery continues – PragCap.

6. John Paulson turns bullish on housing, economy – MarketWatch.

7. View From the Top: Mohamed El-Erian talks to FT about economic recovery, the US dollar, and the state of financial markets – FT.com

Thanks for checking in at Finance Trends; you can keep up with our posts and musings via RSS and Twitter. Have a great weekend, and be excellent to each other.

Stock watch: Social media, oil, and uranium

All anyone wanted to talk about today, it seems, was the LinkedIn (LNKD) IPO and whether or not there is a bubble in social media and tech startup valuations.


It was interesting to see the strength in LinkedIn spread to some of the other names in the social networking arena, such as SINA and QPSA, today.



We’ll let you decide whether the LinkedIn IPO marks a Netscape-type event (1995) for social web or a fin de siecle reminiscent of the 1999-2000 dot com bubble peak. One thing is certain, easy money policies did a great deal to fuel deals and share prices in both cycles.

Meanwhile, I decided to look at some of the charts in the beaten down energy and resource sectors. Here are a couple names that caught my eye (no current positions in highlighted names and no personal investing/trading recommendations are intended. Do your own research & manage your own trades wisely).

Hathor Exploration (HAT.TO) is one of the only uranium names in my watchlist showing any strength. The sector has been extremely weak overall in the wake of the Fukushima disaster, so score one for HAT.TO on the relative strength meter at least.


Also been revisiting the smaller oil & gas names in my watchlist. Most of these momentum-driven shares took a big hit once crude oil turned down from its highs in April. Hercules Offshore (HERO) is one name from my oil & gas list that’s held up quite well in that time.


One last chart: Pyramid Oil (PDO) is a more thinly-traded O&G stock that was beaten down from its March highs. There might be more downside for this stock in the near-term, but a shelf of support in the 4.50 to 4.70 area is evident on the weekly chart. If we see a bit more volume and follow through on this trendline break, it could signal a much-improved picture ahead for PDO.


So hopefully that gives you an added look beyond the web stocks and fuels some ideas for your own stock screens. As always, make the ideas your own and manage your risk. See you soon & in real-time on the stream.

The Detroit quagmire & Treasury’s absolute power

Latest news on the Detroit automakers and the proposed “resolution authority” for the Treasury. Let’s get right to it…

Starting with the whole automaker bailout/bankruptcy quagmire theme – Deal Journal says, “Mr. Obama, don’t let Detroit be your Vietnam”:

“Congratulations. It took a couple of months in office, but you finally got something right. GM and Chrysler are bankrupt, after all.

Not that it took any particular genius to see it. But it did take some gumption for you to come out and say it. Now prepare yourself for your next feat, the reinvention of Detroit.

And here are some words of advice: Do not let Detroit destroy your Presidency. It will, if you let it.”

Meanwhile, Bloomberg reports President Obama has concluded that bankruptcy is the best option for GM and Chrysler. Here’s an intro from that piece:

“President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said.

Obama also is prepared to let Chrysler LLC go bankrupt and be sold off piecemeal if the third-largest U.S. automaker can’t form an alliance with Fiat SpA, said members of Congress who have been briefed on the subject and two other people familiar with the administration’s deliberations…”

Does anyone know why (aside from obvious political considerations) the US auto makers are still hanging around in this limbo state?

The government has taken billions of dollars in taxpayer funds and allocated it to the dying US automakers, preventing earlier bankruptcy filings or restructurings, even as the companies race to cut costs and stay afloat for the next few months.

Which brings me to our next subject: Deal Journal’s evening reading centers on the question of absolute power at the Treasury.

The proposed legislation for “resolution authority” may give Geithner and the Treasury a “nuclear option” to seize any financial company whose failure might pose a systemic risk.

More on this from Real Time Economics:

“The Obama administration last week proposed draft legislation for a “resolution authority” that would effectively permit the government to liquidate or restructure large systemic financial institutions. If passed by Congress, these powers would allow the governments to treat nonbank financial institutions more like regulated deposit-taking banks.

This authority offers a clear path to recapitalize institutions without using taxpayer money and therefore avoiding some dimensions of moral hazard but, if implemented poorly, the existence of this “nuclear option” can cause panic in financial markets and substantially delay recovery…”

The US government is now heavily involved in the domestic auto industry and the non-bank financial industry. Is this a positive or a negative? Your insights and comments are appreciated.

Beware the fabulous money machine

Spencer Jakab penned an interesting commentary for FT Weekend on the Federal Reserve’s $52 billion profit (unaudited) for 2009. Here’s an excerpt from that piece, “Beware the fabulous federal money machine”:

Unlike its New York brethren though, the Federal Reserve has a literal licence to print money, minting some $52bn in profit last year and paying $46bn in dividends to its shareholder, Uncle Sam…

“The man on the street doesn’t understand the $46bn earned by the Fed and given to the Treasury,” laments David Kotok, chairman of Cumberland Advisors.

Financial markets do, and it is making them increasingly skittish. The Fed’s profits stem largely from its purchase of mortgage securities, a programme that is slated to end in about a month at some $1,250bn. The first hurdle is weaning the market off this money-printing exercise. That alone could lead to an unwelcome rise in mortgage costs. More daunting will be soaking up the excess cash created before it sparks inflation in the real economy.

The most straightforward and obvious method, selling the securities, would be likely to crush the mortgage market while wiping out its “profits” from the operation to date. Instead, it will be likely to soak up the excess funding in the banking system – a delicate task that could lower inflationary expectations and cement a recovery if done right or spark deflation if botched…”

Jakab goes on to discuss the problems of the likely losing positions on the US Treasury’s bailout portfolio, and the fear over what will happen when these artificial props to the economy are removed.

In a housing & lending market now dominated by Fannie Mae and Freddie Mac, what happens when you can no longer maintain that taxpayer-funded level of support?

Related articles and posts:

1. Fed profits: $52 billion in 2009 – Fortune.

2. How the Federal Reserve earned its profit – Econbrowser.

James Grant on Bloomberg: “Taking Stock”


If you read James Grant’s excellent and succinct piece on banking reform, you might also be interested to see his latest appearance on Bloomberg TV.

Grant recently joined Pimm Foxx on “Taking Stock”, where he discussed the economic recovery, the problems of our 21st century ‘capitalism’, and how to implement truly meaningful banking reform.

I was surprised and delighted to hear Jim bring up Brown Brothers Harriman as an example of a long-lived investment banking firm that had survived this crisis due its prudence and its more conservative partnership structure, in which owners are personally accountable for losses.

In recent weeks, I had been half-jokingly mulling over this very example of a private bank which stuck to its roots and sailed through the crisis unimpeded. Great to hear Grant bring up this point and elaborate on it so nicely; be sure to listen for it.

Facebook’s Mark Zuckerberg interview w/ Charlie Rose

Mark Zuckerberg Facebook interview Charlie Rose Show

Charlie Rose interviews Facebook’s Mark Zuckerberg and COO Sheryl Sandberg in an hour-long discussion on the future of the social web and the impact of social media. 

Interesting chat and here’s one noteworthy comment from Mark on the need for engineers in our new economy: “My #1 piece of advice [for young students and job seekers] is you should learn how to program“.

Also, some discussion of American entrepreneurship, risk-taking, and innovation. 

Check it out.

Companies & stakeholders: You better take care of the customer

Lest you doubt the importance of customer service in an age of web connectivity, social networking, and halfway-around-the-world call centers, take a look at Howard Lindzon’s latest episode of “Momentum Mondays” on StockTwits TV.

Howard usually takes time on Mondays to talk about emerging trends in the stock market and the economy, while also offering his take on the private company market and entrepreneurial trends.

In Monday’s episode (flip to the 7 minute mark), he discussed the power of customer service and why this secondary point of contact can make or break your relationship with customers. After all, as Richard Branson noted, for online customers, it’s the second impression that counts.

Take it, Sir Richard:

“…In business, creating a favorable impression at the first point of customer contact is an absolute imperative. Though everyone knows this, many companies still only manage to do a mediocre job at best.

But what isn’t widely understood is that in a world where so many transactions are conducted online, the customer’s second impression of the brand can be even more important than his first.

The second interaction a customer has with your business usually involves something that has gone wrong — they’re having trouble using the product or service. Handled correctly, this is a situation in which a company can create a very positive impression. Sadly, it’s where things often go terribly wrong…”

As customers, we’ve all known the frustrations of dealing with inept customer service reps or the runaround we sometimes get from company websites (“where’s the damn phone number?”) and call centers.

What’s interesting about customer service quality, is that if we examine it on another level, we find that it also has a profound impact on a company’s financial success and its return to shareholders.

I think this is a big part of the equation for businesses going forward, as Howard outlines in his brief chat on the “decade of choice” for customers. Everyone involved with serving customers, and that includes (by implication) shareholders and the big shots who do the hiring & firing and set the pace for a company, will have to focus on making the customer happy. Otherwise it’s, “hasta la vista, baby”.