This morning, the WSJ.com reported "Families Slice Debt to Lowest in 6 Years". The title is far from good news. Even though Americans have less debt they certainly aren't feeling richer. Most of the reduction is from defaults on mortgages and credit cards. Not exactly the desired path most of us associate with financial independence. According to the article, combined mortgage and credit card defaults account for over half the total $208.8 billion drop in household debt. Article: Families Slice Debt to Lowest in 6 Years … [Read more...]
Criminals Consistently Outflank Regulators
The slimier characters in the hedge fund industry will always find a way around the rules. Excessive regulation is not always effective regulation. SEC investigates ETF use in insider trading by Kara Scannell, Financial Times “The Securities and Exchange Commission is investigating whether Wall Street traders are using exchange-traded funds as a means of disguising insider trading…ETFs have emerged as a possible mechanism for maximising gains in one stock while potentially masking trading patterns, people familiar with the matter say…In one scenario, a trader could learn information … [Read more...]
Bernanke’s ‘70s Show
This is a must-read editorial by Allan Meltzer. Meltzer wrote the book, both books actually, on the history of the Federal Reserve. Ben Bernanke’s ‘70s Show By Allan Meltzer - WSJ First some history of Fed policy errors "In the 1970s, despite rising inflation, members of the Federal Reserve's policy committee repeatedly chose to lower interest rates to reduce unemployment. Their Phillips Curve models, which charted an inverse relationship between unemployment and inflation, told them that inflation could wait and be addressed at a more opportune time. They were flummoxed when inflation … [Read more...]
Bill Gross’s Investment Outlook
If you aren’t familiar with Bill Gross, he is the Chief Investment Officer of PIMCO, the world’s largest bond fund shop. PIMCO manages over $1.2 trillion. It’s not easy to slosh around over $1 trillion without moving markets. If you invest in bonds it behooves you to carefully monitor what PIMCO is doing. From Bill Gross’s February 2011 Investment Outlook Sounds like Mr. Gross has had enough of Ben B.’s asset-price based monetary policy strategy. "This metaphorical devil’s bargain has its equivalent in the credit markets these days. Central bankers have lowered the cost of money for 30 … [Read more...]
China’s Currency Policy
Nice article from Martin Wolf of the Financial Times on China’s currency policy. Below are some excerpts. Why China hates loving the dollar By Martin Wolf, Financial Times "The current international currency system is the product of the past.” Thus did Hu Jintao, China’s president, raise doubts about the role of the US dollar in the global monetary system on the eve of last week’s state visit to Washington. Moreover, he added, “the monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a … [Read more...]
What We’re Reading.
Bondholders Left in the Dark – By Ianthe Jeanne Dugan, The Wall Street Journal This is a major problem and one reason investors should think long and hard before diving into the municipal bond sector. Opaque markets are prone to panics. The Great Misallocators – Review & Outlook, The Wall Street Journal Sounds to me like we may be sowing the seeds for higher structural unemployment. Merrill Traded on Client Data: SEC – By Jean Eaglesham, Dan Fitzpatrick And Randall Smith, The Wall Street Journal This shouldn’t come as a surprise. If Wall Street is admitting to trading on client … [Read more...]
The Canadians are Coming
Loonie drives Canadians to U.S. malls By Michael Babad, The Globe and Mail "Armed with a pumped-up dollar, Canadian consumers are border hopping to hit the U.S. malls again." "Overnight travel by Canadians to the United States climbed 3.2 per cent in November, while overnight car trips were up by a sharp 6.2 per cent, to 1.1 million, Statistics Canada reports. Same-day trips by car - you drive to Buffalo, N.Y., or Bellingham, Wash., and load up - have also climbed steadily." “Armed with a lofty loonie (a US$0.987 monthly average), Canadians headed south of the border in droves during … [Read more...]
The Perils of Reaching for Yield
Are you reaching for yield? This article in Bloomberg Businessweek illustrates the perils of reaching for yield in reverse convertibles. If the yield looks too good to be true, it probably is. A Stock-Bond Hybrid That Flopped By Zeke Faux, Business Week "Reverse convertibles, which are marketed to individuals by some of the country’s largest brokerages, are typically short-term bonds that convert into stock if a company’s share price plummets. In effect, an investor who buys a reverse convertible is actually selling a put option—the right to sell a company’s stock at a certain price. … [Read more...]
The Latest American Export: Inflation
The Latest American Export: Inflation By Ronlad McKinnon, The Wall Street Journal "Now we have what one might call the Bernanke shock. The Fed has set U.S. short-term interest rates at essentially zero since September 2008, followed in 2010 by quantitative easing to drive down long-term rates. Predictably, primary commodity prices in 2009-10 surged. In 2010 alone, all items in the Economist's dollar commodity price index rose 33.5%, while the industrial raw materials component soared a remarkable 37.4.%" "First, sharp general price increases in auction-market goods such as primary … [Read more...]
You are paying 2 and 20 for what?
The typical fee structure for a hedge fund is a 2% management fee and 20% of the profits. After reading this article in the Wall Street Journal, one gets the impression that some hedge fund investors are getting bilked. Hedge Funds’ Pack Behavior Magnifies Swings in Market - WSJ By Jenny Strasburg And Susan Pulliam Hedge funds are crowding into more of the same trades these days, amplifying market swings during crises and unnerving investors. Such trading has stoked market jitters in recent months and helped to diminish the impact of corporate fundamentals on stock-market movements. Droves … [Read more...]
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