Finance Trends: The Best of 2010

We're wrapping up some of your favorite posts (and mine) for this Finance Trends "Best of 2010" features edition.

You'll find key interviews with leading businessmen and investors, along with the best of this year's posts emphasizing the strong trends and events that are shaping our country, our investment markets, and our world.

Without further ado, here are some key posts highlighting the big picture trends we've witnessed in 2010, some of which may continue to unfold in 2011 and beyond.

1. On a Return to Classical Education. Your educationally-deprived editor muses over the benefits of a Classical education, and how such a foundation in thinking might help us as investors and as citizens of the world.

2. Marc Faber: Final Crisis Yet to Come. Wonderful presentation by Marc at this year's Mises Circle in NYC, offering a crucial take on US monetary policy and the likely outcomes of the Fed's "quantitative easing" experiments. Video and presentation slides included.

3. Niall Ferguson on Fiscal Crises and Imperial Collapse. Must hear presentation from Ferguson offers a historical overview of government debt crises. Highly relevant back in May and only more so now that the developed nations' sovereign debt crisis continues to unfold here at year-end 2010.

4. LTCM and the Lessons of Failure. Thoughts on hedge fund collapses (and fund manager resurrections), the money manager merry-go-round, risk management, and the dangers of overconfidence.

5. Must Hear Interview with John Burbank of Passport Capital. Part of our series on global macro investors and hedge fund managers, this excellent discussion with John Burbank comes to us via Benzinga podcast.

6. Michael Burry: An Up & Coming Macro Star? An in-depth look at Michael Burry's gradual transition from a US stock-focused value investor to an international, global macro investor.

Includes an unedited transcript of Bloomberg TV's interview with Burry, in which he offers his views on the economy, investing, and his famous subprime short trade.

7. Jim Grant, John Hathaway and Peter Munk sit down with Charlie Rose to discuss gold as money, the causes of the recent final crisis, and likely outcomes of Fed and government intervention in the markets.

8. John Allison on "Leadership and Values". The former CEO and Chairman of BB&T bank speaks to Virginia's Darden School of Business on the importance of adhering to a sound ethical framework and engaging in "win-win" business transactions. Excellent talk on the spirit of true capitalism and personal responsibility.

That's all for 2010. Please join us for more in 2011, as we explore the coming year's macro investing themes and future economic events.

You can keep up with us in the meantime through our real-time updates on Twitter and StockTwits or via the Finance Trends RSS blog feed. Have a Happy New Year!

*Photo credit: Floor of the New York Stock Exchange via LOC.gov.

Trader Vic and Market Wizards on Scribd

I've recently updated the Finance Trends "Classic Trading Books" collection on Scribd to include two personal favorites from Victor "Trader Vic" Sperandeo and Jack Schwager.

You'll now find Sperandeo's, Trader Vic: Methods of a Wall Street Master, along with the first volume of Schwager's classic interview series, Market Wizards in the collection.




You can find the scanned e-books and pdf downloadable versions by clicking on the titles in the Trading Books collection widget (RSS readers may need to visit our site to see the Scribd widget) or by visiting the collection shelf at the text link above.

You'll also find a widget embed code included, so feel free to grab it and paste it onto your site or your Facebook page. The widget will be updated automatically to show all newly added titles in the Trading Books collection.

For those of you who'd like a hard copy or Kindle version of these classic texts, visit Amazon (see title links above) to order Sperandeo and Schwager's books. Enjoy!

What's Ahead in 2011?

2010 was not all bad, by any stretch.

Probably the best news of all was that problems that have been swept under the rug(s) for generations have now surfaced and are regular conversation topics. It is now quite apparent that the Western economies' love affair with entitlements may be coming to an end. They now know, as they should have known earlier, that there is simply no way these entitlements are affordable. That discussion is now front and center. That's good.

Public employees are finally coming under scrutiny as virtually every one of the 50 states in the United States faces bankruptcy under the weight of the benefits that have been promised to these public employees. Teachers, for one, have long been showered with guaranteed job security and extremely generous pension and health care benefits. All of these public employee benefits are now in play. Unions are in the middle of this because almost all of union organizing successes in recent years has been in the public employee sector. Unions are not really a factor of any significance in the private sector, since everywhere they have had a major presence, the companies have gone bust.

This is all good news, because failure to notice the impending disaster of entitlements and public employee largesse was moving the US and its 50 states into certain bankruptcy. Now, there is truly some hope. No solutions, but hope.

Other good news is that President Obama seems, at long last, to have awoken to the fact that his economic policies are a serious impediment to economic recovery. The tax agreement forged between the President and Senate Republicans was a foolish package, but better than the alternatives. For the first time since January, 2009, there was some recognition in that compromise that business matters. Finally!

So, there is hope that 2011 will be a better year than 2010. There will be continual reminders as 2011 unfolds that virtually every Western European nation will eventually default, in some manner, on their public debt and that several states in the United States are headed in the same direction. But, bankruptcy can be therapeutic; bailouts are never therapeutic.

Amazon's Jeff Bezos chats with Charlie Rose

Amazon.com chief, Jeff Bezos sits down to an interview with Charlie Rose from earlier this year. This is a very good discussion of the company's philosophy, its future plans, the growth of e-readers & user adoption of that technology.

It's also a great insight into the thinking of one of our generation's great entrepreneurs, Jeff Bezos.

As you'll see from the interview, Bezos understands his customer base and what they want, and he trusts his instincts and Amazon's strengths (as an e-retailer and gadget manufacturer) enough to act on that understanding and not get swayed by suggestions & criticisms from outside voices.

Last week I was thinking about Amazon's decade-plus rise in online retailing. Back in the dot com bubble days, we knew Amazon was an emerging powerhouse in online book selling and later, CDs & music. What some of us didn't realize (myself included) was that Amazon.com would successfully expand into many other areas of retailing. Boy, was I dumb to doubt Bezos' company.

Now, when I want to look up info or reviews on anything from books to backpacks to internet routers, I'm likely to turn to Amazon.com because I know I'll probably find what I need. A lot of other people must feel the same way, because I've heard numerous comments this past month about the ease of shopping for Christmas and holidays on their site. The bubble may have burst back in 2000, but shopping online has become increasingly standard every year since.

There are probably a few main reasons why Amazon has become a go-to option for online shopping, and Bezos outlines them here. He also touches on some of the reasons why Amazon can outshine some physical + online retailers like Wal-Mart. The focus is largely customer-centric and there are some interesting details from Bezos on how they view the retail landscape.

Of course, given the recent Wikileaks hosting fiasco, there's bound to be some serious skepticism over the Amazon web services portion of the discussion, but we'll see how their credibility stands up in this area over time. In the meantime, this is a great interview overall. Check it out.

Cotton, palladium, silver lead futures gainers YTD

Did some charting on Finviz yesterday and came across this relative performance chart of the year's top futures gainers (year-to-date).

As you can see from the chart, cotton, palladium, and silver lead the performance YTD. We all know gold's been having a headline-grabbing year (+25%), but silver futures have handily outpaced the yellow metal (+71.5%).

Interesting to note that lumber is up 40% YTD, second only to top-performing cotton (+93%) in the soft commodities group. Lumber futures had a very poor showing in '06 - '08 as the housing bubble collapsed and the homebuilders fell on hard times. However, we saw a pickup in '09 and the rebound seems to have gathered steam all through 2010.

Natural gas futures were a bottom-dweller this year, down (-)27% YTD. There were a few other poor performers, but for the most part we see green on this chart, reflecting a year of strong commodity demand and QE (money printing) operations in the US.

As Jim Rogers has pointed out many times in recent interviews and talks, cheap money will only fuel advancing prices of in-demand commodities in the months and years ahead. Stay tuned for 2011.

Charting the BP Gulf oil spill lawsuit

The US Department of Justice today announced its lawsuit against BP and eight other companies involved in the disastrous Gulf of Mexico spill.

We added some charts of BP and other firms involved to the Chart.ly and StockTwits streams today.

Here's how the big 4 oil names reacted to the official news of the suit in today's trading session. Note that Haliburton (HAL) was not named in the government's suit, but still moved notably to the downside.


There's a lot of talk about BP's being kept alive in order to bleed it nearly dry to fund government spending programs. I'll let the BP and legal/political experts weigh in on that, as I'm not as familiar with the company's assets vs. liabilities picture.

However, we do know that BP has been moving to sell off assets and reposition itself as a leaner company in order to survive. Will they succeed? That is the (current enterprise value) $164 billion dollar question.

Anthony Bolton defies China bears with new fund

Bloomberg Markets profiles Fidelity fund manager, Anthony Bolton, the British investing star who recently backed away from retirement and has now "staked his reputation on China".

More in Bloomberg's article, "Fidelity's Bolton defies China bears with 27% return":

"...In Britain, Bolton’s reputation as a stock-picking genius was analogous to that of Peter Lynch, the manager of Boston- based Fidelity Investments’ Fidelity Magellan Fund from 1977 to 1990. Fidelity Investment Managers, formerly known as Fidelity International, is an affiliate of Fidelity Investments.

Now, at age 60, Bolton is in China partly to explain to clients why he has made a comeback to bet he can pick winners for the 625 million-pound Fidelity China Special Situations Fund that made its debut in April. Bolton says he’ll be able to find winning stocks that other fund managers have ignored.

So far, that self-confidence has been justified. Anyone who bought into the closed-end fund when it was introduced in April and sold on Nov. 9 would have enjoyed a 27 percent return in less than seven months. Two of his picks, The United Laboratories International Holdings Ltd. and Brilliance China Automotive Holdings Ltd, have almost quadrupled in value since the beginning of the year.

Now shares in Bolton’s fund have become so sought-after that they are trading at almost a 10 percent premium to their net asset value, prompting Fidelity to issue a statement on Nov. 9 saying it plans to sell new shares next year, giving priority to existing shareholders..."

Oftentimes, a glowing article like this can serve as the kiss of death for a fund manager (at least temporarily, as they usually follow an unusual winning streak).

Still, it's early days for Bolton's new fund and we have to imagine that an investor with his experience is probably experiencing more than just dumb luck in this latest success. Especially given that this year's outperformance comes as the benchmark Shanghai Composite Index is down over 4% year-to-date.

Mr. Bolton faced skepticism over his China fund early on, as Controlled Greed points out in this post from January. It seems that even with a lengthy & successful investing career behind him, some people thought he would be "risking his reputation" by starting anew in China.

We shall see how it turns out, but for now, I'll be reading on for more of Anthony Bolton's insights on investing in China and meeting new challenges and opportunities.

Related articles and posts:

1. Lessons on investing from Anthony Bolton - Controlled Greed.

2. Interview with Anthony Bolton - The Telegraph.

Jim Rogers at Reuters 2011 Outlook Summit

Jim Rogers said that the US government's inflation data was "a sham" and that interest rates would be heading "much, much higher" in the next few years while speaking at the Reuters 2011 Outlook Summit.

You'll find video of his chat w/ Chrystia Freeland at Investment Postcards or you can check the related video links in this Reuters article to see the full panel discussion.

As usual, Jim pulls no punches while discussing Ben Bernanke's foibles as Fed Chairman and the difficulties facing the US and European economies as inflation and runaway deficits take their toll.

He also points out some potential bright spots that could come about if the US government were to reduce its out of control spending and simplify (or do away with) the tax burdens on its citizens. Long term strength of the developing economies, commodities, and the rise of Asia are also highlighted.

Reconciling Tax Cuts with Long Term Debt Issues

Hail to the Wall Street Journal! In one short paragraph the Journal has summed up the heart of the US debt problem and why keeping all of the Bush tax cuts in force make sense as well. In today's Journal and I quote:

"While in a hopey-changey mood, let's note for his (Obama's) benefit that the real fiscal problem today is not the immediate deficit, which does not call for radical action. The real problem is a system of health-care and retirement finance that deters us from saving and budgeting for our own needs while at the same time piling up disencetivizing taxes on those who work and whom we expect to pay for us in old age. Fix this and the government is solvent again."

Wow! The WSJ nailed it. .

Interview: James Grant & Co. talk gold with Charlie Rose

James Grant, John Hathaway, and Peter Munk sit down with Charlie Rose to discuss gold and the nature of our monetary system in this important roundtable discussion.

I was surprised and delighted to find that Grant & Co. would be Charlie's guests on Monday's program. The topic of discussion became even more newsworthy as the US dollar gold price hit a record high (in nominal terms) that same day.

But this is more than just a chat about a commodity hitting a new high. As you will see from James Grant's opening statements to Rose, gold is money and it has been for centuries. What we see in the rising gold price is a concurrent loss of faith in the viability of all paper currency systems worldwide.

This is the basic truth about gold and silver as real money and store of value that Rose and his audience need to hear.

Plus, John Hathaway, subject of one of our earliest posts, and James Grant provide some much needed counterbalance to the prevailing narrative of the 2007-2009 financial crisis and the Fed's ongoing money printing operations (aka "quantitative easing" & QE2). It's all here in this interview, one of the most important discussions I've heard at Charlie Rose's table.

Related articles and posts:

1. Lew Rockwell interviews James Grant: Austrian economics & the classical gold standard - Controlled Greed.

2. Jim Grant: Requiem for the dollar - Finance Trends.

3. The Gold Standard: an interview with Guilio Gallarotti - Finance Trends.

4. Quantitative easing explained (plain English) - YouTube via Finance Trends.

A Beginning

The compromise between the President and Mitch McConnell on taxes represents a new beginning for the President and, perhaps, for the country. The compromise will definitely help the economy. The economy needs it.

There are still problems, especially on the unemployment front. Employees are still too expensive, laden down by government-imposed mandates and implied litigation liabilities for businesses. But capital expansion should pick up dramatically in 2011.

It's not perfect, but this deal is definitely an improvement over the policies of the past two years.

The looming debt problems are still there -- both for the US and for Europe. Hopefully, the idea of "workouts" and "defaults" will soon take the place of "bailouts." The debt problems have no easy fix.

Monday links: The Bernank, Macro view, & more

Came across some worthwhile links from the blogosphere and Twitter today, and thought I'd point you to 'em.

We've got some videos and posts on The Ben Bernank, a macro view of the economy and markets, interviews with Bruce Berkowitz and David Einhorn, and more for you in today's links.

1. Bear Mountain Bull wraps up some recent interviews and links on The Ben Bernank.

2. Abnormal Returns brings us 3 non-Bernanke videos, including interviews with investors Bruce Berkowitz and David Einhorn.

3. Catching up on the Macro view with Gregor Macdonald and the health of the stock market with Joe Fahmy.

Peruse what you like, leave the rest. Remember, our ability to process and retain information is finite, so focus on what's most important to you in your pursuit of market education and limit your exposure to extraneous "noise".

Thanks, as always, for stopping by.

10 questions for Mark Cuban - Forbes interview

Thanks to Leroy Gardner and Get Rich Slowly for highlighting this Forbes interview with highly-visible entrepreneur and billionaire, Mark Cuban.

Here are a few lessons on "building and keeping a self-made fortune" from, "10 questions for Mark Cuban":

"...You have $100,000--where do you put it?

First I pay off all my credit card debt and evaluate paying off any other debt I have. What I have left I put in the bank.

Then I try to create as much transactional value as possible from that cash. I look at my annual budgets for everything and anything, and I look to see where I can save the most money on those items. Saving 30% to 50% buying in bulk--replenishable items from toothpaste to soup, or whatever I use a lot of--is the best guaranteed return on investment you can get anywhere.

Then whatever I have left I keep in the bank and let it earn nothing. Why? Because then its available for when I get a good opportunity.

Every five years or so there is a bubble bursting or amazing deals available because of a change in the economy. Anyone who just kept their cash in the bank rather than in stocks over the past five to 10 years could be buying the home of their dreams for half price in most of the country..."

Pay close attention to Mark's thoughts on essential reading for entrepreneurs and the difficulties associated with starting a business in the US right now. Some key insights packed into a quick interview.

Photo credit: Mark Cuban via Portfolio.com.

And Now for the States

State governments are drowning for two reasons: 1) obligations to public employees; 2) the state share of medicare and medicaid spending. Most states are now beginning to confront the public employee problem by reigning in the some of the worst abuses of overly lavish pay and benefits (teachers top the list, by the way).

Only Republican Governor Bob McDonnell of Virginia has opted to pour on more lavish benefits for public employees and leave the taxpayer to pick up the tab, but he is an outlier. Governor Christie of New Jersey has led the charge to begin to curb the enormous pay and benefits of public employees. Other Governors, Democratic and Republican, are following Christie's lead. Even President Obama has entered the fray by freezing public employee pay for two years in a symbolic gesture toward sanity.

But, there is much to be done. California's off-balance sheet pension liabilities are estimated to exceed $ 1.5 Trillion (those numbers are not in the budget, which now $ 25 billion out of balance). So life should get interesting in California. A similar pattern exists in New York and time is no longer on their side.

Again, much like Europe, look for debt defaults and workouts by state governments as they struggle to undo the poor policies of the forty years.

Europe and All That

First Greece, then Ireland. Now all eyes turn to Portugal, Spain, and Italy. Little noticed is that neither and France and Germany are likely to survive some type of default on their own sovereign debt. A combination of bad economics, a bad economy, and the tide of demographics will sink both France and Germany in time.

The idea that you can paper over the problems in the PIIGS (the new name for Portugal, Ireland, Italy, Greece and Spain) is ludicrous. Much of the PIIGS sovereign debt is held in German and French banks. Merkel and Sarcozy think no one knows this, I suppose.

But, in fact, the world markets know everything. Just watch bond yields on European sovereign debt. The are beginning the slow, inevitable surge toward infinity. (You reach infinity when the bonds are completely worthless.

Europe has no real shot other than defaulting and the sooner the better. Ireland will probably be the first. They will renounce their guarantee of bank bondholders and that will begin a tide of defaults and partial defaults (and workouts) that will begin to crush the holders of sovereign debt. That is as it should be. Those who make bad investments should suffer the consequences.

Anxious eyes watch California, New York, New Jersey, Illinois and host of small American cities that will default, at least partially, on their debt within the next 24 to 36 months. The idea of a federal bailout died on November 2nd. All appropriations, according to the US Constitution, must originate in the House of Representatives. Good luck with that. There will be no bailouts for the profligate states. That is as it should be. Those who make bad investments should suffer the consequences.

You can't repeal the laws of economics by pretending to backstop folks who make bad decisions. That just leads to more bad decisions.

Real economic recovery and growth cannot begin until the wave of defaults begins.

Thoughts on Human Nature and Speculation - Humphrey B. Neil

Marketplace Books has posted an excerpt from Humphrey B. Neil's Tape Reading & Market Tactics.

The chapter entitled, "More Thoughts on Human Nature and Speculation", includes some classic thinking on aspects of human psychology which prevent us from operating profitably in the markets. A passage from Neil on the dangers of greed follows this line of thought:

"...I have watched traders in brokers’ offices with deep interest, and have tried to learn the traits that crippled their profits. The desire to “make a killing”—greed—has impressed me particularly.

Perhaps this desire to squeeze the last point out of a trade is the most difficult to fight against. It is also the most dangerous. How often has it happened in your own case that you have entered a commitment with a conservatively set goal, which your judgment has told you was reasonable, only to throw over your resolutions when your stock has reached that point, because you thought “there were four more points in the move?”

The irony of it is that seemingly nine times out of ten (I know, for it has happened with me) the stock does not reach your hoped-for objective; then—to add humiliation to lost profits—it goes against you for another number of points; and, like as not, you end up with no profit at all, or a loss.

Maybe it would help you if I told you what I have done to keep me in my traces: I have opened a simple set of books, just as if I were operating with money belonging to someone else. I have set down what would be considered a fair return on speculative capital, and have opened an account for losses as well as for gains, knowing that the real secret of speculative success lies in taking losses quickly when I think my judgment has been wrong.

When a commitment is earning fair profits, and is acting as I had judged it should act, I let my profits run. But, so soon as I think that my opinion has been erroneous, I endeavor to get out quickly and not to allow my greed to force me to hold for those ephemeral, hoped-for points. Nor do I allow my pride to prevent an admission of error. I had rather, by far, accept the fact that I have been wrong than accept large losses..."

This looks like worthwhile study material, so read on and don't mind the fact that most of the references date back to 1930. Time honored wisdom is the best, and sound practices are applicable in any age.

StockTwits TV interviews Jim Rogers

Through the magic of Skype and the internet, Howard Lindzon interviews Jim Rogers on StockTwits TV and pitches him a barrage of questions sent in by StockTwits members.

Everything is up for discussion here, from Rogers' opinion on stocks and commodities, to his early days working on Wall Street and running a hedge fund, as well as his more recent adventures. Also, plenty of focus on family life and raising his kids (who speak Mandarin and English) in Singapore.

Enjoy the discussion, and Happy Thanksgiving!

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!

The Gold Standard: an interview with Guilio Gallarotti

Wanted to share this McAlvany podcast entitled, "The Gold Standard: An Unwelcome Political Restraint. An Interview with Guilio Gallarotti".

Hat tip to Maoxian, who noted that Jim Grant recommended Gallarotti's book, The Anatomy of an International Monetary Regime: The Classical Gold Standard, 1800-1914, to better understand the workings of a gold standard monetary system.

As I said on Twitter the other night, there are some fascinating insights offered by Gallarotti in this interview, particularly in his discussion of how universal suffrage politicized economics during the 20th century. I'm sure you'll find much more of interest besides, so tune in to the interview above and enjoy.

GM's post-bailout IPO a disgusting "success"

Thankfully, I've not watched any of the TV hoopla surrounding General Motors' (or if you prefer, Government Motors') post-bailout IPO.

Still, I can't avoid the news of this event entirely, as I'm exposed to the GM news through my Twitter stream, StockTwits, and the recent posts from some bloggers I keep up with.

The disgusting spectacle of this government-engineered IPO (made possible with your taxpayer dollars) was but an ugly image in my mind until I found Greg Harmon's tweet on StockTwits' GM stream. Now I have the shocking, surreal life photo to go with it:


Subtlety is dead in America. You are being ripped off and the banner proclaiming it is staring you right in the face. It is a disgusting spectacle indeed, to see the announcement of GM's post-bailout IPO draped over the American flag and the columns of one of our most revered capitalist institutions, the NYSE.

Last night I read an article in which GM's CFO Chris Liddell described the then-upcoming share offering as "historic". Historic is not the word I would have used to describe it. A farce and a national shame would be much closer to the mark.

Meanwhile, GM CEO Dan Akerson had this to say about the IPO and its effect on reducing the US government's stake in GM:

""They have taken their ownership down by roughly half," he said. "I would say that the average taxpayer in the United States would look at this particular transaction as very positive.".

Well it's nice to know the government is reducing its ownership stake in GM, but let me stop here and point out the use of the word transaction to describe this unseemly state of affairs. "Transaction"?!

A transaction is an exchange that occurs between two or more willing parties. Did US taxpayers have a say in any of this? Were you consulted on the auto industry bailout or were you given an opportunity to vote on whether your money could be used to prop up a failing enterprise such as this? How many IPO shares of the "new GM" were allocated to your account today in exchange for your kind support?

Before I go off the deep end completely, let me point you to Jeff Carter's excellent post on the GM IPO over at Points and Figures. Read it, and check out Francine McKenna's Forbes blog post on GM's unaudited financial statements while you're at it. Then get back to me if you still think this is a wonderful, "historic" investment opportunity or an "exciting" chapter in our country's history.

Mid-day links and market news

Rounding up some of the more interesting news items and blog posts that I've come across this week. Set a spell and enjoy our mid-day linkfest.

1. Der Spiegel interviews rogue trader Jerome Kerviel: "I was merely a small cog in the machine".

2. John Paulson trims BofA stake, sells all Goldman Sachs shares.

3. David Tepper sold financials during his "everything will go up" speech on CNBC, but he was pretty honest about it, finds John Carney.

4. Huge Ireland linkfest and other news from Credit Writedowns.

5. Your StockTwits handle is the 21st century trading badge, writes Chicago Sean.

6. Derek Hernquist on the intersection of patience and speed, plus some wisdom from Dickson Watts.

7. If you follow me on Twitter and StockTwits, you probably know that Joe Fahmy (see blogroll) is one of my favorite stock traders to follow on the stream. Here's the most recent StockTwits TV ep. of The Next Big Move with Joe Fahmy. Always worth watching.

Thanks for stopping by. Reminder: you can keep up with our posts via RSS and follow all our real-time updates and links on the Finance Trends twitter feed and on StockTwits.

Relitigating the Last Two Years

When the election was over, President Obama said that voters "do not want to relitigate the last two years." Wrong.

The voters voted to encourage those who were opposed to Obama policies to reverse them. That's what relitigating the last two years is all about.

The White House says it is time to move forward constructively. That is not what the voters seemed to favor in exit polls. They favored rolling back government, repealing Obamacare, and extending the Bush tax cuts for everyone. In short, they were completely anti-Obama.

Let the relitigation begin this week with the convening of the "lame duck" Congress!

Quantitative Easing Explained (plain English)

Excellent and very humorous clip. Hat tip to Mises Blog.

Embarassment in Asia

President Obama's Asian trips is a catastrophe. Obama has managed to reduce America's role to whining, finger pointing, ineffective posturing. Not a single world leader agreed with any of the President's agenda, so, in that sense, Obama forged a consensus -- of opposition to Obama. Looks like world leaders hare the same view as average American voters -- Obama's policies are the problem, not the solution.

You wonder if this President is ever going to figure out why Americans have lost faith in his presidency and why world leaders no longer have any respect for him and his sidekick Tim Geithner.

This is truly an embarassing moment in history for a once great economic power.

Classic quotes and timeless wisdom from, How They Succeeded

If you caught our last post on Wednesday, then you probably had a chance to glance through some of the 109-year-old wisdom found in Orison Swett Marden's collection of personal success stories from legendary businessmen and artists called, How They Succeeded.

Today, I thought I'd share a few key lessons and quotes from the book with you. Now, I've only read a few chapters of the book so far, so this is by no means a complete overview of greatest hits. The following are just a few choice ideas to whet your appetite for further reading. Here they are:



1. Marshall Field - Author Marden notes that the famed merchant's early career was off to an unremarkable start, until he decided to head West for Chicago. Field's climb was aided by, and linked with, the rapid growth of his adopted hometown.

"What were your equipments for success when you started as a clerk here in Chicago, in 1856?"

"Health and ambition, and I what I believe to be sound principles", answered Mr. Field. "And here I found that in a growing town, no one had to wait for promotion. Good business qualities were promptly discovered, and men were pushed forward rapidly".

Marshall Field stayed in Chicago, turning down an offer from his previous employer to return home and acquire a partnership stake in the older man's business. Check out Field's thoughts on the importance of doing business on a cash basis, perseverance, and weathering the Chicago Fire of 1871.

2. Darius Ogden Mills - If you get a chance to read more about D.O. Mills, do so (see his Wikipedia page or do a Google search on the Mills hotels for a start). Here are some interesting quotes from Mills' interview with Marden.

Responding to a question on the important traits of influential men: "[Men should form] a habit of thinking and acting for themselves. No end of people are ruined by taking the advice of others."

On familiarity with one's surroundings: "A knowledge of men is the prime secret of business success."

On the beneficient use of capital: "A man can, in the accumulation of a fortune, be just as great a benefactor to mankind as in the distribution of it. In organizing a great industry, one opens up fields of employment for a multitude of people...".

 

3. Thomas Edison - A man who needs no introduction. Marden's description of his initial meeting with the legendary inventor is an interesting and amusing one, so be sure to start at the beginning of this chapter.

Here's an interesting quote from Edison on the practical utility of his inventions:

"It is a good rule to give people something they want, and they will pay money to get it.".   

Hope you enjoyed these quotes and are eager to learn more. If nothing else, Marden's 1901 collection of personal success stories are an entertaining and historic look back at the past, so you're sure to have fun flipping through the e-book.

However, I think you're also likely to find a few valuable pieces of timeless wisdom here. Take a look inside and see which segments capture your imagination. You may find that some of these insights apply not only to business and entrepreneurial ventures, but to trading and investing as well.

Who will be the Horatio Alger of China?

While searching for a classic trading text on Scribd, I came across this 109-year-old tome on the success of 19th and early 20th century entrepreneurs called, How They Succeeded, in the related books sidebar.

Looking through the table of contents, one finds an interesting array of business, artist, and educator profiles and plucky little subchapter titles emphasizing the virtues of hard work, thrift, and foresight. Admirable traits to be sure, though the Horatio Alger-type bootsrapping tales of personal success and luck are usually mocked in the politically correct schoolrooms of today.

How They Succeeded

For those of us schooled in the cynical view of free enterprise and the dastardly deeds of the robber barons (and most of us who attended American schools in the last 40 years were purposely imprinted with that bias), it may seem a bit comical to look at a chapter on John D. Rockerfeller and find subheading titles such as "His Early Dream and Purpose", "There Was Money In a Refinery", "Hygiene", "Foresight", "Philanthropy", and so on.

Still, as I read through an early chapter on Marshall Field, one of the great merchants of my home town, Chicago, I'm attracted to the story of Mr. Field's rise in business and how his personal success coincided with the growth of our fair city.

There are sound business lessons here, and the themes of devotion to work and purposeful sacrifice with a clear goal in mind are a refreshing tonic at a time when an ever growing number of people are looking to game the system and enrich themselves off the work and savings of others.

Will we find a good deal of whitewashing of some of the economic and social injustices of the past, acts that helped a few of the industrialists profiled here along to great wealth and power? It's very possible, and we'll have to read and compare these optimistic tales with the views handed down to us by some economic historians.

However, as I think about the valuable lessons in some of these old tales of business success, I wonder if a similar tradition of rags-to-riches stories will take hold in that other rising economic power of the East. Who will be the Horatio Alger of China (or better yet, the Orison Swett Marden) and what stories will he or she tell?

Related articles and posts:

1. Classic quotes and timeless wisdom from, How They Succeeded - Finance Trends.

Obama is Confused

Obama's comments leading up to the G20 meetings this week show a serious confusion about why America is stuggling. As usual, Obama blames someone else. This time Obama's targets are other countries with high levels of exports to the US and substantial positive trade balances with the US. He thinks they should stop doing this. Why? Americans are buying, so why should they stop selling to them.

What Obama does not understand is the reason why Americans buy and do not save. The reason is simple. Americans assume that government will take care of them in their old age through social security and medicare, so why save? Why not live for today and let future generations fund your old age? That's the Obama way.

The result is Americans borrow from abroad, don't save and consume like crazy. The only way to stop this is to dismantle social security and medicare.

China doesn't have social security or medicare nor do any important countries that are currently experiencing economic growth. Only Europe has an elaborate welfare structure like the US and it is now beginning to dismantle it piece by piece.

Obama just doesn't understand simple economics. Fortunately, the rest of the world does.

Maybe "No" is the Right Answer

Paul Krugman, one of many NY Times partisan Democrats masquerading as a columnist, has once more asked: "What would they have done different?" How about doing nothing?

When recessions begin, politicians look for quick fixes, sometimes called "stimulus plans." Republicans look for quick fixes; Democrats look for quick fixes. In Economics, we have a subject called "Macroeconomics," which is supposed to provide guidance to the correct macroeconomic policy. What Macroeconomics is, in truth, is a collection of random fairy tales and simplistic equations, that bear little resemblance to hard science. When you ask someone, "do you favor spending increases or tax cuts," the answer you get tells you the political party of the person doing the answering. Some science!

The cold hard truth is there is no specific government policy known to be helpful in moving the economy from recession to recovery. Doing nothing may well have been the right answer in 2008 and 2009. Sometimes, time alone heals and no amount of well-intentioned policies will help. Indeed, in Obama's case, it seems pretty clear that the legislative activity by Obama-Pelosi-Reid has inhibited the economy's ability to recover.

The economy will recover, regardless of the foolishness of the Obama regime. But, had they done nothing, we might be looking at 8 percent GDP growth (like much of the rest of the world) instead of limping along at 2 percent GDP growth. Maybe, just saying "no" is the right answer.

Bernanke Has Lost It

QE2 is a disastrous mistake and will only inflate asset and commodity prices and provide a major impetus to future inflation. Bernanke is misreading his mentor, Milton Friedman. Today's Wall Street Journal has an excellent article by Alan Meltzer, one of Friedman's most famous disciples, laying out exactly why Friedman would not have agreed with Bernanke's current path.

QE2 is the announced future purchases of $ 600 billion of treasuries by the Federal Reserve. This would be a major expansion in the money supply. The dollar, of course, will collapse with this kind of money creation and economic policy makers around the world are looking toward imposing capital controls to try to offset Bernanke's policies. They view this as a trade war of epic proportions.

Ironically, Bernanke is too worried about the economy. Economies recover on their own when government gets out of the way, witness the 19th century in American. The period from the civil war until 1914 was the fastest economic growth in American history. It was characterized by deflation, not inflation; financial panics every ten years on average, but no government bail outs. The end result: a massive increase in the standard of living of the average American.

A healthy economy has ups and downs. Obama and Bernanke should get out of the way and let this economy recover.

Finally

It looks like the business community may finally begin to get some relief from the oppressive taxes, regulations, and rhetoric that has flowed constantly from the first two years of the Obama regime. The historic repudiation of the Obama program sets the stage for possible progress on reducing the obstructions to economic recovery that have been put in place by the Democratic Congress and President Obama.

Watching Obama's press conference yesterday, I was struck by how little Obama understands about the economy and how little he understands about the average American. His view that voters "don't want to relitigate the past two years" completely misreads the November 2nd landslide for the Republicans. In fact, the voters do want to relitigate the past two years. They are demanding it. That's what the tea party movement is all about.

If Obama continues to misread the electorate and stand in the way of economic recovery, then we must wait until the Fall of 2012 for free markets to really begin to power us out of this economic slump. That would mean slow growth and high unemployment until at least 2013. That doesn't seem to bother the President, but, as we found on Tuesday, it bothers lots average folks and they vote.

Trading and the Psychology of Investing: interviews with Phil Pearlman and Joe Fahmy

Wanted to draw your attention to a couple of insightful radio interviews with StockTwits stars Joe Fahmy and Phil Pearlman on the Your Money Matters program.

You may know Joe from his tweets on the StockTwits stream or from watching his "Next Big Move" program on StockTwits TV. He is one of my favorite stock traders to watch and learn from on the stream, so I was pleased to hear this interview with Joe on his stock trading methods and the insights he shares with all investors and traders.

Check out Joe's thoughts on diversification and portfolio concentration, and his ideas on risk management and the importance of cutting your losses. No matter what your timeframe and trading/investing style, you're bound to learn something of value here.

If you're a fan of Phil Pearlman's "Market Shrinkology" show, check out this recent discussion on the psychology of successful investing.

I'm listening to this one out now and finding some familiar themes from Phil's "Shrinkology" shows, spiced up with some new ideas on how investors and traders deal with failure and success. Dealing with confirmation bias, the psychology of markets, assessing your performance, and the importance of discipline and sticking to a plan are all up for discussion here.

You may want to save this link and come back to the interviews after market hours or when you have some time to really listen and soak up the insights shared here. Enjoy the talks, and be sure to check out Joe and Phil's blogs and tv shows if you haven't already. Great stuff.

Mid-term elections and US stock returns

We tossed out a few links on US mid-term elections and their impact on stock prices in last month's view of global stock returns. Thought I'd include them here ahead of tomorrow's elections and offer you a quick overview.

1. Do midterm elections impact stock prices? - Fidelity touts the outperformance of large-cap and small-cap shares in the year following US mid-term elections.

Nice table included, which breaks down the election results and historical stock performance in times of party gridlock and party harmony.

2. Impact of mid-term elections on S&P 500 since 1990 - Nice Benzinga article that takes issue with the "tradable bottom" supposedly offered up in mid-term election years. Here is John Bougearel's take on the matter:

"Much of the statistical analysis surrounding the presidential cycle is misleading. Yes, there is some merit to the presidential cycle, but it is really tied to events exogenous to the elections themselves."

Actually, the author notes early on that the tendency for the stock market to be higher at the close of the following year is impressive, but that mid-term election year lows "can only be discerned with the benefit of hindsight".

3. Midterm elections: past and present - Advisor Perspectives takes a thorough look at midterm election results from 1932-2006 and comes up with some useful insights on the political and financial outcomes of midterm election years.

You'll also find a voter party affiliation breakdown for the current midterm election, and a good overview of the "implication for investors". Scroll down to see their table of "Median S&P 500 Total Returns", which breaks down the stock performance results for midterm election years and succeeding years according to party control of the House and Presidency.

4. Jim Gobetz, aka Aiki14 on Twitter, is back in the broadcasting chair for this StockTwits TV update on the election cycle. If you know Jim from the StockTwits stream and his earlier "Pre-Market Take" shows, then you probably know that he is a guy who enjoys talking about current events and their potential influence on the markets and the economy. Check it out.

That's enough from me. Enjoy the data, and if you're so inclined, get out there and vote the bums out!

*Photo credit: Park West Gallery Blog.

It's The Great Pumpkin, Charlie Brown

As long-time Finance Trends readers probably know, it's a Halloween tradition here for us to post & watch the classic Peanuts special, "It's The Great Pumpkin, Charlie Brown".

So if Jeremy Grantham's October report hasn't scared you silly, grab a seat and chill out with Linus and the gang. Great fun for a pre-Halloween Friday eve. Happy Halloween!

Jeremy Grantham 3Q letter - Night of the Living Fed

I know everyone's been looking for the recent 3Q 2010 GMO update from Jeremy Grantham, so I thought I'd post the Scribd doc. version here.

Tuck in and enjoy Grantham's macro view of the markets and the economy, from gold and commodities to real estate, stocks, and quantitative easing in, "Night of the Living Fed".


Night of the Living Fed Jeremy Grantham

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".

The Deficit Commission Offers Little

The President's "Deficit Commission" is composed of members of both political parties, who are expected to make recommendations to deal with the burgeoning national debt. Fat chance! The entitlements are off the table.

Instead, the commission is exploring various ways to raise tax revenues through the mantra of "tax reform." No effort is being made to curb spending, other than military spending. This is a complete waste of time and taxpayer money.

Without a plan to phase out the entitlements, medicare, medicaid and social security, there is no hope of dealing with America's long term public indebtedness.

The Commission reports its findings on December first. At that point there will be an effort, no doubt, to ram through the commission's so-called bi-partisan suggestions that all amount to higher taxes and a weakened military. Even that won't help.

FSN interview w/ Adam Fergusson on the dangers of hyperinflation

Financial Sense Newshour recently interviewed When Money Dies author, Adam Fergusson to discuss the Weimar hyperinflation of the 1920s and the inflationary dangers facing us today.

There are so many key concepts on the nature of inflation and its societal impacts in this interview, that I won't attempt to repeat them all here. However, there is one comment Fergusson makes early on in the discussion that is highly relevant to our current situation, and it pertains to the high level of debt we see in the US and other developed nations. Here it is:

"Generally speaking, inflation is a hidden tax, and it is a way whereby a government repudiates its public debt".

Check out the full interview to hear why Fergusson's recently reprinted book is so relevant to the economic discussions of today. When you hear constant debate over the possible outcomes of quantitative easing (QE) and the problems of high unemployment and rising costs of living, you'll know it's a sound idea to study economic history and learn from the lessons of the past.

You can also find a great deal of insight on the nature of inflation and the lessons from the Weimar hyperinflation in the related posts linked below.

Related articles and posts:

1. When Money Dies by Adam Fergusson: read it online - Prudent Investor.

2. Dying of Money: FSN 4 part series on inflation - Finance Trends.

3. FT interviews Adam Fergusson: When Money Dies - FT.com.

The Daunting Task Ahead

Krugman and other Democratic loyalists are forever pointing out that the national debt was a much higher percentage of GDP at the end of World War II and therefore we should not be concerned about the high debt levels of the present day. These arguments are completely disingenuous.

During World War II, America mobilized a huge effort to produce guns, tanks, aircraft and other war-related goods. When the war ended, there was no longer a need for all of this spending and spending levels were dramatically reduced almost overnight. There were no "hard decisions" about reducing spending. The war was over.

Today, spending is driven by entitlement programs that large parts of the American public depend upon and expect to see continued. Spending, long run, can only be reduced by essentially eliminating these entitlement programs -- restraining them won't work for the same reasons that they have never been restrained.

Both federal and state spending is mostly driven by entitlements. It isn't fraud and "wasteful" spending. It is the entitlements. It is not the war in Iraq and the war in Afghanistan. It is the entitlements.

So, unless Krugman and his loyalist band of the Democratic faithful are proposing massive cuts in entitlement spending, which last I checked they weren't, America faces a massive debt crisis that will, in the end, require the same solution that Europe is now moving toward -- eliminate the entitlements.

CME's big day: clearing interest rate swaps

That big spike you see on the chart above is, partly, a reaction to today's news that CME Group would begin clearing interest rate swaps.

As Reuters points out, a huge chunk of the $615 trillion derivatives market is being forced onto exchanges and into clearinghouses thanks to recent reform legislation. Contracts that used to trade over the counter (OTC) between two private parties are now being cleared through exchanges. CME will compete in this area with LCH Clearnet and the Nasdaq OMX-backed IDCC.

Jeff Carter at Points and Figures has a timely post on CME entitled, "CME Group: Buy It, Close Your Eyes". As you can tell, it's mostly a bull case, but Jeff adds a few caveats and some straight talk about the CME's competition (and there political forces at work here too). Full disclosure: I have family who are long-time CBOT members and current CME shareholders.

When you're done reading Jeff's post on the CME, take a look at his home page for more great stuff on the markets, trading, and the city we call home, Chicago.

Shout outs to my fellow bloggers

Just wanted to take the opportunity this week to thank some of our friends in the financial blogosphere for their link love and support in recent weeks and months.

It's great to exchange ideas with, and attract a few new readers from, other fine blogs in your particular circle or niche. So thanks to some of our old and new friends for their comments, feedback, and links back to Finance Trends posts.

Thank you (in no particular order):

Bear Mountain Bull, The Kirk Report, Controlled Greed, Daily Crux, Dollar Collapse, Fintag;

The Financial Physician, Financial Philosopher, TraderWise, Vix and More, NextTrade, BHC Investment , Best Minds Inc.;

The Coming Depression, Financial Armageddon, Investment Performance Guy, The Vantage Point, Prudent Investor, Pension Pulse, Laurence Hunt;

Matisse Capital, MoneyScience, Market Folly, eWallStreeter, Master of the Universe, Joe Fahmy, Aiki 14, Derek Hernquist;

Maoxian, Abnormal Returns, FT Alphaville, WSJ - The Source, Futures Mag, StockTwits U, everyone on Twitter and StockTwits, and to you, our readers!

Thanks as well to anyone I might have missed. It's been fun sharing links and perspectives on the markets with all of you.

We're going to do more to highlight excellent blogs and market commentary from some of our favorite bloggers in the coming months. Be sure to check in regularly and follow the insights in our new "Blogs" category label (see the post footer and our blog sidebar "Labels").

*Photo credit: True School Hip-Hop, MySpace (via Google Images).

QE2, The Yuan, and The Beat Goes On

Stock markets around the world have rallied by double digit percentages since early September. The financial news, of course, must explain this. (Explain the unexplainable -- that is their mission).

Enter "QE2:" QE2 means the Federal Reserve buys huge (think Trillions of dollars) amounts of treasury securities. This is the equivalent of printing money. QE2 is thought to be the great solution to our current malaise. The fear is that we may be collapsing into a deflationary spiral and only QE2 can save us. This is ridiculous of course. Printing money is never an intelligent monetary policy and there is certainly no evidence of deflation in the US economy.

Another non-issue is the Yuan. Tim Geithner simply cannot let a day go by without blasting Chinese authorities for not raising the value of the Yuan (and thereby further crushing the value of the dollar). This is no solution to our woes either. It is time to send Geithner back to to school to sit through a few economics classes. Geithner has no clue.

No one knows why markets go up except that when folks are especially negative on the future that typically leads to good markets. That's probably why we are where we are. The average shareholder has no particular interest in QE2, the Yuan, or any other irrelevancies.

Marketfolly's notes from Value Investing Congress

Jay at Marketfolly is currently at work providing notes from the Value Investing Congress in New York (Update: see also, notes from VIC - day 2).

Some of the well known speakers at this event include Kyle Bass, John Burbank, David Einhorn, Mohnish Pabrai, and Lee Ainslie, among others in the hedge fund and investment management world. These investing all-stars will be presenting their views on the markets and the global economy to the VIC audience, while sharing some of their current investing ideas.

You can check out Marketfolly's continually updated notes at the link above. In addition, Jay has posted some recent notes from the Ira Sohn West Conference, including some big picture thoughts from John Burbank of Passport Capital regarding the US and its current investment climate.

If you'd like to hear more from John Burbank on the theme of "US as an emerging market economy", please check out this excellent (and rare) interview with Burbank on Benzinga's radio podcast. You'll also find more key interviews with VIC speakers and VIC coverage in our related posts section below.

Related articles and posts:

1. CNBC interviews Kyle Bass, Alan Fournier - Finance Trends.

2. Must hear interview with John Burbank (Passport Capital) - Finance Trends.

3. Live VIC coverage via Twitter search - Twitter.com

Krugman is a Broken Record; Hooray for Mortenson

In his column this morning, Paul Krugman continues to beat the dead horse of "too little stimulus." Not satisfied with a $ 13 Trillion national debt, is apparently in favoring of moving the US totals toward Greece numbers. It would just take another $ 3 Trillion to get there. Perhaps, Krugman wishes to squeeze Greece out of the headlines. This is Krugman's plan to make American number one (in debt).

It should be noted that Krugman did not receive a Nobel Prize for his work on macroeconomics. This doesn't stop him from holding forth as if he is the high priest of macroecnomics Fortunately, few outside the Obama White House, share Krugman's views and the public has long since jumped off the Krugman train.

Three economists shared the Nobel Prize, announced this morning. One of them, Dale Mortenson, is my old professor and a member of my Ph.d dissertation committee. Mortenson is a great economist and a marvelous human being. Three cheers for Dale Mortenson!

Obama Adopts the "Big Lie" Strategy

Desperate for something to say on the campaign trail, President Obama is now simply telling baldfaced lies. Worse, hundreds of millions of dollars are being spent on television and on radio to bring those lies to the public.

What lies? That foreign money is being washed through the Chamber of Commerce and is financing campaign adds across the country.

If the lies are truth, not lies, the Chamber is subject to criminal prosecution, since such money be a violation federal law. Obama does not object to George Soros, not an American citizen by the way, spending literally billions to help elect Obama president, but he now libels the Chamber of Commerce.

This man, Obama, has no shame and no sense of decency. If the Chamber is using foreign money, then give Eric Holder, your Attorney General a ring and begin the prosecutions. Otherwise, quit lying.

Incidentally, Mr. Obama, you might let Eric Holder look into MoveOn.Org and countless other Democratic organizations who have never publicly revealed their donors. Why has this only become of recent interest to the White House? November 2nd cannot come too soon. Congress should hold hearings on Mr. Obama's lies regarding campaign finance. This man, Obama, has no shame.

9.6 % and Counting

No good news for the President. Unemployment remains historically high and nothing in the foreseeable future will change things. The hardest hit are the "legally protected groups" -- minorities, high school graduates and older workers. This is not unusual.

Congress has mandated all sorts of special rights for these "protected" groups and as a result they will be the last to be hired and will only be hired when the economy is truly frothy. All of the "unprotected" groups, mainly white males between 18 and 40 years of age, will do much better. They are cheaper to hire, easier to fire, and less likely to sue for a workplace grievance. It's as if we designed our labor laws to favor white males and to penalize minorities and others. Whether by design or not, that is certainly the end result.

Obama's dream was to expand government and have the government hire those who support him politically. To some extent, Obama's dream was fulfilled by the Stimulus Act of 2009. But, alas, the public woke up and have called for the expansion of government to end. Bereft of ideas, Obama is now complaining that ordinary Americans simply are not smart enough to understand his policies!

The Obama Administration is now granting waivers to companies who plan to drop health care insurance for their employees. More than 120 large companies, including McDonald's, have now received government-granted waivers from the onerous requirement of Obamacare. What this means is that Obama decides who must obey the new law and who gets away with ignoring it. So much for the rule of law.

The bankruptcy (literal and figurative) of the Obama Administration is on display daily as key Administration figures desert the sinking ship. The tsunami is coming. 24 more days until November 2nd.

LTCM and the lessons of failure

Earlier this week, we heard the news that John Meriwether, he of the infamous Long Term Capital Management collapse and bailout, would be starting his third hedge fund.

It turns out his JM Advisors Mgmt. will be launching two new global macro funds, a switch from Meriwether's tried and true (not really though) relative value arbitrage juiced on leverage approach.

The idea of Meriwether launching yet another fund, while pursuing a new strategy in the now-hot global macro arena, led me to these thoughts:

The news that J. Meriwether is starting his 3rd fund, a global macro fund, has me wondering if we're nearing a top for that strategy.Tue Oct 05 20:22:06 via webDavid Shvartsman
FinanceTrends

Which is not to say "global macro is over", but that mass acceptance of said fund strategy may be heralding a severe winnowing out process.Tue Oct 05 20:24:45 via webDavid Shvartsman
FinanceTrends

More importantly, it led me to think back to the LTCM crisis and wonder how a once legendary Salomon Brothers trader could find himself at the center of such a disastrous fund blowup. Were there risk controls in place at Salomon that curbed the sort of disastrous, leveraged-fueled strategies favored at LTCM?

Were JM & Co. simply overcome by the hubris of their early success or lulled into assurance by their sophisticated mathematical models? What can we learn from the disastrous failure of LTCM?

Soon after, I came across a great article that addressed exactly this topic. From the Mercenary Trader blog, here's an excerpt from "Long Term Capital Management and the Lessons of Failure":

"...For a few good years, LTCM snatched up nickels in front of bulldozers with huge leverage, while the fund’s Nobel laureates got high on their own supply with seriously addle-brained concepts like “Continuous-Time Finance.” Then it all went wrong, in accordance with the “100 year storms” that actually seem to occur every five or six years.

LTCM, and later vehicles of its ilk such as the Bear Stearns High-Grade Structured Credit funds — which had positive returns 40 months in a row before going Kaboom — became living proof of Michael Milken’s admonition that “leverage is not a business model.”

But Meriwether didn’t get the memo, and blew up with the same approach a second time.

To be clear, past failure is not always cause to dismiss future success. As most entrepreneurs and traders know, failure can have an upside — IF the result is knowledge, humility and, above all, wisdom gained from one’s mistakes...."

This article is a must read for anyone trading, investing in, or studying markets. It's a quick read, but it not only addresses the problems faced by Meriwether and LTCM, it also takes on the disastrous losses faced by some other high-profile investment managers and the lessons that need to be absorbed by every trader or risk-taking entrepreneur. Hope you enjoy it and get something out of it.

Related articles and posts:

1. The Danger of Overconfidence - Janice Dorn at The Market Oracle.