Tuesday, November 30, 2010
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.
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.
Monday, November 29, 2010
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.
Wednesday, November 24, 2010
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!
Tuesday, November 23, 2010
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!
Friday, November 19, 2010
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.
Thursday, November 18, 2010
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.
Tuesday, November 16, 2010
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.
Monday, November 15, 2010
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!
Sunday, November 14, 2010
Saturday, November 13, 2010
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.
Friday, November 12, 2010
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.
Wednesday, November 10, 2010
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.
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.
Saturday, November 6, 2010
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.
Thursday, November 4, 2010
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.
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.
Wednesday, November 3, 2010
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.
Monday, November 1, 2010
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.