Friday, October 29, 2010

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!

Thursday, October 28, 2010

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

Tuesday, October 26, 2010

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".

Monday, October 25, 2010

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.

Thursday, October 21, 2010

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 -

Wednesday, October 20, 2010

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.

Monday, October 18, 2010

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.

Thursday, October 14, 2010

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).

Wednesday, October 13, 2010

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.

Tuesday, October 12, 2010

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

CNBC interviews Kyle Bass, Alan Fournier - Finance Trends.

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

Live VIC coverage via Twitter search -

Monday, October 11, 2010

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!

Sunday, October 10, 2010

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.

Saturday, October 9, 2010

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.

Friday, October 8, 2010

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 web

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 web

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.

Leave China Alone

The level of the Yuan (the Chinese currency) is not even remotely a cause of the economic problems that the US faces. Appreciating the Yuan (and devaluing the dollar), a program advocated by Tim Geithner, is silly policy. The US has a miniscule savings rate and as long that is the case, we will have a huge trade imbalance (almost by definition, since whatever investment activity occurs in the US must have the savings provided from some external source).

It is becoming a bedrock of American economic polical life to blame someone else for our own foolish policies. By blaming others, you never face up to reality.

The cold, hard truth is that Obama's policies have damaged the prospects for a US economic recovery. It is not clear that Obama cares one way or another. He seems focused on other matters. But, Americans care. We will eventually have an economic recovery with permanently higher levels of unemployment. This will be the Obama economic legacy -- economic stagnation and slow economic growth.

Hopefully, after November 2nd, we can begin to remove some of the roadblocks to economic growth that the Obama team has put in the way of the economy. Most of the country would like to return to the bad old days of prosperity, even if Obama prefers not to.

Wednesday, October 6, 2010

CNBC chats w/ Kyle Bass, Alan Fournier

CNBC took their porta-studio down to Texas to chat with Kyle Bass (Hayman Capital) and Alan Fournier (Pennant Capital) at the Barefoot Economic Summit earlier today.

Since I got a heads up on this interview from some folks in my Twitter stream, I thought I'd track down the interview clips from CNBC and post them here for all to see.

Kyle Bass is well known for his big picture macro views, and he's made some pointed remarks recently about the path the US is heading down given the Fed's quantitative easing efforts. You'll hear Bass compare the monetary situation in the US with the hyperinflationary episode of Weimar Germany, and the more recent case of Zimbabwe, in this discussion.

This interview also offers him a chance to elaborate a bit on his recent call to avoid stocks (in general) and instead look to real assets, such as commodities and gold, in an inflationary environment. Enjoy the discussion and the insights from Bass and Fournier in this 3 part interview.

CNBC talks with Kyle Bass & Alan Fournier at the Barefoot Economic Summit: Part 1, Part 2, Part 3.

Tuesday, October 5, 2010

Scribd collection of classic trading books

StockTwits U recently highlighted our collection of classic trading books on Scribd, with special reference to Jesse Livermore's 1940 primer, How To Trade In Stocks.

You can find free pdf and ebook versions of Livermore's text, plus WD Gann's Truth of the Stock Tape and Nicholas Darvas' How I Made $2,000,000 in the Stock Market, at the post above, or by visiting our Scribd trading books collection page.

I'll be adding more classic trading texts to the collection as I find them. If you have any suggestions on authors or highly educational book files to add to the collection (preferably those already found on Scribd), please mention them here or drop me an email. We've already had some good suggestions from the StockTwits stream, and I'll try to upload or share any texts that are likely to remain up on the site.

Related articles and posts:

1. Jesse Livermore: How To Trade In Stocks - Finance Trends.

2. Wall Street Stories - Edwin Lefevre - Finance Trends.

Monday, October 4, 2010

Charlie Rose interviews Quentin Tarantino (1994)

Quentin Tarantino sits down with Charlie Rose for his first interview on the show back in 1994, hot on the heels of his breakthrough success with Pulp Fiction.

Decided to watch this the other night after I heard someone mention this interview (can't recall who or where) and was well pleased with some of the insights shared in this discussion.

What does this have to do with the markets and finance? Practically nothing. However, I think good ideas can be found anywhere, and this chat with Quentin is a fine example of that.

I especially enjoyed the early part of the interview, in which Tarantino shares his personal experiences on childhood, school, and the inate talents or interests that every child has. Pay close attention to this segment, as well as Tarantino's recollections of his "learn by doing" methods; there are some key insights for any creative person or self-starter here.

Related articles and posts:

1. Quentin Tarantino appearances on Charlie Rose -

2. Wes Anderson interviews Peter Bogdanovich - Finance Trends.

Sunday, October 3, 2010

The End of the Obama Agenda

Whatever the outcome on November 2nd, the Obama agenda is finished and cannot be resuscitated. Most of the economic agenda was aimed at pumping up the income of union and public sector employees. The health care system has been trashed and the financial sector lies under the most burdensome regulatory environment in history. Meanwhile ordinary Americans are still losing their jobs, their homes, their credit cards and their health care insurance. No wonder life is tough for Democrats.

The Obama answer to the enormous backlash to his first twenty one months in office is that the public doesn't understand his program. Unfortunately, for Obama the public does understand his program and has been opposed to it from the beginning.

Having nothing to run on but an incredibly unpopular legislative record, the Democrats, actively encouraged by President Obama, are resorting to mud slinging and personal attacks. That's about all they have left. This is the new politics that will be Obama's legacy to the American system.

Obama says that Americans don't understand. Yes, they do. The two biggest lies in the past two years are: 1) No one will lose their health insurance; and 2) We are bending the (health care) cost curve down. It's hard to imagine anyone in America, including folks in the White House, believe those lies anymore.

It is an Administration in shambles. The rats are leaving the sinking ship. The dream is over. Interviewed on public radio, students who lead the charge for Obama in 2008, were unanimous in their view that "Congressional elections aren't cool...I don't even know who my Congressman is...." So the students will sit this one out, but the adults will not sit this one out.

The Republicans will gain 65-70 seats in the House and 8-10 seats in the Senate. The era of Obama is over.

Friday, October 1, 2010

Global stock index gainers: India, Norway, Nasdaq

While playing around with the Market Macromaps feature on today, I decided to check up on the top 1 month global stock index gainers.

Here's a screenshot of that chart. You'll note that Norway's Oslo All-Share Index, Hong Kong's Hang Seng, India's S&P CNX Nifty Fifty, Indonesia's JSX, Chile's DJ-Chile, and US' Nasdaq are among the top index performers shown here.

After a ripping September performance for US equities, we're hearing some hopeful talk about a positive fourth quarter performance for US shares. However, if you're inclined to take a more cautious view, Mark Hulbert at MarketWatch has a piece up which notes that October's (and each month's) market performance may be independent of the preceeding month's performance.

So while mid-term elections are touted as a catalyst for next year's stock market performance (more on that here and here), don't go betting all your marbles on an October follow through from September.