Quote for the Week, September 30-October 6, 2012

Wealth consists not in having great possessions, but in having few wants.

--Epictetus

Bair Shares

Former FDIC Chair Sheila Bair takes on the Bailouter in Chief in her new book, Bull By the Horns.

Golden Goose Is Flatlining

[BloombergBriefs via ZeroHedge]

"One risk to the U.S. economy is that rising entitlement spending will require the government to borrow from the finite amount of capital held by private savers, thus squeezing out private firms that need the capital to expand businesses and increase productivity."

Quote for the Week, September 23-29, 2012

A comparison with Congress in this case might be deemed an insult to drunken sailors.
--Richard Fisher, President,
Federal Reserve Bank of Dallas,
in remarks to the Harvard Club of NYC, Sept. 19, 2012

Greater Depression? You Decide.

From Mark McHugh:

"Velocity of money is the frequency with which a unit of money is spent on new goods and services. It is a far better indicator of economic activity than GDP, consumer prices, the stock market, or sales of men’s underwear (which Greenspan was fond of ogling). In a healthy economy, the same dollar is collected as payment and subsequently spent many times over.  In a depression, the velocity of money  goes catatonic. Velocity of money is calculated by simply dividing GDP by a given money supply. This VoM chart using monetary base should end any discussion of what 'this' is and whether or not anybody should be using the word 'recovery' with a straight face:

"In just four short years, our 'enlightened' policy-makers have slowed money velocity to depths never seen in the Great Depression...The path we’re on ends with mountains of corpses when the great experiment fails."

And what experiment is that?  According to Jim Grant, we have met the lab rats, and They 'R Us:

Memo to Employees: See a Shrink

The Wall Street Journal is reporting today that Bank of America will terminate 16,000 employees between now Happy New Year's.  This continues a trend that I highlighted five months ago here.  [If you type "Brian Moynihan" into the Search bar above, then hit the spy glass, you will find a list of postings explaining why BofA's CEO has the world's worst job.]

Gentle reminder:  if you work for the State of Maine (or any of its public schools) or pay taxes in Maine, you own this company.

Meet Oscar

With his back to the goal?
From outside the box?

Are you kidding me?

China's Economy No Longer on a Roll

[Reuters]

ZeroHedge has a must-read on "The Case of the Missing Steel."  Citing a Reuters article on the slowdown in China's steel industry, ZeroHedge makes the broader claim that the entire global economy is an inverted pyramid balanced precariously on a shrinking base of worthless collateral:

[W]e have been warning for years that i) the inventory of the world's credible assets is literally evaporating in absence of technological efficiency and CapEx spending (which is also the reason for the ECB's endless lowering of collateral requirements) and ii) illegal rehypothecation of assets, which infinitely dilutes claims on real assets, can and will lead to total losses even for investors who thought they had strong collateral backing.

We now know that this has been happening in China with the most critical component of its economic growth miracle: steel. We will soon discover that all other assets: stocks, bonds, commodities (including gold and silver) and finally cash (think deposits) have been comparably rehypothecated and criminally commingled. The end result will be the most epic bank run in world history....

Complete article here.

The Presidentials: Take Two

Lakes of the Clouds from Mt. Washington

September 11, 2012

[photo: Christopher Childs]

Quote for the Week, September 16-22, 2012

Just remember our government has power only because We the People lend it to them. Maybe it's time to treat them like the subprime borrower they are and recall that loan.
--Glenn Beck

Stockman's Back

...and is sticking it to both the Democrats and the Republicans, whom he describes as the "two Free Lunch parties."  His biggest voodoo pins, though, are saved for the "lunatics" at the Federal Reserve.  A former OMB Director in the Reagan White House, David Stockman is looking for any presidential candidate who promises to "clean house at the Fed," starting with a pink slip for Fed Chair Ben Bernanke.  By artificially suppressing interest rates, the Fed is "crushing savers" merely to "placate the little boys and girls [on Wall Street] who want a little more."

Stockman also has some good ideas about where to start on the federal deficit.  A scintillating interview:

Quote for the Week, September 9-15, 2012

Politics seems to stimulate the reptilian part of the brain, the most primitive part.

--Doug Casey

What September in N.E. Is For

Hiking in the Presidentials

Friday, September 7, 2012

Mt. Washington behind Mt. Clay
[photo: Cathy Hazelton]

Gross: Expect Stunted Returns

PIMCO's Bill Gross

This month's Investment Outlook from PIMCO's managing director and co-CIO includes a sobering view of the prospects for America's banking industry in the years ahead:

"When yields are too low, and acceptable risk spreads so narrow that top line interest revenue is increasingly marginalized, then lending is at risk. Excessive historical overhead represented by rents, salaries, pension and health benefits, to name just a few, force financial and lending institutions to do one of two things: They lever up to cover those costs or they slow or shut lending down to preserve equity and the ultimate franchise...

"Our entire finance-based monetary system – led by banks but typified by insurance companies, investment management firms and hedge funds as well – is based on an acceptable level of carry and the expectation of earning it. When credit is priced such that carry is no longer as profitable at a customary amount of leverage/risk, then the system will stall, list, or perhaps even tip over."

And a final caveat for pension-fund managers (including those at MainePERS):

"The age of credit expansion which led to double-digit portfolio returns is over."

Quote for the Week, September 2-8, 2012

Have you ever watched a crab on the shore crawling backward in search of the Atlantic Ocean, and missing?  That's the way the mind of man operates.
--H.L. Mencken

I KNEW I Had Seen Him Before

Then...

...and now.

As Paul Ryan accepted his party's nomination for Vice-President of the U.S. in Tampa last night, computerized fact-checkers monitoring his speech began exploding like Chinese firecrackers.  Here is what fried the hardware.

The jaw-dropping performance earned a special nod from Andy Borowitz.

Remarks Eugene Robinson of the Washington Post, "anyone who hoped Ryan might elevate the debate should be bitterly disappointed."


[update, 09-04-12--]

Andy can't help it.  There is just too much material here.  Not only does Paul Ryan run 7-minute-per-mile marathons, but he moonlights as a Navy Seal.  Check out this special assignment.









© The New Yorker

When Day Traders Occupied Wall Street

"They were Maschler's bandit army, the rejects of Wall Street, the city college kids from the backwaters of Staten Island, Queens, and the Bronx, the ones who didn't stand a chance at a big bank like Goldman or Morgan.  Dumb boiler-room mutts--but they had a secret weapon:  Josh Levine.  With Levine creations such as the Watcher and the Monster Key at their fingertips, they could out-trade the very best in the business.  They could grind Goldman to a pulp. They could make Morgan cry."  [page 100]

It was about time.

Quote for the Week, Aug. 26-Sept. 1, 2012

The natural progress of things is for liberty to yield and government to gain ground.
--Thomas Jefferson

 

Quote for the Week, August 19-25, 2012

“I don’t want to be one of those émigrés of 1917, sipping wine by the Mediterranean and waiting for Russia to get better so I can come back. I have no choice but to do it myself.”

--political activist Maria Baronova

The Hedgies and the Banks

As guarantors of MainePERS--and of all the benefits that MainePERS will pay out now and forevermore--we taxpayers have an interest in how the MainePERS investment portfolio performs.  The better the performance, the less we will have to pay out of the General Fund in the future to address pension liabilities.

Here's the problem.  MainePERS has adopted a passive, indexed investment style, which works great in bull markets, but underperforms in bear markets.  MainePERS does not try to time the market.  We ride stocks up, then ride them down.  Financial-sector stocks were big winners in the bubble-licious mid-00s, but have been losers since.  As of June 30 of this year, we still held 926,049 shares of JPMorgan Chase (valued then at over $33 million) and 2,616,812 shares of Bank of America (worth over $21 million).

A year ago we took a look at how three noted hedge-fund managers were handling their investments in Bank of America ("Duck, Duck, GOOSE!").  Unlike MainePERS, these guys DO trade in and out.  When they sense that a firm's business is about to sour, they don't wait for public disclosures from company executives.  They take the money and run.  By the end of 2011 all three had liquidated their entire positions in Bank of America's common stock.

Second-quarter 13-F filings with the Securities & Exchange Commission have just been made public, so we can once again look over the shoulders of the hedge honchos to see what they are doing.  Here's the rundown:

David Tepper, Appaloosa Management LP

Bought almost 7.5 million shares of BAC in Q1, then changed his mind (oops) and sold almost half in Q2.  Cancel that rebound in BAC's business.

John Paulson, Paulson & Co. Inc.

Still has BAC warrants.  Established a new position in JPM (4 million shares) just as the firm was disclosing a trading loss of $5.8 billion (double oops).

George Soros, Soros Fund Management LLC

Exited JPM completely (over 600,000 shares).  Remains BAC-free.  Smart man.