I read a lot of blogs written by economists, from all different schools of thought. And my conclusion is that, if there was a scoring system going on, most of these guys seem to be under the impression that you get bonus points for being as bombastic and derisive as possible. In fact, it's better if you don't even really pay attention to what the other side is saying, while at the same time regularly taking them to task for bad ideas.
Anyway, what has become clear is that most of these folks would rather not be wrong than actually be right. Which makes it fortunate that they don't have any skin in the game. They can sit on the sidelines, make bad calls, rationalize it away, and carry on. They are snarky and petulant, and it trickles down to the people who comment at their sites.
On the opposite end of the spectrum, the smart investor has no choice but to be different. Bad logic means money lost. And the more stubborn you are about it, the worse it's going to get. Sadly, economist, these days, has become a synonym for ideologue. And, in the end, those guys always get what's coming to them.
Wednesday, November 30, 2011
Romer Speech
I recently referenced a speech by Christina Romer that discussed the evidence for fiscal stimulus as effective counter cyclical policy -- I am linking to it here.
A quick summary:
-The strongest evidence going for fiscal policy as a stimulative measure revolves around taxes. And military spending.
-There is some evidence that the Recovery Act helped to stabilize the economy, particularly by incorporating omitted variable bias into the analysis. In other words, when looking at the impact, context very much matters.
-We should expect a whole lot of studies in the next few years that will probably draw that conclusion as well.
-Romer comes around at the end to the standard Keynesian talking points. That austerity is the wrong approach in recessionary times and will exacerbate the slide. And, yes, we need to get focused on long-term deficit issues, but not yet -- we are still in the short-term where the emphasis must be economic growth, using the one-two punch of monetary and fiscal stimulus.
It is this last bit that I want to focus in on. My feeling is that the people who push hardest for these courses of action, or some derivative of them, still do not provide a satisfying explanation of why we are where we are. So, if they aren't getting to the cause, how can we expect them to pattern a solution that will really allow the economy to sustainably recover. Therein lies my agita.
But, as a greedy capitalist and investor, it sets up for an easy "contrarian" trade. Not shorting the market per se, but knowing that the only guaranteed outcome from these policies is continued currency debasement. And you know where that leads me.
A quick summary:
-The strongest evidence going for fiscal policy as a stimulative measure revolves around taxes. And military spending.
-There is some evidence that the Recovery Act helped to stabilize the economy, particularly by incorporating omitted variable bias into the analysis. In other words, when looking at the impact, context very much matters.
-We should expect a whole lot of studies in the next few years that will probably draw that conclusion as well.
-Romer comes around at the end to the standard Keynesian talking points. That austerity is the wrong approach in recessionary times and will exacerbate the slide. And, yes, we need to get focused on long-term deficit issues, but not yet -- we are still in the short-term where the emphasis must be economic growth, using the one-two punch of monetary and fiscal stimulus.
It is this last bit that I want to focus in on. My feeling is that the people who push hardest for these courses of action, or some derivative of them, still do not provide a satisfying explanation of why we are where we are. So, if they aren't getting to the cause, how can we expect them to pattern a solution that will really allow the economy to sustainably recover. Therein lies my agita.
But, as a greedy capitalist and investor, it sets up for an easy "contrarian" trade. Not shorting the market per se, but knowing that the only guaranteed outcome from these policies is continued currency debasement. And you know where that leads me.
Sunday, November 27, 2011
Friedman/Kraus Postscript
A few points that I failed to make previously.
If nothing else, this work really is about the idea that ignorance can be an explanation for bad choices. The authors seek to stress that it does not always have to be the result of omniscient actors making a particular choice with the potential consequences fully in mind.
Also, the book identifies that the problem was probably too many regulations. The Federal Register is simply voluminous and it is probably a safe bet that as new ideas are turned into law, they are not necessarily done so with a full grasp of what else is already in place. In that way, it becomes like a chemistry experiment where you're not sure what the reaction between different moving parts will be.
In this case, we have a 1936 rule that limits institutional investments to minimum ratings. Then in 1975 we have rule changes that grant an oligopoly to the three biggest rating agencies. Then you have the more recent Basel framework and Recourse Rule that made mortgages and MBS more favorable from a risk perspective to institutional players, followed up by government policies that made housing more accessible to all. The result: fireworks.
Finally, a passage from the book that resonated with me:
"The systemic advantage of capitalism is that it allows heterogeneous interpretations of what is going on to be "enacted" simultaneously by competing businesses. The disadvantage of modern democracy is that in attempting to solve social and economic problems, either the people or their agents -- legislators and regulators -- must adopt a single interpretation that, in legal form, homogenizes behavior throughout the entire system. If this single interpretation is erroneous, the entire system may be jeopardized."
If nothing else, this work really is about the idea that ignorance can be an explanation for bad choices. The authors seek to stress that it does not always have to be the result of omniscient actors making a particular choice with the potential consequences fully in mind.
Also, the book identifies that the problem was probably too many regulations. The Federal Register is simply voluminous and it is probably a safe bet that as new ideas are turned into law, they are not necessarily done so with a full grasp of what else is already in place. In that way, it becomes like a chemistry experiment where you're not sure what the reaction between different moving parts will be.
In this case, we have a 1936 rule that limits institutional investments to minimum ratings. Then in 1975 we have rule changes that grant an oligopoly to the three biggest rating agencies. Then you have the more recent Basel framework and Recourse Rule that made mortgages and MBS more favorable from a risk perspective to institutional players, followed up by government policies that made housing more accessible to all. The result: fireworks.
Finally, a passage from the book that resonated with me:
"The systemic advantage of capitalism is that it allows heterogeneous interpretations of what is going on to be "enacted" simultaneously by competing businesses. The disadvantage of modern democracy is that in attempting to solve social and economic problems, either the people or their agents -- legislators and regulators -- must adopt a single interpretation that, in legal form, homogenizes behavior throughout the entire system. If this single interpretation is erroneous, the entire system may be jeopardized."
Another Worthwhile Read
Just got through Engineering the Financial Crisis by Jeffrey Friedman and Wladimir Kraus. It does the important work of questioning each of the standard explanations for why the crisis occurred (i.e., banker compensation, deregulation, irrational exuberance, etc.), and tries to show that most of the problems can be laid at the feet of the Basel rules regarding minimum capital requirements for banks. Specifically, it details how leverage levels amongst the biggest banks did not really change over the period in question (1999-2007), and in fact most of the investments by these institutions in MBS/ABS/etc. were not in the riskiest tranches with the highest yields (which you would expect if moral hazard was playing a major role). In fact, with the introduction of Basel I (and then the Recourse Rule), and the associated risk-weighting attached to different categories of loans and assets, you see the most obvious correlation with how bank behavior changed. By contrast, the book notes the several studies that have been done to establish a nexus between compensation and risky behavior, and the unconvincing results that came out of each.
The authors also point out how many economists tend to fall into the trap of "hindsight bias" when analyzing recent events. Some of the biggest names (Shiller, Stiglitz) did not demonstrate a full grasp of potential ramifications pre-implosion, but are quite comfortable making the case ex post that compensation structures or irrational behavior were the culprits. Yet, if the information was so clear and the warning signs so obvious, there is no reason to think that whatever nefarious behavior existed could not have been put in check early on by omniscient regulators. As, the belief in the infallibility of this group in the aftermath to determine and mitigate future risks is the implication in striving to establish more rules and restrictions.
While I wish a little more attention had been paid to the role of interest rates that were kept too low for too long, it was still a good read and offers an interesting counterpoint to the usual soundbites.
The authors also point out how many economists tend to fall into the trap of "hindsight bias" when analyzing recent events. Some of the biggest names (Shiller, Stiglitz) did not demonstrate a full grasp of potential ramifications pre-implosion, but are quite comfortable making the case ex post that compensation structures or irrational behavior were the culprits. Yet, if the information was so clear and the warning signs so obvious, there is no reason to think that whatever nefarious behavior existed could not have been put in check early on by omniscient regulators. As, the belief in the infallibility of this group in the aftermath to determine and mitigate future risks is the implication in striving to establish more rules and restrictions.
While I wish a little more attention had been paid to the role of interest rates that were kept too low for too long, it was still a good read and offers an interesting counterpoint to the usual soundbites.
Saturday, November 26, 2011
A Little More
An accounting identity is never that alone if the fact pattern that gets you there is premised on a debatable assumption.
An Accounting Question
Company ABC has 100 shares outstanding, $1000 in cash on its balance sheet and no debt. What is its implied book value (i.e., I'm not asking how it will trade at any given moment)?
Now, move to next week: ABC issues another 100 shares and receives another $1000 in cash, with which it could do any number of things, but for the time being nothing. Again, what is its implied book value at this moment in time?
I ask for a reason. I have encountered people on the interwebs who want to imply something other than what should be obvious.
Now, move to next week: ABC issues another 100 shares and receives another $1000 in cash, with which it could do any number of things, but for the time being nothing. Again, what is its implied book value at this moment in time?
I ask for a reason. I have encountered people on the interwebs who want to imply something other than what should be obvious.
Wednesday, November 23, 2011
Once More Unto The Breach Dear Friends
So, after all the mishigas that I wrote lately, I come across the following post that confirms my suspicion -- too many economists allow subjective preferences to play a major role in their "conclusions". In other words, they can very much be political hacks.
For those too lazy to open the link, it is a blog piece by Paul Krugman making the case for much higher tax rates on high income earners. I am not an economist (we know) so I will leave the more wonkish analysis around marginal product theory to the folks at Modeled Behavior.
But, I am a lawyer, and therefore no PhD in the black arts from MIT is necessary in order to identify the inconsistencies that abound here.
As many of us know, Mr. Krugman is very much our King Keynesian. Which means that he advocates for a theory that tells us the necessity of monetary and fiscal stimulus in times like these. Moreover, it also informs us that higher taxes generally are not stimulative, and simply a terrible idea in recessions -- it is the starting point, after all, for why so many from his team lay no claim to Herbert Hoover (even though he was instrumental in many of the ideas behind the New Deal).
Now, working in reverse, the higher taxes piece is an obvious affront to fun-loving Keynesians everywhere. There is no other explanation for Krugman's implied endorsement of such a policy except that it caters to his political beliefs and preferences -- even though he tries to mask it with econometrics.
But, the better part to me is how he runs into problems with fiscal stimulus, and directly contradicts a post that he made but a few days earlier...here. In it he refers to a recent speech by Christina Romer (of $800 billion stimulus fame) in which she makes the case for fiscal stimulus as a proven method for lifting/stopping the slide in an economy. What's particularly interesting, though, is that the examples she cites to prove the utility of fiscal stimulus all involve tax policy, whether rebates or otherwise -- a point that Scott Sumner also notices on his blog.
So, what motivates Krugman? He endorses the Keynesian approach, fiscal stimulus in particular, but then undermines his own position by referencing a study that says higher taxes would not impede economic recovery, even though he recently cited work by Romer that advocates the complete opposite. Uhmm...yeah, I think we have our answer. I just thought he was better at masking it.
For those too lazy to open the link, it is a blog piece by Paul Krugman making the case for much higher tax rates on high income earners. I am not an economist (we know) so I will leave the more wonkish analysis around marginal product theory to the folks at Modeled Behavior.
But, I am a lawyer, and therefore no PhD in the black arts from MIT is necessary in order to identify the inconsistencies that abound here.
As many of us know, Mr. Krugman is very much our King Keynesian. Which means that he advocates for a theory that tells us the necessity of monetary and fiscal stimulus in times like these. Moreover, it also informs us that higher taxes generally are not stimulative, and simply a terrible idea in recessions -- it is the starting point, after all, for why so many from his team lay no claim to Herbert Hoover (even though he was instrumental in many of the ideas behind the New Deal).
Now, working in reverse, the higher taxes piece is an obvious affront to fun-loving Keynesians everywhere. There is no other explanation for Krugman's implied endorsement of such a policy except that it caters to his political beliefs and preferences -- even though he tries to mask it with econometrics.
But, the better part to me is how he runs into problems with fiscal stimulus, and directly contradicts a post that he made but a few days earlier...here. In it he refers to a recent speech by Christina Romer (of $800 billion stimulus fame) in which she makes the case for fiscal stimulus as a proven method for lifting/stopping the slide in an economy. What's particularly interesting, though, is that the examples she cites to prove the utility of fiscal stimulus all involve tax policy, whether rebates or otherwise -- a point that Scott Sumner also notices on his blog.
So, what motivates Krugman? He endorses the Keynesian approach, fiscal stimulus in particular, but then undermines his own position by referencing a study that says higher taxes would not impede economic recovery, even though he recently cited work by Romer that advocates the complete opposite. Uhmm...yeah, I think we have our answer. I just thought he was better at masking it.
Tuesday, November 22, 2011
I hope you read the fine print...
OK, I'll admit it, even I was confused about the point of my last post. I think I was trying to reconcile the disconnect between what the most successful investors are saying versus the most famous economists. Let me continue the thought.
One thing that should discredit someone from the start is whether they were able to accurately forecast what happened to the U.S. and global economies over the past few years. And while you have plenty of economists who are happy to point out the appropriate plan of attack now, these same people didn't see the storm coming, and haven't produced terribly satisfying explanations for why it happened in the first place (even with hindsight as their guide). I contrast that with the group of investors who I described as Austrian sympathizers. They were calling for these problems years in advance, and had a thesis which made a lot of sense and matched up with actual outcomes, allowing them to monetize it.
Thus, even though the school of economic thought with which they most associate does not provide an active solution for what ails us, and has been dead wrong about where interest rates would be, I still feel like they deserve the benefit of the doubt. In this type of race, it should not be measured in a couple or three years. There is something too short-term in the arguments of other thinkers. And when I lay that over their expositions of what happened (unconvincing), I am again apt to follow the guys who saw the problems coming.
So, in the context of the investor versus the economist, the former can still be vindicated, even if the interim noise gives the other folks something to puff their chests about for a little while. And, in large part, their success comes because they are not ideologues or hacks.
One thing that should discredit someone from the start is whether they were able to accurately forecast what happened to the U.S. and global economies over the past few years. And while you have plenty of economists who are happy to point out the appropriate plan of attack now, these same people didn't see the storm coming, and haven't produced terribly satisfying explanations for why it happened in the first place (even with hindsight as their guide). I contrast that with the group of investors who I described as Austrian sympathizers. They were calling for these problems years in advance, and had a thesis which made a lot of sense and matched up with actual outcomes, allowing them to monetize it.
Thus, even though the school of economic thought with which they most associate does not provide an active solution for what ails us, and has been dead wrong about where interest rates would be, I still feel like they deserve the benefit of the doubt. In this type of race, it should not be measured in a couple or three years. There is something too short-term in the arguments of other thinkers. And when I lay that over their expositions of what happened (unconvincing), I am again apt to follow the guys who saw the problems coming.
So, in the context of the investor versus the economist, the former can still be vindicated, even if the interim noise gives the other folks something to puff their chests about for a little while. And, in large part, their success comes because they are not ideologues or hacks.
Not A Concession Speech
When I started this blog, I was going through something resembling a transition, which I will leave at that. One manifestation was a growing intellectual curiosity, a need to understand more. About most things, but especially about some things. I did not see the problems that were coming in 2008. But some people did and I wanted to know why.
Clearly, a topic that struck a nerve and caught my interest was the field of economics. While far from anything more than an interested observer now, I've become versed enough to identify the different teams and personalities that represent the most popular theories. And while not explicitly affiliated, my writing could suggest that I am partial to a particular competitor. Nevertheless, one thing that I have realized more clearly lately is that there is a world of difference between being a good economist and a good investor. I definitely do not consider myself part of the first group; I'd like to believe that I'm working myself towards membership in the second.
What got me thinking about this distinction in the first place, though, was the number of very smart folks pushing agendas that seem anathema to me. Specifically, how can an economy driven to its knees by too much debt be cured by using the exact same thing. Low interest rates, funny money, economic distortions, malinvestments -- I thought that was the usual sequence. But, maybe I'm wrong. Maybe money printing will antedate the next period of meaningful economic growth. Maybe booms and busts are simply inevitable -- and the latter actually precede the former.
Anyway, I keep trying to draw a connection between economic theory and investment choices. I like symmetry and maybe this need is just another example. As such, I may seem partial to certain thinking because, in part, its operating assumptions attempt the same feat. But, while the nexus definitely exists, it may be more tenuous than I originally assumed. Thus, it is important to realize that it is one thing to see the problems coming, but potentially a wholly different exercise in knowing what to do once they arrive.
But, then I remember, from the point of view of an investor (which is what I think I am), it shouldn't really matter. Put differently, the motivation behind economics is to draw an understanding of supply and demand, production and distribution -- but often in a context that is minimally correlated to the most efficient ends and greatest profitability. If I have discovered anything, it is that while economic theory tries to feign some sort of detachment, there is always an agenda at work, and more often than not it is loaded with emotional and personal preference dressed up in other ways. These distractions should not be within the realm of the investor's thinking.
The guys that I read and follow have similar ideas to me, and in many ways have shaped my point of view. I also think they have done a good job of navigating the past few years. They identified the bubbles and understood what the inevitable government "solutions" would look like. And, as a consequence, tended towards certain scarce assets (wink, wink) when others turned up their noses. But, they are not trying to save the world in doing that, and know that they are out of their element when trying to extrapolate their reasoning to some greater end. They are not married to an ideology and single driving theory. Truly, they change as the facts do.
So, where does that leave me? Still fascinated by economics. It never hurts to be more informed -- for no other reason than to seem erudite at dinner parties. But now I think I understand better that what drives my thinking and decisions doesn't necessarily translate well to what social scientists are striving for. The thought process is different. They chase some global answer, I am looking for an idea that can be profitable in the midst of the storm. And between those two ends lies many miles.
Clearly, a topic that struck a nerve and caught my interest was the field of economics. While far from anything more than an interested observer now, I've become versed enough to identify the different teams and personalities that represent the most popular theories. And while not explicitly affiliated, my writing could suggest that I am partial to a particular competitor. Nevertheless, one thing that I have realized more clearly lately is that there is a world of difference between being a good economist and a good investor. I definitely do not consider myself part of the first group; I'd like to believe that I'm working myself towards membership in the second.
What got me thinking about this distinction in the first place, though, was the number of very smart folks pushing agendas that seem anathema to me. Specifically, how can an economy driven to its knees by too much debt be cured by using the exact same thing. Low interest rates, funny money, economic distortions, malinvestments -- I thought that was the usual sequence. But, maybe I'm wrong. Maybe money printing will antedate the next period of meaningful economic growth. Maybe booms and busts are simply inevitable -- and the latter actually precede the former.
Anyway, I keep trying to draw a connection between economic theory and investment choices. I like symmetry and maybe this need is just another example. As such, I may seem partial to certain thinking because, in part, its operating assumptions attempt the same feat. But, while the nexus definitely exists, it may be more tenuous than I originally assumed. Thus, it is important to realize that it is one thing to see the problems coming, but potentially a wholly different exercise in knowing what to do once they arrive.
But, then I remember, from the point of view of an investor (which is what I think I am), it shouldn't really matter. Put differently, the motivation behind economics is to draw an understanding of supply and demand, production and distribution -- but often in a context that is minimally correlated to the most efficient ends and greatest profitability. If I have discovered anything, it is that while economic theory tries to feign some sort of detachment, there is always an agenda at work, and more often than not it is loaded with emotional and personal preference dressed up in other ways. These distractions should not be within the realm of the investor's thinking.
The guys that I read and follow have similar ideas to me, and in many ways have shaped my point of view. I also think they have done a good job of navigating the past few years. They identified the bubbles and understood what the inevitable government "solutions" would look like. And, as a consequence, tended towards certain scarce assets (wink, wink) when others turned up their noses. But, they are not trying to save the world in doing that, and know that they are out of their element when trying to extrapolate their reasoning to some greater end. They are not married to an ideology and single driving theory. Truly, they change as the facts do.
So, where does that leave me? Still fascinated by economics. It never hurts to be more informed -- for no other reason than to seem erudite at dinner parties. But now I think I understand better that what drives my thinking and decisions doesn't necessarily translate well to what social scientists are striving for. The thought process is different. They chase some global answer, I am looking for an idea that can be profitable in the midst of the storm. And between those two ends lies many miles.
Sunday, November 20, 2011
Nearby Adventures
Growing up, I was very fortunate to have parents who wanted me to see the world. And so, each year we would take an adventurous journey -- to Asia, Africa, South America...
Since finishing school and trying to become a responsible adult, there have been fewer instances for such globetrotting. Nevertheless, one of the many benefits of living in Manhattan is the abundance of places that can transport you as soon as you walk in. Below are a couple of recent discoveries that fit the bill.
-Quinto Quarto on Bedford Street. A very small, quaint Italian restaurant with maybe 12 tables. Exposed brick walls, a wait staff all with accents, you feel like you've made the trip to the boot. And it doesn't hurt that the pasta dishes are second to none. Try the cacio e pepi if you get the chance.
-Choco Bolo on Broadway between 70th and 71st. You immediately think you've walked into a Paris cafe. It doesn't hurt when there is a table of three French speakers conversating over lattes by the door. And, for a taste of something special, try the nutella croissant.
Since finishing school and trying to become a responsible adult, there have been fewer instances for such globetrotting. Nevertheless, one of the many benefits of living in Manhattan is the abundance of places that can transport you as soon as you walk in. Below are a couple of recent discoveries that fit the bill.
-Quinto Quarto on Bedford Street. A very small, quaint Italian restaurant with maybe 12 tables. Exposed brick walls, a wait staff all with accents, you feel like you've made the trip to the boot. And it doesn't hurt that the pasta dishes are second to none. Try the cacio e pepi if you get the chance.
-Choco Bolo on Broadway between 70th and 71st. You immediately think you've walked into a Paris cafe. It doesn't hurt when there is a table of three French speakers conversating over lattes by the door. And, for a taste of something special, try the nutella croissant.
Wednesday, November 16, 2011
Quick Reviews
- Economics of a Pure Gold Standard by Mark Skousen. Quick read and a good primer on the plumbing of a 100% gold reserve system. Also provides a history lesson on the gold standard and the general critiques and alternative concepts of how money should work.
- The Ayatollah's Democracy by Hooman Majd. The Iranian-born writer who was educated and lives in the West provides a unique insight into the controversial 2009 election. Definitely offers a perspective on Persian culture that you do not often hear about if you live here -- would serve most Americans well to read his work and understand the many ways in which our media misrepresents Iran and the majority of its people.
- The General Theory of Employment, Interest, and Money by John Maynard Keynes. I've heard from the source. I'm still fading the theory.
- The Ayatollah's Democracy by Hooman Majd. The Iranian-born writer who was educated and lives in the West provides a unique insight into the controversial 2009 election. Definitely offers a perspective on Persian culture that you do not often hear about if you live here -- would serve most Americans well to read his work and understand the many ways in which our media misrepresents Iran and the majority of its people.
- The General Theory of Employment, Interest, and Money by John Maynard Keynes. I've heard from the source. I'm still fading the theory.
Tuesday, November 15, 2011
Gold Chart Update
Using GLD as a proxy, the chart looks like it's consolidating before getting ready to re-test the highs of September. All gaps filled and ready to roll.
Monday, November 14, 2011
Planning
I'm someone who likes to have a strategy, so I thought it might be constructive to lay out the investment themes and ideas that I believe in. Some are old stand-bys, and some I have yet to take a position.
1) Long gold. No surprises here. We live in a world of competitive currency devaluation -- the only plan out there is to print funny money and create inflation. I have had this position for a while with some nice gains, but see no reason to sell anytime soon.
2) Short sovereign debt. This idea requires some good timing, since different countries are going to face their sovereign debt crises at different times (with the US closer to the back of the line than the front). Therefore, in trying to identify a target, I think the spotlight will move to JGBs sooner than people think. I totally buy into the Kyle Bass thesis, but doubt that some bank is going to sell me $5Bn in exposure for a basis point (not that I'm working with that kind of balance sheet anyway). A suggestion I've seen on how to play it is to buy gold in Yen terms. Because in a world of printing presses, Central Banks can keep rates low while they start monetizing debt, but they can't stop their currencies from losing all purchasing power simultaneously.
3) Mongolia. You can read about the thesis here and here. In a sentence: lots of resources in the ground, lots of money that will be invested in the country to try and extract it, and a government that has been trying to stay out of the way.
4) The "Levi's" thesis. With a hat tip to my father, he always likes to remind me that the guys who made the most money during the gold rush were the folks who made the jeans. In today's terms, I'm looking at picks and shovels.
In any event, that's where my head is.
1) Long gold. No surprises here. We live in a world of competitive currency devaluation -- the only plan out there is to print funny money and create inflation. I have had this position for a while with some nice gains, but see no reason to sell anytime soon.
2) Short sovereign debt. This idea requires some good timing, since different countries are going to face their sovereign debt crises at different times (with the US closer to the back of the line than the front). Therefore, in trying to identify a target, I think the spotlight will move to JGBs sooner than people think. I totally buy into the Kyle Bass thesis, but doubt that some bank is going to sell me $5Bn in exposure for a basis point (not that I'm working with that kind of balance sheet anyway). A suggestion I've seen on how to play it is to buy gold in Yen terms. Because in a world of printing presses, Central Banks can keep rates low while they start monetizing debt, but they can't stop their currencies from losing all purchasing power simultaneously.
3) Mongolia. You can read about the thesis here and here. In a sentence: lots of resources in the ground, lots of money that will be invested in the country to try and extract it, and a government that has been trying to stay out of the way.
4) The "Levi's" thesis. With a hat tip to my father, he always likes to remind me that the guys who made the most money during the gold rush were the folks who made the jeans. In today's terms, I'm looking at picks and shovels.
In any event, that's where my head is.
Thursday, November 10, 2011
What's New?
I haven't had much to say this week. Been reading quite a bit, and hope to have a post soon on what some of the titles have been.
On a perhaps attenuated note, I've noticed that I barely turn on the TV anymore, as evidenced by the backlog of shows on my DVR. However, one thing that did catch my attention this week (well, for at least 45 minutes last night and most of this post) was the Joe Paterno situation. I'm glad that he was shown the door -- he did not deserve to go out on his own terms after what was revealed. And I can only shake my head in dismay at the reaction of some of the students on that campus. Does not speak well in my opinion for the future generation. I think it will be interesting to see if he tries to file some sort of wrongful termination suit -- I would welcome the opportunity to be the lawyer who cross-examines him.
Anyway, the other item that I have been keeping tabs on is the NBA. I have always been a big sports fan, with the Knicks my greatest love. It's too bad that the Amare-Carmelo experiment has not had the chance to continue its evolution. But, it sounds like the players are starting to get more desperate. And while I am agnostic as to which side should come out with a bigger piece of the pie, whatever solution may ultimately come only means a quicker return to the games.
On a perhaps attenuated note, I've noticed that I barely turn on the TV anymore, as evidenced by the backlog of shows on my DVR. However, one thing that did catch my attention this week (well, for at least 45 minutes last night and most of this post) was the Joe Paterno situation. I'm glad that he was shown the door -- he did not deserve to go out on his own terms after what was revealed. And I can only shake my head in dismay at the reaction of some of the students on that campus. Does not speak well in my opinion for the future generation. I think it will be interesting to see if he tries to file some sort of wrongful termination suit -- I would welcome the opportunity to be the lawyer who cross-examines him.
Anyway, the other item that I have been keeping tabs on is the NBA. I have always been a big sports fan, with the Knicks my greatest love. It's too bad that the Amare-Carmelo experiment has not had the chance to continue its evolution. But, it sounds like the players are starting to get more desperate. And while I am agnostic as to which side should come out with a bigger piece of the pie, whatever solution may ultimately come only means a quicker return to the games.
Friday, November 4, 2011
Quick Postscript
There is a takeaway from the Higgs book that I don't think I was particularly clear about in my post the other day. While the notion that the war contributed to the recovery was not revealed as total farce by Higgs, he did make a persuasive case, in my estimation, that the war actually had to end first before any recovery could take hold. Which I think is a unique insight compared to the standard narrative. So, to those who rely on the war as an example of fiscal stimulus that had the desired result, what if the war had dragged on for another 5 or 10 years? People in this country had to deal with rationing, the death of loved ones overseas, and generally a command economy. Way less than ideal. But, somehow compelling for many economic thinkers.
Chicken or the Egg?
There is an important question at the heart of economic debate. Which is more important: supply or demand?
At first blush, you would think demand. Without it, your product/service has no market and the work put in to develop it was for naught. But, that should have you wondering, where does demand come from? Well, someone else had to produce something of value in order to earn a wage, the means by which they can buy/demand your product, creating the incentive for you to labor away and forgo leisure. So maybe supply does lead in this dance.
Simply put, it's complicated and the answer is nuanced. But in the forum of economic thought, each side seems convinced of their position. I beg to differ.
At first blush, you would think demand. Without it, your product/service has no market and the work put in to develop it was for naught. But, that should have you wondering, where does demand come from? Well, someone else had to produce something of value in order to earn a wage, the means by which they can buy/demand your product, creating the incentive for you to labor away and forgo leisure. So maybe supply does lead in this dance.
Simply put, it's complicated and the answer is nuanced. But in the forum of economic thought, each side seems convinced of their position. I beg to differ.
Thursday, November 3, 2011
Getting My Bearings
I want to take a few minutes and lay out where I think things are headed between now and the end of the year.
For the moment, the momentum in the U.S. market seems to be up. If you look at the chart, the previous resistance zone between 1215 and 1230 was broken, and is now functioning as support. Moreover, when you look at a daily chart since the October 4th low, price action simply appears to be taking a break before the next move up. On a measurement basis, you could make the case that we might see new highs on the year before 2011 is out.
The caveat, of course, is what happens in Europe. It remains a crapshoot since Greece did not accept the terms of the most recent Eurozone plan (not that it was a long-term solution, anyway). Thus, uncertainty remains. And an uncertain market, in my view, usually has a negative bias. The counter point is that we are likely to see more QE activity out of the various Central Banks. Even the ECB, under new leadership, is perhaps more apt to engage in such behavior. Which will be bullish for stocks, but not indefinitely. Then, there is the growing buzz around NGDP targeting -- in essence, it's money printing by yet another name.
So, taking all these factors together, I tend to expect higher prices before lower.
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