Yen Update

As promised, I am going to check in periodically on the price action of the Japanese Yen (using FXY as a proxy). And so far, 126 held to the downside and 128 was broken through on the upside. From a macro standpoint, shorting the Yen seems really interesting and the fundamentals are going to line up at some point. But, as the savvy investors that we try to be, there really is no reason to rush in until the wind is at your back. And, at the very least, until there is greater clarity with respect to Europe, Japan will not be the focus of attention (despite its recent announcement about a budget that would make the most dyed-in-the-wool Keynesian blush). In any event, here's the chart to back up the story about why it simply is not time yet.

More Myanmar

I finished Where China Meets India by Thant Myint-u. Although about Burma, a country that has definitely piqued my interest lately, it was not the standard fare, as it didn't have an investment focus. Instead, it was part history lesson on Burma and the surrounding countries, as well as a log of the author's travels through the area. A few notes:

-The writer is western educated, but the product of Burmese parents. So, while he had been to the region before, it was years earlier, and he was able to identify the rapid transformation underway. He explored Burma, but also the regions in China (to the east) and India (to the west) that border it. The takeaway seemed to be that the distance between all these people is shrinking, and Burma is going to become a crossroads area for the large powers that surround it.

-A large factor driving everything is the resources in the ground, with estimates of hundreds of billions of dollars in natural gas, oil and other commodities in Burma. Clearly that is a compelling motivation for countries to gain access and to invest in infrastructure to extract it.

-For the Chinese, gaining a foothold in Burma is also about economic security and trade routes. They would like to establish a port that will allow them to receive imports from the west. Currently, the main thoroughfare is the Strait of Malacca, which is 1.7 miles wide at its narrowest point, and could be disrupted by a strong naval force.

-The Chinese, as compared to the Indians, already have a much more pronounced presence in Burma's largest cities. And certainly moreso than western countries that still have sanctions in place, preventing their companies from setting up shop. Recent news has suggested that the west is rapidly approaching the point where such sanctions will be lifted.

In certain ways, it is still like the wild wild west in this part of the world. There are separatist groups and sectarian violence still remains. But, the sense is that expansion is coming. I hope to get involved when the time is right.

Devil in the Details

I am ramping up in my preparation to read the Keen book (have some time away next week when I hope to plow through a lot of it, after finishing the current distraction about Burma). Largely, what that means is rummaging through his website to understand his basic position through shorter blog posts. And while I think much of what he has to say about causal elements makes sense (with the requisite caveat that his solutions might not), I do have a question about his explanation that I hope his longer form book will answer.

Essentially, even if I take his theory of endogenous money at face value, I still have yet to see what the main stimulant is for banks to begin the reckless binge of issuing more and more credit to less and less worthy borrowers. He makes reference to Hyman Minsky and the Financial Instability Hypothesis, so maybe he will elucidate on that point and the causation that exists. So far, the best I got, though, is that capitalism is inherently unstable. I don't think that's enough. I tend to think that the Central Bank plays a role here, by keeping interest rates too low for too long, thereby enabling and encouraging the reckless behavior in banks.

But, we shall see what he says.

More on Keen

I recently mentioned Steve Keen, an economist from the "Post-Keynesian" school of thought, whose work sounded appealing at first blush -- I plan to read the updated version of his magnum opus Debunking Economics in the next month or so. In the mean time, I just got through a recent journal article that he put out which provides a good introduction to his theory. Perhaps because I think of myself as a contrarian, there is much to his story that appeals. Again, in broad strokes, the main problem with neoclassical theories and models is that they start from the assumption that we are in equilibrium, thus their predictive powers have been lacking as it relates to periods of chaos (think recent time). Specifically, most economists don't account for the fact that banks endogenously create money through the act of lending (lending precedes reserves and not the other way around). So, debt does matter. Systems are inherently unstable. And I think I like where this reasoning is going.

Now, I should stop short of fully embracing Keen because (1) I have yet to read his book and (2) I know that he endorses large doses of fiscal stimulus as the recommended policy for what ails us. But I look forward to learning more. And perhaps having my mind changed.

On The Precipice

I'm not sure the title is really appropriate, especially since I haven't been able to watch the games as a Time Warner customer, but clearly I am referring to the Knicks season.

When I made my call at the start that the Knicks could win it all, I knew they were missing a big piece at the point guard spot, and noted as much when I said Baron Davis would be the ultimate x-factor. Of course, even though I thought they might struggle a little bit until he was ready, I never thought they would be this bad. From what I can gather, Stoudemire in no way resembles the player from last year and the team has seemingly quit on D'Antoni. And if that's right, then this team is destined for nothing more than mediocrity. Davis might have an impact when he returns, but it feels like this team is so lost right now, that even if he comes back in all star form, it still might not be enough.

Again, I feel a little hamstrung in this analysis since I can't watch them play. But, since there would be no point to this unless I made some bold comments, here goes...

They need a new coach and they need to trade Stoudemire.

The former is kind of a no-brainer. D'Antoni gets another 10 games or so to right the ship, perhaps a few more than that depending on when Baron Davis starts playing, but whatever the poison that is infiltrating this team, the coach is always going to be the first fall guy.

As for Stoudemire, he had the right personality to be the guy who signed here and helped set about the re-emergence of this franchise. But he has never been the type of guy who could take a back seat. So when Carmelo was brought in, he probably thought he would still be the top dog. But, he isn't and he shouldn't be. What's happening with him this season is either mental (see sentences proceeding) or physical (in which case get him out of here before he can't get you anything in return). And if he does get traded, there are really two ideas to pursue:

(1) Get a top flight point guard. Easier said than done. The only scenario I can see being remotely realistic is that it happens next offseason when the Nets fall flat in their pursuit of Dwight Howard, realize they won't be able to re-sign Deron Williams, and decide that trading him for Stoudemire at least gives them a marketable piece in return for their debut in Brooklyn. Undoubtedly, if it happened, it's the type of move that would re-invigorate Stoudemire, resulting in a win-win for both teams. Beyond that, I don't see any other star point guards out there to be had.

(2) Even more unrealistic than the first trade, package Stoudemire and Chandler for Howard and a pu-pu platter of Orlando's bad contracts. Not worth spending much time on it because I think it is so incredibly implausible, but I've put it out there.

Ultimately, this team sounds like it's poorly constructed from what I've read. And without confidence. So something will be done.

I Get It

On occasion, after reading about a topic over and over, something suddenly clicks, and you can make sense of it. It happened for me twice today. The second instance, I think, more meaningful than the first.

-Paul Krugman helped me (finally) to wrap my head around the concept of Say's Law and why it draws so much attention (it's also worth clicking on the link within Krugman's post). And, oddly, I don't think Keynes was so off in calling what he did into question within the neoclassical framework. Which is not to say that his prescriptions are the right ones in my opinion...

-The second moment of zen came from stumbling onto The Radical Subjectivist blog. He is a thinker in the Austrian tradition, but he satisfies the Steve Keen criteria of moving past the equilibrium requirements of most mainstream economic constructs. And he also remains skeptical of what government can and should do. In other words, he's convinced me that I need to spend some time reading Ludwig Lachmann.

I relate...

Courtesy of Gene Callahan:

"I don't know if I have a single reader who finds this topic interesting, but, as I have mentioned before, for me this blog is a writer's journal that happens to have readers."