I strive to be smart, wise, analytical, creative, intuitive, and informative. I hope to help make you a better active investment management pro.
I recommend you start with the Best of the Blog.
Some signs of rationality
Good day everyone! While most of our fellow citizenry seems to be having a religious experience in relation to the economy, there are some signs of rationality returning to the financial markets. The proof is in the merger and the acquisition. As we have talked about before here on ze blog, all of finance boils down to: buy low, sell high. And as is abundantly clear, assets of all kinds are priced low right now. So a body, or a corporation even, that had some cash sitting around should be looking around for buying opportunities. Enter one of...
read moreThe incentives are all wrong
Hello everyone! I promised that I would do a blog based on Nate’s excellent comment from last week. Nate had made the point that the problem with all of the government stimulus is that there were no rewards for people who have managed their finances responsibly and continued to do the right thing financially. And I believe that he is entirely correct in this view. The problem with all of this is the cold, hard fact that economic incentives do work. If you incentivize someone with money then it is very important to make sure that you are...
read moreIt’s all relative
Happy March everyone, You have doubtless seen the news that the Dow Jones is at levels last seen 12 years ago, yes? So 12 years worth of market gains have been erased by the current financial crisis. However, implicit in these sorts of statements is an assumption that the rational price levels were when the Dow was around its all-time high, c. 14,000 points. I have a big time quibble with that. The reason is that prices ought to be relative to business performance. This performance is most easily measured by a firm’s profits, or...
read moreCue Tom Petty’s Free Fallin’
Let the meltdown ensue. Well folks seemed to be holding onto the notion that the U.S. government and other world governments would be able to bail out industry the way it has done in the past. It’s not as if the governments are not doing the right things, because they are. However, what seems to be utterly lacking and utterly unaddressable is the crushed will power of people around the world. And this is the economic cost of unethical behavior. What began happening last year and is continuing to happen in spades is that corruption, long...
read moreBuy American craze is crazy!
I wanted to address the strange and escalating movement of “Buy American” that is sweeping the United States. The first thing to state and categorically is: this is crazy thinking! Why? It is crazy because the very definition of economy is using resources efficiently. Is it efficient for me to try and grow coconuts here in the High Desert of New Mexico? Is it efficient for us to buy cotton from a New England mill whose cost of production are 10 times that of another nation’s costs? Is it efficient for you to stop buying New...
read moreWhy did the panic ensue?
In the last post I hinted that I would be talking about this week’s collapse in the stock markets around the world. So what the heck happened? The short and simple answer is a raft of bad news that apparently most people were not expecting. It is my opinion that the biggest selloff happened because of the disappointing G-7 meetings the weekend of February 14-15, 2009. I think that many people were holding out hope that there would be a coordinated effort on the part of the world’s most important economies to work together to...
read moreMy mistake in calling the bottom
Hello everyone! Wow, is there a lot of stuff to talk about. It is hard to think of where to begin to start, but I will start by admitting my mistake in having called the bottom of the Dow Jones Industrial Average back in November. As you may know the DJIA has fallen past the low levels seen in November and has fallen to levels not seen for 6 years. Investors the world over are liquidating their equity holdings and putting their monies into cash. The question is whether or not this is prudent. My personal feeling is that it is imprudent to not...
read moreObama’s press conference
OK, so I usually don’t like to talk politics on here, but in this instance I have to point out a subtlety that, to me, seems very important. Did any of you watch President Obama’s talk with the American people on Monday night? My wife Dawn and I watched it and I was very impressed with the President. What specifically impressed me was that he answered questions thoughtfully, specifically and at length. It is the “at length” part that is most impressive. As a culture we have become used to those in the media giving...
read moreFrom raw to thaw
Believe it or not, the economic downturn is starting to show signs of abating. Amen! Specifically I am referring to the following encouraging signs: The London Inter Bank Offering Rate (alias LIBOR) has fallen to 1.2% from an October high of 4.8%. This is the rate that banks charge each other when they borrow from one another. Banks have “ready reserve” requirements that they must meet each night in order to conform to regulatory standards. In other words, they have to keep a certain amount of cash/funds on hand in order to stay...
read moreRanges
Hello everyone, I note with great interest the financial market gyrations that have been taking place recently. We are up 200 points and then down 200 points and we seem to be confined within a well-defined range: 7900 to 8300 on the Dow Jones Industrial Average. Hmmm. The interesting thing is that the movements are now associated with news. The types of gyrations that we saw in the fall (no pun intended), the kind that led to me starting this bloody blog in the first place, were being driven by pure emotion. Panic (!) ruled the trading days....
read more
