Originally I was going to write an essay on two international mutual funds for you today. However, in light of the recent comments by Alan Greenspan, that essay has been relegated to tomorrow. Enough is enough.
Since retiring from his post as Chairman of the Federal Reserve, Alan Greenspan has simply refused to go away. Some commentators have taken a cute approach to handling this topic, comparing Greenspan to a “guest” who just won’t leave a party. The truth is that Greenspan is no guest. None of us invited/ voted for him. And as for the party… that all ended in 2005 and now everyone’s hung over and looking for their wallets (all empty).
No, Greenspan is not a guest. He’s a nuisance. And he needs to go away. Few people in history have been rewarded for such a staggering display of incompetence. Even fewer have managed to bungle things as much while shirking any and all responsibility for their actions.
The full scale of Greenspan’s bungling requires more space than this e-letter allows. But anyone looking for an in depth look at Greenspan’s career would do well to read hedge fund manager Jeremy Grantham’s 1Q08 shareholder letter. The particular essay is titled Immoral Hazard.
However, it is Greenspan’s recent actions, not his tenure as Fed Chairman, that I wish to focus on today. Since retiring, Greenspan has written a book, blaming the various administrations he served under for what occurred during his time as Fed Chairman. He’s also written a Financial Times article absolving himself from any and all responsibility for the housing bubble.
He’s also gone on a number of speaking engagements, charging $100,000 per hour. Let that sink in for a moment….
Alan Greenspan, the man who admitted to John Stewart of the Daily Show that the Fed manipulates the market, the man who didn’t believe bubbles could exist —at least not until after he retired, the man who failed to see the housing bubble forming despite the fact housing prices had risen more than two standard deviations from their historic relationship to incomes (a 1 in 80 year event)… that guy earns six figures per speaking engagement.
A team led by MIT students this week successfully tested a prototype of what may be the most cost-efficient solar power system in the world--one team members believe has the potential to revolutionize global energy production.
The system consists of a 12-foot-wide mirrored dish that team members have spent the last several weeks assembling. The dish, made from a lightweight frame of thin, inexpensive aluminum tubing and strips of mirror, concentrates sunlight by a factor of 1,000--creating heat so intense it could melt a bar of steel.
MIT Sloan School of Management lecturer David Pelly, in whose class this project first took shape last fall, says that, "I’ve looked for years at a variety of solar approaches, and this is the cheapest I’ve seen. And the key thing in scaling it globally is that all of the materials are inexpensive and accessible anywhere in the world."
Pelly adds that "I’ve looked all over for solar technology that could scale without subsidies. Almost nothing I’ve looked at has that potential. This does."
The website Raw-Solar has this diagram explaining the practical application.
A solar thermal dish reflects the rays of the sun onto a small receiver using specially curved mirrors, concentrating the sunlight 1000 times. The high concentration increases the efficiency of the energy collection by reducing the surface area for thermal losses. A robust tracking system keeps the dish pointed directly at the sun all day, maximizing the available sunlight.
Water is pumped through the receiver where the high intensity sunlight heats it to 212-750F (100-400C), making steam. The steam can then be piped into an existing steam system, such as a district energy system or food processing plant.
What makes this system special vs. its competition is that it can use small flat flexible mirrors that can bend in exactly the right shape to concentrate the reflected sunlight on a precise spot. The materials are all easily produced and the team could put this dish together by hand.
"The deterioration in credit cards is accelerating faster than many had expected," said Christopher Wolfe, an analyst at Fitch and one of the authors of the report published Friday. "The message we are trying to deliver is that things are going to get worse before they get better. Thus far, credit card businesses have been profitable but that could change."
Fitch analysts are expecting an increase in prime charge-off rates – or losses from defaults on card payments as a percentage of loans outstanding – to at least 7% by the end of the year from 6.4% in May.
Particularly vulnerable, say analysts, are credit card issuers such as Washington Mutual, or WaMu, and Capital One Financial Corp. (COF) with higher subprime exposure, a category of high-risk borrowers with high delinquency who fueled the mortgage crisis.
WaMu, which bought a subprime credit card issuer in 2005, reported in the first-quarter net charge-offs of 9.32% on $26 billion of credit card loans. This is up from 6.31% a year earlier. It ratcheted up its loss reserves in its credit card unit by more than 60%. A WaMu spokesman declined to comment, citing the so- called quiet period ahead of earnings.
Credit card issuers that are part of bigger banking institutions such as Citi aren’t in the clear either. The financial services behemoth had net losses of 5.83% in its U.S. cards portfolio in the first quarter, a 1.2% rise from a year earlier. "While current losses remain below peak levels, they are running above the long-term average," said Fitch analysts in their report. A Citi spokesman declined to comment on upcoming second-quarter results.
Maybe we can blame it all on the Beatles invasion of America. The bustling 60s with its expressions of freedom was the time when the transition seemed to sweep the nation. Instead of purchasing what we wished AFTER we had earned the capital to do so, as in generations past, we learned to purchase BEFORE we had earned sufficient capital to match our desires. The availability of credit has forced grown-ups to take a grown-up version of The Marshmallow Test.
Recall the MarshMallow Test was a test given to youngsters to determine the correlation between patience, self-discipline and success in life. A marshmallow would be placed in front of a child, who was told if the marshmallow had not been consumed by the time the adult returned to the room, the child would recieve a second marshmallow. The end result being children who passed the Marshmallow Test did better financially in life!
Most of the population are tempted by the proverbial marshmallow every day under the guise of credit offerings. These days credit card offerings are expected daily in the mail and homes have been turned into ATM machines. And those homes were in turn purchased through borrowing. The excesses are compounded by the fact that some studies have reported that over 9 out of 10 borrowers mis-represent their net worth during applications. Not only is most of the public failing the Marshmallow Test, but the government is too. A balanced budget, once demanded as part of fiscal responsibility, is now all but a distant memory.
The pervasive excesses of borrowing inevitably lead to greater gains during upswings and greater losses during corrective phases. During the declines, few stock market participants have a containment strategy. Account value fluctuations are exacerbated and panic sets in. Growth-oriented investors realize that declines in future earnings inflate P/E multiples and bargains soon turn into over-priced securities. Supposedly sophisticated quant funds who rely on black box models are often most at risk because leverage is frequently so integral to their performance. And as the models stop working, the losses are exacerbated by the earlier dependence on leverage.
For most it is too late to salvage a virtual portfolio or to take corrective action when the news media frenzy reaches peak levels and the front covers of magazines tell tales of stock market woes. But the difference between defeat and failure is the difference…
Courtesy of Gary Dorsch; Gary writes Global Money Trends, a respected investment newsletter covering global asset markets.
Hyper-inflation in the commodities markets is rivaling the US housing collapse and the global banking crisis as the biggest threat to the world economy. Finance ministers from the United States, Canada, Japan, France, Germany, Italy, Britain, and Russia, have expressed their alarm over the doubling of agricultural, energy, and key raw material prices from a year ago, which is pushing inflation rates around the world, to their highest in three decades.
Crude oil briefly touched $140 a barrel, and the price of corn used to make ethanol hit $8 /bushel. Chinese steelmakers agreed to pay 96% more for iron ore from Australian miner Rio Tinto (RTP), a five-fold increase since 2003. Steel prices have soared almost 50% this year, as coal and iron ore prices continue to climb and global demand shows little sign of abating. Dow Chemical (DOW) is raising prices on a wide range of its products by 25%, due to sharply higher energy and raw material costs.
Sharply higher shipping costs, driven by rising oil prices, have increased the cost of transporting a standard 40-foot container from Shanghai to the east coast of the US from $3,000, when oil was priced at $20 per barrel, to $8,000 today, with crude oil around $135 /barrel, according to CIBC World Markets analysts Jeff Rubin and Benjamin Tal. The Baltic Dry Index, which monitors merchant shipping costs on forty major export routes for dry commodities, is 50% higher from a year ago.
South Korea’s President Lee Myung-bak noted on June 16that inflation was the biggest challenge the global economy has faced in 30 years. “It’s no overstatement to say that the world is faced with the gravest crisis since the oil shock of the 1970’s, with oil, food and raw materials prices skyrocketing,” he said.
A week later, Myung-bak switched his government’s top policy goal to fighting inflation, and within hours, the Bank of…
"DENVER — Faced with a surge in the number of proposed solar power plants, the federal government has placed a moratorium on new solar projects on public land until it studies their environmental impact, which is expected to take about two years.
The Bureau of Land Management says an extensive environmental study is needed to determine how large solar plants might affect millions of acres it oversees in six Western states — Arizona, California, Colorado, Nevada, New Mexico and Utah.
But the decision to freeze new solar proposals temporarily, reached late last month, has caused widespread concern in the alternative-energy industry, as fledgling solar companies must wait to see if they can realize their hopes of harnessing power from swaths of sun-baked public land, just as the demand for viable alternative energy is accelerating.
“It doesn’t make any sense,” said Holly Gordon, vice president for legislative and regulatory affairs for Ausra, a solar thermal energy company in Palo Alto, Calif. “The Bureau of Land Management land has some of the best solar resources in the world. This could completely stunt the growth of the industry.”…
The manager of the Bureau of Land Management’s environmental impact study, Linda Resseguie, said that many factors must be considered when deciding whether to allow solar projects on the scale being proposed, among them the impact of construction and transmission lines on native vegetation and wildlife. In California, for example, solar developers often hire environmental experts to assess the effects of construction on the desert tortoise and Mojave ground squirrel.
The industry is already concerned over the fate of federal solar investment tax credits, which are set to expire at the end of the year unless Congress renews them. The moratorium, combined with an end to tax credits, would deal a double blow to an industry that, solar advocates say, has experienced significant growth without major environmental problems." …
Excellent article by Mishon the tensions between gov’t entities and quasi-gov’t entities in attempting to address the mess they’ve created in the economy. One point I might add to Mish’s commentary is that I don’t think "regulation" per se is the problem. I’d qualify that term, since regulation can be necessary and justified, or misguided, self-interested and harmful. No comment on the Fed, but in my (admittedly limited) interaction with the SEC, the regulation seemed pretty well warranted. – Ilene
Federal Reserve Chairman Ben S. Bernanke and Securities and Exchange Commission Chairman Christopher Cox were ordered by two top senators not to proceed with a deal overseeing Wall Street until consulting with Congress.
"We ask that no action" be taken before legislators can decide it’s in the economy’s "best interests," Connecticut Democrat Christopher Dodd and Alabama Republican Richard Shelby, the Senate Banking Committee’s top lawmakers, said in a letter to Bernanke, Cox and Treasury Secretary Henry Paulson.
The senators delivered their warning as Bernanke and Cox met at the Fed today to hammer out final details of a memorandum of understanding.
Cox offered to brief Dodd and Shelby on the SEC’s talks with the Fed. The memorandum doesn’t "create new legal authorities or responsibilities," he said in a letter responding to the two. "It is intended to facilitate our agencies’ ongoing, day-to-day cooperation. It is the role of Congress to decide whether, and if so how, to alter the existing regulatory structure."
"We don’t want to encourage dependence upon the Federal Reserve as a backstop," Assistant U.S. Treasury Secretary Anthony Ryan said in a June 24 interview with Bloomberg Television. "As a policy matter, we must be in a place where firms are allowed to fail," he added in a London speech the same day.
Dodd and Shelby flagged in their letter that Congress hasn’t given the Fed permanent authority to open the so-called discount window to securities dealers.
"We look forward to continuing to work with Congress on these important issues," said Fed spokeswoman Michelle Smith in Washington.
GuruFocus.com is a web site devoted to the principles of ‘value investing’. They follow the trades of legendary money managers and keep track of their results over 6-months, 12- months and longer term periods.
If you haven’t been having a great time in the market since last spring you may take some consolation by seeing how many ‘fund managers of the year’ and other top-notch investors have been faring over the recent past. Even Warren Buffett is now in negative territory for both the 6 and 12-month periods just ended.
I wouldn’t bet against any of these guys rebounding in a big way once the market picks up in the future. Just having made this list indicates many years of great performance in the past.
Excerpt: "There has never been any shortage of clowns and jokers in the investment markets, but it sometimes takes a bear market to flush a few out. In contradiction to the widespread fear that hedge funds would precipitate the Next Big Crash, we now know that it was actually the banks that laid its (wobbly) foundations. Now, with sentiment fragile and fund managers widely sheltering in cash, the journalists are having a go at pushing at the pedestal. “RBS issues global stock and credit crash alert,” warned Ambrose Evans-Pritchard of the Telegraph, inviting “one of the worst bear markets over the last century”. The RBS research note in question was more subtly entitled “Crude-flation Concerns Spike”; while crude-flation is undoubtedly an uglier word even than stagflation, it is not clear who Spike is, nor why he should be concerned. It is certainly difficult to know quite how worked up (if at all) to get about the RBS note in question. Some of us evidently felt that the markets had already “crashed” in the conventional sense of the word, given the falls in credit markets and stocks – particularly banking stocks like, say, those of RBS (-60%) – since the summer of 2007.
“The very nasty period is soon to be upon us – be prepared,” warned RBS on 11th June (2008). The market environment is nasty already, and has been for quite some time, as anybody with any form of investments will surely testify. Perhaps future research will report the sad passing of Queen Victoria or the sinking of the SS Titanic. But it is always nice to hear that the banks who brought us the credit crunch in the first place are bang up with events. Just after they’ve had their latest emergency rights issue."
Presidents should get the power to declare economic emergencies along the lines to declare war, said former Federal Reserve Chairman Ben Bernanke on Monday.
It might make sense to give “the president some ability to declare emergencies or take extraordinary actions and not put that all on the Fed,” Bernanke said at a conference. “The constitution gives the president significant flexibility to respond to military situations,” in part because they a...
There's an excellent post on Keep Talking Greece this evening on the simmering feud between Greek prime minister Alexis Tsipras and Spanish prime minister Minister Mariano Rajoy.
Tsipras made a claim that Rajoy's plan is to "wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries… And mainly before the elections in Spain. ... for obvious political reasons".
Spanish foreign minister García Margallo, returned fire with a statement (a lie actually), that “Had Spain not given €32.744 billion to Greece, it could have increased the unemployment benefits by 50 percent or increase pensions by 38 percent.”
Theheart of the bickering is the rise of the Spanish political party Podemos to the top of the Spanish...
Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 56.9 percent, up fractionally from last month's 56.7 percent. Today's number came in above the Investing.com forecast of 56.5.
Here is the report summary:
"The NMI® registered 56.9 percent in February, 0.2 percentage point higher than the January reading of 56.7 percent. This represents continued growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 59.4 percent, which is 2.1 percentage points lower than the January reading of 61.5 percent, reflecting growth for the 67th consecutive month at a slower rate. The New Orders Index reg...
Despite low trading volume, a strong dollar, mixed economic and earnings reports, paralyzing weather conditions throughout much of the U.S., and ominous global news events, stocks continue to march ever higher. The world remains on edge about potential Black Swan events from the likes of Russia, Greece, or ISIS (or lone wolf extremists). Moreover, the economic recovery of the U.S. may be feeling the pull of the proverbial ball-and-chain from the rest of the world’s economies. Nevertheless, awash in investable cash, global investors see few choices better than U.S. equities.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then ...
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Chris Kimble's chart for KOL shows a recently beaten down ETF struggling to pull itself up from the ashes. As the chart shows, KOL has recently drifted down to levels not seen since the financial crisis of 2008-9.
Bouncing or recovering with energy in general, coal prices appear to have stabilized in the short-term. Reflecting coal prices, KOL has traded between $13.45 and $19.75 during the past year. Bouncing from lows, KOL traded around 2% higher yesterday from $14.26 to $14.48 on high volume. It traded another 3.6% higher in after hours to $15, possibly related to ...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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