Sunday, May 30, 2010
Wednesday, May 26, 2010
Monday, May 24, 2010
"It's been 15 years since Bill Gates published The Road Ahead, a book packed with the Microsoft (Nasdaq: MSFT - News) founder's predictions about the future. How do Gates's prophecies hold up now that the road ahead has arrived?"
Sunday, May 23, 2010
Mr. Klarman is president of the Baupost Group, an investment firm in Boston that manages $22 billion. His three private partnerships have returned an annual average of around 19% since inception in 1983—and nearly 17% annually over the past decade, as stocks went nowhere.
To measure Mr. Klarman's importance as an investor, you need only see the value his rivals place upon his words. You could have earned at least a 20% average annual return since 1991—better than twice the performance of the market—merely by buying and holding Mr. Klarman's book, "Margin of Safety": Published that year at a cover price of $25, hard copies now fetch up to $2,400.
But the professorial Mr. Klarman speaks in public about as often as the Himalayan yeti. He made an exception last Tuesday, when I interviewed him in front of a standing-room-only crowd of 1,600 financial analysts at the CFA Institute annual meeting in Boston. He then made another exception, speaking with me over the phone later to clarify points that he feared had been misconstrued.
Mr. Klarman specializes in buying securities that nauseate other investors. As the credit crisis exploded, he put more than a third of his assets into high-yield bonds and mortgage-related securities. I asked him what he had meant, in a recent letter to his clients, when he compared the financial markets to a Hostess Twinkie. "There is no nutritional value," he said. "There is nothing natural in the markets. Everything is being manipulated by the government." He added, "I'm skeptical that the European bailout will work."
Some members of the audience gasped audibly when Mr. Klarman said, "The government is now in the business of giving bad advice." Later, he got more specific: "By holding interest rates at zero, the government is basically tricking the population into going long on just about every kind of security except cash, at the price of almost certainly not getting an adequate return for the risks they are running. People can't stand earning 0% on their money, so the government is forcing everyone in the investing public to speculate."
"We didn't get the value out of this crisis that we should have," Mr. Klarman told the audience. "For our parents or grandparents, it was awful to have had a Great Depression. But it was in some ways helpful to carry a Depression mentality throughout their later lives, because it meant they were thrifty with their money and prudent in their investment decisions." He added: "All we got out of this crisis was a Really Bad Couple of Weeks mentality."
You could have heard a pin drop as Mr. Klarman proclaimed, "I am more worried about the world, more broadly, than I ever have been in my career." That's because you can make good investing decisions and still end up with bad results if you reap your profits in currencies that do not hold their purchasing power, he explained.
"Will money be worth anything," asked Mr. Klarman, "if governments keep intervening anytime there's a crisis to prop things up?"
To protect against that "tail risk," said Mr. Klarman, Baupost is buying "way out-of-the-money puts on bonds"—options that have no value unless Treasury bonds plummet. "It's cheap disaster insurance for five years out," he said.
Later, I asked Mr. Klarman what he would suggest for smaller investors who share his worries.
"All the obvious hedges"—commodities and foreign currencies, for example—"are already extremely expensive," he warned.
Especially gold. "Near its all-time high, it's a very hard moment to recommend gold," said Mr. Klarman.
Mr. Klarman pointed out that his own ideas "on bottom-up opportunities in undervalued securities are more likely to be accurate than my top-down views on what's going to happen in the world at large." In other words, while you might want to insure against a disaster scenario, you shouldn't bet the ranch on it.
And, said Mr. Klarman, one of the best ways to protect against a decline in purchasing power is to buy whatever is "out of favor, loathed and despised." So forget about gold or other trendy hedges. Instead, wait patiently for markets—European stocks, perhaps—to get so cheap that they turn most investors' stomachs. Then you can pounce.
As Mr. Klarman put it, "Sometimes, when you can't figure out a good defense, the best thing to do is to go on offense."
Saturday, May 22, 2010
Complacency after WWII ends.
The Euro-model is threatened.
And BTW ... if you think the Americans are too business-oriented, look East (no, not Russia, further East)
Payback Time - Deficit Crisis Threatens Ample Benefits of European Life - NYTimes.com:
"Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.
Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union.
But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead."
Senate leaders had vowed that the financial regulation bill would not be weighed down by amendments favoring the pet projects of lawmakers. But the Congo mineral amendment has been a project of Senator Sam Brownback, Republican of Kansas, for years. The amendment was approved by a voice vote."
Thursday, May 20, 2010
What happens when older voters dominate European electorates"
Wednesday, May 19, 2010
Who needs Napa when you’ve got Leelanau? - The Oakland Press
"Michiganians we are lucky to have one of the best stay-cations in the country."
Americas, World - The Independent
Pay attention as you watch the catchy new from the mega-star rapster Jay-Z, "Blue Magic", and see if you can't spot the product placement. It is not a fancy car that he is endorsing – although both his rides, a Rolls- Royce and soft-top Bentley, are plenty spiffy – but rather a currency – and it is not the dollar.
Like so many in the hip-hop genre, the is a celebration of ostentatious wealth. But capturing the attention of commentators in this clip, shot in the glimmering, neon-lit canyons of New York City, are the repeated glimpses of flickering wads of €500 notes. Jay-Z has thus performed a currency defection: the dollar is not just down, it is out. The euro is the new bling.
Tuesday, May 18, 2010
Sorry, but this is a bunch of BS
Barack Obama's rant against technology: Don't shoot the messenger | The Economist:
America’s president joins a long (but wrong) tradition of technophobia
May 13th 2010 | From The Economist print edition
“With iPods and iPads and Xboxes and PlayStations—none of which I know how to work—information becomes a distraction, a diversion, a form of entertainment, rather than a tool of empowerment.” In a speech to students at Hampton University on May 9th, Mr Obama did not just name-check some big brands; he also joined a long tradition of grumbling about new technologies and new forms of media.
Socrates’s bugbear was the spread of the biggest-ever innovation in communications—writing. He feared that relying on written texts, rather than the oral tradition, would “create forgetfulness in the learners’ souls…they will trust to the external written characters and not remember of themselves.”"
Sunday, May 16, 2010
Saturday, May 15, 2010
"Perhaps an even more important demographic gap is emerging between the United States and East Asia. Over the past few decades a rapid expansion of their workforce fueled the rise of the East Asian tigers, the great economic success story of our epoch. Yet within the next four decades, a third or more of their populations will be older than 65, compared with only a fifth in America. By 2050, according to the United Nations, roughly 30 percent of China's population will be more than 60 years old. Lacking a developed social-security system, China's rapid aging will start cutting deep into the country's savings and per capita income rates. A slowdown of population growth in poor countries can offer a short-term economic and environmental benefit. But in advanced countries, a rapidly aging or decreasing population does not bode well for societal or economic health."
Thursday, May 13, 2010
“The government has a responsibility to get good numbers,” Dr. MacDonald said. “If it’s beyond their technical capability, the whole world is ready to help them.”
Scientists said that the size of the spill was directly related to the amount of damage it would do in the ocean and onshore, and that calculating it accurately was important for that reason."
Tuesday, May 11, 2010
That is intriguing. It shows that even after several hundred thousand years of separation, the two species were interfertile. It is curious, though, that no Neanderthal mitochondrial DNA has turned up in modern humans, since the usual pattern of invasion, in historical times anyway, is for the invaders’ males to mate with the invaded’s females."
Monday, May 10, 2010
Sunday, May 09, 2010
(1) This is a new type of crisis. It isn’t. Governments have been defaulting for debasing their currencies for centuries. For the past 180 years, they say, Greece has been in default at least half the time
(2) Small economies such as Greece can’t launch major financial turmoil. They can. See Thailand in 1997.
(3) Fiscal austerity will solve Europe’s debt difficulties. It’s necessary, but it doesn’t pay off quickly. Default or restructuring is neither pleasant nor avoidable.
(4) The euro is to blame for Greece’s financial woes. It make it easy for Greece to borrow – a lot. But the U.K. and the U.S. borrowed a lot too. Good times bred complacency among lenders.
(5) It can’t happen here. Well, who would have thought a year ago that a member of the European Union would be on the on the brink of default. “Taking for granted that Uncle Sam can indefinitely borrow at reasonable rates is a risk proposition,” the Reinharts say.
Risk is that they would just serve to support continued government spending.
Why a VAT Won't Solve Our Deficit Problems - Newsweek.com:
"There is always an easy solution to every human problem...neat, plausible, and wrong.
—H. L. Mencken
The VAT (Value-Added Tax) has become the designated solution for massive federal budget deficits. It's touted by think tank economists and mentioned by congressional leaders. A VAT could raise stupendous amounts of money, which, Lord knows, are needed to cover projected deficits. A VAT is likened to a 'national sales tax,' so once it was in place, most Americans would barely notice it—just as they barely notice state and local sales taxes. How's that for friendly politics? A VAT would also discourage consumption and encourage saving and investment, making America richer in the future. What's not to like?"
Samuelson argues that consumers would notice a 16% hike in costs.
Maybe, but when gasoline can move 20-30% in a year, housing drop up to 40% I'm not so sure
"Higher consumer prices from the VAT could also slow the economy. The Federal Reserve would face policy dilemmas. If it tried to prevent businesses from passing the tax along to consumers, it would have to raise interest rates and risk a recession. If it tried to blunt the effect of higher prices on spending, its easy-credit policy might trigger a new wage-price spiral.
A VAT is no panacea; deficit reduction can't be painless. We'll need both spending cuts and tax increases. A VAT might be the least bad tax, though my preference is for energy taxes. But what's wrong with the simplistic VAT advocacy is that it deemphasizes spending cuts. The consequences would be unnecessarily high taxes that would weaken the economy and discriminate against the young. It would become harder for families to raise children. VAT enthusiasts need to answer two questions: What government spending would you cut first? And how high would your VAT rates go?
Robert Samuelson is also the author of The Great Inflation and Its Aftermath: The Past and Future of American Affluence and Untruth: Why the Conventional Wisdom Is (Almost Always) Wrong."
In short, human linage is rather complex
Signs of Neanderthals Mating With Humans - NYTimes.com: "Neanderthals mated with some modern humans after all and left their imprint in the human genome, a team of biologists has reported in the first detailed analysis of the Neanderthal genetic sequence."
The Post has owned NEWSWEEK since 1961, when Ben Bradlee, then the magazine's Washington bureau chief, helped persuade Philip Graham, the publisher of The Washington Post, to buy us. I say "us" quite consciously: there has long been a sense of tradition as well as journalistic mission here. For half a century, the Graham family has been a faithful steward of NEWSWEEK, allowing us, in Phil Graham's phrase, to write the first rough draft of history.
Saturday, May 08, 2010
But bank debt and sovereign debt are two different beasts. A rising market won't allow Greece to refinance like it did Bank of America. It's the sell-off that could help."
Friday, May 07, 2010
Things couldn't possibly go well forever and, indeed, the financial crisis put an end to the days of unfettered spending. To avert a collapse, governments came to the rescue with vast sums of money, guaranteed their citizens' savings and jump-started the economy with massive stimulus programs -- all with borrowed money, of course."
Some countries will benefit, mainly on account of capital flows coming out of the eurozone. The majority will not. And even those that do benefit should remain vigilant and responsive. Like most other countries in the world, they will also end up suffering from the consequences of lower international demand and renewed disruptions to the global banking system."
Thursday, May 06, 2010
The problem this time is bigger. It is not only about banks, it is about the essence of the eurozone, and the political survival of all the public figures responsible. If Mr. Trichet and Mr. Strauss-Kahn were honest, they would admit to Ms. Merkel “we messed up – more than a decade ago, when we were governor of the Banque de France and French finance minister, respectively”. These two founders of the European unity dream helped set rules for the eurozone which, by their nature, have caused small flaws to turn into great dangers.
The underlying problem is the rule for printing money: in the eurozone, any government can finance itself by issuing bonds directly (or indirectly) to commercial banks, and then having those banks “repo” them (i.e., borrow using these bonds as collateral) at the ECB in return for fresh euros. The commercial banks make a profit because the ECB charges them very little for those loans, while the governments get the money – and can thus finance larger budget deficits. The problem is that eventually that government has to pay back its debt or, more modestly, at least stabilize its public debt levels.
This same structure directly distorts the incentives of commercial banks: they have a backstop at the ECB, which is the “lender of last resort”; and the ECB and European Union (EU) put a great deal of pressure on each nation to bail out commercial banks in trouble. When a country joins the eurozone, its banks win access to a large amount of cheap financing, along with the expectation they will be bailed out when they make mistakes. This, in turn, enables the banks to greatly expand their balance sheets, ploughing into domestic real estate, overseas expansion, or crazy junk products issued by Goldman Sachs. Just think of Ireland and Spain, where the banks took on massive loans that are now sinking the country.
Given the eurozone provides easy access to cheap money, it is no wonder that many more nations want to join. No wonder also that it blew up. Nations with profligate governments or weak financial systems had a bonanza. They essentially borrowed funds from the less profligate elsewhere in the eurozone, backed by the ECB. The Germans were relatively austere; the periphery enjoyed the boom. But now we have moved past the boom, and someone in Greece, Portugal, Spain, Ireland and perhaps Italy has to repay something – or at least stop borrowing without constraint. So Mr. Trichet and Mr. Strauss-Kahn go, cap in hand, to ask Germany for further assistance."
Monday, May 03, 2010
The current generation of leaders experienced a cultural revolution. They know what a mess China can be if it is mismanaged and how important it is for China to grow and improve the lives of its people. The next, or maybe the next-next group of leaders will be post-cultural-revolution. They will have grown up in 30 years of reform and opening up. They will have lived in a China that is connected through the Internet with people who are much better informed about what's going on in the world. And they will have to run this whole system not as a central system but with a market economy and a coherent political framework on top of that. I think they will have a big challenge.
What worries Chinese leaders?
They've seen Tiananmen, and they saw the Falun Gong.
The Bad: The books middle chapters present an all-too-familiar—though meticulously researched—account of how the economy became 'financialized.'
The Bottom Line: By book's end, the authors' harsh proposals, including caps on the size of individual banks, begin to look like common sens"