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Showing posts from September, 2010

Confused on Wall Street

According to the Wall Street Journal, “macro forces” in the market are confounding stock pickers. “Big-picture market movers like the economy, politics and regulation” frustrate the efforts of the best and brightest of the stock picture, the Journal informed its readers this past Friday. It said:More and more investors aren’t bothering to pore through corporate reports searching for gems and duds, but trading big buckets of stocks, bonds and commodities based mainly on macro concerns. As a result, all kinds of stocks — good as well as bad — are moving more in lock step.As proof, the paper interviewed several traders and fund managers, who said more or less the same thing.

David Pedowitz of Neuberger Beeman said that his efforts at stock picking felt “like an exercise in futility.”

James Bianco of Bianco Research said: “stock picking is a dead art [and] macro themes dominate the market now more than ever.”

Cindy Sweeting of Templeton said: “All stocks are moving in the same direction. I’v…

One or Two Things You Should Know About Larry Summers

That The Brilliant Larry Summers Will Leave the Obama Administration to Return to His Tenured Teaching Job at Harvard was the main economic/political news of the week.

The first thing you should know about Larry Summers is that he is brilliant. The New York Times uses the adjective brilliant before his name the way it uses president before Obama’s name: as a factual designation. Larry Summers is brilliant as Barack Obama is president. Through constant repetition, the brilliance of Larry Summers then becomes a matter of record; there is a double entendre in the New York Times being the “newspaper of the record”. The record thus having been established, it is passed to others to spread, reinforce and better it. Hence, Edward Luce of the Financial Times:There is barely an economist in the world who would deny that Mr Summers has a bigger brain than they do.
Even Larry Summers’ critics must start by allowing for his brilliance: Although he is a brilliant economist ...

The second thing you s…

The Fed, Idle Ships and Interest Rates

Today, the yield on the 2-year Treasury note hit the all time low of 46 basis points, or less than .5%

Traders talk about the bond bubble (it has a nice ring to it), quantitative easing (QE) or QE2 (the second round of QE. Got it?) They opine how bonds have become attractive in the absence of other investment alternatives, which is why their price is higher and their yield lower. (Never mind the contradiction in bonds becoming attractive while their yields are pushed lower.)

All that talk comes from the illusion that interest rate is a “thing” that the Federal Reserve sets – and everyone follows.

Nothing could be further from the truth.

Interest is the claim of finance capital on the industrial capital. It is a deduction from the profit, set through negotiation and supply and demand.

When profit opportunities are destroyed and capital cannot be profitably employed, it must sit idle, either in the form of unusable cash on corporate balance sheets or, more symbolically, in the form of idle s…

The Opinions That Men Hold

Two years ago Lehman imploded. I was in Alaska on that fateful week of September 15. It took a trip to Alaska for me to see What’s the Matter with Kansas.

That, as you may know, is the title of Tom Frank's 2005 book, in which he argues that through “push button” issues such as gay marriage and abortion, blue collar Kansans are systematically fooled into voting for rich Republicans and against their own interests.

That sort of manipulation is not new. European writers and historians have traced its wholesale adaptation to the outbreak of WWI which saw young men forced to march to the slaughter fields of Europe. John Berger argues that the abrupt end of Cubism had to do with the end of the optimism that the new century had generated but which WWI crushed.

Frank’s general thesis is not incorrect. Propaganda does play a role in shaping men's opinions even against their interests. But what happened to the observation that people in general vote with their pocketbooks? I doubt that the…

What I Don't Get About the Opposition to Elizabeth Warren

Okay, so Obama just appointed Elizabeth Warren to set up the new Consumer Financial Protection Bureau, which makes her the interim head of the agency, or something ... it's all still kind of confusing. She really deserves to be named to the job outright. What's the hold up? King Richard III had a lame leg and didn't do this much foot-dragging.

Ah, she may not be confirmable by the Senate, says Chris Dodd, head of the Senate Banking Committee. Why not? This too is a bit hazy; Senators can be maddeningly elusive when they don't want to discuss something. But the case against Warren seems to boil down to:

1. Lack of experience/qualifications.

This line of argument quickly falls apart though. She hasn't been knitting doilies in Dubuque and teaching night classes in creative writing for the last decade. She is (1) a bankruptcy law professor at Harvard who has "written several books over the years focusing on how debt, predatory lending and bankruptcy affect average mi…

September Resolution

The elephant-in-the-room of my to-do list is Vol. 4 of Speculative Capital that of late has been demanding the attention it deserves.

The manuscript is complete. That is the good news. The bad news is that the time of one page commentaries and “notes to myself” is over. I must now sit down and pull the manuscript together into a coherent whole. That requires large blocks of uninterrupted time.

All this is to say that I will be writing shorter posts; long pieces such as the Goldman case take up too much time.

This, needless to say, is only a pronouncement of the intent. We shall see how it works out in practice. If it works as intended, look for shorter, more frequent pieces here until Vol. 4 is submitted to the publisher.

Epilogue: The Conspiracy Theory – True Destruction

Physical destruction could be an end in itself. You destroy a farm, a building or a city and let the ruin stand. End of story. Mission accomplished.

Social destruction is different. A social system cannot be destroyed by force or laws and edicts. The only way to destroy it is to replace it. This latter kind is the province of speculative capital, which even the blissfully ignorant perceive. Writing more than a decade ago in the New York Times, a Clinton administration official opined:In July 1945, a group of scientists huddled in the new Mexico dawn to witness the first nuclear explosion. They had created a terrible power, but one that nations have successfully controlled for more than 50 years. Now we have unleashed a very different but similarly awesome force, one capable of overthrowing governments and their policies almost overnight. And there are no systems in place for controlling it. This force is the global financial marketplace.“Global financial marketplace” is the effect, whi…

Is Diversification Really a Free Lunch?

Scooting around the Net today, I found myself checking out what Greg Mankiw has been up to (besides relentlessly plugging the half dozen textbooks he's written). I drop by his blog from time to time, even though he doesn't allow comments on his posts, which I find a bit strange. Dropping by feels like the equivalent of paying a visit to someone but only being allowed to peer in the house windows: You can watch what they're doing, and eavesdrop to your heart's content, but no talking please.

So I came across this New York Times column by the good Harvard professor, brimming with advice for the college bound. I nodded enthusiastically at his scold that high schools spend too much time on Euclidean geometry and trigonometry (when was the last time someone stopped you in the street and asked if you knew the cosine of the angle of the shadow being thrown by the lamp post on the corner?) and not enough on probability and statistics.

Amen, brother!

In fact, I found myself pretty…

Dick Fuld: Crazy Like a Fox?

Dick Fuld appeared before the Financial Crisis Inquiry Commission today and, some would say, showed himself as completely untethered from reality. The former Lehman Brothers CEO wasn't about to mince words; at the outset of his prepared remarks he asserted:
Lehman’s demise was caused by uncontrollable market forces and the incorrect perception and accompanying rumors that Lehman did not have sufficient capital to support its investments."Say WHAT?" was more or less the reaction over at naked capitalism. For how could any man be in such denial?

For my part, I think Fuld may be playing a role on a stage. Consider that a large Wall Street investment bank doesn't just go gently into the night. Lehman wiped out a lot of wealth on its way down. And note that phrase that keeps recurring in Anton Valukas' very, very thorough report on Lehman's demise: "colorable" claims. In other words, plenty of hungry lawyers may have sufficient grounds to sue Fuld's bu…