Monday, May 28, 2012

Financial Sarcasm Roundup for 05/28/12

It's Monday.  That means it's time for my extreme sarcasm about business activity.  U.S. markets were closed today due to Memorial Day but that doesn't mean my big fat mouth needs to be closed.

Marubeni is supposedly getting close to buying Gavilon.  I've never heard of either one of these firms.  Marubeni is some big Japanese grain dealer and Gavilon is a U.S. competitor.  There isn't much to this story besides another consolidation play in a commodity dealer.  It kind of reminds me of consolidation in the steel industry; now India and China dominate a very limited global field.

Now France wants Eurobonds, while the Economist opines in favor of Continental federalism.  I need to burst the Economist's bubble.  Only total federalism will establish the Continent-wide taxation system necessary to pay off any Eurobonds.  Half-measures won't cut it and German taxpayers won't go for full federalism once they realize how badly it will ruin their credit.  Putting some Eurobonds into tranches that partially cover participating states' obligations and are partially funded by strong creditor states (i.e., Germany) reminds me of the U.S.'s experience with Fannie and Freddie's amalgamated obligations.  The key difference is that the U.S.'s housing CDO debacle was backed by the full faith and credit of Uncle Sam and his ability to levy taxes.  Europe's half-effort won't cover squat.  It will of course leave a lot of stupid hedge fund managers holding empty bags they thought were full of Euro-tranched super bonds.

U.S. national income is increasingly benefiting business profits and not worker income.  There's plenty of research on how global wage arbitrage is pushing down wages in the U.S.  One academic canard in financial thinking would call for workers to invest more of their income in the stocks of their employers to recapture some of this lost income momentum.  I wouldn't go for such a canard just yet; U.S. stocks aren't bargains relative to earnings even though they're trading at inflation-adjusted levels last seen in the late 1990s.  My point is that U.S. workers don't have many personal growth options through wage enhancing things like education or wealth enhancing things like conventional investments in U.S. equities.  Stagnated workers can win by thinking outside the box, using tools created and traded in resilient communities.

Smart investors are starting their stampede out of junk bonds.  I should throw in the caveat that maybe these are the people smart enough to let hedge funds buy up junk bonds and junk funds on the downslope to junk bond obliteration.  This news makes me nostalgic for the early days of 2007 when I kept reading glowing headlines about the junk bond market's growth.  I wondered then when it would all crash and realized I didn't want to be anywhere near junk bonds when they hit the floor.  Well, crash they did later in 2007.  The credit market seizures that started hitting in August 2007 were memorable.  History doesn't repeat but it does rhyme.  I'm not in junk bonds now, nor will I enter them until long after the U.S. bond market has crashed and America's likely hyperinflationary episode ends.