Monday, December 27, 2010

Newsreel for 12/17/10

Let's see what I missed by not watching television.

Japan's draft fiscal budget leaves economists unimpressed.  Mainstream analysts are looking for signs that governments are serious about implementing austerity measures.  Keep looking, folks.  We won't see seriousness anywhere for a while. 

Ireland nationalizes Allied Irish Banks.  It had to be absorbed even after it needed billions in government support.  The U.S. flirted with nationalizing Fannie and Freddie but chose half measures instead.  More debt cannot cure insolvency. 

The Asian verdict on China's interest rate increase is mixed.  I was too quick to note that the Chinese stock market initially showed a positive reaction to the rate increase, as it finished down 1.9%.  This supports the traditional theory that rising interest rates present a more challenging environment for equities. 

Rising oil prices baffle economists.  This bafflement doesn't prevent leading investment firms from forecasting further price increases.  Good investors don't bother with forecasting.  Knowing the unknowable is impossible.  Commodity prices move randomly over the long term (one year or more) and oil is no exception.  Peak Cheap Oil is probably more of a factor here than interest rates. 

Regulators warn that IT risk systems are still weak.  They will always be imperfect.  The complexity of the products and indicators they track makes them vulnerable to Black Swans.  Human managers can always override risk protocols if that what the boss wants.  A better solution is to keep investment products simple and prevent sales managers from dictating results to analysts. 

I'm still not interested in watching television.  I didn't miss anything important.