Financial Sarcasm Roundup for 09/10/12

I love it when I'm right, especially when I'm ahead of the rest of Wall Street.  I wrote a few days ago about the danger to the U.S. economy from the looming ILA strike at East Coast and Gulf Coast ports, and said strike now looks very likely.  I am not alone in noting the severity of what we can expect; Asian shippers are getting very concerned.  The financial analyst community needs to take a serious look at how re-routing container ships to the Port of Oakland leaves the U.S. economy exposed to a shutdown from as little as a few hundred Occupy Oakland idiot activists.  I do not feel sorry for any hedge fund managers who insist on ignoring fundamentals just to pick up nickels in front of this steamroller.  I want professional money managers to keep doing exactly what they're doing now, piling on one bad call after another by following each other in a herd over a cliff.

One thing I don't need cluttering my workspace is yet another prediction of monetary easing from the Fed.  These Captain Obvious statements are pointless in the face of Helicopter Ben's repeated statements of intent, plus the proclivity of every academic to spend their entire careers justifying a PhD thesis (go read Ben's "printing press" speech and his Princeton work).  Anyway, those economists are correct about further stimulus doing nothing but they're missing one thing.  Money velocity is at rock bottom.  Steroid injections go nowhere if blood isn't circulating.  That can all change in a heartbeat if politicians force banks to lend.  I am still convinced that some form of forced lending, like the HAMP mortgage modification program but much larger, will be one of the transmission mechanisms for a wage-price spiral into serious inflation.

Germany still wants to put the kibosh on the ECB's newfound willingness to destroy that country's credit rating with unlimited sovereign bond buying.  The German constitutional court may vote to block German contributions to European rescue funds.  That court needs to read Mario Draghi's speeches again, paying particular attention to the enormous caveats he put in about the austerity criteria any destitute country has to meet before getting a bailout.  No way are Greece, Spain, and Italy going to meet those criteria with their economies already in austerity-driven death spirals.  No way will they get more than token bailouts that temporarily prop up European stocks.  No way is the ECB going to save the euro.  

The Limerick of Finance for 09/09/12

Europe goes for a limitless print
But bondholders can't take a hint
Speculators still buy
They have no clue why
Inflation will cost them a mint

The Haiku of Finance for 09/08/12

China still inflates
That's a fake, low-ball figure
No room for easing

The Haiku of Finance for 09/07/12

Unlimited buys
ECB goes all the way
Euro self-destruct

The Haiku of Finance for 09/06/12

Will budget balance?
No one wants to do the math
Bring on fiscal cliff

Rhetoric And Reality In 2012

I've listened to what the major party candidates have said in the past couple of weeks.  They deserve our attention and respect.  I do respect their intentions for America, but understanding their plans requires me to parse the rhetoric from their convention speeches.

The main themes I heard from either party touched the grievances of the middle class in an America increasingly bereft of upward mobility and income security.  The Republicans tout seriousness about balancing the federal budget, but it's easy to find independent analyses of how the numbers don't add up.  The Democrats remind us of the automobile industry's bailout but ignore the financial loss the federal government still incurs.

The rhetoric about saving Medicare for future recipients is necessary for votes but mathematically impossible without serious benefit cuts and cost controls.  The rhetoric about making college affordable is useless in an age when more unqualified students take on crushing debt loads and then settle for low-paying jobs.  This rhetoric will set voters up for inevitable disappointment.

There is no intent at present, in Washington or elsewhere, to resolve the federal government's untenable fiscal condition.  The fiscal cliff at the end of 2012 is the last opportunity for our national leaders to accept the necessary short-term pain that will preserve whatever shreds of credibility that U.S. currency and sovereign debts have in the eyes of the world.  Whoever is President in January 2013 can attempt to navigate the country over that cliff and prepare it for the long, hard slog afterwards that leads to a balanced budget.  The alternative is business as usual, which IMHO will postpone fiscal sanity until after a hyperinflationary depression has made further tricks impossible.  That outcome is an event horizon beyond which something unfamiliar to our national character can emerge, to our collective detriment.

Forget the charges of gender wars and missing birth documentation.  Rhetoric doesn't matter.  Reality is unavoidable.  A balanced budget would be as real as it gets for America.

The Haiku of Finance for 09/05/12

Facebook is stupid
Fear flippers, ignore owners
Please get a new clue

Facebook Clueless About Its Own Stock

One of Facebook's top honchos recently met with the top dog at BlackRock because Zuckerberg and crew have no idea why their share price is going down the tubes.  If they'd been reading the handful of blog posts I devoted to their company they could have saved themselves the trouble.

Pricing the stock high enough to discourage flippers was a dumb rationale.  No corporate executive should try to outguess what a bunch of random traders will do once shares are in public hands.  Just ask Dick Fuld of Lehman Brothers, who famously told his executive team that he wanted to "kill" short sellers for betting against his company.  Facebook would have been better off leaving some money on the table and pricing its IPO somewhere in the high $20s.  Let the underwriter and initial traders get their pop and then back off.

Morgan Stanley must be one seriously messed up firm for allowing a client to be more concerned with a handful of flippers in the aftermarket than the insiders who have held on since Facebook's beginning.  I've said in the past that FB should be priced in the single digits.  I might as well say the same thing about MS now.  Companies this dumb with business models based on nothing but hype deserve each other.

Full disclosure:  No position in FB or MS at this time.  

The Haiku of Finance for 09/04/12

Ocean energy
Wave power project ready
It never runs out

The Haiku of Finance for 09/03/12

Foreign bank account
Pick one in stable country
With sound currency

Financial Sarcasm Roundup for 09/03/12

Another Monday brings more sarcasm.  Were you expecting more Money Show discussions?  Well, frankly so was I but that's taking longer then I planned.  Sarcasm always takes precedence anyway.

Germany says a new Continental banking nanny won't be on the job until next year, or whenever they get around to it.  Normally those Germans are sticklers for timeliness, so this should be a worrisome sign for any hedge fund managers who were dumb enough to buy European debt this year.

That new banking supervisor will have a full plate of stuff to do on day one.  The first task will be to explain Moody's continuing downgrade of the EU's credit outlook.  Even Germany can't escape the harsh eye of Moody's this time.  I like to think that Warren Buffett has admonished Moody's not to miss another brewing debt crisis like it did with the U.S. subprime mortgage debacle.  I'm probably wrong but it's a cute fantasy.

Spain's more intelligent investors aren't waiting for another Moody's downgrade.  They're pulling their savings out of Spanish banks and decamping for more stable climes and currencies.  It's too bad some Spanish folks chose England as their safe haven, because that's one of the countries that just saw Moody's cut its credit outlook.  The coming breakup of the eurozone will leave a lot of investors very sad for not moving out of a worthless currency while they had time.  Americans will have some time to enjoy the dollar's reserve status after the euro dies but this will not be a long-lived reprieve.  I have purchased some foreign currency ETFs and I will definitely open some kind of foreign bank account very soon to hold a stable currency.  The handwriting is on the wall in big bold letters.

I had some fun playing with The Economist's global debt clock.  It's kind of jarring to see both Australia and the U.S. colored red for high debt, as Australia's public debt burden isn't nearly as onerous as ours.  Calling Libya a low-debt country is hilarious.  I would not want to own Libyan currency as a hedge against the dollar, especially given the likelihood of a Muslim Brotherhood takeover there.

The Economist has some other fun signals to send us this week.  "Charlemagne" tells us not to expect any game-changing moves from the ECB as long as national governments (read:  Germany) can veto any pro-euro money printing.  The Economist's regular columnists are anonymous because they are insiders of the highest caliber, so these articles are really quasi-policy statements.  Reading between the lines is a test for those market analysts (like Yours Truly) who add value.  The ECB isn't the only central bank to watch here.  That's the real meaning of comments like "single-handedly" and the passing mention of the Fed's Jackson Hole conference in the second paragraph.  Just because the ECB can't save the euro doesn't mean the Fed won't step in and give it a try.

Here's one more tidbit from The Economist:  Spain is still in line for a bailout after Greece.  Even Captain Obvious can see that.  What we can't see takes some textual analysis.  Greece's tranche payments have been delayed until October, so the "troika" is unwilling to call Greece's bluff and refuse further loan modifications.  This "extend and pretend" playbook is now being handed to Spain so European leaders can pretend to bail out Spain and the Spanish can pretend to remain solvent.  Europeans have thus bought themselves a few more months of breathing room after some hurried shuttle diplomacy from Tim Geithner convinced them not to breakup the Eurozone before the U.S. elections in November.  I hope I haven't confused my dear readers too badly.  The "limited hangout" from The Economist tells me that the euro crash can't be put off much longer than two or three months, so it may even coincide with the U.S.'s fiscal cliff.  Prepare accordingly.

This article needs a rallying cry.  Sarcasm today!  Sarcasm tomorrow!  Sarcasm forever!  

The Limerick of Finance for 09/02/12

"Brezhnev bonds" are still around
And courts have ruled they are still sound
A full-value pledge
Something Russia can't hedge
Old basements in which bonds abound

The Haiku of Finance for 09/02/12

Greek myth on banknotes
That won't save the currency
An ironic end

John T. Reed's Super-Awesome Seminar At The Money Show SF

Okay readers, prepare yourselves for the first of several Money Show seminar reports I've been promising you.  This one's about my idol, John T. Reed, and his seminar on what he's learned after several decades of investing in real estate.  I like this guy because his writing is clear, honest, and extremely well-researched.  That is a rare set of qualities in the broad world of financial commentary.

John briefly recapped his career as a property manager, broker, and author.  Much of his introductory views of real estate are a reflection of what he's written in his free articles online and in his book How to Get Started in Real Estate Investment.  One of his best insights is that real estate investors should follow a strategy comparable to private equity investors by purchasing homes to which they can add value for resale (i.e., turning "disasters into fixers").  Leverage is okay if you can get it on your own terms, with no balloon payments, restrictive terms, or unethical options.

I'm a close reader of John's current articles on the financial crisis and other headline events.  I couldn't pass up the chance to ask him about his endorsement of foreign currency holdings.  He has described in detail his efforts to open accounts in banks domiciled outside the United States, so I asked him what he thought about owning foreign currency ETFs in a U.S. brokerage account.  John was skeptical of the concept on the grounds that even if the ETFs in question (the Guggenheim CurrencyShares ETFs) are held in a custodial account in the UK, that country isn't on his preferred list of safe havens.  John has thought through the legal implications of non-U.S. accounts.  If I were to add one more hedge to my own U.S. dollar exposure, I would hold New Zealand dollars in a bank account domiciled in that country.  John courteously provides his readers with the contact info for a New Zealand banker who is willing to work with us oddball Americans.  I will need a foreign bank account or two if those ETFs don't work as advertised.  Guggenheim has announced the closure of two of its currency ETFs, which means their assets can be forcibly distributed to investors.  That doesn't happen when you hold cash in a foreign bank account.

Aspiring real estate investors will benefit from John's checklist-driven approach to managing risk and hedging against adverse actions.  I suspect his methodology is derived at least in part from the checklists he had to navigate as a West Point cadet and U.S. Army officer.  BTW, John, thank you for your military service, from one who currently serves.  You may not need to hear that, but I needed to say it.  I am very interested in pursuing the investment strategies John identified that fall short of outright ownership of managed property, like liens and easements.

I can't do justice to the enormous wealth of knowledge that awaits real estate investors in John's material.  You folks will just have to buy his books and follow his articles.  I have purchased several of John's books myself:
- How to Get Started in Real Estate Investment
- Succeeding
- How to Protect Your Life Savings From Hyperinflation and Depression
- How to Write, Publish, and Sell Your Own How-To Book

I consider those books to be among the most important I have ever read in my life.  I have read them cover to cover several times and highlighted the passages that I use as active references in my financial decisions.  The starter book on real estate gave me some strategies that I'm actively pursuing.  Succeeding is something I wish I had read as a teenager because its points on matching your career to your natural strengths would have saved me a lot of grief many years ago.  The Hyperinflation book is the kind of tome that comes along once in a lifetime and is worth reading if you intend to survive the years of turmoil that have just begun to afflict the U.S. economy.  I have been following John's admonition to "buy everything you need for the rest of your life, right now" since the summer of 2011.  Check out his description of liquid hard assets if you need to start making a shopping list.  I can now ride out several years of product shortages, logistics bottlenecks, and wage-price spirals in the U.S. thanks to John's suggestions.  I still need to find some "junk silver" for my hard asset portfolio.  I really like the self-publishing book but I plan to use it in a different way than what John intended.  You see, the e-publishing revolution means people can buy e-books on impulse for their Kindles and other electronic book readers.  Having an e-book publishing presence IMHO leaves a much lighter burden for the self-publisher by eliminating physical inventory and other headaches.  Hey John, consider writing an updated version of HTWP for the e-book era.

I will disagree with one of John's chapters in Succeeding.  John is a big advocate of marriage and argues that there's someone for everyone.  I simply do not trust anyone enough to want to share my life with another human being.  I cannot afford to waste one more minute of my life with people who treat me poorly or do not want me around.  Some of us were meant to be alone.

I was absolutely thrilled to hear John T. Reed in person and I even praised him to the Money Show lady who was prepping him for a video interview the next day.  I respect this man's diligence and integrity, and that is why I take his writing very seriously.  Please note that he hasn't paid me anything at all to say this, even though his wisdom is priceless.

Full disclosure:  Long positions in FXA and FXC with covered calls; short position in cash-covered puts under FXF.

The Haiku of Finance for 09/01/12

Facebook hits new low
This thing looks worse by the day
Abandon all hope