Euro versus yen
Compete to lose their value
Neither can survive
Thursday, February 07, 2013
Wednesday, February 06, 2013
Tuesday, February 05, 2013
Continuing Lawsuits Against Credit Ratings Agencies
Lawsuits are no fun when you're a target. Ask the credit ratings agencies like S&P; the federal government is suing them for damages from ratings on subprime mortgage investments. Reading past the article's discussion of conflicts of interest and the housing debacle is a necessary task in seeing through a smokescreen.
The government has little interest in recovering real damages. It has a very strong interest in pressuring rating agencies not to downgrade their ratings of Treasuries. Lawmakers have decided to ignore the legal debt ceiling, tempting rating agencies to downgrade Uncle Sam's credit. Moody's hinted that a ratings downgrade was an option after the fiscal cliff standoff but so far has not followed through with action. I believe it will continue to hold its current rating and "negative outlook" admonishment to avoid being sued by the government. Moody's has little to fear as long as Berkshire Hathaway is a major shareholder and Warren Buffett remains a top political campaign bundler.
BTW, Europe goes through similar motions about stopping conflicts of interest at credit ratings agencies. Nothing real will change as long as rating agencies know they must support strong ratings for weak sovereign debt, otherwise legal action would indeed be serious.
Monday, February 04, 2013
The Haiku of Finance for 02/04/13
Stupid questioner
Clueless but running their mouth
I don't suffer fools
Clueless but running their mouth
I don't suffer fools
Financial Sarcasm Roundup for 02/04/13
America survived another Super Bowl weekend and we can all get back to work on Monday. Some people probably have hangovers after watching the big game at their favorite neighborhood pub. I'm sober when I'm blogging but that has no effect on my sarcasm.
Closing tax loopholes is a no-brainer budget fix, says everyone who's anyone in Washington. That means it's nothing more than the first card to play in future negotiations. There won't be many changes in loopholes or deductions if lawmakers agree to tax increases. The best loopholes are for the ultra-rich and the biggest tax increases are meant for the middle class. We'll find out by the end of the summer just how correct I am.
I may have to withhold sarcasm from this next item. One SEC advisory group recommends the creation of an exchange allowing small businesses to go IPO. Wow. First the JOBS Act, then this idea. I swear to the Almighty Flying Spaghetti Monster, someone in the U.S. government is really determined to make America friendly to business.
Treasury yields are rising. Slowly but surely, the long of the yield curve creeps up as the federal government's outstanding bonds become a largely short-duration affair. The Fed's ZIRP target means rates can't go any lower, so any change upward forces bond prices down. The so-called rebound in the housing market is done once mortgage rates start climbing.
I'll stop right there for today.
Closing tax loopholes is a no-brainer budget fix, says everyone who's anyone in Washington. That means it's nothing more than the first card to play in future negotiations. There won't be many changes in loopholes or deductions if lawmakers agree to tax increases. The best loopholes are for the ultra-rich and the biggest tax increases are meant for the middle class. We'll find out by the end of the summer just how correct I am.
I may have to withhold sarcasm from this next item. One SEC advisory group recommends the creation of an exchange allowing small businesses to go IPO. Wow. First the JOBS Act, then this idea. I swear to the Almighty Flying Spaghetti Monster, someone in the U.S. government is really determined to make America friendly to business.
Treasury yields are rising. Slowly but surely, the long of the yield curve creeps up as the federal government's outstanding bonds become a largely short-duration affair. The Fed's ZIRP target means rates can't go any lower, so any change upward forces bond prices down. The so-called rebound in the housing market is done once mortgage rates start climbing.
I'll stop right there for today.
Sunday, February 03, 2013
The Limerick of Finance for 02/03/13
The 'Niners did not win the Bowl
That prize is still a worthy goal
Some commercials did score
Halftime did not bore
Local vendors made cash from their role
That prize is still a worthy goal
Some commercials did score
Halftime did not bore
Local vendors made cash from their role
Super Bowl Economics and Sarcasm
I'm not watching Super Bowl XLVII today even though I'd like to see the San Francisco 49ers win. I'm a casual fan of my hometown sports teams because they make The City look good. Anyway, instead of watching the big game, I'd rather blog about its economic effects.
Consider the impact on the city that hosts the game. One economist uses very odd reasoning to argue that the host city suffers economically from a Super Bowl. Common sense tells me he's wrong, and hard evidence shows local businesses reaping windfall profits after months of preparation. The Super Bowl crowds out conventions? Yes, but all of the hotels are filled with people who came to see the Super Bowl! Locals don't come downtown because it's crowded? Yes, but all those huge pressing crowds are spending money in bars and restaurants! I think some economists just don't like big success stories. They'd prefer we all downsize to medieval hamlets. They're free to do so while the rest of us enjoy economies of scale.
TV ad spending is another big financial story with this super sports event. You can get a 30-second spot for about $3.75M. The buyers are almost all consumer products makers or downscale automotive brands. Seeing Mercedes-Benz is a surprise, so I guess they're going for the aspirational demographic. The record numbers of women who now watch the game pay more attention to the ads than men do. Ladies, if you want to understand men, you need to at least try to follow the game. Super Bowl ad spending has a demonstrated ability to drive increases in web traffic. The best ads generate high Ace Scores for effectively connecting consumers with a brand. The ultimate purpose of ads is to drive top-line revenue. Surveying consumers on their predictions of Super Bowl ad impact is less useful than actual sales. Companies probably keep their real tracking data private, so it's worth revisiting the next quarter's income statements of Super Bowl advertisers to see whether their sales increased.
What about the game's players? Do Super Bowl athletes get a payoff from more lucrative team contracts or endorsement deals? The players get a nice five-figure bonus whether they win or lose. If the winner's payout in 2013 is $83,000, it amounts to 4.4% of the average NFL salary of $1.9M. That average is skewed much higher than the $770K median because the superstar player salaries are huge outliers, like quarterbacks making eight figures. The big winners from post-Bowl endorsement deals seem to be the few players who went into the game with existing superstar status, and the NFL is the big winner from ticket sales and television broadcast rights.
The people who benefit financially from the Super Bowl are the shareholders of the most effective advertisers, the world's largest ad agencies, the superstar athletes, the League and its franchise owners, and many local concessionaires. Have fun watching the game.
Consider the impact on the city that hosts the game. One economist uses very odd reasoning to argue that the host city suffers economically from a Super Bowl. Common sense tells me he's wrong, and hard evidence shows local businesses reaping windfall profits after months of preparation. The Super Bowl crowds out conventions? Yes, but all of the hotels are filled with people who came to see the Super Bowl! Locals don't come downtown because it's crowded? Yes, but all those huge pressing crowds are spending money in bars and restaurants! I think some economists just don't like big success stories. They'd prefer we all downsize to medieval hamlets. They're free to do so while the rest of us enjoy economies of scale.
TV ad spending is another big financial story with this super sports event. You can get a 30-second spot for about $3.75M. The buyers are almost all consumer products makers or downscale automotive brands. Seeing Mercedes-Benz is a surprise, so I guess they're going for the aspirational demographic. The record numbers of women who now watch the game pay more attention to the ads than men do. Ladies, if you want to understand men, you need to at least try to follow the game. Super Bowl ad spending has a demonstrated ability to drive increases in web traffic. The best ads generate high Ace Scores for effectively connecting consumers with a brand. The ultimate purpose of ads is to drive top-line revenue. Surveying consumers on their predictions of Super Bowl ad impact is less useful than actual sales. Companies probably keep their real tracking data private, so it's worth revisiting the next quarter's income statements of Super Bowl advertisers to see whether their sales increased.
What about the game's players? Do Super Bowl athletes get a payoff from more lucrative team contracts or endorsement deals? The players get a nice five-figure bonus whether they win or lose. If the winner's payout in 2013 is $83,000, it amounts to 4.4% of the average NFL salary of $1.9M. That average is skewed much higher than the $770K median because the superstar player salaries are huge outliers, like quarterbacks making eight figures. The big winners from post-Bowl endorsement deals seem to be the few players who went into the game with existing superstar status, and the NFL is the big winner from ticket sales and television broadcast rights.
The people who benefit financially from the Super Bowl are the shareholders of the most effective advertisers, the world's largest ad agencies, the superstar athletes, the League and its franchise owners, and many local concessionaires. Have fun watching the game.
Saturday, February 02, 2013
IMF Smacks Argentina on Economic Data
When you play with fire, you're bound to get burned. The IMF has put Argentina on official notice that its fraudulent economic data places its standing with the organization at risk. It's nice to see an international body enforcing rules for rogue players. The funny part is the hypocrisy of the IMF's main sponsor - the United States.
Argentina underreports its annual inflation by 14% or so by private estimates. Compare that to ShadowStats' estimate of the U.S.'s CPI, which is underreported by about 4% right now. America has a ways to go to catch up to Argentina's statistical flights of fancy. Don't expect the IMF to enforce any kind of action against the U.S. once our economy starts hyperinflating.
Argentina underreports its annual inflation by 14% or so by private estimates. Compare that to ShadowStats' estimate of the U.S.'s CPI, which is underreported by about 4% right now. America has a ways to go to catch up to Argentina's statistical flights of fancy. Don't expect the IMF to enforce any kind of action against the U.S. once our economy starts hyperinflating.
Friday, February 01, 2013
The Haiku of Finance for 02/01/13
Put no money down
Get worse deal on a mortgage
Such a clear trade-off
Get worse deal on a mortgage
Such a clear trade-off
No-Money-Down Mortgages Can Destroy Affluent
Here comes another lame idea in finance, made especially for affluent investors with little sense. Banks are offering no-money-down mortgages secured by portions of an investor's portfolio. Maybe this is a sign of how desperate high-end homebuilders have become to move new inventory. It's definitely a sign that parties to mortgages are once again throwing common sense out the window.
Limiting the stock portion of the mortgage's collateral to 50% means little in the event of a stock market decline. Let's say a flash crash hits the market and the investor's stock portfolio takes a 5% hit. Now the stock collateral is (0.95 x 50) is at 47.5% of the loan's original balance. The servicing financial institution can presumably see the investor's portfolio if it's been pledged as collateral, and is most likely custodied with the servicer if it's a TBTF bank. If less than 2.5% of the loan's principal has been amortized with principal payments up to that point, the homeowner will face the equivalent of a margin call to put in cash that will restore the value of the collateral. The danger here is that affluent investor pledged securities because they didn't have the cash or were unwilling to sell securities to raise cash. Forcing a margin call would be the equivalent of an unpayable balloon payment and probably put the home into foreclosure.
Collateralizing 80% of the mortgage's value with bonds is likewise no sure thing. High inflation could reduce the real value of that fixed-income collateral faster than it reduces the real value of the loan's balance. It's an unpredictable relationship because this country has gone so long without serious inflation.
Securing a mortgage with liquid securities rather than cold cash is a dangerous "innovation" in an extremely unstable macroeconomic environment. I've blogged before about the risks of an equity market crash and hyperinflation in the U.S. A sudden reversal of fortune for the economy would jeopardize a mortgage whose down payment is secured with anything other than a large cash payment at the beginning. Some affluent people will go for this anyway. I'll quietly await their distressed asset sales.
Nota bene: This is not any kind of advice to either use such a mortgage or avoid one. I'm sketching out a possible scenario and I risk nothing by watching to see what happens with these instruments.
Limiting the stock portion of the mortgage's collateral to 50% means little in the event of a stock market decline. Let's say a flash crash hits the market and the investor's stock portfolio takes a 5% hit. Now the stock collateral is (0.95 x 50) is at 47.5% of the loan's original balance. The servicing financial institution can presumably see the investor's portfolio if it's been pledged as collateral, and is most likely custodied with the servicer if it's a TBTF bank. If less than 2.5% of the loan's principal has been amortized with principal payments up to that point, the homeowner will face the equivalent of a margin call to put in cash that will restore the value of the collateral. The danger here is that affluent investor pledged securities because they didn't have the cash or were unwilling to sell securities to raise cash. Forcing a margin call would be the equivalent of an unpayable balloon payment and probably put the home into foreclosure.
Collateralizing 80% of the mortgage's value with bonds is likewise no sure thing. High inflation could reduce the real value of that fixed-income collateral faster than it reduces the real value of the loan's balance. It's an unpredictable relationship because this country has gone so long without serious inflation.
Securing a mortgage with liquid securities rather than cold cash is a dangerous "innovation" in an extremely unstable macroeconomic environment. I've blogged before about the risks of an equity market crash and hyperinflation in the U.S. A sudden reversal of fortune for the economy would jeopardize a mortgage whose down payment is secured with anything other than a large cash payment at the beginning. Some affluent people will go for this anyway. I'll quietly await their distressed asset sales.
Nota bene: This is not any kind of advice to either use such a mortgage or avoid one. I'm sketching out a possible scenario and I risk nothing by watching to see what happens with these instruments.
Thursday, January 31, 2013
Wednesday, January 30, 2013
The Haiku of Finance for 01/30/13
Growth stat rolls over
Transport sector shows the way
This is no surprise
Surprise Q4 GDP Drop Doesn't Surprise Transportation Watchers Like Me
The bloom started to come off the overstimulated U.S. economy in Q4. I wasn't surprised because I expected this downturn for months and consider it overdue. The Federal Reserve's quantitative easing can levitate phantom growth for quite some time. People who are surprised have been following slanted mainstream media for too long. They should have been reading my blog instead.
I won't rehash the snarky, negative things I said about the alleged recovery in 2011 and 2012. I watched with dismay the news headlines from the email feeds I get on my favorite sectors, particularly transportation. I first noticed the newbuild orders for supertankers and container ships from carriers that were raising their rates to catch the rebound in the transocean goods trade. I then noticed the headlines screaming about record profits and rising carloads at Class I railroads. Then I started seeing reports of major profit growth at the largest trucking companies. All of this news played out like a pig moving its way through a python for about eighteen months, with nothing coming behind it.
The transportation sector is my bellwether for the larger U.S. economy. This country has run persistently high trade deficits for decades. Imported goods move through the shipping, rail, and truck segments in a predictable order. A bow-wave of expansion and contraction in those segments IMHO presages turning points in the broader economy. We shall see just how descriptive this theory proves to be as the federal spending sequester cuts into durable goods ordered by defense contractors and other large government agencies.
I won't rehash the snarky, negative things I said about the alleged recovery in 2011 and 2012. I watched with dismay the news headlines from the email feeds I get on my favorite sectors, particularly transportation. I first noticed the newbuild orders for supertankers and container ships from carriers that were raising their rates to catch the rebound in the transocean goods trade. I then noticed the headlines screaming about record profits and rising carloads at Class I railroads. Then I started seeing reports of major profit growth at the largest trucking companies. All of this news played out like a pig moving its way through a python for about eighteen months, with nothing coming behind it.
The transportation sector is my bellwether for the larger U.S. economy. This country has run persistently high trade deficits for decades. Imported goods move through the shipping, rail, and truck segments in a predictable order. A bow-wave of expansion and contraction in those segments IMHO presages turning points in the broader economy. We shall see just how descriptive this theory proves to be as the federal spending sequester cuts into durable goods ordered by defense contractors and other large government agencies.
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