Daaboom

Buttonwood: Paper promises, golden hordes | The Economist

2009-11-13T13:14:00.000-08:00

Buttonwood: Paper promises, golden hordes The Economist:

"Gold’s surge may indicate that investors fear the next stage of the crisis will occur in the foreign-exchange markets."

Carry trades | Buttonwood's notebook | Economist.com

2009-11-03T09:52:00.000-08:00

Carry trades Buttonwood's notebook Economist.com:
"Lee argues that the carry trade has two prerequisites; interference in the markets by governments and weak domestic credit demand. The first is currently present; plenty of governments (including China's) are preventing their currencies from rising too far against the dollar.
Lee's second condition is less obvious but insightful. If a carry trade currency also had strong domestic credit demand, that would show up as rapid money supply growth; the central bank would take fright and raise interest rates, negating the basis for the carry trade. Both the US now, and Japan earlier this decade, have indeed seen weak credit demand."

IAA's ERM framework to solve financial crisis

2009-02-26T12:27:00.001-08:00

http://www.actuaries.org/CTTEES_TFRISKCRISIS/Documents/IAA_Financial_Risk_Management_EN.pdf

Obama's budget

2009-02-26T12:22:00.000-08:00

http://www.whitehouse.gov/omb/budget/

http://www.economist.com/blogs/freeexchange/2009/02/one_big_budget.cfm

Enabling Baby Boomers to work longer

2008-11-06T09:49:00.000-08:00

http://www.mckinseyquarterly.com/Economic_Studies/Country_Reports/Why_baby_boomers_will_need_to_work_longer_2234

Article about why Baby Boomers should work more.

The meat of the article is at the end when they suggest policy that would encourage longer working lives:

Reallocating health insurance costs:

"Unlike retirees, employees that age and older do not receive full Medicare benefits if they work for a company that has more than 20 people on staff and provides health benefits."

"Offering full Medicare coverage to all people age 65 and older, regardless of employment status, would eliminate this disincentive. "

Enabling business to office flexible work arrangement

"Many boomers say they are willing to continue working if they can do so part time, work from home, or make arrangements that would cut their hours and pay gradually. Government and educational institutions use such practices today; businesses have held back, partly out of concern that they might violate federal laws on taxes, pensions, and age discrimination. Policy makers should act to alleviate such concerns. Meanwhile, businesses must develop an integrated strategy to employ mature workers—a strategy centered on more flexible arrangements. Workers, in return, will have to be flexible about pay and benefits."

I actually don't agree with changing social security benefits. I don't think that's a big disincentive for people working.

Battle of the Nobel

2008-10-17T10:02:00.000-07:00

http://www.economist.com/debate/index.cfm?action=hall&debate_id=14&sa_campaign=debateseries/debate14/alert/round/open

Myron S. Scholes, famous for, his black-scholes model and (one time Nobel economist), is debating Joseph E. Stiglitz (two times Nobel economist).

Plus, Barry L. Ritholtz is a featured guest. Should be interesting!

fastest growing industry

2008-10-09T14:26:00.000-07:00

http://www.forbes.com/2008/09/26/fastest-growing-industries-lead-careers-cx_tw_0926jobgrowth.html?feed=rss_popstories

(1) Business Consulting
(2) Health Care
(3) leisure and hospitality sector
(4) Education

RTC-2 effect on US dollar

2008-09-22T09:06:00.000-07:00

http://bigpicture.typepad.com/comments/2008/09/baillout-plan-t.html

"The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion"

"traders will again focus on the twin budget and current-account deficits and negative real U.S. interest rates."

"Warning: Your currency may be smaller than it appears in the mirror . . ."

How true. Let's rush for Jap Yen and Swiss Franc!

More Capital for Banks

2008-09-22T08:54:00.000-07:00

http://gregmankiw.blogspot.com/2008/09/more-capital-for-financial-system.html

"First, the government should tell banks to cancel all dividend payments. "

"Second, the government should tell all healthy banks to issue new equity. "

"Banks don't do that on their own because it would signal weakness; if everyone knows the dividend has been canceled because of a government rule, the signaling issue would be removed."

Actually, this makes a lot of sense. But man, if I am Wells Fargo, why would I want to raise equity?

RTC-2 garbage can

2008-09-19T14:35:00.000-07:00

http://www.economist.com/research/articlesBySubject/displayStory.cfm?story_id=12262103&subjectID=348918&fsrc=nwl

Funny how the economist suggested RTC-2 on thursday, and they announce the exact same thing on friday.

"On average, the study finds that government attempts to stanch systemic banking crises over the past three decades have cost 16% of GDP. That average hides enormous variation, much of which depends on how crises were handled. America’s mess, even if it has already led to the demise of famous Wall Street firms, is far from finished."

Last time I checked, US is a 14 trillion dollar economy. 16% = $2.25 trillion dollar. The 16% is an average, it could cost less but it could also cost more! US national debt is 9-10 trillion dollars, that's like adding 25% to the national debt. I won't be holding dollars.

AIG only have a liquidity crisis

2008-09-17T13:00:00.001-07:00

http://bigpicture.typepad.com/comments/2008/09/aig-bailout-85b.html

Meredith Whitney on Wall Street

2008-09-16T13:11:00.000-07:00

http://www.cnbc.com/id/15840232?video=856915680

Weekend Bailouts and Subsequent Market Reactions

2008-09-08T15:16:00.000-07:00

http://bigpicture.typepad.com/comments/2008/09/weekend-bailout.html

Barry:

1. A strong rally lasts for a while, but it eventually fades and makes a new lower low;

2. Each "rescue rally" has been shorter in duration and weaker in intensity than the immediately prior one;

The feeling of wealth

2008-09-02T10:02:00.000-07:00

http://www.economist.com/blogs/freeexchange/2008/09/lucky_duckies.cfm
"since inequality rises exponentially the higher you climb the economic ladder, the better off you are in absolute terms, the more relatively deprived you may feel. In fact, a poll of New Yorkers found that those who earned more than $200,000 a year were the most likely of any income group to agree that “seeing other people with money” makes them feel poor"

How true. Whenever I talk to a friend who thinks he can't support a family with his income, I get bit pissed. I always talk back at them saying you already have higher than median family income, what are you complaining about. But guess what, I am the outsider.

jamesxwong@gmail.com sent you a link to content of interest

2008-08-18T10:42:00.000-07:00

jamesxwong@gmail.com sent you a link to the following content:

Bob Farrell's 10 Rules for Investing
http://bigpicture.typepad.com/comments/2008/08/bob-farrells-10.html

The sender also included this note:

Awesome investing rules!

--
Sent via a FeedFlare link from a FeedBurner feed.
http://www.feedburner.com/fb/a/publishers/feedflare

300 point Bear market rally

2008-08-15T13:43:00.000-07:00

http://bigpicture.typepad.com/comments/2008/08/300-point-ralli.html

Barry Ritholtz has been so bearish since august of last year. He turns out to be right. I really like his analysis of stuff too.

Insurance Companies on the cheap

2008-07-25T10:55:00.000-07:00

http://www.economist.com/finance/displayStory.cfm?story_id=11793042&source=features_box3#

Hey, apparently I am an expert on insurance valuation! (That's what I do! MCEV reporting) Gosh, i need to start looking at their books to find value. Uhmm, maybe after motorcycling season is over.

Yen as a safe currency

2008-07-07T11:06:00.000-07:00

http://www.economist.com/daily/columns/marketview/displaystory.cfm?story_id=11694193&fsrc=nwl

The economist is as strong on the Yen as I am!

Accountability and Inequality in Single-Party Regimes: A Comparative Analysis of Vietnam and China

2008-06-04T17:21:00.001-07:00

James Wong has sent you an article

Interesting article on comparison between China and Vietnam

Accountability and Inequality in Single-Party Regimes: A Comparative Analysis of Vietnam and China

http://hbswk.hbs.edu/item/5948.html

While both China and Vietnam have experienced rapid annual growth over the past two decades, income inequality has risen more rapidly in China than in Vietnam during the same period. Structural and socio-cultural determinants fail to account for these divergent paths, as nearly every variable predicts higher inequality in Vietnam. This paper by Regina Abrami and colleagues focuses on differences in political institutions to explain these divergent paths. In so doing, it contributes to a growing body of literature describing variation in authoritarian regimes, but focuses on variation within one authoritarian regime type.

Not an HBS Working Knowledge subscriber?

Paul Krugman's praises for Ben Bernancke's effort

2008-06-04T15:15:00.001-07:00

Sent to you by Daaboom via Google Reader:

http://www.nytimes.com/2008/06/02/opinion/02krugman.html?hp

by Daaboom on 6/2/08

http://www.nytimes.com/2008/06/02/opinion/02krugman.html?hp

Paul Krugman's is praising Ben Bernanke efforts to save the market from a financial crisis.

He also attacked the conventional wisdom that the FED is not doing enough to calm inflation. I cannot agree with Dr. Krugman enough. Recent inflations are all felt in (and limited to) the energy and food sector. That is a classic signal that the economy should substitute away from a specific sector.

What makes this different from normal price adjustment is the fact that it is difficult to substitute away from oil. Nobody wants to give up their cars, or plan their travel on public transits. But, there's no better way for the market to yell "There's no more oil" than high prices.

So, the alternatives are

(1) You bit the bitter pill now, and change your lifestyle, find substitute (probably expensive substitute) to oil. The economy keeps on chugging along.
(2) The FED slow the economy down with higher interest rate, so less oil are consumed. No investment is substitute is made. All these just delay the end of the oil era.

Things you can do from here:

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Support for strong dollar?

2008-06-04T10:32:00.000-07:00

http://federalreserve.gov/newsevents/speech/bernanke20080603a.htm

At finance yahoo today, the two analyst are making waves about the Fed's speech yesterday. How, Ben Bernacke will support the dollar and what not. So, I actually went in and see what Ben spoke.

Over time, the Federal Reserve's commitment to both price stability and maximum sustainable employment and the underlying strengths of the U.S. economy--including flexible markets and robust innovation and productivity--will be key factors ensuring that the dollar remains a strong and stable currency.

I think the key word here is Over Time. Ben is not going to do anything now, so expect him to hold interest rate level for the next few meetings.

More on unwinding of the carry trade

2008-05-31T11:37:00.000-07:00

http://gregmankiw.blogspot.com/2008/05/is-yen-negative-beta-asset.html

Dr. Mankiw observes that the yen has been negatively correlated with the S&P 500 recently. He quote another economist:

Why the striking pattern in the last year? I think it's because during the liquidity crisis, the stock market has fallen at times when hedge funds and investment banks are deleveraging -- at such times, they cover the carry trade, that is, they buy yen and sell high-interest currencies such as the Australian dollar.

Competition from China

2008-05-29T11:20:00.000-07:00

http://www.mckinseyquarterly.com/Strategy/Globalization/Competition_from_China_Two_McKinsey_Surveys_2147_abstract

The most relevant part of the survey is the number one obstacles given by Chinese Companies about their global ambition. Lack of managerial talent!

We really need to have good mandarin to capitalize on this opportunity.

The case of currency uncertainty

2008-05-16T10:41:00.000-07:00

http://www.economist.com/daily/news/displaystory.cfm?story_id=11392398&fsrc=nwl

"Will the Japanese yen continue to strengthen? It’s difficult to predict, given uncertainties over how much more carry trade unwinding will be seen but also because of the less-than-blooming state of the Japanese economy and the difficulties in predicting whether the central bank will tighten monetary policy later this year. The future direction of the US dollar is similarly uncertain. For the moment the Fed is in watch-and-wait mode, but if the outlook for 2009 darkens over the course of this year another round of monetary loosening will be on cards. If that happens, the current rash of predictions that the dollar has now bottomed out could prove unfounded."

"A number of countries with high levels of inflation have this year suffered alarming slides in the value of their currencies against the dollar or euro. Romania’s currency softened by nearly 10% against the euro in the first three months of this year. Over the same period the South African rand lost nearly 20% of its value against the dollar and the Turkish lira lost 14%, while Iceland’s krona suffered a spectacular 30% drop in value versus the euro between January and May. Inflation and large external financing needs were the common factors behind these declines."

The severity of the banking crisis in perspective

2008-05-16T10:05:00.000-07:00

I kind of knew this back in November (that I am completely wrong in estimating back in Aug 2007 that this crisis is going to be like the LTCM crisis). It just blows my mind when it is in graphical form. I remember trying to talk to my friends if this is more like the S&L crisis in 1990 or the LTCM crisis in 1997. Turns out it's much worse than the two of them combined!

Chris Blattman's Blog: The privatization of foreign aid

2008-05-12T16:55:00.000-07:00

Chris Blattman's Blog: The privatization of foreign aid

Some interesting graph about how much aid is flowing from which countries.

I agree with Chris, Canada hasn't been living up to their reputation of the most generous giver.

Myanmar's devastation

2008-05-09T13:50:00.000-07:00

From

http://paul.kedrosky.com/archives/2008/05/07/satellite_image.html

I got these images

Look at how much of the coast line is under seawater.

Barrack's Team

2008-05-08T15:31:00.000-07:00

http://www.washingtonian.com/blogarticles/people/capitalcomment/7641.html
Interesting speculation on the cabinet team of Obama's.

Gosh, you have to keey Henry Paulson as Treasury secretary.

Not to be sexist or anything, but I don't know how effective it is to have a women (both widecards are women) on foreign policy. You know, the fact that I am not sexist doesn't mean other people (uhmm.. middle east) aren't.

Decision 2008

2008-05-07T17:00:00.000-07:00

http://krugman.blogs.nytimes.com/2008/05/07/phase-two/

Paul Krugman has another nice graph showing why the democrat will win this election year.

Summary: The support the for incumbent party is directly proportional to the growth of the economy the year before the election.

Conclusion: The economy is not doing well, so neither would the republicans.

Add to that the war, that's pretty decisive.

Promotion

2008-05-01T13:58:00.000-07:00

I just went to lunch to celebrate my promotion. I feel like sharing my the promotion, because of the title. So for the past 4 years, I have been promoted from

Senior Actuarial Analyst
-->
Actuarial Specialist
-->
Actuarial Assistant.

I don't know why the titles in our company is so inverted. Oh well.

McKinsey: 14 Management Trend

2008-04-23T09:14:00.001-07:00

The case for Coal

2008-04-23T09:05:00.000-07:00

http://www.economist.com/blogs/freeexchange/2008/04/substitution.cfm

"Italy will increase its reliance on coal to 33 percent from 14 percent."

With oil at $120 a barrel, coal is the a no brainer for many utilities.

Google's fraud

2008-04-19T18:59:00.000-07:00

http://bigpicture.typepad.com/comments/2008/04/googles-black-b.html

Read the comments. There are people complaining about their Adsense rate getting cut 75%, there are people who's account was banned. All sort of stuff.

I agree that google's revenue is basically a black-box. Actually, does the advertiser have the ability to check how many click thru's they have? I mean, by them having so many server farms, is it possible for them to click into their advertisers websites?

The end of oil

2008-04-16T12:29:00.000-07:00

http://finance.yahoo.com/tech-ticker/article/11413/High-Oil-Prices-You-Ain't-Seen-Nothing-Yet?tickers=xom

"Charles Maxwell is known as the “Dean of Energy Analysts,” following decades working on Wall Street and for Mobil Corp. before the XOM deal. As global oil consumption rises and oil production peaks and ebbs, prices will shoot higher — a lot higher, says Maxwell, senior energy analyst at Weeden & Co. in Greenwich, Conn.
Maxwell forecasts $180 oil by 2015, and $300 a barrel by 2020. And at those prices, could rationing be far off in the future? Plus, check in with Tech Ticker later to get Maxwell’s take on smart oil investing plays as oil reaches the bottom of the barrel."

Today's video from tech ticker from yahoo finance kinds of reminds me of a book I read a few years ago.

http://books.google.com/books?id=rsmRY6SfpvUC&dq=the+end+of+oil&pg=PP1&ots=FBOnLd_eco&sig=AfLtV7EHYUkOX9b_eAHJfX48c8Y&hl=en&prev=http://www.google.com/search?hl=en&rlz=&q=+The+end+of+oil&sa=X&oi=print&ct=title&cad=one-book-with-thumbnail#PPP1,M1

Although Paul Roberts didn't forecast the price of oil, he did note that non-OPEC oil will peak at 2010, followed by OPEC oil peak at 2015. The exact same thing that Mr. Maxwell said 4 years later! Note: even though the book was published in 2005, Paul probably wrote the book in 2003-2004.

That's reinforces my view on clean tech, coal (it's clean if GE can sequester carbon), and nuclear.

HK: Rich but not happy

2008-04-16T08:59:00.000-07:00

NYT have an article today that maps out "how satisfied you are with your life" and GDP per capita.

http://www.nytimes.com/2008/04/16/business/16leonhardt.html?ex=1365998400&en=bdbfd2384c50f811&ei=5090&partner=rssuserland&emc=rss&pagewanted=all

Look at what an outlier Hong Kong is!

Why why why? The first thing that comes to mind is INEQUITY! Gini index 53.3!

I guess it's inevitable when you have a giant neighbor with a billion unskilled workers. Unskill wages just can't increase as fast as the economy as a whole.

The Great American Slowdown

2008-04-10T11:31:00.000-07:00

The economist conclusion is clear. America will face a shallow but prolonged slowdown.

http://www.economist.com/printedition/displayStory.cfm?Story_ID=11016296

Business Tech Trends

2008-04-08T17:20:00.000-07:00

http://www.mckinseyquarterly.com/PDFDownload.aspx?L2=13&L3=11&ar=2080&srid=110

When to get back into housing.

2008-04-08T11:24:00.000-07:00

Answer: 85 months (7 years) after the peak. I want to superimpose HK property prices too. Didn't it take 7 years for it to bottom too? 1997-2003?

Poverty Distribution in Asia

2008-04-08T10:47:00.000-07:00

Infant Mortality is a good approximation of poverty. One thing that shines at me is that Malaysia is bright yellow. No wonder they are aiming for developed country status by 2012.

And despite all the bad news you get from North Korea, it is actually much much much better than lots of areas in India.

Environmental impact of a smiley face

2008-04-07T17:20:00.001-07:00

http://www.economist.com/blogs/freeexchange/2008/04/good_behaviour_bad_behaviour_a.cfm

It notes the inherent urge to do good in human nature.

Carry trade for the retail investors

2008-04-06T15:54:00.000-07:00

Greg Mankiw posted in his blog about this awesome investment.

PowerShares^ð DB G10 Currency Harvest Fund
http://dbfunds.db.com/dbv/index.aspx

What it does is really make the carry trade available for retail investor. It borrows in the 3 currency with the lowest interest rates and invest in the 3 currency with the highest interest rates. The universe of currency is below.

When you look at their past performance, it's really too good to be true.

Note that the slope is not as steep as the S&P 500 during good times, but hey risks is minimal.

It has taken some beating for the last few months, because of unwinding of Japanese carry trade. So it's wise to wait a little, I am thinking in investing in it after JPY bounces to 85yen to the $1US.

Cool video showing how African life expectancy evolved.

2008-04-04T16:37:00.000-07:00

http://www.uuorld.com/demos?video=4

It's so amazing how many years AIDS took away from Africa's life expectancy

Capital Infusion

2008-04-02T23:56:00.001-07:00

http://seekingalpha.com/article/70976-financials-the-capital-infusion-league-table?source=yahoo

Firm	Total Infusion ($bn)	Breakdown ($bn)	Investor
Citigroup	30.4	6.9	Government of Singapore Investment Corp.
		5.6	Kuwait Investment Authority, Alwaleed bin Talal, Capital Research, Capital World, Sandy Weill, public investors
		7.5	Abu Dhabi Investment Authority
		10.4	Public investors
UBS	27.7	10.9	Government of Singapore Investment Corp.
		2	Unidentified Middle Eastern Investor
		14.8	Public investors
IKB Deutsche	13.2		German government, Banking associations
Bank of America	13		Public investors
Merrill Lynch	12.2	6.6	Korea Investment Corp., Kuwait Investment Authority, Mizuho Financial Group
		4.4	Temasek Holdings
		1.2	Davis Selected Advisors
Societe Generale	8.7		Public investors
WestLB	7.8		State of North Rhine Westphalia, savings banks associations, regional governments
Morgan Stanley	5		China Investment Corp.
Barclays	5	3	China Development Bank
		2	Temasek Holdings
Lehman Brothers	4		Public investors
Wachovia	3.5		U.S. investors (unidentified)
Canadian Imperial	2.9	1.5	Li Ka-Shing, Manulife Imperial Financial, Caisse de Depot et Placement du Quebec, OMERS
		1.4	Public investors
Gulf Int'l	1		Governments of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE
TOTAL	135.8

Democrat better than Republican?

2008-04-02T23:11:00.000-07:00

Periods under democratic rules consistently have higher growth?

Even Paul Krugman can't explain it, but the evidence is there.

Jeff Sache on FED

2008-04-02T16:12:00.001-07:00

Jeff Sache is one of my heroes in the contemporary era. He has helped developing countries get out of their financial crisis (ex. Bolivia in late 80's, and Poland in mid 90's). He also wrote a book "End of Poverty" which champions solution to global problems. While Bono is the image of the millennium goal, he is typically acknowledged to be the brain behind the effort.

In the article below, he blames Fed for the current housing/financial problem. I agree a lot!

One the bright side, he notes:
"There is still a good chance, however, that the US downturn will be limited mainly to America, where the housing boom and bust is concentrated. The damage to the rest of the world economy, I believe, can remain limited. "

http://www.project-syndicate.org/commentary/sachs139

No limit on H1-B!

2008-04-01T09:54:00.000-07:00

Good work Dr. Slaughter!

http://online.wsj.com/article/SB120701430488579221.html?mod=opinion_main_commentaries

Undervalued Yen, over-valued Euro, and a fair value USD?

2008-04-01T09:49:00.000-07:00

http://www.economist.com/finance/displaystory.cfm?story_id=10924165

There's still room for Yen to rise. And dollar, even though it's fair-value, there's room for it to become undervalued.

What rebound?

2008-03-24T22:19:00.000-07:00

Don't tell me I am the only one who saw this. Or is it, because the seasonal adjustment doesn't match the market mood at the moment so people decided to forget about it?

Ben Bernanke Blue

2008-03-23T14:42:00.001-07:00

http://www.youtube.com/watch?v=13qWw7waSeM

Buttonwood on the Yen

2008-03-19T17:03:00.000-07:00

http://www.economist.com/finance/displaystory.cfm?story_id=10881361

"Chris Watling of Longview Economics suggests they should aim for countries that have demonstrated control of their money supply and have current-account surpluses; that points to the Japanese yen and Swiss franc, both of which have been gaining against the dollar in recent weeks."

Together with the unwinding of the carry-trade, Yen is a good bet.

Chinese Stocks are bargains?

2008-03-19T11:48:00.000-07:00

http://www.economist.com/finance/displaystory.cfm?story_id=10881471

Krugman on Commodity

2008-03-19T11:46:00.000-07:00

http://krugman.blogs.nytimes.com/2008/03/19/commodity-prices-wonkish/

Bear Stern collapse victim

2008-03-19T11:45:00.001-07:00

I am so surprised, nobody said anything about CITIC losses.

I remember reading last november that CITIC bought 6% of bear stern.

http://www.economist.com/business/displaystory.cfm?story_id=10064501

"CITIC, China's largest securities firm, said on October 22nd that it would take a 6% stake in Bear Stearns, an embattled American investment bank, via a capital and equity swap; Bear Stearns will get 2% of CITIC in return. "

The Japanese Yen

2008-03-18T17:35:00.000-07:00

The Japanese Yen and the Euro has moved in synchronized steps lately (1 year). This is due to the american dollar decline. However, until recently the Japanese Yen has been decreasing in value in lock step with the USD. Look at the chart with a 5 year horizon.

Many economists attribute the weakness of the Japanese yen to the carry-trade. I.e. borrowing Japanese Yen and investing somewhere else. Now that the JPY has increased in value, the carry trade no longer works with the Yen. We'll see much unwinding in the months ahead.

Now, what is the next target of the carry trade? To satisfy the currency must have (1) a low interest rate and (2) a low expected future exchange rate. Now let's see, that's so hard to figure out!

Tibet in Turmoil

2008-03-14T16:33:00.001-07:00

http://www.economist.com/daily/news/displaystory.cfm?story_id=10870258&top_story=1

FED intervention explained

2008-03-12T12:50:00.000-07:00

Paul Krugman has written up a nice summary of what the Ben Bernanke is doing.

http://krugman.blogs.nytimes.com/2008/03/08/whats-ben-doing-very-wonkish/

I agree with most of the post except for the last part where Paul says the intervention is a drop in the bucket compared to the broad financial markets.

Steve Walden wrote in

http://interfluidity.powerblogs.com/posts/1204920896.shtml

that "a reasonable estimate for the current market value of bank equity is 2 trillion dollars. The $200B in "equity" the Fed will have supplied by the end of March will leave the Federal Reserve owning roughly 9.1% of the total bank equity."

But the conclusion of the two article is fairly similar, that the Fed is doing more bad than good.

"There are (unfortunately) banks that are "too big to fail", whose abrupt disappearance could cause widespread disruption and harm. These should be nationalized when they fall to the brink. But they should be nationalized overtly, their equity written to zero, and their executives shamed. "

I wonder who is too big to fail... uhmmm... Citi?

25 Green stocks to invest in

2008-03-11T15:31:00.000-07:00

http://www.kiplinger.com/magazine/archives/2007/10/25green.html?kipad_id=5?kipad_id=5

Who does Obama, Hillary and McCain listens to?

2008-03-11T12:25:00.001-07:00

http://biz.yahoo.com/cnnm/080305/030408_economic_advisers.html

McCain - Douglas Holtz-Eakin

"In his view, the sooner the long-term shortfalls in Medicare and Social Security are addressed, the better for the economy. Shoring up both programs would involve tough choices when it comes to spending cuts, Holtz-Eakin has said, a route he believes would be more effective than tax increases. "

Obama - Austan Goolsbee

"
In one of his New York Times columns, Goolsbee points to data showing income for the top 1% of earners rose disproportionately relative to everyone else both when tax rates fell and when they rose.
"Seeing the same pattern ... indicates that tax cuts weren't responsible. It suggests that cuts for high-income taxpayers likely gave windfalls to those whose incomes were already rising sharply because of broader market forces," he wrote.
"

Clinton - Gene Sperling

"With hundreds of millions of new middle-class consumers coming into the world economy, we should be confident that in the long run America will win more than it loses from an open global economy," he writes. "What practical options do we have between simply assuming greater globalization will lift all boats, and resorting to self-defeating protectionism?"

China Syndrome: Bring on the Nukes

2008-03-11T09:07:00.000-07:00

http://blogs.wsj.com/environmentalcapital/2008/03/10/china-syndrome-bring-on-the-nukes/
"Shai Oster’s article in the WSJ today notes that China’s nuclear power sector is growing even faster than expected. The Chinese government is now shooting for 50% more nuclear power than it originally targeted—it now wants 60 nuclear gigawatts. That’s not far from what France has. Of course, in France, all those gigawatts mean 80% of the nation’s electricity supply; the same amount in China might be 4%."

"The WSJ article notes that a pair of local heavyweights, China National Nuclear Corp., and China Guangdong Nuclear Power Holding Co., are gearing up to compete. In wind and solar, Chinese firms went from also-rans to global players in record time. Who will count them out when the race goes nuclear?"

"iPhone Bigger Opportunity Than the PC"

2008-03-10T12:31:00.000-07:00

"The most famous venture capitalist in the world--the man who declared in the late 1990s that the Internet was underhyped (which it was)--put his stamp of approval on the iPhone today (AAPL). Yes, in part by creating a $100 million Kleiner Perkins iPhone "iFund" to invest in iPhone applications. But mostly by declaring that the iPhone represented a bigger opportunity than the PC."

Actually, I agree. But not with the current version of iphone. It needs a lot of refinement. What would really be revolutionary is if it where able to add tiny projectors that could beam a full size keyboard and a screen onto any flat surface. It'a already under development;

http://www.economist.com/science/tq/displaystory.cfm?story_id=10789401

"Lumio, a company based in Menlo Park, California, uses this approach with a fixed holographic pattern to project a “virtual keyboard” onto a tabletop. The image is projected from a small device sitting on a table, such as a mobile phone, and appears as a full-size QWERTY keyboard. A sensor works out when the user's fingers press the virtual keys."

"Symbol Technologies, based in San Jose, California, has built a prototype single-mirror device with a resolution of 1,024 by 678 pixels that is a similar size to Microvision's (about 70 cubic centimetres). That is still far too big to embed in a phone, but Symbol says it expects to be able to reduce the volume to about 8 cubic centimetres, or the size of a large sugar cube. Single-mirror projectors are expected to be small enough to fit into mobile phones by mid-2009."

"Mr Tokman says the big mobile-phone manufacturers have set an upper limit on the power consumption of a projector of 1.5 watts. Given a typical phone battery, this would allow a projector to operate for about 2.5 hours, long enough to watch a film. "

"The first commercial pico-projectors will probably appear in 2009-10, initially as stand-alone devices, and perhaps as plug-in accessories for mobile phones (rather like the plug-in cameras that predated full camera-phones). If they prove popular, projectors could then be incorporated into all kinds of devices."

Shorting Gold

2008-03-10T12:23:00.000-07:00

A while ago it occured to me that gold is overvalued, but the momentum keeps accumulating. I decided to be cautious and wait and see. Now Buttonwood agrees with me that it's overvalued.

http://www.economist.com/finance/displaystory.cfm?story_id=10809383

"John Reade, a commodities analyst at UBS, who reckons that the fundamentals justify a gold price of only $700-750 an ounce, has “thrown in the towel” and now expects bullion to reach $1,025 within a month and $1,075 within three."

Maybe I'll rethink after gold hits $1100.

What investment bankers can learn from the actuaries

2008-03-07T09:33:00.000-08:00

http://www.economist.com/finance/displaystory.cfm?story_id=10766330

Bad Company, Good Company

2008-03-06T17:26:00.001-08:00

One of the ways Hedgefund makes money is illustrated below. Within an industry identify the good company and the bad company. Short the bad company Citigroup (C) and use the funds to buy the good company in this case Bank of America (BAC).

Since their performance differs around 30%. You gained 30% right on notional amount. But wait, you didn't really invest notional amount, you invested the margin you needed to keep in your margin account. So really it's just 30%*P. So return = Gains/Investment = 30%*P/30%*P = 100%! On top of the extraordinary return, you don't need to worry about market volatility, because they cancel each other out.

It's not too hard, I picked BAC and damned C back in September. Haha, I am so full of crap talking about this with the benefit of hindsight.

Look at the investment banks.

Good Bank - Deutsche Bank (DB)

Bad Banks - Merrill Lynch (MER), UBS

Decoupling Debate and China

2008-03-06T11:15:00.000-08:00

For 2 years now, I have been an advocate of raising the value of RMB. Most Chinese people look at me weird and think I am out of my mind. I think what they fear most is the repercussion of a stronger yuan on Chinese export. In their view, everything, I mean EVERYTHING, in the Chinese economy is built for exporting to the United States.

Don’t get me wrong, global trade has benefited China more than anything else. But the export mentality means that even after 30 years of breakneck investment in education and infrastructure, Chinese people hasn’t created enough wealth for themselves to start consuming. The article below talks about how export dependent China (and other emerging economy) really is.

http://www.economist.com/finance/displaystory.cfm?story_id=10808782

“Sceptics argue that much of this investment, especially in China, is in the export sector and so will collapse as sales to America weaken. But less than 15% of China’s investment is linked to exports.”

“Over 95% of China’s growth of 11.2% in the year to the fourth quarter came from domestic demand. China’s growth is widely expected to slow this year but to a still boisterous 9-10%.”

In addition to the new wealth in China which created a lot of demand, there’s the investment needed to capitalize on China’s future potential. Corporate balance sheet in China is ridiculously healthy, thanks to years of exploding profits and growth. I just don’t think people will stop investing in China when a recession in America hits.

The case is even clearer when you think about the 1.3 trillion dollar of foreign reserve China holds. Let me put this into an analogy.

When you are a poor shoe shining boy, your only alternative are to shine shoes. So you are dependent on selling your service. When you are a rich shoe shining boy, you have more alternatives. (1) You can invest in yourself and get an education, or even buy a shoe shop, increasing your future income potential. (2) You can do (1) and in the mean time get an ipod nano for yourself. Or (3) You can get an iphone.

Of course, if you are stupid enough to choose option (3) (a lot of people did actually, think Africa), then too bad, you are doom to be a shoe shining boy forever. But even (3) is better than the option (4), which is to lend money to the ipod salesman so he can continue to pay you to shine his shoes. If the Chinese government, by holding the yuan and buying US bonds at ridiculously low interest rate (AND depreciating principal base –falling dollar!), is not taking money from the shoe shine boy and giving it to the ipod seller, I don’t know what is.

Addition: By holding down the yuan, what the Chinese government is effectively doing is taking say 30% of PRC’s people’s wealth and buying US dollar denominated bonds. The worst part is, the US dollar fell 40% in the past 4 years.

** USA really have some wisdom here. Not only can it pay back its loanes with pennies on the dollar now. It has been able to use those money to invest in FDI that earns positive returns. I sounds a lot like those Hedge Fund using leverage. Okay, maybe they bought an iphone on the way too, but who doesn’t want to buy an iphone when it’s on a 40% discount.

Negative Real Interest Rate

2008-03-05T08:49:00.000-08:00

Nothing in economic theory precludes negative real interest rates, or even suggests they should be anomalous. Nominal interest rates cannot be negative, because people would just hold cash instead of bonds, but real interest rates can be negative. If real interest rates were very negative, investors could start investing in inventories of goods, but this arbitrage is not easy. Storing goods is costly, and many things in the CPI basket, such as services, are not storable at all.

--------

In standard models of asset pricing, negative real interest rates are most likely to arise if growth expectations are particularly low or if uncertainty is particularly high. Low growth expectations encourage households to save, which drives down equilibrium rates of return. High uncertainty drives up risk premiums, which in turn drives down the return on safe assets, perhaps below zero. Both forces seem to be working now.

--------

Posted Verbatim from Greg Mankiw's Blog --> http://gregmankiw.blogspot.com/

Subprime mortgage defined!

2008-03-04T22:52:00.000-08:00

http://docs.google.com/TeamPresent?revision=
_latest&fs=true&docID=ddv7hj34_03774hsc7&skipauth=true>

A friend of mine sent me a cute little cartoon to explain the sub-prime mortgage. My observation:

(1) No due diligence is necessary if someone is going to share your problem. It's better if it's a bigger share
(2) Assumptions should be challenged! "The stock market always rise!"

How companies think about climate change: A McKinsey Global Survey

2008-03-04T10:48:00.000-08:00

http://e.mckinseyquarterly.com/W0RH01DED58D89BCAB52A358BAFC60

Mckinsey talks about how corporation view climate change.

"Despite the uncertainties around regulation, a remarkable 82 percent of executives expect some form of climate change regulation in their companies’ home country within five years."

It's coming, let's not haggle about it.

Assessing Obama on Free Trade

2008-03-03T17:10:00.001-08:00

http://www.ft.com/cms/s/0/f24fa1c4-e92b-11dc-8365-0000779fd2ac.html?nclick_check=1

" Mr Obama’s economist is Austan Goolsbee, a brilliant Massachusetts Institute of Technology PhD at Chicago Business School and a valuable source of free-trade advice over almost a decade, Mrs Clinton’s campaign boasts of no professional economist of high repute. "
"Mr Obama’s main union support comes from the Service Employees International Union and the Teamsters, neither of which is protectionist: the SEIU’s membership is in the non-traded sector and, except on the issue of Mexican trucks coming into the US, Teamsters do well as trade expands. By contrast, Mrs Clinton’s support comes heavily from the AFL-CIO, which holds strong anti-trade views. "

Warren Buffet's annual Report

2008-03-03T17:09:00.000-08:00

http://www.berkshirehathaway.com/letters/letters.html

"It’s a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by four percentage points or so. If the winds roar or the earth trembles, results could be far worse."

Another idiocyncracy of the market. People over-reaction to risks. When there were hurrican two years in a row (remember Andrew & Katrina), people got afraid and accepted higher prices. Now that catastrophies are forgotten, they undervalue risks again.

More on this later...

The Next Bubble: Clean Tech

2008-03-03T17:08:00.000-08:00

http://finance.yahoo.com/tech-ticker/article/4585/VC-Money-Pours-In:-Is-Clean-Tech-a-Bubble;_ylt=Atoi_NgKIgAD2MZTQ32j3yq7YWsA?tickers=

Many people has asked me about what they think is the next bubble, I have told them times and again that I think it's gonna be green tech. In return I get suspicious look and silence that I regard as diplomatic disagreement. This is actually a good thing, if too many people believed in it, then the bubble would have been well on it's way. This way I agree with the commentator that

"I think we are really early in the curve".

Like the internet bubble of the past decade, these companies are building things that the society needs. " After the last bubble, we ended up with the world wide internet!" The same network, I might add is behind everything from the rekindled productivity growth of OECD to accelerated intellectual diffusion in developing countries that sustained almost 5% annualized global growth in the new millenium.

Certainly, a bust followed the over-investment, as we have more optical undersea cable than we know what to do with. However, I will not complain if we have a renewable grid in 15-20 years that has an excess of clean power. From a technological viewpoint, that is even less conceivable than the world wide web, does that mean the bubble will go on for longer than the internet bubble? Beats me, but I am certain that it will not pop for a year or two.

Some of you might retort " But the internet make economic sense!" So, you are saying clean tech makes logical sense but not economic sense? Well then, isn't it logical that human as a society will try to make economic sense out of something we need? (note, we need not we want). I see all fronts moving in that direction; all fronts being political, economical, and technological.

Crash Course: The Long Slump in China

2008-03-03T17:01:00.000-08:00

http://www.economist.com/daily/news/displaystory.cfm?story_id=10757181&fsrc=nwl

For the most part I agree with the economist, but how deep would the slump be if China's intrinsic potential growth values it at a higher P/E than mature economy's corporations?