The week just ended was noteworthy for several reasons most of which seemed to focus on political events. A Republican won the apparently important senate seat, the healthcare bill seems to be struggling (even Nebraska Senator Ben Nelson is having second thoughts), Ben Bernanke's reappointment is a little more in doubt than people might have expected a month or two ago, Paul Volcker has inspired President Obama to try to make some changes to how certain banks do business and quite candidly the President seems to be on very shaky ground.I guess no one in the Democratic party saw Scott Brown beating Martha Coakley and now the Republicans have filibuster ability which based on Obama's reaction jeopardizes all sorts of things. I have a very conservative and politically opinionated friend on Facebook who has been saying for ages that the Dems are toast in the 2010 election and the desperation I think I saw in Obama's speech from Ohio yesterday made me think that the administration thinks the same thing.
What I have read about the healthcare issue, although I am not an expert, leaves me thinking it stands to create as many problems as it hopes to solve. A few weeks ago when some version of the bill passed in the house a very liberal FB friend said something in praise of congress' action. I pointed out to him Howard Dean's comments, Howard Dean, about being able to charge whatever to someone with a pre-existing condition thus potentially excluding the same group of people and this friend felt it was better to pass a flawed bill that they can fix later. My friend is far from alone in this line of thinking. You know, it is possible to be in favor of healthcare reform without being in favor of wildly flawed legislation.
As far as Bernanke not getting reappointed; I agree with the thought that it will not be the end of the world. He's gotten a few things right and screwed a few things up, no different than whoever might succeed him. If in digesting a change the market goes down some more then so be it but the sun will still rise the next day.
I read a slew of commentary about the bank reforms that were sort of introduced this week. Aside from an initial reaction of "oh, boy" the first thing I thought of that seemed to clearly fall through the cracks was the idea of committing capital to get trades done. When a hedge fund or pension or any other pool of capital needs to execute a trade and they pay up to go trade through certain types of firms these firms will sometimes just execute the trade internally to take care of the client (commit capital so they client can get the their trade complete) and then figure out whether to keep the resulting long position (if the client is a seller) or whether to trade out of it one way or another. Depending on the circumstance this example starts out as servicing a client but could become a proprietary trade which may no longer be kosher. If my example is not clear there are plenty of other people writing about this.
As I heard someone say this has nothing to do with excess leverage and liar loans that are thought to be major causes of the financial crisis. Volcker's name has been attached to the idea but for some reason I don't think that is quite right or maybe someone bastardized his original idea. This is just a guess on my part so pass the salt.
Whatever, we are still a long way from this idea, or some other version of it, being implemented although Meredith Whitney thinks it can get passed. If it does happen I doubt it will have the desired effect but I also doubt it will be the end of the world. It may contribute slightly to making the US a little less attractive of a place to do business and so a little less attractive of an investment destination along with many other things making the US a little less attractive.
One thing that I believe is revealed in how markets around the world performed in the last decade was the gradual move away from US equities. There were a couple of very good years in there to be sure, 2003 and 2009, so it was not a one way trade but I think a lot of people are missing this big macro shift. The 24% decline endured was not the end of the world and was in the same ballpark as some of the big Western European countries and was a lot better than Japan. Looking forward I have said before that I think returns in the US will be positive in the new decade but will lag many foreign markets.
It is not the end of the world just a problem for investor to solve.
10 comments:
Bernanke is mediocre to bad, but what if they put someone in who is really bad? Obama is a socialist as are Pelosi and Reid.
BTW, Japan has been at this for 2+ decades so you are being rather optimistic that this will end this decade here.
We have not even begun the hard work of deleveraging. All we have done is a last ditch effort to extend our debt levels. This will not be a pretty scenario for many years to come especially when Obama is spending 83 billion to save failed auto companies to save a few thousand jobs. They are only focused on union jobs and are willing to let most of the country twist in the wind.
If $83 billion spent on the auto industry was worth it or not is certainly up for debate but it did more then save a few thousand jobs.
Obama is hardly a socialist. He is trying to do some heavy lifting that should have been done years ago. After healthcare, there will be social security; again heavy lifting that should have been done years ago. Obama has an impossible job and he was the best choice in the last election. I for one, like him.
Pelosi and Reid; not so much.
Economics of Contempt has some interesting things to say regarding general financial reform at http://tinyurl.com/yf7j7lo and http://tinyurl.com/yfaqfed - I like his take specifically on OTC derivatives reform too (personally I think you could accomplish a lot with just one but very strict requirement that all derivatives have a corresponding cash market).
Assuming feckless Democrats and reckless Republicans don't conspire to completely screw the pooch my own work indicates a strong probability that the US will be in recovery when many foreign markets lag or sink as the year progresses. The recovery, assuming it takes hold, won't be robust as the employment picture is likely to remain poor but the differential plus the probability of an intermediately stronger $USD has modestly increased my US exposure and decreased my foreign exposure; I hasten to repeat "modestly" as most of the gain thus far is liquidity driven and business is likely to be scant once this current inventory bounce is past. JMO
OT: One virtue of rewriting even very recent history is the ability to avoid realizing you are being punished for forgetting it but, just for the record, Bush and Obama after him spent $700 billion (that we know of - god knows what the Fed spent) to save the financial sector whose employees appear to be getting paid a tad more than auto worker scale. Just saying.
Auto companies should have been left to go bankrupt without government help.
Financial institutions need to be left to go bankrupt as well. The depositors need to be saved, but the stock and bond holders should not be propped up any more than the unions.
"Financial institutions need to be left to go bankrupt as well"
The problems is the financial institutions used YOUR MONEY (deposits) and so if they go bankrupt SO DO YOU.
This is why Obama's financial reforms - seperating banking from specultion, making prop trading illegal, ect.. MUST BE DONE FIRST
Step 2: Is to get tax payers money back.
Step 3: Is to THEN let the bastards and their "investors" go bankrupt once Americans and Taxpayer have been untwined from these anti-American scum.
Obama knows what he is doing and the big money anti-Obama crowd ALSO KNOWS WHAT HE IS TRYING TO DO.
You are either WITH US (America) or AGAiSNT US (Corporate scum)
Roger, a few days ago you mentioned moving from Mon to MOO to capture the Ag sector. I was looking at Mon, SYT, and Moo and wondered if you would share your preference for MOO over SYT. I'm not trying to second guess, just understand your thought process. Usually you like a pure play over an ETF, if I understand your posts, and SYT has the advantage of a pure Ag play, good technology, and possible currency strength against a weak dollar. Thanks, Sam
MOO has fertilizer exposure too and as more of the world emerges from recession i think the added vol from those stocks could be a good thing for the portfolio. As far as Syngenta, I have not studied it in depth so much as learned a little. One thing and I am sorry I do not have specific details but I can remember the name being mentioned often on CNBC Europe and there being various issues with it, not death blow stuff or anything just stuff that rightly or wrongly made me conclude not for me. I own one Swiss company and from the top down owning a second swiss company is a possibility not something i have wanted to pull the trigger on.
Thanks for the feedback. Your sights have helped me alot over the past several years.
Offtopic.. amazing photographs on Iceland at http://www.worldmaxtravel.com/2009/09/namaskar-pass-is-icelands-gateway-to-hell/
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